Investing in the share market is not only a pathway to long-term wealth creation, but in Sri Lanka, it also brings attractive tax advantages that benefit both individual and corporate investors. The Colombo Stock Exchange (CSE) offers a range of opportunities, and the government encourages capital market participation through favorable tax policies.
1. Exemption on Share Trading Income
Profits earned from the buying and selling of listed shares are exempt from income tax in Sri Lanka. This means that individuals and companies do not need to pay tax on capital gains from share transactions carried out on the CSE.
This exemption encourages more participation in the stock market, as investors can grow their wealth without worrying about additional tax burdens on their gains.
2. Dividend Income Tax Treatment
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For Individuals: Dividend income received from listed companies is subject to a final withholding tax (WHT) at source, meaning no further tax is payable.
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For Companies: Dividends received are usually exempt from income tax, provided they are not part of a financial or investment business. This allows businesses to reinvest dividends without being subjected to double taxation.
3. No Capital Gains Tax on Listed Shares
Unlike in many other countries, Sri Lanka does not impose capital gains tax on the disposal of listed shares. This makes the CSE particularly attractive to both local and foreign investors who wish to trade actively or hold long-term investments.
4. Encouragement for Foreign Investors
Foreign investors also enjoy the benefit of tax-free capital gains from share market investments. This has made Sri Lanka’s equity market competitive in the region and attractive to international funds.
5. Potential Deductions for Companies
Companies investing in shares can sometimes classify their share portfolio as a financial asset, and related expenses (such as brokerage and advisory fees) may be deductible for tax purposes under certain conditions.
Conclusion
The Sri Lankan government’s supportive tax framework has made the Colombo Stock Exchange a favorable platform for investment. With no income tax on share trading profits, exemptions on dividends, and zero capital gains tax, the CSE provides a tax-efficient avenue for both individuals and businesses seeking to grow their wealth.
If you are planning to invest in the share market or need guidance on the tax implications of your investments, contact R&R Partners Sri Lanka. Our experienced tax and accounting professionals are here to provide you with the right advice and ensure your investments remain tax-efficient and compliant.
📞 Call us today or visit our office at No 34, Havelock Road, Galle to learn more about how we can support your investment journey.
