The main measurement unit in Sri Lanka is a perch.
1 Perch = 25.29 Sqm = 272.21 Sq Ft
1 Acre = 160 Perches = 4 Roods = 4,000 Sqm
There are two types of property tenure in Sri Lanka:
The terms of leases granted by the government and/or private individuals may vary and may depend on the purpose for which the land is to be used and the agreement between the parties.
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These two don’t really compare at all. The one advantage of renting is being generally free of most maintenance responsibilities. But by renting, you lose the chance to build equity, take advantage of tax benefits, and protect yourself against rent increases. Also, you may not be free to decorate without permission and may be at the mercy of the landlord for housing.
Owning a home has many benefits. When you make a mortgage payment, you are building equity. And that’s an investment. Owning a home also qualifies you for tax breaks that assist you in dealing with your new financial responsibilities- like insurance, real estate taxes, and upkeep- which can be substantial. But given the freedom, stability, and security of owning your own home, they are worth it.
It’s not required, but it’s a good idea. Following the inspection, the home inspector will be able to answer questions about the report and any problem areas. This is also an opportunity to hear an objective opinion on the home you’d like to purchase and it is a good time to ask general, maintenance questions.
Listen to your real estate agent’s advice, but follow your own instincts on deciding a fair price. Calculating your offer should involve several factors: what homes sell for in the area, the home’s condition, how long it’s been on the market, financing terms, and the seller’s situation. By the time you’re ready to make an offer, you should have a good idea of what the home is worth and what you can afford. And, be prepared for give-and-take negotiation, which is very common when buying a home. The buyer and seller may often go back and forth until they can agree on a price.
Your real estate agent will assist you in making an offer, which will include the following information:
Remember that a sale commitment depends on negotiating a satisfactory contract with the seller, not just making an offer.
Generally paid by the seller.
A buyer’s fee may apply if an agent acts as a buying agent.
It is advisable to clarify at the outset whether the seller, buyer or both parties are liable for an agents’ fee.
There is a 1% Stamp Duty for leasing land up to 99 years.
If buying a property, there will be a 3% Stamp Duty on first 100,000 and 4% thereafter. A lawyer will typically charge 1-3% for preparing the documents.
Anyone leasing out a property to a foreigner or local will need to pay a 1% stamp duty when the rent is collected. VAT is payable at 15% if the lease is to a VAT Registered person, other than on residential premises. Further, the sale of land & buildings other than residential premises will also be liable to VAT at 15% on the value.
Assessment rates are payable to the local authority of the area where the land is situated. This would be calculated on the basis of an annual value given by the local authority after an inspection/valuation of the property. Assessment rates are payable quarterly.
In addition, there are certain charges payable to the Urban Development Authority (UDA). However, UDA charges are not applicable to all premises and would be payable depending on the nature and use of the premises.
Stamp duty on a deed of transfer is as follows:
3% for the first USD 751 (LKR 100,000)
4% for every USD 751 (LKR 100,000) or part thereof Stamp duty on a lease agreement is USD 0.1 (LKR 10) for every USD 7.5 (LKR 1,000) or part thereof. Additionally, 15 % of the total rental is payable by way of
Land Tax in the following cases:
A. To a foreign individual
B. A foreign company
C. A company incorporated in Sri Lanka where any foreign shareholding in such company either directly or indirectly is 50% or above
A lesser rate of 7.5% of the total rental is payable as LandTax in the following cases:
A. Lease of land to a company incorporated in Sri Lanka (direct or indirect foreign shareholding exceeding 50%) which has been in active operation in Sri Lanka for a consecutive period of 10 years immediately prior to the lease
B. Land transferred to a subsidiary if the holding company (incorporated in Sri Lanka and which in turn is held more than 50% by a foreign company) has been in active operation for a consecutive period of 10 years immediately prior to the lease and the holding in the subsidiary is more than 50%
C. Condominium parcels situated on or above the fourth floor where the period of lease is less than 35 years
D. Condominium parcels situated below the fourth floor where the period of lease is more than 99 years
E. Lease of land in a Special Licensed Zone. Tourist Development Area, Industrial Estate or any areas declared by the Minister
F. Lease of land by a company where the Cabinet of Ministers decides having taken into consideration that a substantial foreign investment has already been realised by such Company into the related sector that such reduced tax rate is justifiable in order to ensure level playing field among its competitions in the related sector Exemptions from the lease tax A.
A. Lease of land to
• Diplomatic Missions of another State or International, Multilateral or Bilateral Organization recognised within the meaning of the Diplomatic Privileges Act
• Dual citizens of Sri Lanka
• A foreign investor in consequent to a decision of the Cabinet taken prior to January 1, 2013 involving direct investment of foreign currency, as per the related agreement on such investment, and structured on the basis of any written law governing the tax regime prior to January 1, 2013 and has ensured compliance by making inward remittances to Sri Lanka.
B. Long term lease (more than 35 years) of a condominium parcel situated on or above the fourth floor provided the lease rental for the full period is paid through foreign inward remittance
C. Lease of land in a Bonded Area or a Free Port
D. Lease of land with the Special Cabinet approval and order published in Gazette by
• Strategic Development Projects engaged in certain sectors
• Foreign company engaged in international commercial operations where land is leased to locate or relocate its global or regional operations or to setup a branch office Stamp duty is usually payable in the event of a transfer by the purchaser and in the event of a Lease Agreement by the lessee, unless the lessor and the lessee have an agreement to the contrary.
The consent of the Controller of Exchange is required in the event of any transfer of property by a non-resident. Persons who are deemed to be non-residents are defined in Gazette No. 15007, dated April 21, 1972 and published under the provisions of the Exchange Control Act. Consent is required for:
• The parties to proceed with the sale of the property and to make payment to a non-resident
• The non-resident who received payment to remit the proceeds out of Sri Lanka
As a result of recent relaxation in exchange control regulations, general permission has been granted to Sri Lankan resident buyers to make payments to non-residents of Sri Lankan origin in respect of the purchase of a real estate. However, nonresidents are still required to obtain consent for the remittance of the sale proceeds outside of Sri Lanka.
If a non-resident sells or transfers an immovable property in Sri Lanka, the proceeds of such a sale would not be remittable in full. The non-resident would be permitted to remit the proceeds
to the extent of the amount brought into Sri Lanka by way of inward remittances at the time of the non-resident’s purchase of that property.
In the case of Sri Lankan emigrants, in accordance with the current rules and with the consent of the Controller of Exchange, an initial remittance of USD 150,000 (LKR 20 million) is permitted, followed by a subsequent remittance of USD 20,000 (LKR 2.7 million) annually.
Sri Lanka, a functioning market economy, apart from having ‘Investment Protection Agreements’ and ‘Double Taxation Relief Agreements’ with many countries plus ‘Free Trade Agreements’ with India and Pakistan, also offers competitive incentives for foreign investment.
Key incentives are provided to investors who register with the Board of Investment of Sri Lankan (the BOI) under section 17 of the Board of Investment Law No. 4 of 1978, based on whether the investment constitutes a) small, medium or large-scale investment; b) project expansion; or c) strategic import replacement (identified as fabric, pharmaceuticals, milk powder, cement) enterprise/expansion. There are also different qualifying criteria and tax incentives for different sectors, such as manufacturing, agriculture and services. Incentives that may be provided by the BOI range from the grant of tax holidays; duty free imports for capital goods and raw materials (for export oriented services); exemption from Value Added Tax; Customs Duty and Port and Airport Development Levy (PAL); and exemptions from Exchange Control restrictions.
Investments identified by the BOI as a strategic development project under the Strategic Development Projects Act No. 14 of 2008 (as amended) would be eligible for full or partial exemptions on Income Tax, Value Added Tax, and other special concessions up to a maximum of 25 years.
Some sectors are not open for foreign investments or may be subject to government approval and/or regulations. Foreign investors are advised to check the website of BOI to see if their business falls into these sectors.
Enterprises which, in terms of the Agreements entered into with the BOI engage in a) entrepot trade involving import, minor processing and re-export; b) off shore business; c) providing front-end services to clients abroad; d) headquarters operations of leading buyers for the management of the finance supply chain and billing operations; (e) logistic services such as bonded warehouse or the operation of multi-country consolidation in Sri Lanka; are entitled to considerable tax exemptions under Sri Lanka’s Finance Act of 2013. Such exemptions are in addition to those ertaining to the Customs Ordinance (subject to specified exceptions); Import and Export Control Act and the Exchange Control Act.
Sri Lanka welcomes foreign investors. Further information relating to foreign investment incentives can be found on the website of BOI – Invest in Sri Lanka.
Transfer of land is prohibited to the following:
A. A foreign individual
B. A foreign company
C. A company incorporated in Sri Lanka, where any foreign shareholding in such company either directly or indirectly is 50% or above
It is relevant to note that where the foreign shareholding is directly or indirectly above 50%, such a company would fall within the definition. Accordingly, formation of a subsidiary company by a company where a foreign hareholding is over 50% for the purpose of purchasing immovable property would not be permitted.
Land is defined to mean any state or private land and includes any interest in land covered with water and any house or building that stands on that land.
The following transfers are exempted from the application of the law:
Transfer of land to
• Diplomatic missions of another state or international, multilateral or bilateral organization recognised within the meaning of the Diplomatic Privileges Act
• A condominium parcel situated on or above the fourth floor (excluding the ground floor and any common floor) of a building, provided that the entire value is paid up front, through an inward foreign remittance prior to the execution of the relevant deed of transfer
• A foreign investor, in consequent to a decision of the Cabinet taken prior to January 1, 2013 involving direct investment of foreign currency, as per the related agreements on such investment, and structured on the basis of any written law governing the tax regime prior to January 1,2013 and has ensured compliance by making inward remittances to Sri Lanka
• Land transferred by intestacy, gift or testamentary disposition to a next of kin (who is a foreigner) of the owner of such land
• Dual citizens of Sri Lanka
• Land transferred to any bank, in which any foreign shareholding is fifty percent or above:
– At any auction conducted by such bank in terms of the Recovery of Loans by Banks (Special Provisions) Act or Mortgage Act, in the discharge of a mortgage of such land to such bank
– In execution of a decree of court to enforce the recovery of a loan given by such bank
• Land transferred to any financial institution
– Where such land has been mortgaged to such institution
– To execute a lease and an agreement to sell or a loan and an agreement to sell
– In execution of a decree of court to enforce the recovery of a loan given by such institution
Any transfer to a company between the period commencing on January 1, 2013 and ending on the date the Land Act was certified, if such company has been in active operation in Sri Lanka for a period of not less than 10 consecutive years prior to the date of transfer of such land.
Effects of increasing foreign shareholding:
A. Where land is transferred to a company incorporated in Sri Lanka with less than 50 percent foreign shareholding, such company cannot increase the foreign shareholding to 50 percent or above for a consecutive period of 20 years from the date of such transfer.
B. If the foreign shareholding is so increased, the transfer of land will be void and shall have no effect in law.
C. The Land Act, however, allows a company to rectify an increase of the foreign shareholding. A company listed in the Colombo Stock Exchange (with a minimum of 200 shareholders – Diri Savi Board or 1,000 shareholders – Main Board), is allowed 12 months, and any other company is allowed 6 months, from the date of increasing its foreign shareholding to reduce the foreign shareholding. If the foreign shareholding is so reduced, the transfer of land shall be deemed to be legally valid, with effect from the date of restoring the foreign shareholding of such company to less than 50 percent.
Restrictions on mortgaging
Any land transferred or leased to a foreigner (under the exemptions provided for above) cannot be mortgaged or pledged for a period of five years, with effect from the date of execution of the relevant instrument after the date on which the certificate of speaker is endorsed in respect of this Act.
Where land is transferred to a company that is less 50 percent shareholding, the company secretary should furnish the Registrar of Lands with a certificate to the effect that foreign shareholding is less than 50 percent, and the secretary should inform every six months from the date of registration of the relevant deed that the foreign shareholding has not exceeded 50 percent.
A residency visa cannot be obtained by simply buying a property. However, Foreigners who invest over USD 250,000 will be allowed residence visa in Sri Lanka under the Resident Guest Scheme Visa programme and anyone over 55 years old can obtain a 2-year renewable visa under the My Dream Home Visa Programme by depositing only USD 15,000.
If a foreign resident wants to purchase a property, then the money will need to be channeled in to the country via a special SIA (Securities Investment Account), held at a local bank. Once the property has been sold, the money can be taken out (plus any gains) via the same account in the currency that the money was deposited in. If you currently own a property where the money hasn’t been brought via a SIA account (eg. inherited, bought while a citizen of Sri Lanka), then there’s an annual limit of $20,000 when taking the money out of the country. You could still take the money out at once, if the source of the money can be proven to the bank and Central Bank (this whole process will take a few months to complete).
The government will allow $45,000 to be brought in to the country without declaring the source (Budget 2017)
The budgets of 2017 & 2018 have proposed that foreigners be allowed to borrow money from local banks for the purchase of condominiums (up to 40%).
In Sri Lanka, there are two different ways to rent a property, according to legal differences in the terms of a contract. You can have a “Tenancy” agreement, or a “Lease” contract. If the rental property is also governed by the Rent Act, the rules, terms and power of the landlord or tenant will differ.
For properties that are covered by the Rent Act, the law tends to be in favour of the tenant in Sri Lanka. For properties not covered by the Rent Act, the law tends to favour the landlord.
The Rent Act governs all properties in Sri Lanka, except in the cases highlighted below:
A tenancy is a rental with a non fixed term, and so is an agreement, that is not necessarily written. The tenancy agreement can be defined as the authorisation (from the Landlord) of use of his property to the tenant.
Both parties can break the contract freely, if it is announced with at least one month’s notice. If there is dispute, this may include legal intervention to evict the tenant. If the property is not governed by the Rent Act, the terms of the tenancy agreement (including deposit amount, terms of payment, method of payment etc) are discussed, negotiated, and agreed freely between the parties (tenant and Landlord). Tenancy agreements are not subjected of any fine or tax, unlike Lease contracts, which are taxed at 1 %.
With this kind of contract, it is advisable to write an official copy of the agreements, that is signed by both parties. Notary services should be used to ensure greater security in the renting process.
If the property is governed by the Rent Act, then the renting price is set against the value which has been given to the property by the state.Tenancies under the Rent Act, give more power to the tenants. The landlord cannot freely end the contract unless he has one of the following legal reasons:
Unless at least one of these situations occurs, the landlord is not legally allowed, under the Rent Act, to cease the Tenancy contract.
The lease contract is a legal contract recognised by the local law (Roman Dutch Law). It is the most secure way to possess (for a limited amount of time) and use a property owned by another entity. The lease contract is a fixed time agreement, and the lease period should be clearly expressed in the written contract.
The contract can be defined by a “pro tanto alienation of the land/property,” but this option requires far more procedure, and includes several administrative tasks.
If the property is not governed by the Rent Act, the landlord and tenant can freely agree on all points of the lease contract. This still gives a lot of leeway to negotiate prices and conditions. If this is not the case, and the property is governed by the Rent Act, it is forbidden to pay a deposit greater than the value of 3 month’s rent, any gratuity or commission.
The lease contract has to be signed by both parties in front of two witnesses and a notary. In order to legally protect the tenant, the lease has to be registered at the land registry. When leasing a property, you have to ask the Landlord you are in contact with, to provide a Certificate of Conformity (a document that legally states that the premises can be lawfully occupied).
In order to avoid any scam as an expat, it is advised to hire a lawyer, who can check the reliability of the offer and of the legal documents as the Property’s Certificate of Conformity. This will include checking whether the property is encumbered or not, duly and officially registered, and of course, if the property legally belongs to the Landlord.
With regards to the legal situation of the property, the deposit and agreements of the rental contract are more or less freely chosen and agreed. In any renting contract, it is important to cover the following points:
Normally, even under the Rent Act, the rent is paid monthly, and there is a deposit given to the Landlord. The usual termination notice of the contract is one month. As explained earlier, all general terms of the contract can be discussed and agreed. When renting a property not governed by the Rent Act, you should also be able to negotiate the price. The landlord is legally free to rent his accommodation to who he wants, at the price he wants. Some new rules were added to the Rent Act in 2002, though in Sri Lanka, the landlord’s control on his property is quite limited as the tenant is favoured.
Foreign entities can, subject to the restrictions imposed by Sri Lanka’s Exchange Control laws, establish a business presence in Sri Lanka by:
• Incorporating a fully owned subsidiary or a company in which it has majority control or a minority stake
• Acquiring shares in an existing Sri Lankan company
• Registering as an overseas company
Sri Lanka also permits registration of offshore companies with investment concessions provided under regulations governing ‘commercial hub operations.’ The applicable procedural requirements in the above cases involve registering of relevant statutory forms and constitutional documents with the Department of the Registrar-General of Companies of Sri Lanka on payment of stipulated fees.
In terms of Sri Lanka’s Exchange Control laws, foreign investment in local companies must be remitted into the country via a Securities Investment Account [SIA] to be opened with any local commercial bank. Repatriation of 100 percent of profits arising from business carried out in Sri Lanka is permissible without restriction. However, in compliance with Sri Lanka’s Exchange Control laws, such repatriation must be routed via the SIA being the account from which the original investment had been remitted to Sri Lanka by the foreign investor.
Companies incorporated in Sri Lanka and registered overseas companies are, during the course of their corporate existence or registration, respectively, subject to continuous public disclosure obligations imposed by way of filings with the Department of the Registrar-General of Companies of Sri Lanka.
The registration or licencing requirements for commercial entities in Sri Lanka would be dependant also on the type of industry and business that the foreign investor would be engaged in.
Sri Lanka’s Exchange Control laws restrict a) foreign ownership of shares (including ordinary shares arising on a conversion of debentures and also preference shares held by foreign investors in companies classified as Specified Business Enterprises) of Sri Lankan companies engaged in protected business sectors and b) the type of commercial, trading or industrial activities that may be carried out in Sri Lanka by registered overseas companies.
Prevailing Exchange Control regulations restrict up to 40 percent foreign ownership of shares of local companiesengaged in any of the following areas of activities (unless the approval of the Board of Investment of Sri Lanka has been granted for a higher percentage of foreign equity investment):
• Production of goods where Sri Lanka’s exports are subject to internationally determined quota restrictions
• Growing and primary processing of tea, rubber, coconut,cocoa, rice, sugar and spices
• Mining and primary processing of non-renewable national resources
• Timber-based industries using local timber
• Fishing (deep sea fishing)
• Mass communications
• Freight forwarding
• Travel agencies
• Shipping agencies
Foreign ownership of shares of local companies carrying on or proposing to carry on business in the sectors set out below is permitted only up to the percentages that have been approved by the Sri Lankan government or any legal or administrative authority set up for approving such investment:
• Air transportation
• Coastal shipping
• Industrial Undertaking in the Second Schedule of the
Industrial Promotion Act No. 46 of 1990, namely a) any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment aircraft and other military hardware; b) any industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, hazardous or carcinogenic materials; and c) any industry producing currency, coins or security documents
• Large-scale mechanised mining of gems
The following areas are completely restricted to investment only by Sri Lankans:
• Money lending (other than the business of providing credits to investors to purchase securities of a listed company by a company registered as a margin provider in terms of section 19(A) of the Securities and Exchange Commission of Sri Lanka Act No. 36 of 1981, as amended)
• Pawn broking
• Retail trade with a capital of less than USD 1 million (LKR 133.5 million)
• Coastal fishing
• Provision of security services, including security management, assessment and consulting to individuals or private organisations Foreign entities seeking investment incentives, such as exemptions from Exchange Control regulations, concessions from customs duty, tax holidays, etc. should secure registration under section 17 of the Board of Investment Law No. 4 of 1978 or have their investment identified by the Board of Investment of Sri Lanka as a strategic development project under the Strategic Development Projects Act No. 14 of 2008 (as amended).
Eligibility is based on the foreign investment value and the importance of the investment sector to the Sri Lankan economy and other stipulated criteria. In relation to foreign employment estrictions in Sri Lanka, foreign nationals are not permitted to be employed unless it can be established proved that their expertise is essential to the national economy. All foreigners working in Sri Lanka must obtain valid visas therefore
Some of the main legislations are as follows:
• Land (Restriction on Alienation) Act No. 38 of 2014
• Apartment Ownership Law No. 11 of 1973, as amended
• Ceiling on Housing and Property Law
• Prevention of Frauds Ordinance
• Registration of Documents Ordinance
• Stamp Duty Act
• Land Reform Law
• Registration of Title Act No. 21 of 1998
Subject to the restrictions on the transfer of land under the Land (Restrictions on Alienation) Act (‘the Land Act’), property can be owned either by the state, by private individuals or by corporate entities. In respect of private land, ownership is obtained by the execution of deeds of transfer or gifts in the presence of a notary public and two witnesses, in accordance with the provisions of the Prevention of Frauds Ordinance.
All other transactions in respect of land, such as leases,mortgages and other dispositions, should also comply with the provisions of the Prevention of Frauds Ordinance. Accordingly, such documents would have to be executed before a notary public and two witnesses. The executed instrument would have to be registered under the provisions of the Registration of Documents Ordinance. In Sri Lanka, registration under the Registration of Documents Ordinance is not a prerequisite to confer validity on such deeds, but only provides priority. The document is valid upon execution and notarization of same.
The government has also enacted the Registration of Title Act No.21 of 1998, which is not in operation in full throughout the island as yet. Under this Act, registration of title has been introduced in pursuance of which once the certificate of title has been registered; such registration would be proof of the ownership of the land in respect of which such title has been granted.