Digital services that will be taxed 18% VAT announced

Even if a service is not listed above, it may still be subject to VAT if it falls within the scope described

By Chaturanga Pradeep Samarawickrama  

A gazette notification has been issued announcing the list of digital services on which an 18 percent Value Added Tax (VAT) will be imposed with effect from October 01, 2025.  

The new tax measure will be implemented under the Value Added Tax (Amendment) Act No. 04 of 2025.   

According to the Commissioner General of the Inland Revenue Department (IRD) Ms. Rukdevi Perpetua Himali Fernando, guidelines outlining how the new VAT on digital services will be applied were officially published through Extraordinary Gazette No. 2443/30 on July 1, 2025.  

The following areas will fall into this category of digital services treated as taxable supply, but not limited to:  

• Cloud Computing: Hosting, storage and computing power services,  
• Software as a service (SaaS): Web-based applications,  
• E-commerce Services: Online stores, payment gateways, and order fulfilment services,  
• Digital Marketing and advertising: SEO, social media marketing, PPC ads, and email marketing,  
• Cybersecurity Services: Threat detection, firewall protection, and data encryption,  
• IT Support & Managed Services: Remote tech support, IT consulting, and helpdesk solutions,  
• Streaming Services: Video, music, live content platforms,  
• Financial Technology (FinTech): online banking, payment processors (PayPal, Stripe, and crypto currency exchanges),  
• E-commerce Platforms,  
• Social Media Platforms,  
• On-Demand Service Platforms,  
• Content Sharing Platforms,  
• Cloud collaboration platforms,  
• Marketplace Platforms,  
• Gaming Platforms,  
• Blockchain & NFT Platforms: OpenSea, Binance, Ethereum-based Apps,  
• Subscription to membership websites,  
• Use of apps for hotel reservation, ticket booking.  

The Gazette also said that even if a service is not listed above, it may still be subject to VAT if it falls within the scope described.