Sri Lanka was the first in the South Asian region to promote foreign investment. Foreign investment is an important element in Sri Lanka's economic growth and is therefore actively encouraged. Approval is required from the Board of Investment (BOI) prior to the establishment of a foreign business venture in Sri Lanka. The BOI is an autonomous agency and is the primary government body responsible for foreign investment. Under Section 17 of the BOI law, BOI grants concessions to companies satisfying certain eligibility criteria. Investors are provided with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100% repatriation of profits & capital. Attractive tax incentives are available for Investors, depending on the Industry & capital investment in Sri Lanka, such as Tax Holidays & Tax concessionary rates, duty exemptions.
An export oriented enterprise, which has entered into an Agreement with the Board of Investment of Sri Lanka (BOI) under section 17 of the BOI Law and granted exemptions from exchange control regulations may: Open and operate a foreign currency account with any foreign currency Banking Unit (FCBU) of a commercial bank. Borrow offshore. Open and operate a Sri Lankan currency account with any commercial bank.
Under Section 16 of the BOI law, The Sri Lankan government permits up to 100% foreign participation in many sectors of the economy, and the BOI provides automatic approval for such investments. Investment in certain restricted sectors is subject to screening and approval is given on a case-by-case basis if the foreign investment exceeds 40%. The BOI is the only organization a foreign investor should contact & its services include providing advice & assistance at every stage of the Investment process. The services provided by BOI are:
Information & guidance for project application procedure, coordinating approvals from other Agencies
Providing assistance during start-up, site selection, advising on factory buildings /technical matters, arranging support services e.g. Water, power, waste treatment & telecommunication etc.,
In the recent past investing in the Capital & Share Market in Sri Lanka has shown a rapid growth. The Securities and Exchange Commission (SEC) regulates the securities market in Sri Lanka & grants License to Stock Exchanges, Stockbrokers & dealers etc. Foreign investors can freely purchase up to 100 percent of equity in Sri Lankan companies in permitted sectors. In order to facilitate portfolio investments, country funds and regional funds are also allowed to invest in Sri Lanka's stock market after prior approval. These funds should make transactions through Share Investment External Rupee Accounts maintained in commercial banks (SIERA).
The Colombo Stock Exchange (CSE), while small by big emerging market standards, is one of the most efficient in the region. A fully computerized clearing and settlement system was introduced through the establishment of a Central Depository System (CDS) in1991. In 1997, the CSE commissioned a state of the art computer based automated order matching system. The CDS was linked real time with the automated trading system. These developments placed the CSE alongside the most technologically advanced exchanges in the world. In 1998 CSE became the first South Asian member of the world federation of Stock Exchanges. The CDS also gained the membership in the Asia-Pacific Central Securities Group (ACG) in the same year.
The CSE officially launched its Debt trading System (DEX) in March 2004. DEX enables the trading of corporate debt instruments and the beneficial interest of Govt. bonds and treasury bills through the exchange. DEX has advanced features such as scripless trading real-time exposure management, multiple settlement cycles and compatibility with web based technologies. Fifteen local and foreign joint venture brokers currently operate at the CSE.
Foreign Investments in real estate in Sri Lanka, including interest in properties, do not require any approvals. However, a 100% Transfer Tax on the value of the property is payable, except in the purchase of condominium properties above 3rd floor, acquisition of land for development for more than 100 residential units, for Hospitals, infrastructure and non citizens maintaining over US$ 150,000 in Foreign Currency Government securities Accounts.
In a like manner, in the case of a Company, if more than 25% of the issued Share Capital is held by non-citizens, the company is liable to pay this 100% transfer tax.