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Sri Lanka: Proposed amendments to tax incentives and exemptions (Colombo Port City)

Employment income tax relief, regulatory oversight and compliance obligations, provisions governing offshore banking operations

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december 1, 2025

Legislation to amend the Colombo Port City Economic Commission Act, No. 11 of 2021 (CPCEC Act) aims to establish a transparent framework for granting tax exemptions.

The proposed amendments focus on restricting tax incentives and exemptions, including employment income tax relief, enhancing regulatory oversight and compliance obligations for strategic businesses, and introducing new provisions governing offshore banking operations. Key changes include:

  • Tax on employment income: Transitional exemptions would apply for employees of entities registered/licensed under the CPCEC Act prior to the commencement of the proposed bill, granting a three-year income tax exemption. Employees of entities registered/licensed post-commencement would be subject to standard income tax rates under the Inland Revenue Act, No. 24 of 2017.
  • No fees charged: No fees, including land use fees, would apply until licenses and registration certificates are issued, except for non-refundable processing fees.
  • Businesses of strategic importance (BSI): Amendments prescribe the criteria for identifying BSI, requiring technical analysis by the Ministry of Finance and periodic reviews of exemptions and incentives every five years. Annual reports on tax expenditures for BSI would be published on the Ministry of Finance's official website.
  • Ex-post monitoring of BSI: The Commission would periodically assess the performance of strategic businesses against approved KPIs and may restrict, suspend, or revoke exemptions or incentives if targets are not met.
  • Procedural safeguards: Businesses would have the opportunity to present their case before any action is taken to restrict, suspend, or revoke exemptions or incentives.
  • Offshore banking regulation: Offshore banking licenses would be restricted to foreign-incorporated entities, with the Central Bank of Sri Lanka responsible for regulation and supervision in accordance with international standards.

Read a December 2025 report prepared by the KPMG member firm in Sri Lanka

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