Last update: November 2008

Investing in Sri Lanka

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About Sri Lanka

Today, Sri Lanka is ranked as the most liberalized economy in South Asia. Total foreign ownership is welcome in almost all areas of the economy, with only a few areas limited or restricted to foreigners.

In 1977, Colombo abandoned static economic policies and its import substitution trade policy for market-oriented policies and export-oriented trade. Sri Lanka's most dynamic sectors now are food processing, textiles and apparel, food and beverages, telecommunications, and insurance and banking.

Sri Lanka is ranked highly for its liberal approach to foreign investment, with its global & regional rankings moving from 36th to 27th (out of 60 countries) and 8th to 4th (out of 16 countries) respectively. From a regional perspective, the country's main advantages centre on its open foreign investment regime, its commitment to private enterprise & competition & its liberalized trading environment (where it is ranked 5th).

The UK's net investment in Sri Lanka has averaged some £50 million per annum over the last 20 years. The UK is the largest European investor in Sri Lanka and second overall in terms of projects. Further progress in the peace process would lead to more opportunities for British companies in Sri Lanka.

Source: Board of Investment Sri Lanka

Foreign Direct Investment

In most instances, foreign investment is transparent and simple. However, when a project is evaluated for fiscal concessions, comprehensive documentation is required in order to complete the assessment. For regulated sectors the BOI forward the duly completed application form to the relevant authorities that will recommend approval of foreign investment. (Source: Board of Investment Sri Lanka)

The inflow of foreign direct investment increased substantially by 110.3 per cent to US dollars 604 million in 2006. Of the total foreign direct investment in 2006, more than 60 per cent was invested in telecommunication sector, textiles, wearing apparel and leather industry.

There was also a local mega investment in the area of airline services in 2006. The accumulated realised investments in the BOI projects was Rs.468 billion and increased by 23.2 per cent in 2006 compared with Rs. 380 billion in 2005.

Sri Lanka attracted USD 600 million in investment last year, of which USD 350 million was for the telecom industry, which position itself as the largest in terms of foreign investment.

Source: Central Bank of Sri Lanka

Free Trade Zones & Industrial Parks

Sri Lanka's free trade zones have been the linchpin of economic development and inflow of foreign direct investment into Sri Lanka. The country's free trade zones are seen as benchmarks of successful implementation of zone development strategies.

• Free Trade Zones: These are currently located at Katunayake, Biyagama, Koggala, Malwatta, Mirigama, Wathupitiwela, Mawathagama, Polgahawela and Horana.
• Industrial Parks: There are currently two industrial parks namely the Kandy (Pallakele) Industrial Park and the Seethawaka Industrial Park.

Source: Board of Investment Sri Lanka

Foreign Direct Investment Policy/Incentives

There are incentives given for foreign investment in most areas. These are reasonably generous for export-oriented manufacturing projects provided that the employment level is at least maintained.

Incentives are offered for foreign investment in export oriented manufacturing ventures, in capital-intensive projects and in large infrastructure projects. Incentives are broadly comparable and competitive with those offered by countries elsewhere in the region. Normally, the generosity of the incentive is related to:

• The amount of money involved in the investment
• The employment it is scheduled to generate
• The percentage of output to be exported
• The sector, especially if it is manufacturing (must export 90%) or service (70% minimum)

Source: European Commission - Asia Invest Programme

Entry into Sri Lanka

British Nationals travelling to Sri Lanka as bona fide tourists need to obtain a prior visa. A visa will be endorsed on the passport for a period of 30 days on arrival at the port of entry in Sri Lanka. If they so wish they may obtain, before the expiry of initial period of visa, an extension of the duration of their stay at the discretion of the Department of Immigration & Emigration in Colombo by paying an appropriate fee. Prior visas could be obtained from the Sri Lanka High Commission in London as well, for a maximum period upto 3 months by paying the appropriate visa fee.

For a Business Visa, in addition to the requirements above the applicant should forward a letter from the company or organisation in UK recommending the issue of visa and giving details of the status of the applicant, nature of business, duration of stay, sufficient funds, and details of the party in Sri Lanka with whom the business is to be conducted. A letter from the company / organisation in Sri Lanka is also required. Fee for British nationals £38/= for single entry visa up to three months.

For further information, please go to our Sri Lanka useful infos/visa's section

Setting up a company

The Board of Investment (BOI) is structured to function as a central facilitation point for investors, providing advice and assistance at every stage of the investment process. It is promoted as "the only organisation an investor needs to contact".

Here investors can obtain information on the investment opportunities in Sri Lanka and the incentive packages on offer. Prospective investors are required to submit a formal application to the BOI. The form has two components:

• Approval of investment
• Approval of site

If the project has met the necessary conditions, a Letter of Approval will be issued, which informs the investor of the conditions, privileges and benefits granted. On receiving the Letter of Approval, the applicant must respond, in writing, agreeing to the terms and conditions.

For the agreement to be finalised investors are required to incorporate the business as a company with the Registrar of Companies. The Letter of Approval from the BOI is sufficient to confirm to the Registrar that the foreign investment has been officially approved. The formal Agreement is usually signed within the period stipulated in the Letter of Approval. The Agreement will confirm the incentives and concessions the company will be entitled to under Section 17 of the BOI Act.

Source: Board of Investment Sri Lanka

For further information, please go to our Sri Lanka products to market/setting up a company's section

Types of companies

There are 7 types of companies in Sri Lanka:

• A Private Companies must consist of at least two and not more than fifty members. It must have at least one director
• A Public Companies must consist of at least seven members are required to form a public company. It must have at least two directors
• Offshore Companies: a company registered within or outside Sri Lanka may register itself in Sri Lanka as an offshore company to carry on any business outside the shores of Sri Lanka
• Subsidiaries: to establish a business in Sri Lanka foreign companies can incorporate as a local subsidiary company
• Branches: a company incorporated outside Sri Lanka may establish a place of business in Sri Lanka by registering a branch office with the Registrar of Companies
• Liaison/Representative Offices: a company incorporated outside Sri Lanka may maintain its presence in Sri Lanka through a representative office, and is of similar status to that of a branch office
• A Joint Venture Company can be with other Sri Lankan companies or foreign entities.

Source: Board of Investment Sri Lanka

Approvals/clearances required for new projects

Following the practice of most countries, Sri Lanka has a list of business activities, which restrict foreign investment and require approval by other statutory agencies. The degree of restriction varies across different areas of investment.

Foreign investment is not allowed in the following areas:

• Money lending
• Pawn broking
• Retail trade with a capital investment of less than US$1mn
• Personal services other than for export or tourism
• Coastal fishing
• Education of students who are citizens of Sri Lanka and not over 14 years of age
• Award of local educational degrees

Foreign investment is allowed with automatic approval up to 100 per cent of equity in all business activities other than those included above.

Source: European Commission - Asia Invest Programme

Taxation

Sri Lanka has a transparent, low-tax regime, and has signed double taxation relief agreements with 26 countries. These agreements provide for reduced tax rates on dividends, interest and royalties.
All Sri Lankan businesses, except for BOI companies and enterprises that qualify for special concessions under the Inland Revenue Law, are liable to taxation.

Double Tax Relief Agreements signed between Sri Lanka and other countries provide for reduced tax rates on dividends, interest and royalties. Recently completed agreements include special provisions to ensure that foreign investors receive the benefits arising from the various tax incentives.

• Corporate Tax

1. Resident and Non-Resident companies are liable to a corporate income tax of 35 per cent. These rates are in line with those in other fast developing Asian economies.
   
   
2. Non-resident companies (companies whose head offices are located overseas, or are controlled from abroad) pay an additional tax of one-third of remittances abroad or one-ninth of taxable profits - whichever is less. Remittances exclude dividends for this purpose.
   
   
3. BOI companies that meet specific criteria i.e. size of total investment, type of investment and location of investment, qualify for tax holidays ranging from 5-12 years. In addition, a concessionary rate of income tax of 15% up to a maximum period of 20 years is also extended to these companies.

• Dividends

Dividends declared out of tax-exempt profits during the tax holiday period and one year thereafter, is tax free. A withholding tax of 15% on dividends applies to all companies other than quoted public companies. This can be credited against the individual income (10%) tax of the shareholders. Quoted public companies have to deduct the 10% withholding tax on dividends paid to non-resident shareholders

• Personal Income Tax

1. Resident individuals pay personal income tax on a sliding rate scale up to a maximum of 35% of their income. The first Rs.300,000 per annum is exempt from income tax.
   
   
2. Non-citizens of Sri Lanka who are employed in qualifying BOI companies pay a concessionary tax of 15% of their Sri Lankan source income. This benefit, with the exception of BOI approved "flagship" projects, is restricted to the expatriate's first five years of employment.

• Value Added Tax

The goods imported into Sri Lanka and goods and services supplied within the territorial limits of Sri Lanka are the subject mater of this tax. It is a multi stage tax levied on the incremental Value at every stage in the production and distribution chain of Goods and Services. The tax is borne by the final or the ultimate consumer of Goods or services.

It is an indirect tax and the Government will receive at the end, through all the intermediary suppliers in the chain of production and distribution, an amount equal to the amount paid by the final consumer.

VAT is not charged on certain imports and on retail and wholesale supply of goods. There are certain supplies of goods and services, which is exempt from VAT.

Source: Board of Investment Sri Lanka

Labour Rules/Regulations

The main pieces of legislation governing the termination of employment in Sri Lanka are The Termination of Employment of Workmen Act, 1971 amended in 2003 and The Industrial Disputes Act, 1950 amended in 2003, but the main labour laws are:

• The Workmen's Compensation Ordinance, 1934
• The Trade Unions Ordinance, 1935
• The Maternity Benefits Ordinance, 1939
• The Wages Boards Ordinance, 1941
• The Shop and Office Employees' act, 1954
• The Employment of Women, Young Persons, and Children Act, 1956
• The Employees' Provident Fund Act, 1958
• The Employees' Trust Fund Act, 1980
• The Payment of Gratuities Act, 1983

Source: Inland Revenue Department

For further information, please go to our Sri Lanka Product to market/employment law's section

Intellectual Property Rights

All trademarks, designs, patents and copyrights need to be registered with the Registry of Patents & Trade Marks.

A patent granted in respect of inventions is valid for a period of 15 years. Registration of a trademark is valid initially for 10 years & can be renewed for consecutive periods of 10 years.

Sri Lanka is a signatory to several international conventions & treaties on Intellectual Property. They are:

• The Paris Convention for the Protection of industrial property
• The Madrid Agreement for the repression of false or deceptive indication of source on goods
• The Nairobi Treaty
• The Patent Cooperation Treaty
• The Universal Copyright Convention
• The convention establishing the WIPO
• The Agreement on TRIPS
• The Trade Mark Law Treaty'

Source: UK Trade and Investment

For further information, go to our Sri Lanka useful info/Intellectual Property Right's section

Last update: November 2008 

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