VAT concessions granted for IT and enabled services
The information technology (IT) sector in Sri Lanka has been performing at an accelerated pace for several years, with further impetus provided by the COVID-19 pandemic. To sustain the momentum and make Sri Lanka a technology-centric economy, the government introduced a VAT exemption for specific IT and enabled services under the Inland Revenue Act and the Value Added Tax Act, effective from 1 January 2020 and 1 April 2021, respectively. In a Gazette Notification dated 29 June 2021, the Commissioner General of the Inland Revenue defines the exemptions for IT and enabled services and the requirements to benefit from the VAT exemption.
The VAT exemption applies to the following services:
- Adaptation, upgrading, enhancement, implementation and similar services related to the development of software in Sri Lanka provided at least 70% of the services are provided by local technical employees.
- Computer programming, the deployment of business IT applications, system integration, local cloud services, artificial intelligence, data processing for data mining and data administration services, the Internet of Things and cyber security provided by a local institution to any person where the minimum local value addition is not less than 50% of the gross income from the services.
- Back-office services, such as remote IT maintenance, data research integration and analysis, and clinical database management, excluding clinical trials, provided digitally to a local institution or person in Sri Lanka.
- IT-related knowledge processing outsourcing services, such as geographic information systems, engineering and design services, and animation or content development and management provided mainly with the assistance or use of IT and requiring advance analytical and technical skills with a minimum local value addition of not less than 50% of the gross income.