Sri Lanka law currently restricts foreigners’ freehold purchases of land and non-apartment property through Sri Lanka incorporated companies, which have at least 51% of shareholders who are Sri Lankan citizens (or dual citizens).
Non-Sri Lankans are currently required to purchase freehold property (except apartments) through a well-established structure, via a locally incorporated company especially set up for them by their lawyer. The structure has several features to safeguard the buyers’ complete control and interests.
Typically, the foreign investor owns 49% of the property holding company and a local Trustee owns 51%, but grants all legal powers and custody of the 51% shareholding to the foreign investor.
Foreigners purchasing property through their 49% owned, locally-ncorporated company may also enjoy tax advantages on rental income and capital gains.
A foreign buyer will incur the costs of setting up a local company for the purchase. This could range from USD 2,000 to USD 5,000, depending on the lawyer.
The Sri Lanka government has announced its intention to liberalise the laws that currently restricts non-Sri Lankan individuals’ direct ownership of freehold land and non-apartment property
Property buying costs
Legal Costs: Conveyancing (Property Purchase)
Typically 1% to 3% of the property value
The costs of the buyers and seller’s lawyers attending to conveyancing are generally split equally between the buyer and seller.
4% of the property value
To be done by a government assessor, organized by your lawyer or agent.
Real Estate Agent’s Fee
Typically 3% to 5% of the property value
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.
Rates and Taxes
4% of assessed value of property
At transfer of title / commencement of ownership, paid to relevant provincial council.
15% of item or service
At time of transaction, levied on many items and services including property leases / rentals.
Nation Building Tax (NBT)
2% of item or service
Generally accompanies VAT-eligible items or services
Generally 15% of assessed rental value
Quarterly, paid to local council or municipality
Scaled up to 24% of profits and income generated by a resident
Paid to the Department of Inland revenue (central government). Interest income is generally collected as source, as a Withholding Tax
Capital Gains Tax
10% of the gain on the sale of property. Not applicable if property ownership is via a company and ownership transferred via sale of shares in that company
Paid to central government. Incurred when property sold.