FAQ

If a foreigner becomes a citizen of Sri Lanka and becomes a non-resident in the previous country, then any assets held in the foreign country by that person will be deemed realised and will be required to pay CGT on the value.

When a person resident in Sri Lanka ceases to be resident in Sri Lanka, the person shall be treated as having immediately before the person ceases to be so resident realised all assets owned by the person.

These shall not apply to an asset that is a domestic asset of the person immediately before becoming a resident or after ceasing to be a resident.

The Capital Gains Tax (CGT) is a tax on the realisation of investment assets. CGT is a type of tax which is charged on the profit from a sale of property or an investment and was recently re-introduced in Sri Lanka under the Inland Revenue Act, No. 24 of 2017 and will come to effect from 1st April 2018. This will, however take into account any costs that were incurred on buying, improving and selling such assets and reduce those values from the overall amount. Capital assets include any land, building, machinery and share. However capital gains from the share market will be exempted under the current Act of Sri Lanka. The profits will be taxed at 10% and is effective from 1st April 2018.

A Capital Asset (eg. Land or building, a financial asset) held as part of an investment

• The principle place of residence of an individual, provided that it has been owned by the individual continuously for the last 3 years before disposal and lived in at least 2 years of those 3 years (calculated on a daily basis).
• If the profit/gain is less than 50,000 and if the total profits gained within the year (through multiple gains) is less than 600,000
• Investment asset realised in two or more parts
• Realisation of investment asset that is jointly owned
• A property or land gifted to blood relations
• Trading stock or depreciable asset

The cost of the investment asset as at 30^th Sept 2017. i.e. if you bought a land in 2000, then the cost would be the value of that land as at 30^th Sept 2017. If you acquired the asset after that date, then it’ll be the cost of acquiring the asset.

Eg.

• Land purchased on 10^th Jan 2010 for                   = Rs. 10,000,000
• Built a house on the land in 2012. Cost                = Rs. 15,000,000
• Market value of land & house as at 30.09.2017  = 32,000,000
• House renovation costs on 01.12.2017                  = Rs. 1,000,000
• Land+house sold on 01.10.2018 for                       = 35,500,000
• Property advertising, valuation and legal costs   = 400,000

Cost of land & house + improvements + incidentals         = 32,000,000 + 1,000,000 + 400,000
= 33,400,000

Capital gain of property as at 01.10.2018                          = <selling price> – <cost as at 30/09/17>
= 35,500,000 – 33,400,000
= 1,600,000
CGT to be paid                                                    = 10% of 1,600,000 = 160,000

• Amount received or receivable on the realisation (cash received for sale)
• Consideration received other than cash (eg. Exchange of asset to another asset)
• Amount received in respect to owning the asset (eg. Altering, repair)
• Grant of an Option
• Transfer of ownership of asset (eg. Sale, exchange, distribute, transfer, cancel, loss, destroy)
• Death of an individual
• Realisation with retention of asset (lease, write-off, change of residence)

On a transfer of asset to associate (child, grandchild, relative etc.), spouse or former spouse / death or divorce, the acquisition cost to the acquirer will be the Net Cost of the asset (Net Cost as at 30.09.2017) or cost of acquisition after 01.04.2018. For a swap, the market value of the asset will be considered.

Eg.

1. A buys a land at Rs. 5,000,0000
2. Land value as at 30.09.2017 is 6,000,000 (Net Cost)
3. A transfers a land to B on 15.08.2018
4. A has a no gain / no loss (i.e. no CGT to pay)
5. B sells land on 30.12.2018 at 7,500,000.
6. Taxable capital gain to B is 7,500,000 – 6,000,000 = 1,500,000

You need to submit the CGT return and pay the tax within 1 month from the realisation of an investment asset

No, cannot set off against loss of capital

Sri Lankan government first unveiled plans to introduce a capital gains tax with the 2017 budget speech. It was proposed that 10% rate shall be applicable for transactions involving capital assets which include any immovable property.

However, Sri Lanka has a history with capital gains taxes which was notably set at 45% and then reduced to 25% in 1978 and finally abolished in 2002, coincidentally by the current premier.