A Special note on Withholding Tax

A Special note on Withholding Tax

Based on Circular No.SEC/2018/06 dated 18.04.2018 issued by the Commissioner General of Inland Revenue, important points on withholding tax are given below.

WITHHOLDING UNDER SECTION 84 (INVESTMENT RETURNS)

Under this category, no threshold is applicable except interest paid to a senior citizen.

Non deduction of WHT

Tax deduction is not required for the following.

• Payments subject to WHT as employment income.
• Payments made by individuals, unless made in conducting a business.
• Interest paid to financial institutions including banks on the ordinary loans and advances.
• Interest or discount paid on Security or Treasury bond under Registered Stocks and securities Ordinance (chapter 420) or treasury bill.
• Payments or allocations that are exempted under Section 9.

Time of deduction

At the time of payment is made or credited to a bank account.

WITHHOLDING UNDER SECTION 85 (SERVICE FEES & CONTRACT PAYMENTS)

Tax should be deducted from following payments made to any resident individual who is not an employee at 5% on amounts exceeding Rs.50,000 per month.

1. For teaching ,lecturing ,examining ,invigilating or supervising an examination ;
2. As a commission or brokerage to a resident insurance ,sales or canvassing agent;
3. As an endorsement fee;
4. In relation to the supply of any article on a contract basis through tender or quotation;
5. For any service provided in the capacity of independent service providers such as doctors, engineers ,accountants ,lawyers ,software developers ,researchers ,academics or any other similar service**
6. For any service of construction work, security service, janitorial service, consultation work of any kind ,organizing of events, catering ,designers , dress makers, tour guidance, entertainment, agency functions or any similar services or connected work where such services are provided under an agreement or otherwise**
7. For any management service**
8. For any type of vocational services provided as an independent service provider**

**Refer Gazzette Notification

14% WHT deduction is required on the following payments made to any non resident person

• Payment of service fee or an insurance premium with a source in Sri Lanka

2% WHT deduction is required on the following payments made to any non resident person

• Payment of transport business as specified in section 73(1)(h).
• Payment of telecommunication business as specified in section 73(1)(i)

Time of deduction

At the time the payment is made.

Non deduction of WHT

Tax deduction is not required for the following.

• Payments subject to WHT as employment income.
• Payments made by individuals unless made in conducting a business.
• Payments that are exempt amounts
• Payments of service fee in respect of which ESC is payable by withholdee

(a certificate issued by CGIR is required)

Special Note to the withholding agents

• If the tax deduction is not made due to the reason that payments are exempted or Payment of service fee in respect of which ESC is payable, the withholding agent is required to seek from the withholdee a certificate issued by the CGIR confirming that such withholdee is qualified for the said exemptions.
• All the withholding agents are required to obtain a registration number from the tax type registration Unit of the Department of Inland Revenue.
• The tax should be deducted on the gross amount of the invoice value including all taxes other than VAT.
• The tax withheld should be remitted to the CGIR within 15 days from the end of the month.
• Any withholding agent who failed to withhold tax , such withholding agent is required to pay the amount that should have been withheld in the same manner and at the same time.
• Withholding agents are required to issue withholding certificate to withholdee on the amount of tax deducted. This certificate covers calendar month and required to be issued within 30 days from the end of the month.
• Withholding agents are required to furnish the annual statement for each year of assessment within 30 days from end of the year regardless of whether tax has been deducted or not.