Taxation of the self-employed: Who is taxed?

Taxation of the self-employed: Who is taxed?

By Sarah Afker

With the increase of millennials, we are inclined to see many individuals selecting to be entrepreneurs and freelancers moderately than commit themselves to a nine-to-five job. The idea of entrepreneurship is promoted around the globe as most giant companies have humble beginnings and have grown to make use of tons of of individuals, contributing to the economic system and giving the entrepreneur the psychological satisfaction of working for himself in addition to monetary freedom.

What does tax imply for a freelancer? Have they got the fitting info to assist them voluntarily comply, or are they shocked once they obtain a notification from the Tax Workplace? Let’s discover out!

Who’s taxed?

People working in sole proprietorship/self-employment are taxed at private tax charges on their revenue. The tax-free revenue threshold for every Sri Lankan citizen/tax resident is Rs. 1.2 million per yr. This implies you do not have to pay revenue tax in case your whole revenue is beneath the annual threshold. In case you earn greater than that, you have to file and pay taxes. The charges are as follows:

People – Progressive Tax Charges

Taxable quantity LKR Fee

  • First 1,200,000 0%
  • Subsequent 500,000/- 6%
  • Subsequent 500,000/- 12%
  • Subsequent 500,000/- 18%
  • Subsequent 500,000/- 24%
  • Subsequent 500,000/- 30%
  • Stability 36%

For instance, should you earn Rs. By doing tuition programs and a few editorial work, you’re liable to pay 1.5 million per yr and tax if annual revenue exceeds Rs. 1.2 million. Your taxable revenue shall be Rs. 300,000 (Rs. 1.5 million – 1.2 million) and you must pay 6% of Rs as proven within the desk above. 300,000 as tax (taxable revenue).

How about tax withholding?

Curiosity revenue is topic to five% withholding; subsequently banks will deduct 5% and switch the steadiness to the depositor. In different phrases, should you earn curiosity revenue after tax deduction, you’ll have to pay taxes within the tables above and request a mortgage for the 5% deducted by the financial institution. To do that, you will want a tax deduction certificates from the financial institution and a tax submitting on the Income Service.

Dividend revenue is topic to particular withholding; subsequently, internet revenue is tax-free offered it’s taxed by the corporate paying the dividends. So should you personal a stake in an organization, then the corporate deducts 15% from the dividend and provides you the remainder. You do not have to fret about any extra taxes on that dividend earned.

WHT in service charges was reintroduced on January 1, 2023, to develop the tax community and facilitate income assortment. payer’s worker –

to show, lecture, examine, monitor or supervise an examination;

as a fee or brokerage for a resident insurance coverage, gross sales or assessment agent;

For providers rendered by actual individuals as unbiased service suppliers akin to medical doctors, engineers, accountants, attorneys, software program builders, researchers, lecturers or as unbiased service suppliers as stipulated by the laws.

In case you are a freelancer engaged in any of the above providers, because of this 5% of your receipts shall be retained by the shopper (in extra of Rs 100,000 monthly). The excellent news is that you can be eligible for a credit score on taxes withheld by the shopper upon presentation of a WHT deduction certificates when submitting the Private Tax Return. So be sure to get the Tax deduction certificates to file a declare towards your tax payable.

Are my abroad service earnings tax exempt?

Curiously, overseas revenue earners can declare tax exemption once they present providers to any particular person to be used outdoors Sri Lanka, pay for it in overseas foreign money and the cash is routed via the banking system.

For instance, should you present UK-based Firm XYZ with some advisory providers to be used in its abroad operations they usually switch GBP 1000 to your Sri Lanka Checking account, that overseas revenue is tax-free in Sri Lanka.

An individual’s enterprise revenue have to be accounted for on an accrual foundation (that’s, the place the revenue is acknowledged no matter whether or not money is acquired). This could hamper the liquidity of the cashless freelancer.

Whereas all of this may occasionally appear a bit difficult to some, and immediately apparent to some, there are entrepreneurs who’re beneath the tax threshold, in addition to those that do companies which will qualify for exemption as a result of they earn overseas revenue. The necessity of the hour is subsequently equal footing and reforms that can positively facilitate liquidity for the person entrepreneur who can ultimately develop into a big firm and turn into a hit story for the native economic system.

Sarah serves as Enterprise Companion – Tax Companies for BDO Companions and Manages the agency’s Tax Practices. Licensed Public Accountant, Affiliate Member of the Institute of Licensed Public Accountants (UK), Fellow of the Chartered Institute of Securities and Investments (UK), and Licensed International Administration Accountant. All views expressed are private and don’t signify the views of the organisation.

#Taxation #selfemployed #taxed

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