Case Studies
Case Study: Sri Lanka’s Capital Gain Rate Shift, Interest Waiver & ECA — Smart Moves for Investors
Sri Lanka has revised its capital gains tax rates, granted generous enhanced capital allowances, and introduced interest waivers — here's how investors can position themselves.
By NomadicTax Research Team • 5-8 min read • August 28, 2026
## Sri Lanka’s Major Reforms Effective 3 June 2026
- **Capital Gain Tax (CGT)** rates revised: Individuals & Partnerships now taxed at **15%**, Trusts and Unit Trusts/Mutual Funds at **30%**. ([ird.gov.lk](https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/793/SEC_PN_IT_2026-02_E.pdf?utm_source=openai))
- **Enhanced Capital Allowances (ECA)**: If you invest in depreciable assets (excluding intangible assets) for a new business undertaking, with total investment exceeding **USD 250,000**, you’re entitled to **100% ECA**. Effective from AY 2026-27 (i.e. 1 April 2026). ([ird.gov.lk](https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/793/SEC_PN_IT_2026-02_E.pdf?utm_source=openai))
- **Interest waiver** for late tax payments: Interest on late/under-payments (including surcharge & debt repayment levy) waived for periods up to AY 2024-25, provided principal tax is fully paid by **2 December 2026**. ([ird.gov.lk](https://www.ird.gov.lk/en/Lists/Latest%20News%20%20Notices/Attachments/793/SEC_PN_IT_2026-02_E.pdf?utm_source=openai))
## How Investors & Businesses Can Benefit
- Investors contemplating machinery, equipment, factory buildings in Sri Lanka can accelerate depreciation via ECA — significant cash flow advantage.
- Funds or trusts holding securities or real estate now face higher CGT (30% in many cases), so must precisely time disposals and structure ownership.
- Individuals can incur gains via sale of assets under partnership or personal names — certainty achieved with 15%. However, trusts and mutual funds are less favorably treated.
## Example
Suppose a partnership sells a commercial property and realizes gain: taxed at **15%**. A trust or mutual fund disposing similar asset faces **30%** tax.
Meanwhile, a business investing **USD 300,000** in plant & machinery qualifies for **100% ECA**, allowing full depreciation in year one, reducing taxable profits significantly.
## Phased Strategy for Existing Investors
1. **Plan disposals before classification shifts**: Where possible, hold assets until after rates favourable or ownership can be structured via individual/partnership.
2. **Optimize ownership structure**: compare whether holding via trust or partnership gives better rates;
3. **Time business asset acquisitions** for AY 2026-27 or beyond to cross USD 250,000 threshold to get ECA.
4. **Clear dues by 2 December 2026** to qualify for interest waiver.
## Risks and Considerations
- Foreign investors must check Cross Border Tax Treaty implications.
- ECA does not apply to intangible assets — IP, software, etc.
- Waiver only for interest, not penalties.
## Conclusion
Sri Lanka’s environment is now more supportive for capital investment, especially real, depreciable assets. Structuring disposals, timing investments, and ensuring compliance by December deadlines are key to maximizing benefit.