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.