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Sri Lanka Sole Proprietor vs Private Limited Company Tax Calculator

Should you register a Pvt Ltd company to pay less tax? Enter your annual profit and this tool computes the total tax under each structure — sole proprietor personal tax versus corporate tax plus 15% dividend withholding — and names the profit level where a company starts winning. IRD rates for Y/A 2025/26 (1 April 2025 – 31 March 2026), no signup.

By Induwara AshinsanaUpdated Jul 10, 2026
Sole proprietor vs companyY/A 2025/26
IRD rates · 2026
Rs

Profit before your own income tax.

Rs

Only used to test SME 15% eligibility (ceiling Rs 500m).

Rs

Advanced. 0 = take everything as dividend.

Rs

Audit + annual return + secretarial. Typical Rs 100k–300k.

Profit presets

Sole proprietor keeps Rs 865,500 more per year.

Net take-home under the cheaper structure: Rs 4,328,000.

Sole proprietor
Cheaper
Personal income tax
Rs 672,000
Effective tax rate
13.44%
Net take-home
Rs 4,328,000
Private limited company15% corp
Corporate income tax
Rs 750,000
Dividend WHT (15%)
Rs 637,500
Compliance cost
Rs 150,000
Total cost
Rs 1,537,500
Effective rate
30.75%
Net take-home
Rs 3,462,500

Net take-home by profit

Sole Company
your profitcrossover

Assuming all profit is distributed and no salary is drawn, the company overtakes the sole proprietor at about Rs 15,500,000 of annual profit (compliance held at Rs 150,000).

Sole proprietor bracket breakdown

RateBand (annual)AmountTax
6%Rs 0 — Rs 1,000,000Rs 1,000,000Rs 60,000
18%Rs 1,000,000 — Rs 1,500,000Rs 500,000Rs 90,000
24%Rs 1,500,000 — Rs 2,000,000Rs 500,000Rs 120,000
30%Rs 2,000,000 — Rs 2,500,000Rs 500,000Rs 150,000
36%Rs 2,500,000 — Rs 3,200,000Rs 700,000Rs 252,000
Total personal taxRs 672,000

Rates: personal slabs (relief Rs 1,800,000, 6–36%) and corporate 30% standard / 15% SME from the Inland Revenue Act (as amended to Act No. 2 of 2025); dividend WHT 15% final from IRD Circular SEC/2025/E/02. This is an estimate for a single profitable year — it excludes VAT, SSCL, EPF/ETF on director pay, and profit-retention strategies. Confirm with a chartered accountant before incorporating. Sources linked below.

How it works

The comparison rests on one structural fact of Sri Lankan tax law: a sole proprietor is taxed once, personally, while a company's profit is taxed twice — at the company, then again when it reaches the owner as a dividend. The tool computes both paths from the same profit figure using rates published by the Inland Revenue Department under the Inland Revenue Act No. 24 of 2017 (as amended to Act No. 2 of 2025).

Sole proprietor path

  1. Taxable income = profit minus the personal relief of Rs 1,800,000.
  2. Apply the progressive personal bands: 6% on the first Rs 1,000,000, 18% on the next Rs 500,000, 24% on the next Rs 500,000, 30% on the next Rs 500,000, and 36% on the balance.
  3. Net take-home = profit − personal tax.

Company path

  1. Corporate rate is 15% if gross turnover does not exceed Rs 500,000,000 and the business is predominantly in Sri Lanka (the SME concessionary rate); otherwise 30%.
  2. Company taxable profit = profit − any salary you draw (salary is a deductible expense). Corporate tax = that × the rate.
  3. After-tax profit is distributable; 15% dividend withholding tax (a final tax) applies on distribution.
  4. Personal income tax on the salary you drew is added using the same personal bands, plus your recurring compliance cost (audit, annual return, secretarial).
  5. Company total cost = corporate tax + dividend WHT + salary tax + compliance. Net take-home = profit − total cost.

For fully-distributed profit with no salary, the company's combined effective rate is r + (1 − r) × 15% — 27.75% at the SME rate and 40.5% at the standard rate. A sole proprietor only reaches a 36% marginal rate on income above Rs 4,300,000, and its effectiverate rises gradually. The company overtakes the sole proprietor only once profit is high enough that the flat combined rate beats the sole proprietor's rising effective rate — the tool solves for that crossover by comparing net take-home across the profit range. Every rate is imported from the same in-repo modules that power the standalone income-tax, corporate-tax, and withholding-tax calculators, so the numbers stay consistent site-wide.

Worked examples

Rs 5,000,000 profit — sole proprietor wins

  1. Turnover Rs 8,000,000 (SME 15%), compliance Rs 150,000, no salary.
  2. Sole: taxable 5,000,000 − 1,800,000 = 3,200,000
  3. Tax: 60,000 + 90,000 + 120,000 + 150,000 + (36% × 700,000 = 252,000) = 672,000
  4. Sole net: 5,000,000 − 672,000 = 4,328,000
  5. Company: corp 5,000,000 × 15% = 750,000; dividend 4,250,000 × 15% = 637,500
  6. Company total: 750,000 + 637,500 + 150,000 = 1,537,500 → net 3,462,500
  7. Verdict: sole proprietor keeps Rs 865,500 more. Incorporating costs more here.

Rs 30,000,000 profit — company wins

  1. Turnover Rs 45,000,000 (SME 15%), compliance Rs 300,000, no salary.
  2. Sole: taxable 28,200,000 → 420,000 + (36% × 25,700,000 = 9,252,000) = 9,672,000
  3. Sole net: 30,000,000 − 9,672,000 = 20,328,000
  4. Company: corp 4,500,000; dividend 25,500,000 × 15% = 3,825,000
  5. Company total: 4,500,000 + 3,825,000 + 300,000 = 8,625,000 → net 21,375,000
  6. Verdict: company keeps Rs 1,047,000 more — past the ~Rs 15M crossover.

Rs 10,000,000 profit with a Rs 2,400,000 salary — the salary lever

  1. Turnover Rs 15,000,000 (SME 15%), compliance Rs 150,000, salary Rs 2,400,000.
  2. Company taxable profit: 10,000,000 − 2,400,000 = 7,600,000
  3. Corp: 7,600,000 × 15% = 1,140,000; dividend 6,460,000 × 15% = 969,000
  4. Salary tax: (2,400,000 − 1,800,000) × 6% = 36,000
  5. Company total: 1,140,000 + 969,000 + 36,000 + 150,000 = 2,295,000 → net 7,705,000
  6. Sole at 10,000,000: tax 2,472,000 → net 7,528,000
  7. Verdict: drawing a salary flips it — company keeps Rs 177,000 more, where at zero salary the sole proprietor would win by Rs 453,000.

Frequently asked questions

Sources & references

Rates were last cross-checked against the IRD sources on 2026-07-10. This tool models the income-tax layer of a single profitable year and excludes VAT, SSCL, EPF/ETF on director pay, sector-specific concessionary rates, and profit-retention strategies. For a binding decision, confirm with a chartered accountant.

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