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
• Education
• 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
• Lotteries
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
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