Is service charge compulsory in Sri Lanka?

No law requires it. Adding 10% to dine-in and room service bills is common practice, and it should be shown clearly on the menu and the bill.

Is VAT charged on the service charge?

Yes. VAT is worked out on the full amount the guest pays for, which includes the service charge.

When does a restaurant have to register for VAT?

When taxable sales pass LKR 60 million in any 12 months, or LKR 15 million in any quarter, as of October 2026. Check the current threshold with your accountant.

Do I have to show SSCL on the bill?

SSCL is a levy on your turnover, owed by the business. Some places show it on the bill and many build it into their prices. Ask your accountant which suits you.

Service Charge, VAT, SSCL & TDL in Sri Lanka

A bill, line by line

Most confusion comes from the order things are added up. Here is a dine-in bill for four people at a VAT-registered restaurant. Food and drinks come to LKR 4,000.

1
Service charge10% of the food and drinks. Added to dine-in and room service, not usually to takeaway.
2
VAT18% of the food and drinks plus the service charge. Only if you are VAT-registered.
3
Your VAT numberA VAT-registered business issues a tax invoice that shows it. Not registered? No VAT, and no tax invoice.
4
Not on the billSSCL and TDL are worked out on your turnover. You owe them whether or not the guest sees them.

Service charge is added to the food first, and VAT is then worked out on both together.

The order matters. Service charge is part of what the guest pays for, so VAT applies to it as well. Getting this wrong is an easy mistake to make, and it means you collect less VAT than you owe.

Service charge: yours to set, so set it clearly

Most hotels and restaurants in Sri Lanka add a 10% service charge to dine-in and room service bills. Few add it to takeaway or delivery, because nobody served the guest at a table.

Sri Lankan law doesn’t set how service charge is shared with staff. Officials at the Department of Labour have said each business decides for itself. That freedom is also the risk: when staff can’t see how their share was worked out, they assume the worst.

Put your rules in writing and share them with your team:

Who shares in it: kitchen, floor, stewards, front office, housekeeping.
How it’s split: equally, by role, or by days worked.
Whether anything is held back, for example for breakages, and how much.
When it’s paid. Most places pay it monthly, with salaries.

Tell guests too. A line on the menu such as “Prices exclude 10% service charge and 18% VAT” prevents most arguments at the table.

VAT: when to register and how it’s worked out

VAT in Sri Lanka has been 18% since January 2024. You must register once your taxable sales pass LKR 60 million in any 12 months, or LKR 15 million in any quarter. Below that, you can’t charge VAT at all.

1
Add up the food and drinks
In the example, LKR 4,000.
2
Add the service charge
10% of 4,000 is 400, so 4,400.
3
Work out VAT on that total
18% of 4,400 is 792.
4
Add it all together
4,000 + 400 + 792 = LKR 5,192.

Once registered, give guests a tax invoice showing your VAT number. Bill numbers should run in order with none missing, and a reprinted bill should say it’s a copy. If you’re not registered, your bill is simply an invoice, with no VAT line.

SSCL: the levy on your turnover

The Social Security Contribution Levy, or SSCL, has applied since October 2022. It is 2.5% of your turnover, and it applies once turnover passes LKR 120 million a year (or LKR 30 million in a quarter).

SSCL is owed by the business, not added by law to each bill. Some restaurants show it as a line on the bill, many build it into their prices. Either way, you pay it on your turnover, so it belongs in your pricing. Your accountant will file it with Inland Revenue on the required schedule.

TDL: for tourism-registered businesses

The Tourism Development Levy is paid by hotels, guest houses, restaurants and other businesses registered with the Sri Lanka Tourism Development Authority (SLTDA). It is 1% of turnover, or 0.5% for businesses turning over up to LKR 12 million a year (LKR 3 million a quarter). It goes to the SLTDA and helps fund promoting Sri Lanka abroad.

Like SSCL, it’s worked out on turnover, so most guests never see it as a separate line.

All four at a glance

Service charge

10%

On: Dine-in and room service bills
Goes to: Shared with your team
When: Your choice to add it

VAT

18%

On: Food, drinks and service charge
Goes to: Collected from guests, paid to Inland Revenue
When: Register above LKR 60M a year

SSCL

2.5%

On: Your turnover
Goes to: Paid by the business to Inland Revenue
When: Above LKR 120M a year

TDL

On: Your turnover
Goes to: Paid to the SLTDA
When: Tourism-registered places

The four charges on Sri Lankan hospitality bills and turnover, as of October 2026.

Five mistakes we see on Sri Lankan bills

Charging VAT without being registered. If you’re below the threshold and not registered, there should be no VAT line.
Working out VAT on the food only. VAT applies to the food and the service charge together.
Service charge on takeaway. Guests notice, and it starts arguments.
Reprinting old bills at new rates. When a rate changes, earlier bills must keep the rate they were issued with.
No notice on the menu. A single line about service charge and VAT saves your staff from the same conversation every night.

This guide explains the general rules as of October 2026 and isn’t tax advice. Rates and thresholds change, so check with your accountant or the Inland Revenue Department before you change your bills.

Service charge, VAT, SSCL and TDL.
Explained simply.