Possible Double Taxation on Freelancers - Sri Lanka's Shortsighted Move

Possible Double Taxation on Freelancers and Foreign Income Earners Will Drive Funds Offshore

The Sri Lankan government’s Inland Revenue (Amendment) Bill, 2025, introduces a 15% tax on foreign income remitted through local banks. While aimed at increasing tax revenue, this move is shortsighted and will likely drive freelancers, software companies, and service providers to move their funds offshore—legally avoiding taxation while depriving Sri Lanka of much-needed foreign currency.

Double Taxation & Its Consequences

Under the new amendment, Sri Lankans earning income abroad and remitting it to local banks will could face double taxation—once in the country where the income is earned and again in Sri Lanka at 15%. Without effective Double Taxation Avoidance Agreements (DTAAs), this will increase the financial burden on remote workers, IT professionals, and consultants who previously brought foreign exchange into the country tax-free.

Instead of increasing tax revenue, this will likely lead freelancers and companies to bypass Sri Lankan banks entirely, opting for platforms like Payoneer and other offshore banking solutions. These platforms allow users to store and manage foreign currency without repatriating it into Sri Lanka, effectively sidestepping the tax and depriving the nation of valuable foreign reserves.

Yes, if you're a freelancer concerned about avoiding double taxation on your foreign income and legally keeping your funds offshore, feel free to contact me—I can explain how.

History Repeats Itself: The Gotabaya Rajapaksa Policy Failure

This isn’t the first time Sri Lanka has mismanaged foreign income policies. During Gotabaya Rajapaksa’s tenure, the government forced all foreign currency accounts to be converted to Sri Lankan Rupees (LKR). This disastrous decision resulted in massive capital flight, as individuals and businesses quickly moved their funds offshore. Many companies relocated their headquarters to Europe, while others sold their companies to Western investors, significantly reducing foreign currency inflows into Sri Lanka.

Had this income been left untaxed and freely flowing into the country, Sri Lanka’s balance of payments would have improved, and the nation could have strengthened its foreign reserves. Instead, the misguided policy drove capital out and weakened the economy.

Sri Lanka’s Loss: Foreign Income Was Never a Tax Burden

Foreign income remitted voluntarily by freelancers and businesses was never a financial burden to Sri Lanka. It was, in fact, a free infusion of capital into the economy. Taxing this income unnecessarily will force professionals and businesses to find workarounds, such as keeping funds abroad, registering companies in tax-friendly jurisdictions, or moving business operations out of Sri Lanka entirely.

In a country struggling with economic instability, this policy will have the opposite of its intended effect—reducing foreign inflows rather than increasing tax revenue. Sri Lanka must reconsider this approach and implement incentives rather than punitive taxation to encourage foreign currency to remain within the country’s financial system.

The Solution: Incentivize, Don’t Penalize

Instead of punitive taxation, Sri Lanka should adopt policies that encourage voluntary remittance of foreign income, such as:

• Zero or minimal taxation on foreign income remitted through Sri Lankan banks.

• Foreign currency retention accounts, allowing earners to manage their funds freely.

• Competitive banking policies to prevent capital flight to platforms like Payoneer.

• Stable economic policies that encourage businesses to keep headquarters and operations in Sri Lanka.

If the government fails to reconsider this move, it risks pushing foreign income offshore, losing the very revenue it hopes to tax, and repeating the same mistakes of the past.

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