Payroll for Foreign Employees in Sri Lanka
Tax residence decides the APIT table for foreign employees in Sri Lanka; EPF and ETF turn on covered employment, not nationality. Rates and example.
On this page
- Who counts as resident for tax?
- Which APIT table applies, and why
- EPF and ETF for non-citizen employees
- Paying in foreign currency: which exchange rate to use
- Work visa and permit conditions that affect payroll
- Worked example: an expatriate manager on LKR 500,000
- Do this automatically in Humanised
- Common mistakes
- What to keep as records
- Frequently asked questions
- How is a short-term assignment of a few months treated?
- What if the employee has two jobs, one in Sri Lanka and one abroad?
- Does leaving Sri Lanka mid-year change the tax table?
- Is the non-resident, non-citizen deduction final, or does the employee still file a return?
- Do EPF and ETF apply if the employee is on secondment and stays on a foreign payroll for pension purposes?
Tax residence, not nationality, decides the APIT (income tax you take out of an employee’s pay) table. Resident employees, including resident non-citizens, use Table 1 and get the annual relief. A non-resident, non-citizen employee is taxed on gross pay under Table 4, with no relief. EPF and ETF turn on whether the job is covered employment under their Acts, not on citizenship. Get the residence status right first.
Who counts as resident for tax?
The Inland Revenue Department’s APIT guide for 2025/26 splits employees into three groups: resident people, non-resident citizens of Sri Lanka, and non-resident non-citizens. The first two groups get the same relief and the same regular tax table. The third group, non-resident, non-citizen employees, get no personal relief at all.
Tax residence is separate from citizenship or nationality. The Inland Revenue Act’s rules decide it. Broadly, this means being in Sri Lanka for 183 days or more in the year, or meeting one of the Act’s other tests. Confirm each case with your tax adviser. Do not guess from the employee’s passport.
Which APIT table applies, and why
| Employee category | Regular monthly pay | Lump-sum payments (bonus etc.) |
|---|---|---|
| Resident, or non-resident but a citizen, with a primary declaration or one employment | Table 1 (relief of LKR 1,800,000/year, then 6%–36% bands) | Table 2 |
| Non-resident, non-citizen | Table 4.1 | Table 4.2 |
| No primary declaration, or more than one employment | Table 7 | Table 7 |
Source: IRD, Guideline for Employers on Deducting APIT (SEC/2025/E/01), 25 March 2025 and APIT Tax Table No. 4, 2025/26, year of assessment 2025/2026, effective 1 April 2025.
Table 4.1 taxes monthly pay directly for a non-resident, non-citizen employee. There is no LKR 1,800,000 relief:
| Monthly regular profits (taxable) | Tax |
|---|---|
| Up to LKR 83,333 | 6% of the amount |
| Over LKR 83,333 up to LKR 125,000 | 18% of the amount, less LKR 10,000 |
| Over LKR 125,000 up to LKR 166,667 | 24% of the amount, less LKR 17,500 |
| Over LKR 166,667 up to LKR 208,333 | 30% of the amount, less LKR 27,500 |
| Over LKR 208,333 | 36% of the amount, less LKR 40,000 |
Source: IRD APIT Tax Table No. 4.1, year of assessment 2025/2026.
A lump sum for a non-resident, non-citizen employee is taxed under Table 4.2 instead. Lump sums include a bonus and leave encashment, which is cash paid out for unused leave. It uses the same cumulative method (tax worked out on total pay so far in the year, not just this month) as Table 2. But it has its own thresholds: LKR 1,000,000 / 1,500,000 / 2,000,000 / 2,500,000, and no relief. See the IRD guideline for the worked mechanics.
EPF and ETF for non-citizen employees
Neither the EPF Act No. 15 of 1958 nor the ETF Act No. 46 of 1980 defines “employee” by citizenship. What matters is whether the role is covered employment (a job the Act applies to) under the Act. Neither Act defines “covered employment” by citizenship either. The EPF Act allows for members leaving Sri Lanka for good. Its s.23(d) lets a member withdraw the full balance before leaving “with the intention of not returning”. This assumes foreign members are covered, not excluded. On the sourced text alone, a foreign employee in covered employment is an EPF and ETF member too. The basis is the same: 8%/12% and 3%.
Check this before you rely on it. In practice, EPF registration runs on the employee’s NIC number. The sources checked for this article do not answer this. They do not say how registration works for someone with a passport instead of an NIC. Confirm current practice with the EPF Department or a payroll adviser before the first contribution. Also check whether a social-security deal with the employee’s home country applies.
Paying in foreign currency: which exchange rate to use
The payslip and the statutory filings are always done in LKR, even if the salary is quoted in a foreign currency. Convert the agreed figure to LKR using one rate, and write down which rate you used. Common choices are the rate on the pay date, or an agreed monthly rate. Use that LKR figure for EPF, ETF and APIT. Confirm your method with your accountant, since no source sets a mandatory rate or date.
Work visa and permit conditions that affect payroll
A foreign employee normally needs a visa that allows work. The Department of Immigration and Emigration issues it. Without it, you cannot lawfully pay them as an employee. Visa categories, fees and renewal rules sit outside the sources checked for this guide. Confirm them with the Department of Immigration and Emigration or an immigration adviser. Do not rely on this article for visa steps.
Worked example: an expatriate manager on LKR 500,000
A general manager is non-resident and not a citizen. She earns a fixed LKR 500,000 a month, with no lump-sum payment this month. Her pay is over LKR 208,333, so the last band of Table 4.1 applies:
LKR 500,000 × 36% − LKR 40,000 = LKR 140,000 APIT for the month. She gets no personal relief, because she is non-resident and not a citizen.
Compare a resident (or non-resident citizen) employee on the same LKR 500,000 a month, taxed under Table 1. Annual pay is LKR 6,000,000. Less relief of LKR 1,800,000 leaves taxable pay of LKR 4,200,000. This is taxed through the 6–36% bands, then split across twelve months. The monthly deduction comes out lower, thanks to the relief and the wider Table 1 bands. Check the exact figure in the APIT calculator.
Do this automatically in Humanised
Payroll software in Sri Lanka calculates APIT for resident and non-resident employees in the same pay run. You enter each employee’s tax details once, and the same figures carry through every month.
Common mistakes
- Assuming a foreign passport means Table 4. Residence, not nationality, decides the table. A resident non-citizen still gets Table 1 and the relief.
- Applying the LKR 1,800,000 relief to a non-resident, non-citizen employee by mistake.
- Skipping EPF/ETF registration for a foreign employee without checking with the EPF Department first.
- Using a different, or unrecorded, exchange rate each month for a foreign-currency salary.
What to keep as records
Keep the employee’s passport and visa details. Keep the residence decision and its basis. Keep the primary employment declaration, or a note that none was given (this triggers Table 7). Keep the exchange rate policy used, if pay is quoted in a foreign currency.
This is general payroll guidance. Every case is different. For your own case, speak to a payroll practitioner or a lawyer.
Frequently asked questions
How is a short-term assignment of a few months treated?
Residence depends on days present and the Inland Revenue Act’s tests, not the length stated in a contract. A short assignment can still make someone non-resident. Confirm the decision with a tax adviser.
What if the employee has two jobs, one in Sri Lanka and one abroad?
Table 7 applies instead of Table 1 or Table 4 in two cases. The first is where there is no primary employment declaration for the Sri Lankan role. The second is where the employee has more than one job.
Does leaving Sri Lanka mid-year change the tax table?
It can. A change in circumstances during the year can shift an employee onto the cumulative Table 5. This keeps the year’s tax right, instead of the flat monthly table. Confirm the mechanics with your payroll reviewer.
Is the non-resident, non-citizen deduction final, or does the employee still file a return?
Per the IRD guideline, APIT deducted from a non-resident, non-citizen employee is a final withholding payment (that deduction settles the tax on that pay). Other employees may still need to file a Return of Income, depending on their circumstances.
Do EPF and ETF apply if the employee is on secondment and stays on a foreign payroll for pension purposes?
This depends on the covered-employment and registration facts, which were not established in the sources checked for this article. Confirm with the EPF Department before deciding either way.
Was this article helpful?
Your feedback helps us improve these guides.