The Government will enforce an 18% Value Added Tax (VAT) on digital services offered by non-resident companies to local consumers, starting 1 October, 2025.

This follows the enactment of the VAT (Amendment) Act No. 4 of 2025 and Gazette Notification 2443/30, which require foreign digital service providers such as streaming platforms, SaaS providers, and online marketplaces to register for VAT and remit taxes to the Inland Revenue Department.

VAT registration becomes mandatory for foreign entities if their service value exceeds Rs. 60 million annually or Rs. 15 million over the past 3 months.

Failure to comply with the registration and tax obligations may lead to penalties, as the Government seeks to expand its digital tax net and level the playing field for local businesses.