Digital services VAT will apply from July 1, 2026, as foreign online platforms earning above set limits must register in Sri Lanka.
Digital services VAT will be imposed on foreign online platforms providing services to customers in Sri Lanka, under new tax amendments gazetted by the government.
The government has decided to apply Value Added Tax to services offered through foreign digital services and internet platforms operating in Sri Lanka. Legal provisions connected to the decision were published through an extraordinary gazette dated April 24, 2026.
The new tax amendments are scheduled to come into effect from July 1, 2026.
Until now, VAT mainly applied to services provided locally. However, the government has now moved to extend the tax to digital services supplied from overseas to customers in Sri Lanka, even when the service provider does not have a physical presence in the country.
The tax will mainly apply to several categories of services delivered through electronic media or digital platforms.
These include digital advertising and marketing services under trade and advertising, as well as online cinema, music, and video streaming services under entertainment.
Software downloaded through the internet, mobile applications, and cloud-related data storage services will also fall within the scope of the new tax.
Online gaming and betting services will also be covered, along with electronic ticketing and digital information services.
According to the gazette notification, foreign service providers that earn more than Rs. 36 million annually within Sri Lanka, or Rs. 9 million during any three-month period, must register with the Inland Revenue Department.
This raises concerns about how foreign platforms will pass on the cost to Sri Lankan consumers and whether subscription prices, digital advertising costs, software payments, and streaming fees could increase after July 1.
Even if the relevant service provider is based outside Sri Lanka, the transaction will be treated as taking place within Sri Lanka if the customer uses a Sri Lankan bank card or a Sri Lankan internet protocol address.
In such cases, steps will be taken to collect the relevant VAT amount.
What happens next could be critical for consumers, advertisers, app users, streaming subscribers, and foreign digital companies serving the Sri Lankan market.
