Sri Lanka recognizes and facilitates individual business activity through the status of “Sole Proprietorship.” In this overview, we focus on the core regulatory, tax, and operational aspects surrounding sole proprietorships in Sri Lanka for 2025, drawing on the most current data available.
Sole Proprietorship: Status and Registration in Sri Lanka
The Sole Proprietorship is the most accessible form of business structure in Sri Lanka, widely used by individual business owners. This structure allows one person to operate a business under their own name without establishing a separate legal entity.
- Business registration is a mandatory step, which must be carried out via the Divisional Secretariat under the relevant Business Names Ordinance.
- While this status is straightforward to establish, it does not limit liability—owners are personally responsible for business debts and obligations.
Key Features of Sole Proprietorships
| Feature | Description |
|---|---|
| Status Name | Sole Proprietorship |
| Legal Entity | Not separate from individual; owner is personally liable |
| Ownership | Single individual only |
| Registration Authority | Divisional Secretariat |
| Business Law Governed By | Business Names Ordinance |
Taxation of Sole Proprietors in 2025
Income generated by Sri Lankan sole proprietorships is assimilated with the owner’s personal income. Tax is calculated under the individual progressive income tax schedule. For 2025, the rates remain progressive and subject to the individual’s total yearly income.
| Income Tax Rate Brackets (2025) | Percentage (%) |
|---|---|
| Minimum | 6% |
| Maximum | 36% |
Sole proprietors are liable to pay taxes in line with their total personal income (including business income), and not as a separate business entity.
VAT Registration Thresholds
Another significant regulatory point for sole proprietors is Value Added Tax (VAT) registration. VAT becomes compulsory if the business turnover exceeds Sri Lankan Rupees (Rs.) 80 million per annum (approximately $220,000 USD at a conversion rate of Rs. 365/USD).
| Obligation | Threshold / Condition |
|---|---|
| VAT Registration Requirement | Rs. 80,000,000 / annum (approx. $220,000 USD) |
Summary Table: Sri Lankan Sole Proprietorship Requirements
| Requirement | Specification/Details |
|---|---|
| Availability | Yes (for local citizens) |
| Business Registration | Required at Divisional Secretariat |
| Personal Liability | Unlimited (owner is fully liable) |
| Taxation | Individual income tax (6%-36%) |
| VAT Registration | Required if turnover > Rs. 80 million/year |
Pro Tips for Registering a Sole Proprietorship in Sri Lanka
- Ensure your business name complies with the Business Names Ordinance before registration to avoid delays.
- Maintain clear financial records from the outset. Income from your sole proprietorship is taxed as personal income, which can quickly become complex across multiple revenue streams.
- Monitor your annual turnover closely—if you approach the VAT threshold of Rs. 80 million, initiate VAT registration promptly to avoid penalties.
- Review your liability exposure, as the sole proprietorship structure provides no personal asset protection from creditors.
Official Resources
- Department of Registrar of Companies
- Sri Lanka Export Development Board
- Divisional Secretariat
- Sri Lanka Inland Revenue Department
Understanding the procedures and liabilities tied to sole proprietorships in Sri Lanka is crucial for anyone considering business activity as an individual. The structure is highly accessible and involves a straightforward registration process, but places the full financial and legal responsibility on the owner, including personal taxation and VAT compliance when applicable. Consider your business plans and income projections carefully to ensure ongoing compliance and optimal tax efficiency.