Paying Sri Lankan Staff From a Foreign Company
Paying staff in Sri Lanka from a foreign company means a local entity, an employer of record, or a genuine contractor. Each carries different duties.
On this page
- What the EPF Act says about coverage
- Registering as an employer
- The three structures compared
- The contractor route: where it goes wrong
- Currency: which rate to use
- What we could not confirm
- Frequently asked questions
- Can we just pay someone in Sri Lanka from our foreign bank account without any local registration?
- Does an employer of record remove all our statutory duties?
- Do stock options from our foreign parent attract EPF or ETF?
- Can we hire our very first Sri Lankan employee as a "contractor" to keep things simple?
- Does a USD-pegged salary change any of these duties?
There are three routes: register a local entity, use an employer of record, or engage a genuine contractor. Each carries a different statutory load. See five main statutory payroll payments in Sri Lanka for what any Sri Lankan employer owes once staff are hired. The Sri Lankan Acts checked do not name these three routes by name. Below is what the Acts do say, and where you must confirm the rest yourself.
What the EPF Act says about coverage
The EPF Act No. 15 of 1958 applies to a person over the prescribed age who is employed by someone else in a “covered employment”. Covered employment is fixed by regulation. It does not turn on the employer’s nationality or where it is registered. Regulations can extend EPF to a job outside Sri Lanka. Both must hold: the job is for a trade or business carried on in Sri Lanka, and it would be a covered employment if it were here. The Act does not say what happens the other way round. That is a person working inside Sri Lanka for a company with no trade or business here at all.
Source: EPF Act No. 15 of 1958, ss.8(1)-(3) and 47.
Registering as an employer
Whoever employs the person in Sri Lanka must register within 14 days of the first hire. Do this on Form D. Send it to the nearest Labour Office or the Commissioner General of Labour. The number issued serves EPF and ETF together.
For APIT, the employer registers separately with the Inland Revenue Department. It gets a TIN before the first taxable pay run. Section 83 of the Inland Revenue Act No. 24 of 2017 makes every employer a withholding agent. No source says whether a company with no Sri Lankan registration can complete Form D, or get a TIN on its own. Confirm this with the Labour Department, the EPF Department and the IRD before you hire anyone.
Source: EPF Department, FAQs for Employers (epf.lk); Humanised’s labour law map and APIT employer guide, citing Inland Revenue Act No. 24 of 2017 s.83.
The three structures compared
| Route | What it is | What the sources confirm |
|---|---|---|
| Register a local entity | A Sri Lankan branch or subsidiary becomes the employer | Once registered, it follows the normal EPF, ETF and APIT duties above like any Sri Lankan employer |
| Employer of record | A Sri Lankan company employs the worker on your behalf | Not defined or regulated by name in the Acts we read; no source says how the duties move |
| Genuine contractor | You pay an independent contractor’s invoice, not a payslip | No EPF, ETF or APIT if the relationship is genuinely a contract for services, not employment |
Registering a branch under the Companies Act No. 7 of 2007 is a company-law question. No Companies Act text or Registrar of Companies guidance was checked. Ask a corporate lawyer whether you need one.
The contractor route: where it goes wrong
The label on the agreement does not decide EPF and ETF status. What matters is how the work is actually done. Who sets the hours, who supplies the tools, whether the person works for others too, and who carries the business risk all count. A “contractor” paid from abroad can still be, in substance, an employee. A Labour Tribunal or the Labour Department can treat them as one. Then EPF and ETF become due from when the relationship in substance began, plus a surcharge. Gratuity can apply too. Both of these must be true: the employer had 15 or more workmen on any day in the 12 months before the employee left, and the employee has five years of continuous service.
Source: reused from contractor or employee for EPF and ETF, an already-verified Humanised article.
Currency: which rate to use
The payslip, and every EPF, ETF and APIT filing, are done in LKR. This holds even where the salary is agreed in a foreign currency. Convert using one rate. Write down which rate you used. No source sets a mandatory rate or date to use. Confirm your method with your accountant. See whether QuickBooks or Xero handle Sri Lankan payroll for how the LKR figures feed your accounts.
Source: reused from payroll for foreign employees in Sri Lanka, an already-verified Humanised article.
No source confirms the exact rule for a foreign parent sending money to fund a Sri Lankan payroll with no local entity. Confirm the transfer method with your bank.
What we could not confirm
No source says:
- Whether a company with no Sri Lankan registration can complete EPF/ETF or IRD registration on its own.
- Whether the Companies Act requires a branch registration before hiring locally, or when.
- The exact Central Bank rule for a foreign parent funding a Sri Lankan payroll with no local entity.
- What proof an employee paid this way needs for a local bank loan or a visa application.
Get each of these confirmed with the relevant department or a lawyer before you hire your first person in Sri Lanka.
This is general guidance, not legal advice. For a real case, speak to a labour lawyer or the Labour Department.
Do this automatically in Humanised. Payroll software in Sri Lanka runs the local statutory side even when the parent company sits elsewhere. It calculates EPF, ETF and APIT, and prepares the C-form, R4 and T10 for the employer to file. There is a free 7-day assisted trial, set up by the Humanised team on your own data.
Frequently asked questions
Can we just pay someone in Sri Lanka from our foreign bank account without any local registration?
No official source says this is allowed or barred. Confirm your case with the Labour Department, the EPF Department and the IRD first.
Does an employer of record remove all our statutory duties?
No source says how the duties move to an EOR. This structure is not named in the Acts we read. Confirm the EOR’s own compliance before relying on it.
Do stock options from our foreign parent attract EPF or ETF?
No source answers this. Ask the EPF Department and the ETF Board about the specific benefit.
Can we hire our very first Sri Lankan employee as a “contractor” to keep things simple?
Only if it is genuinely a contract for services. No single factor decides that. Who sets the hours, exclusivity, whose tools, and who carries the risk are weighed together. If it looks like a normal job in substance, EPF, ETF and gratuity exposure follow later, backdated.
Does a USD-pegged salary change any of these duties?
EPF, ETF and APIT are worked out on an LKR figure. No source sets the rate or date for this structure. Ask your accountant.
Was this article helpful?
Your feedback helps us improve these guides.