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.
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