Impact of recent income tax changes on individuals with foreign employment income

THE Inland Revenue Department has recently issued updated Advance Personal Income Tax (APIT) tables, which are crucial for both employers and employees to understand.

- By Rifka Ziyard

The APIT tables for the Year of Assessment (Y/A) 2025/26 have been published, taking into consideration the recent changes introduced via the Inland Revenue Amending Act No. 02 of 2025. These changes include an increase in personal relief to Rs. 1.8 million for the Year of Assessment, a revision of the first slab to Rs. 1 million from Rs. 500,000 (at the rate of 6%), and the removal of exemptions for foreign-source income and foreign service income.

AS per the recent amendment, an individual’s gains and profits will be taxed at the maximum rate of 15% with effect from 1 April 2025 where:

The gains and profits earned or derived from any service rendered in or outside Sri Lanka to any person to be utilised outside Sri Lanka, where the payment for such services is received in foreign currency.

The gains and profits earned or derived from any foreign source where such gains and profits are earned or derived in foreign currency and remitted through a bank to Sri Lanka.

Accordingly, persons who were enjoying the exemption until 31 March 2025, are now required to pay income tax at the maximum rate of 15%, effective from 1 April 2025.

This article focuses on the tax compli-ance obligations of individuals who are in receipt of foreign service income and/or foreign-sourced income, as stated above for the Year of Assessment 2025/26. The methodology for making income tax payments by a resident individual on foreign service income or foreign source income will vary based on the nature of the service contract, i.e., employment contracts as opposed to independent service providers or freelancers.

Resident employees with foreign employment contracts

There are eight APIT Tables introduced for the Year of Assessment 2025/26, which apply to various circumstances. Among these, the newly introduced Table 8 stands out due to its specific application to employment income received from foreign employers by resident employees in Sri Lanka.