How can an Umbrella Company Help with Contracting in Sri Lanka?
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Sri Lanka. Even better, most are experts in Sri Lanka and expat tax law, meaning they’ll also help you optimise your earnings in Sri Lanka.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Can I Organise My Taxes and Work Permit Myself?
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Sri Lanka.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Sri Lanka, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Sri Lanka and your home country can seem like full-time work in itself.
A Contractor’s Guide to Taxes in Sri Lanka
One of the most consistently challenging aspects of contracting in Sri Lanka is complying with the country’s tax system. As well as paying tax in Sri Lanka, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Sri Lanka
If you’re working in Sri Lanka under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Sri Lanka for you and then send you a net wage. Your income tax, public health insurance, social security and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Sri Lanka, but contractors may not be offered this service because of their short stay with each employer.
Anybody who can’t pay their tax in Sri Lanka through PAYE is left with the prospect of doing everything themselves.
Do you know much about Sri Lankan Tax Law? Does Sri Lanka have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Sri Lanka can range from 4 to 24 percent, and you need to be sure you are placed in the correct tax brackets.
Tax Filing as a Contractor in Sri Lanka
|When Do You Need to Lodge Your Tax Return?||31 March (tax-year end)|
|Tax Filing Deadline||30 November|
|Can you file it online?||Yes, https://eservices.ird.gov.lk/Authentication/LoginPersonal|
How to File Taxes in Sri Lanka as a Contractor
The process of filing taxes in Sri Lanka involves:
Step 1: Register as an individual taxpayer to obtain a Taxpayer Identification Number (TIN). You can collect a form from your nearest Inland Revenue Department (IRD) Office or download it from their website(link is external) and submit it with your supporting documents (if any) via post. Alternatively, you can register online(link is external) by selecting your registration type, either ‘individual local’ or ‘individual foreigner’, and filling in your general details. You will receive your TIN certificate by mail.
Step 2: Request a PIN to be able to use e-Services. This can be done here(link is external) using your TIN. This takes 5 minutes to complete. Your PIN will be sent to you via mail.
Step 3: Login to e-Services(link is external) as an individual taxpayer using your TIN and PIN.
Step 4: Select Return Management à Individual Income Tax (ITT) from the dropdown menu. Then choose the year of assessment.
Step 5: Fill out Part 1: Declaration of profits and income. This includes income from employment, profits from trade/business/vocation, rental income, dividends, interest income, annuities/royalties and income for dependent children. The following documents will be helpful in completing this part:
- T- 10 Certificate (tax deduction certificate from employer which specifies total gross remuneration).
- Documents for interest, annuities & royalties
- Certificates/letters from the bank or financial institution.
Step 6: Enter in deductions from total statutory income. This includes:
- Losses from trade/business/vocation
- Interest, annuities, royalties and rent paid
- Donations to government and insurance premiums paid.
Step 7: Fill out any other schedules that are relevant. A comprehensive guide for filling out these schedules is provided by the IRD here(link is external).
Step 8: Attach any supporting documents that are relevant to the schedules that you have filled out. This can include:
- T-10 Certificate
- Statement of Account
- Certificate/letters from a bank or financial institution.
- Documents for interest, annuities, royalties and rent.
Step 9: Submit the tax return. Once your return has been processed, you will be mailed either a paying-in slip if you have taxes due or a notice of refund form. See step 10 for paying taxes or step 11 for obtaining a refund.
Step 10: To pay your tax, manually fill in the paying-in slip and take it to a bank to make the payment. If you have lost your paying-in slip, follow the instructions in this guide(link is external).
Step 11: To obtain a refund, you can either manually fill out the refund form and present it to the CDMU at your nearest IRD office or do it online. To do it online, login to e-services and check the maximum amount for your refund. Then you can choose to do one of the following options:
- Get refund by cheque
- Offset the refund to future taxes
- Get refund by bank transfer
Guides for filing all returns are available here:
- https://www.ird.gov.lk/en/eServices/sitepages/Filing%20of%20return.aspx?menuid=180102(link is external)
Tax Figures in Sri Lanka
|Currency||Sri Lankan Rupee (LKR)|
|Tax-free Threshold in Sri Lanka||None|
|Income Tax Rates|
The above progressive rates applies to all income that isn’t employment income. Employment income is taxed at the rates of 4%, 8%, and 12% in accordance with the above table and the balance is taxed at 16%.
Non-citizens who are employed in Sri Lanka are treated as residents for tax purposes but they are only liable for their income arising in Sri Lanka.
Tax Residency in Sri Lanka
When do you become a tax resident in Sri Lanka
You become a tax resident in Sri Lanka when:
You become a tax resident in Sri Lanka if you are present in Sri Lanka for more than 183 days in a tax year.
Does the 183 day rule apply in Sri Lanka
Am I taxed on my global income in Sri Lanka
Yes, if you are a resident.
Non-residents are tax on Sri Lankan sourced income only.
A resident guest and a dual citizen are subject to tax on Sri Lankan sourced income only.
Can you set up your own Limited Company in Sri Lanka?
|How long does it take to set up||9 days|
|How much does it cost||LKR 7000 + 12,000 + 15%VAT on the 12,000|
|Is it easy?||Starting a Business Rank: 77 (Source: World Bank)|
Tax Calculator in Sri Lanka
If you are a contractor and want a calculation on your tax and net retention in Sri Lanka, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Sri Lanka
Contractors in Sri Lanka are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Sri Lanka umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Sri Lankan taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Sri Lankan tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Sri Lanka
We work with numerous umbrella companies in Sri Lanka, many of whom are experts in tax and immigration laws. If you have any questions about tax in Sri Lanka, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Sri Lankan work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Sri Lanka but without the overhead of directly dealing with the Sri Lankan tax authorities. Get in touch with us today for some reliable advice on tax in Sri Lanka!
A Contractor’s Guide to Work Permits in Sri Lanka
Immigration is one of the primary concerns for any contractor hoping to start working in Sri Lanka. Permanent employees will find it easy to get their Sri Lankan work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
The Sri Lankan work permit, is dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in Sri Lanka is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Does an Umbrella Company Work?
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Sri Lanka (which means avoiding fees, fines, or even worse penalties).
How Can We Help You?
There’s a huge variety of Umbrella Companies with different specialities and advantages in Sri Lanka. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout Sri Lanka and match contractors with the right company for them. If you’ve already secured a contract in Sri Lanka, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).