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Global Payroll Team
Written by Global Payroll Team
Last updated May 7, 2026
Expert Reviewed
Payroll in Sri Lanka
Tax in Sri Lanka
Immigration in Sri Lanka

Sri Lanka map

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Mercans offers complete payroll, PEO and HR services in Sri Lanka

Strategically located at the intersection of major shipping routes to South Asia, Europe and America, Sri Lanka remains an important logistics and services location in the Indian Ocean. The country continues to attract investors with its skilled talent pool, growing technology and services sectors, improving infrastructure, and regional trade position.

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Doing Business in Sri Lanka

Sri Lanka’s location advantage and port infrastructure continue to support economic activity. The country maintains investment promotion and protection arrangements with multiple jurisdictions, and sector-specific incentives and tax concessions may be available depending on the activity and approval route. Employers should closely monitor ongoing tax, labour, and immigration developments.

Entity Registration and Incorporation Requirements

Setting up a new business or expanding an existing one in Sri Lanka is straightforward. Choose how your company operates from a range of entity types that suit your individual circumstance.

Banking

Banking Hours: generally Monday to Friday during standard business hours, depending on the bank and branch.

Working Week

The standard working week is generally Monday to Friday. Under the Shop and Office Employees Act, normal working time is generally up to 8 hours per day and 45 hours per week.

Labor Law

The main governing laws include the Employees Provident Fund Act, Industrial Disputes Act No. 43 of 1950, Wages Board Ordinance No. 27 of 1941, Factories Ordinance No. 45 of 1942, and the Shop and Office Employees (Regulation of Employment and Remuneration) Act.

Main Industries

Textiles & clothing, tourism, telecommunications, information technology services, logistics, tea and agriculture

GDP Growth

5.0%

Dates & Numbers

dd/mm/yyyy

Official State Name

Democratic Socialist Republic of Sri Lanka

Population

23.1 million

Capital

Sri Jayawardenepura Kotte (legislative), Colombo (executive and judicial)

Major Languages

Sinhala and Tamil

Currency

Sri Lankan Rupee

Internet Domain

.lk

International Dialing Code

+94

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Sri Lanka
Colombo, LK
6:02 pm, May 18, 2026
29°C
broken clouds
80 %
Wind Gust: 21 mph
Clouds: 84%
Sunrise: 5:53 am
Sunset: 6:20 pm

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Payroll

The national minimum wage is set for all employees, regardless of the industry, and wage boards may also prescribe minimum wages for specific classes of workers. With effect from 1 January 2026, the national minimum monthly wage is LKR 30,000 and the national minimum daily wage is LKR 1,200.

It is acceptable to provide employees with online payslips

Payslip

Payroll reports should be retained in line with applicable labour, EPF, ETF, and tax record-keeping rules

Reports

Employees are entitled to receive paid annual leave of 14 days under the Shop and Office Employees Act

Annual Leave

Employees are entitled to receive paid sick leave of 7 days under the Shop and Office Employees Act

Sick Leave

Eligible female employees are entitled to 84 working days of paid maternity leave for a live birth. There is no general statutory paternity leave in the private sector

Maternity & Paternity Leave

Notice and termination rules vary by law and contract, and certain terminations require prior approval under TEWA

Employee Termination

There are no provisions mandated by law regarding the 13th month salary

13th month salary

30000 LKR per month

Minimum Wage

Overtime payment is generally calculated at the rate of 1.5x the employee’s ordinary rate of pay

Overtime

Severance compensation may apply under the statutory TEWA formula, depending on length of service and the circumstances of termination

Severance Pay

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Tax and Social Security

Corporate income tax incentives and exemptions may apply in specific sectors or approved investments, while payroll-linked social security obligations are mainly regulated under the Employees Provident Fund Act and the Employees’ Trust Fund framework.

Tax

Sri Lanka has entered into Double Taxation Avoidance Agreements with multiple countries to mitigate or eliminate juridical double taxation. Resident and non-resident individuals are subject to progressive personal income tax rules, and the standard VAT rate is higher than the historic 8% rate previously in force.

30%

Corporate Income Tax

36%

Personal Income Tax

18%

Sales Tax

18%

VAT

Social Security

Employers are required to contribute 12% of the employee’s monthly gross earnings to EPF and 3% to ETF, while employees contribute 8% to EPF.

23%

Social Security Rate

15%

Social Security Rate for Employers

8%

Social Security Rate for Employees

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Employment Law

Sri Lankan employment laws do not generally distinguish between foreign or local employees and are applied regardless of whether the employment is regular, fixed-term, or casual, subject to the relevant statute and sector.

Employment Agreement

While the employment agreement does not always need to be in writing to be legally binding, written terms are strongly recommended and certain information must be provided in writing to employees, especially those who work in shops and offices.

Working condition

Shift workers must be provided additional rest breaks where required by law. Under the Shop and Office Employees Act, normal working time generally should not exceed 8 hours per day and 45 hours per week.

Leaves

Any employee required to work on a weekly holiday is generally entitled to overtime pay or substitute benefits under the applicable law. An employee falling under the Shop and Office Employees (Regulation of Employment & Remuneration) Act is entitled to 14 days of annual leave at full pay for every completed year of service.

Employment termination

The Termination of Employment of Workmen (Special Provisions) Act No 45 of 1971 places restrictions on certain terminations and often requires prior written consent of the employee or prior written approval of the Commissioner of Labour before termination can take effect.

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30 days

Minimum notice period for terminating an employee

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varies

Total number of public holidays

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45

Working hours per week

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No entitlement

Total number of days for Compassionate & Bereavement Leave

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Immigration

Different visa categories are available depending on whether the applicant is an investor, dependent, student, or expatriate worker. Entry, business, temporary residence, and residence visa routes are available depending on the purpose of stay and the approvals obtained.

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Residency permits

An investor or expatriate employee should generally arrive in Sri Lanka using an entry visa issued through the appropriate diplomatic mission or authorized process, which is then converted into a residence visa after arrival where applicable. Residence visas for employment are typically granted for limited periods and renewed subject to continued eligibility.

Work Permit Validity

1 year

Required Documents

A letter from the applicant’s employer in Sri Lanka

A Board of Investment (BOI) certificate for the employer in Sri Lanka, where applicable

A copy of the bio-data page of the applicant’s passport

A copy of the company’s registration certificate

A letter of recommendation from the relevant Ministry or authority in Sri Lanka, where required

Compliant, reliable, error-free and touchless payroll in Sri Lanka

Build the best team and hire top talent compliantly in Sri Lanka. Get in touch with Sri Lanka payroll outsourcing & PEO specialists for a free consultation!

This document was prepared for informational purposes only. As local laws & regulations keeps on changing. Please consult your tax & legal advisors as well.
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    FAQs

    What is an Employer of Record (EOR) in Sri Lanka and how does it work for foreign companies?

    An Employer of Record in Sri Lanka allows international companies to hire local employees without establishing a legal entity. The EOR becomes the official employer, managing employment contracts, payroll, taxes, and compliance with Sri Lankan labor and employment regulations.

    Why should businesses use an EOR instead of establishing a legal entity in Sri Lanka?

    Working with an EOR in Sri Lanka enables fast, cost-effective market entry. Companies avoid the complexity and expense of entity registration and ongoing HR administration while ensuring compliance with local employment, tax, and statutory laws.

    How does payroll outsourcing in Sri Lanka ensure compliance with tax and labor regulations?

    Mercans’ payroll outsourcing services in Sri Lanka ensure precise salary processing, timely tax deductions, and accurate contributions to statutory funds. All payroll activities align with Sri Lankan labor law and Inland Revenue Department requirements, minimizing compliance risks.

    Can an Employer of Record in Sri Lanka hire employees and manage work permits for international companies?

    Yes. An EOR in Sri Lanka can hire both local and foreign employees on behalf of international companies. The service includes managing work permits, visa processing, and compliance with immigration and labor regulations for all employees.

    What are the main benefits of using EOR and payroll services in Sri Lanka for global expansion?

    The main advantages include rapid market entry, reduced setup and administrative costs, full legal compliance, access to local HR and payroll expertise, and flexible workforce management without establishing a local entity.

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