VAT & Taxes on Apartment Sales in Sri Lanka – 2024
When buying or selling property in Sri Lanka, understanding the tax implications is crucial. This article delves into the specifics of Value Added Tax (VAT) and other taxes that apply to apartment sales in Sri Lanka, ensuring that buyers and sellers are well-informed and prepared for their transactions.
Value Added Tax (VAT) on Apartment Sales
VAT Overview
Value Added Tax (VAT) is a consumption tax levied on the value added to goods and services at each stage of production or distribution. In Sri Lanka, VAT is imposed under the Value Added Tax Act No. 14 of 2002.
VAT on New Apartments
For new apartments purchased from VAT-registered companies, an 18% VAT is imposed. This increased from 15% on January 1, 2024 (KPMG) (KPMG). The VAT applies to the full sale price of the apartment. Developers are responsible for collecting this tax from buyers and remitting it to the government.
VAT on Resale Apartments
When purchasing an apartment in the secondary market from an individual who is not VAT registered, VAT may not be applicable. This exemption makes secondary market purchases potentially more attractive to some buyers.
Special Provisions and Exemptions
There are certain exemptions and provisions under the VAT law that may apply to specific transactions. For example, VAT is not levied on residential premises if the buyer is not a VAT-registered person. Additionally, the sale of land and buildings (other than residential premises) is liable to VAT at 18%.
Stamp Duty on Property Transactions
Overview of Stamp Duty
Stamp duty is a tax levied on documents, including those related to property transactions. In Sri Lanka, stamp duty is governed by the Stamp Duty (Special Provisions) Act No. 12 of 2006.
Stamp Duty Rates for Apartment Sales
When purchasing an apartment, stamp duty is calculated as follows:
- 3% on the first LKR 100,000 of the property value
- 4% on the value exceeding LKR 100,000
Stamp Duty for Leasing Land
If leasing land, a 1% stamp duty is applicable for leases up to 99 years.
Other Relevant Taxes
Social Security Contribution Levy (SSCL)
An additional 2.5% Social Security Contribution Levy (SSCL) is imposed when purchasing from a company or individual liable to pay this tax. The SSCL was introduced to support social security measures in the country.
Capital Gains Tax (CGT)
Capital Gains Tax (CGT) of 10% on the profits from property sales became effective from April 1, 2018. This flat rate applies irrespective of the period of ownership. CGT is applicable to both locals and foreigners. However, gains of less than Rs. 50,000 are exempt from CGT. If the property has been the seller’s principal place of residence for 2 of the last 3 years, CGT is also not applicable.
Implications for Buyers and Sellers
Understanding these taxes is crucial for both buyers and sellers to ensure compliance and financial planning. Buyers should factor in these costs when budgeting for a property purchase, while sellers need to be aware of their tax obligations to avoid penalties.
Conclusion
The tax landscape for apartment sales in Sri Lanka is multifaceted, involving VAT, stamp duty, SSCL, and CGT. By staying informed about these taxes, buyers and sellers can navigate the property market more effectively and ensure their transactions are both compliant and financially sound.
For more detailed and personalized advice, consulting with a tax professional or legal advisor is recommended.
References
- Value Added Tax Act No. 14 of 2002 – Legislation governing VAT in Sri Lanka.
- Stamp Duty (Special Provisions) Act No. 12 of 2006 – Legislation governing stamp duty in Sri Lanka.
- Land (Restrictions on Alienation) Act No. 38 of 2014 – Governing the alienation of land to foreign entities.
- Budget Proposals 2023 and 2024 – Announcements and changes in tax rates and regulations.
- KPMG Sri Lanka – Amendments to VAT Law Enacted (KPMG)
- Lanka Business Online – VAT Changes 2024 (Lanka Business Online)
For further information, you can access the official websites of the Department of Inland Revenue Sri Lanka and the Central Bank of Sri Lanka.
