Headline: 📉 OECD Pillar Two: The End of Traditional Tax Holidays?

The global tax landscape is shifting as the OECD's Pillar Two framework mandates a 15% global minimum corporate tax rate. For Sri Lanka, this signals a major change in how the country attracts foreign investment. • The 15% Rule Multinational enterprises (MNEs) with global revenues over €750 million must pay an effective tax rate of at least 15%. If a country offers a lower rate (e.g., 5%), the MNE’s home country can "tax back" the 10% difference, rendering local tax holidays ineffective for the investor. • Sri Lanka’s Strategic Options To prevent losing tax revenue to foreign jurisdictions, Sri Lanka is considering two paths: Domestic Minimum Top-Up Tax (DMTT): Implementing a local 15% minimum tax so the revenue stays within the country. Expenditure-based Incentives: Shifting away from profit-based holidays toward credits for ICT/BPM, apparel & textiles, and R&D—areas that reward actual economic activity and employment. • Sector Impact & Policy Shift Apparel & Textiles: Long a beneficiary of tax exemptions, this sector may need to pivot toward investment-linked credits. ICT/BPM: As of April 2025, service exports are already taxed at 15% if remitted via banks, aligning with global standards. SMEs: To support local growth, the 2026 Budget proposed lowering the investment threshold for incentives from US$ 3 Mn to US$ 250,000.