What you should know about Value Added Tax (VAT)?
One of the major considerations when doing business here in Sri Lanka is how to deal with taxes – especially Value Added Tax (VAT). Here’s a guide that explains how to make sure you get it right with your business.
What is VAT?
This is the main indirect tax in Sri Lanka, which is a source of revenue for government based on consumer consumption. It is charged and collected at each point in the supply chain. VAT is incorporated in the prices of domestic goods and services.
Output VAT is charged from the customers from sales. This is collected and passed on to the government.
Input VAT is paid by our business for any purchases that we make.
If your business sells to another business, the VAT can be recovered by the net amount of input and output VAT. However, any extra output VAT is remitted to the government.
Registration and Compliance
Unfortunately there is no clear information available out there on the payment and procedure, which is a challenge to many who wish to register.
Criteria to register for VAT and Temporary VAT
- If your business turnover meets the criteria for collection of VAT, you generally must register. In Sri Lanka, any wholesaler or retailers whose quarterly turnover exceeds LKR 12.5 million must register.
While others, i.e. manufacturers, importers, service providers and suppliers that supply under a tender agreement, whose quarterly turnover exceeds LKR 3 million.
- Temporary VAT is for businesses that import goods.
Eligibility to obtain a temporary VAT certificate;
– The business should import goods up to a value not exceeding LKR 3,750,000 per quarter and not exceeding LKR 15,000,000 per annum
– Those businesses that import are exempted
– Those who import goods not for business purposes.
Documents required for Registration
- TIN Certificate obtained from the Inland Revenue Department
- Certificate of Business Registration
- In case of limited liability company
- Memorandum and Articles of association
- List of Directors
- Certificate of incorporation
- Copies of NIC of the proprietors/Directors of the business
- Particulars of sales to prove the turnover and monthly Bank statements to prove cash receipts.
- Documents to prove that exports are made continuously by such exporters
- For 22(7) registration – Project Plan
- a copy of agreement with Board of Investment(if any)
- deed or rent/lease agreement of property
- sources of funds to the project proved for non BOI projects
- a list of intended purchases – local and imports.
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Due dates for Returns.
On or before the last day of the month after the expiry of each taxable period (Monthly or Quarterly)
- Exporters should submit returns monthly
- Others should submit returns quarterly
Due dates for payment
- Manufacturers – on or before 20th day of following month
i.e.:- Payment for January should be made on or before 20th February
- Others – for the period of 01st day to 15th day of a month – on or before end of the month
i.e.:- Payment for January 01st to 15th should be mde on or before 31st of January for the period of 16th day to end of a month – on or before 15th day of following month
i.e.:- Payment for January 16th to 31st should be made on or before 15th of February
Value of Supply * VAT Rate XX
Less: Input Tax (X)
Balance Payable X
- Standard Rate 15%
- Zero Rate 0%
A VAT registered business should;
- Display the certificate of registration at the place of business
- Issue tax invoices
- Keep relevant accounts
- Duly make payments and submit relevant documents
- Inform the department for any change of name, business place, ownership, nature of business without any delay
Contents of tax invoice
- The name, address and the registration number of the supplier
- The name and address of the supplier
- The issue date on which the tax invoice and its serial number
- The date of supply and the description
- The quantity or volume of the supply
- The value of the supply, the tax charged and the consideration for the supply and the consideration for the supply
- The words “TAX INVOICE” at a conspicuous place in such invoice
Pros and Cons of a VAT Registered business
- Business can recover the Input VAT on purchases made with regard to own trade
- Business can engage with import businesses easily
- If you get registered voluntarily can avoid financial penalties
- Can create a good business image among the customers
- A VAT invoice raised for each and every transaction
- Charge the relevant rate on goods and services and submit to the department
- Maintaining paper records
Have questions on VAT? Contact Us, we are glad to assist you with any advice or further clarifications you would need.