Employer Tax Contributions

Tax Type	Rate	Base
PAYE (Pay-As-You-Earn) / APIT (Advanced Personal Income Tax)	Progressive rates (6% to 36%)	Employee's total taxable income after threshold
Employees' Provident Fund (EPF)	12%	Employee's total monthly earnings
Employees' Trust Fund (ETF)	3%	Employee's total monthly earnings

Filing & Compliance

• PAYE/APIT: Remit to Inland Revenue Department by the 15th day of the following month. File monthly returns.
• EPF & ETF: Remit contributions to respective funds by the 15th day of the month following the contribution due month. The deadline for EPF is the last working day of the following month. The deadline for ETF is the last working day of the succeeding month.
• Annual PAYE Returns: Submit to the IRD, summarizing remuneration and tax withheld for each employee.

Sri Lanka's employee tax system, known as Advance Personal Income Tax (APIT), applies to employment income above a certain threshold.

Advance Personal Income Tax (APIT)

APIT is deducted at the source by employers and remitted to the Inland Revenue Department. As of December 18, 2024, the tax-free allowance is set to increase from LKR 100,000 to LKR 150,000 monthly, effective April 1, 2025. Simultaneously, the lowest tax bracket (6%) will apply to annual income up to LKR 1,000,000, also effective April 1, 2025. Currently (before April 1, 2025), the 6% bracket applies to the first LKR 500,000 of taxable annual income.

Employer Responsibilities

Employers are responsible for deducting the correct APIT amount each month based on the employee's earnings and the prevailing tax rates. This deducted amount must be remitted to the Inland Revenue Department by the 15th of the following month. Employers also have yearly filing requirements. Specifically, the annual PAYE (which has been replaced by APIT) return is due on April 30th of the following assessment year.

Other Tax Implications for Employers

Besides APIT, other taxes relevant to employers in Sri Lanka include corporate taxes, withholding taxes, and contributions to social security. Corporate tax rates are subject to change; for example, rates for specific sectors like betting, gaming, tobacco, and liquor are set to increase from 40% to 45% starting April 1, 2025. Withholding tax on interest and discounts is also scheduled to rise from 5% to 10% from the same date. Furthermore, employers generally contribute approximately 30% of the employee's salary toward social security and other benefits.

Important Considerations for 2025 and Beyond

Changes to the tax regulations occur regularly, as seen with the amendments to APIT, corporate taxes, and withholding tax effective April 1, 2025. It's essential to stay updated on the latest regulations and utilize available resources like tax calculators and advisors to ensure accurate compliance.