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Dividend Tax Liability

Should a non resident shareholder of a grandfather company (formed in 1983) start paying tax on dividend?

As per the provision of section 84 of the Inland Revenue Act ,No 24 of 2017, the payment of dividend should be  subject to tax at the rate of 14%. However, in case where the following conditions are fulfilled, the payment of dividend to nonresident person shall be exempt from tax.

Conditions.

  1.  If the dividend paying company has incurred more than USD 1000 million on depreciable assets (other than intangible asset) in Sri Lanka, or,

  2. Entitled to an enhanced capital allowance under subparagraph (5) of paragraph 1 of second schedule, and ,

  3. Dividend is paid out of profits sheltered by enhance capital allowances under second schedule.



individual tax

what is the tax free allowance of non resident non citizen person?

No tax free allowance is available to non resident non citizens under New Inland Revenue Act.


Sale of land

If a company sale a land to their associated company the taxable gain will be consideration minus cost or market value minus cost?

You may please note that the transaction should be at arms length price.Accordingly since this transaction is entered in to between associate person,if the consideration is less than market value it appears that there is a transfer pricing issue.Therefore profit should be computed as market value less cost.In the case of investment asset ,if the sale is made after 01.04.2018 ,the cost of the land will be the market value as
 at 30th Sep 2017 (for an investment asset)


Leasing

If only the leasing interest will tax after 1.4.2018 what will happen to the facility granted before this date?

We are of the view that for the facilities granted prior to 01.04.2018 ,the provisions of Inland Revenue Act No 10,2006 shall continue to be applied.Accordingly lease rentals shall be taxed and allowance for depreciation shall be allowed on the cost of the asset acquired for the leasing business.


investment property of a financial institution

if financial institution sell a land which was categorized as investment property in their balance sheet can they pay tax at 10% according to the new law considering that its a investment asset

Since such land hold as an investment, there is no doubt that the gain on the same will be a realisation of investment asset, and it will be taxed at the rate of 10%.


IRD NEW ACT - WHT

1. What is WHT rate for foreign currency deposits? 2. Is SFIDA deposits excepted from WHT? 3. Whether senior citizen 1.5mn threshold is aggregate interest of senior citizen or interest income of the institution? If aggregate how the same is monitored by a financial institution. 4. Whether WHT to be deducted for inter company interest payments. PC : 9c8n

1. 5%

2.No

3.As per the Act ,aggregate interest income of a senior citizen should be Rs.1.5Mn.CGIR may give guidelines for the monitoring procedures.

4.Yes.There is a WHT requirement of 5%,if loan provider is not a financial institution.


Depreciation allowance rates

Could you please let me know whether the depreciable assets acquired prior to 31st March, 2018 will be subject to new depreciation rates specified in the Inland Revenue Act No. 24 of 2017 after 01st April, 2018.

Subject to guidelines to be issued by IRD,we are of the view that assets acquired prior to 31st March, 2018 are subject to old depreciation rates.


wht on interest

financial institution need not to deduct WHT on interest income they are received, Is foreign financial institution also applicable to this rule?
  • Withholding Tax applies at the point of payment of interest. As per section 84(3) of Inland Revenue Act No. 24 of 2017, it is not required to deduct WHT on interest paid to a financial institution on the ordinary loan and advances provided by such financial institution.
  • As per the question referred, it appears that your question is from the point of interest recipient. Therefore interest income of a financial institution from ordinary loans and advances will not be subject to WHT.
  • If a financial institution receives interest from deposits made by it, such interest will be subject to WHT at 5%.
In the case of payment of interest to the foreign financial institution on the ordinary loan or advance provided, there is no WHT requirement in terms of the provision of section 84(3) of the Inland Revenue Act. However, when remitting the same, bankers might request to get the tax clearance certificate from the Inland Revenue. Accordingly, we are of the opinion that, the Inland Revenue may request to pay 5% as required under section 2(4) of the Inland Revenue Act.

You may please note that, if the Sri Lanka has entered in to an agreement for the avoidance of double taxation (DTA) with the country which such bank is resident , the provision of DTA prevails. Accordingly, the rate given in the double tax agreement shall apply only if such rate is less than 5%. Further, if the DTA requires to have a permanent establishment (PE)in Sri Lanka to tax in Sri Lanka and if there is no PE, no need to deduct tax in Sri Lanka

Deduction of interest for individuals

If housing loan interest can be claimed by an individual
Under Inland Revenue Act No. 24 of 2017, No deduction is available for individuals for interest paid on housing loans.

clearance

I have to remit money to UK for examination fees. Do I need to obtain a clearance from IRD?

No. Clearance certificate is not required for remittances made in relation to student fees, examination fees, enrolment fees and payments of similar nature.


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