Doing Business in Sri Lanka

STARTING A BUSINESS

Sri Lanka's Board of Investment (BOl) is the main investment promotion agency in Sri Lanka and is
first stop for any foreign investor. Approval is required from the BOI prior to the establishment of a
foreign business venture in Sri Lanka. The BOI is located at:
Board of lnvestment of Sri Lanka
Level 25, West Tower, World Trade Center,

Colombo 01,
Sri Lanka.

Tel: (+94 Ltl2427060 (+94 11) 2427O6O/2434403-s

Fax: (+94 tL|2422407
E-Ma il : infoboi@ boi.lk

The services provided by BOI are:

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Information & guidance for project application procedure, coordinating approvals from
other Agencies.
Evaluating applications, granting approvals, with concessions where applicable.
Providing assistance during start-up, site selection, advising on factory buildings /technical
matters, arranging support services e.g. Water, power, waste treatment &
telecommunication etc.,
Making recommendation to lmmigration Authorities for issuing Resident Visas.
Facilitating lmport/Export clearances
Advising on Environmental norms/approvals
Assistance in good Industrial relations & formation of Employees' councils.

Section 17 of BOI Act provides for the following two types of investment approvals:
Under Section 17 of the Act, the BOI is empowered to grant special concessions to companies
satisfying eligibility criteria, which are designed to meet strategic economic objectives of the

government.
Under this route, investors are provided with preferential tax rates, constitutional guarantees on
investment agreements, exemptions from exchange control and LOO% repatriation of profits &
capital. Attractive tax incentives are also offered to Investors, depending on the nature of
investment, 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 (BOl)
Under section 17 of the BOI Law and granted exemptions from exchange control regulations may:

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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.
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Under Section 16 of the BOI Act, permits foreign investment entry to operate only under the
'Normal laws' of the country; that is, for such enterprises, the provisions of Inland Revenue,
Customs and Exchange Control Laws shall apply. Under this route, also, the Sri Lankan
government may permit 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%.
According to the BOl, for the purpose of granting approvals and incentives, companies
incorporated in Sri Lanka are treated equally regardless of whether the shareholding is
controlled by nationals or non-nationals.

SETTING UP WITH THE BOI

Starting out
The BOI's Promotion Department is the first stop for a foreign investor. Here investors can obtain
information on the investment opportunities in Sri Lanka and the incentive packages on offer.

Obtaining Approvals
For regulated sectors the BOI forurards the duly completed application form to the relevant
authorities who will recommend the approval of foreign investment.
A Letter of Approval will be issued, which informs the investor of the conditions, privileges and
benefits granted. On receiving the Letter of Approval, the applicant must respond, in writing,
agreeing to the terms and conditions.
Finalizing the Agreement

to be finalized investors are required to incorporate the business

with the Registrar of Companies and submit the following documents to the BOI:
For the agreement

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as a company

Memorandum and Articles of Association

Name of Company Secretary
Location of the registered office
Particulars of directors
List of machinery and equipment required for the project
The Letter of Approval from the BOI is sufficient to confirm to the Registrar that the foreign
investment has been officially approved.

The formal Agreement is usually signed within the period stipulated in the Letter of Approval. The
Agreement will confirm the incentives and concessions the company will be entitled to under
Section 17 of the BOI Act.

IMPTEMENTATION PROCEDURE FOR BOI PROJECTS

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Site Selection
Site Approval

Environment Protection Licence

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Building Plan Approval

Purchase of Construction Materials
Purchase of Capital Equipment and Raw Materials
lmport of Project Related Goods and Export of Finished Goods

UtilitiesandTelecommunications

Visas and Work Permits

Organisations intending to employ expatriate personnel must obtain a letter of recommendation
from the BOl. This letter must then be submitted to the Department of lmmigration and Emigration
to obtain necessary visas and work permits. Visas can be renewed on the recommendation of the
Appraisal Department. lt is important to note that investors should arrive in Sri Lanka using an entry
visa and not by a visit/tourist/business visa.

REGISTRATION OF A COMPANY - Type of Companies

Private Companies: A private company must consist of at least two and not more than fifty
members. lt must have at least one director. A private company cannot invite public subscription for
its shares.
Public Companies: At least seven members are required to form a public company (there is no upper
limit). lt must have at least two directors. Public companies may invite public subscriptions for their
shares or debentures and other securities, and can also be listed on the stock exchange. They cannot
commence business without a business commencement certificate.

Offshore Companies: A company registered within or outside Sri Lanka may register itself in Sri
Lanka as an offshore company to carry on any business outside the shores of Sri Lanka. lf a company
registered outside Sri Lanka registers itself as an offshore company, it is deemed to have been
incorporated in Sri Lanka. An offshore company cannot conduct any business in Sri Lanka
Subsidiaries: To establish a business in Sri Lanka foreign companies can incorporate as a local
subsidiary company. Following incorporation, a subsidiary in Sri Lanka must comply with all statutory
requirements imposed on domestic companies.
Branches: A company incorporated outside Sri Lanka may establish a place of business in Sri Lanka
by registering a branch office with the Registrar of Companies. Applications for registration must be
made within one month of establishing a place of business in Sri Lanka. Generally approval from the
relevant line ministry would be required before the registration can be completed. The liability of a
branch extends to its foreign assets.

Liaison/Representative Offices: A company incorporated outside Sri Lanka may maintain its
presence in Sri Lanka through a representative office, and is of similar status to that of a branch
office. lt is however, prohibited from engaging in any trading or investment activity or accruing any
turnover in Sri Lanka. No tax incident arises since it is not permitted to trade. Therefore, the
question of permanent establishment is not relevant.
Joint Venture Company: A joint venture can be with other Sri Lankan companies or foreign entities.
A joint venture business may be incorporated or carried on as an unincorporated business similar to
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EXCHANGE CONTROT SYSTEM

All foreign investments in Sri Lanka are governed by the Exchange Control Regulations. These
regulations permit up to a 100% investment for non-residents in non-regulated areas. In regulated
areas, a 40% restriction for non-residents remains unless a higher percentage has been approved by
the BOI or the relevant Ministry of the Government. Certain limitations exist with regard to
investments in retail trade, money lending, provision of management services and coastal fishing.

There are no barriers, legal or otherwise, to the remittance of corporate profits and dividends for
foreign enterprises doing business in Sri Lanka. Remittance of business fees (management fee,
royalties and licensing fee) is also freely permitted for companies with majority foreign investment
approved under Section 17 of the BOI Act. Other companies require approval for this purpose from
the Central Bank of Sri Lanka. Repatriation of funds for debt service and capital gains of companies
exempted by the BOI from exchange control regulations is permitted. Foreign companies outside
this category, remitting funds for debt service and capital gains require the approval of the Central
Bank of Sri Lanka.
All foreisn investments must be remitted via the share investment external rupee account (SIERA).
There are no restrictions for the repatriation of capital on the sale of shares. Dividends, profits and
royalties can be remitted freely provided the relevant tax has been paid.

LAND AND PROPERTY OWNERSHIP

Foreign investors are free to buy land from private vendors, but 1fi)% transfer tax is applicable to
non-citizens of Sri Lanka. The tax prescribed in the above will be applicable to a company, which is
incorporated under the Companies Act of Sri Lanka, if more than twentv five per centum of the
issued shares in such Companv are owned bv non citizen of Sri Lanka.

However exemptions are granted to the following BOI Enterprises

conditions:
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/ categories,

subject to

Construction of housing units or condominium apartments.

Construction and operation of a hospital or a hotel project.
Infrastructure development or any other development determined by the Minister as being
essential for economic progress of Sri Lanka.
Manufacture of non-traditional goods for export.
Condominium Unit situated on or above the fourth floor of condominium propertv. provided
value of such unit is met by inward remittances of foreign currency.

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