How to Register a Sole Proprietorship (Individual Business) in Sri Lanka

Establishing yourself as an independent contractor in Sri Lanka is an attractive option, offering formal recognition with relatively straightforward requirements. Registering as a sole proprietor—sometimes referred to locally as an individual business—is a common choice for freelancers, small traders, and professionals. The process is not overly bureaucratic, though it requires some paperwork and in-person visits to local authorities. The main challenges are unlimited liability and limited funding opportunities. The main benefits are flexibility, independence, and low setup costs.

Disclaimer: This article is for informational purposes only and is not a substitute for legal advice. Please always check official sources or seek professional guidance before taking action.

What is a sole proprietorship in Sri Lanka?

In Sri Lanka, a sole proprietorship is officially recognized under the Business Names Ordinance and is sometimes described in practice as an individual business. It may also be referred to as:

• sole trader
• self-employed worker
• independent contractor

These terms all describe the same model—one person legally running a business without forming a separate company.

How does a sole proprietorship (individual business) work in Sri Lanka?

Sole proprietorship vs. private limited company in Sri Lanka

While a sole proprietorship is simple and quick, the main alternative is a private limited company. Here’s how they compare:

Step-by-Step guide: How to register a sole proprietorship in Sri Lanka

Step 1: Check if you are eligible

Sri Lankan citizens and permanent residents can register sole proprietorships. Registration is location-based and must be completed at the local Divisional Secretariat. Foreign nationals without permanent residency generally cannot register a sole proprietorship and are instead advised to incorporate a company through the Registrar of Companies.

Step 2: Choose your business name

You may operate under your own legal name. If you choose a trade name, it must be registered under the Business Names Act at the Divisional Secretariat. A name check can also be done through the government's search tool.

Step 3: Gather required documents

You will need:

• Business Registration Application (BNR-01) from your Divisional Secretariat
• Certified copy of your National Identity Card (NIC)
• Grama Niladhari report on business location, signed by the Divisional Secretary
• Proof of business address
• Affidavit confirming initial capital and business activity
• Approvals for regulated businesses (e.g., health clearance for food businesses, Sri Lanka Medical Council approval for pharmacies)

Step 4: Register with the Divisional Secretariat

Submit your documents and application in person at the Divisional Secretariat's local office. Sole proprietorships cannot currently be registered online.

Step 5: Pay registration fees

Registration fees are low and vary depending on the Divisional Secretariat and the scope of your business. The exact amount will be confirmed when you apply.

Step 6: Complete post-registration obligations

Once approved, you’ll receive a Certificate of Registration of Business Name, which must be displayed at your business premises. After registration, you are required to issue proper invoices for all sales and services, showing your registered business name, address, and tax identification number (TIN) if applicable. If your annual turnover exceeds the VAT threshold, you must register for VAT with the Inland Revenue Department, where the current rate is 15%.

Financial and tax obligations for sole proprietors in Sri Lanka

You are responsible for:

• Income tax: Sri Lanka applies progressive personal income tax, but every individual receives an annual tax relief of LKR 1.8 million. This means the first LKR 1.8 million of income is tax-free. Income above that threshold is taxed at rates from 0% to 36%, depending on the band. Sole proprietors pay tax on their business profits as part of their personal return.
• Social security contributions: Sole proprietors who hire employees must register with the Department of Labour for the Employees’ Provident Fund (EPF) and the Employees’ Trust Fund (ETF), and make the mandatory contributions.
• VAT: The standard VAT rate is 15%, and registration is required if turnover exceeds the applicable VAT threshold. VAT returns are filed with the Inland Revenue Department, and invoices must reflect VAT when applicable.
• Record-keeping: Maintain proper invoices, receipts, and accounting records. These documents are essential for completing VAT and income tax returns and must be retained in case of an audit.
• Invoicing: Sole proprietors are required to issue invoices that include their registered business name, address, and TIN, if applicable. Invoices must be sequentially numbered and retained for record-keeping.

Launch your contracting career and stay compliant with Deel

Registering a sole proprietorship gives you independence, but it also means handling taxes, invoices, and records on your own. Deel’s all-in-one platform helps you manage obligations without the stress. With Deel, you can:

• Automate invoicing and expense tracking with essential Bookkeeping tools
• Create, send, and sign localised work agreements
• Keep accurate records for tax season
• Access expert tax advice and compliance support
• Get paid through multiple payment and withdrawal methods
• Spend your earnings in USD with the Deel Card
• Access funds early with Deel Advance
• Enjoy contractor perks from 150+ partners

Stay independent, without the admin overload. Sign up to Deel for free today.

FAQs

What is the minimum capital required?
No formal minimum. You simply declare your initial investment.

Do sole proprietors need to register for VAT?
Yes, if turnover exceeds the threshold. VAT is 15%.

How much are the registration fees?
Low, with exact costs depending on your region and declared capital.

Can a sole proprietor hire employees?
Yes. However, sole proprietors who employ staff must also register with the Department of Labour for the Employees’ Provident Fund (EPF) and the Employees’ Trust Fund (ETF).

How long does it take to register?
Typically, 1-2 weeks if documents are in order.

Can foreign nationals register?
No. Sole proprietorships in Sri Lanka are limited to citizens and permanent residents. Foreign nationals, even if they hold visas or temporary residency, cannot register a sole proprietorship. Instead, they must incorporate a company (usually a Private Limited Company) through the Department of the Registrar of Companies (DRC).

Do I need a separate bank account?
Not mandatory, but strongly recommended for clean bookkeeping.

What happens if I stop working?
Inform the Divisional Secretariat to deregister and file final taxes.

Are there incentives?
No special incentives, but tax-free allowances apply to personal income.

Can I use Deel as a sole proprietor to get paid?
Yes. Deel enables global payments in multiple currencies with low fees.

Does Deel generate compliant invoices?
Yes. Deel issues invoices aligned with Sri Lankan requirements.

Can Deel help with taxes?
Yes. Deel provides tax reports and payment records, simplifying filing.

Does Deel offer contracts?
Yes. Deel includes templates compliant with Sri Lankan law.

Can I access benefits through Deel?
Yes. Deel offers health insurance, retirement plans, and other perks.