New Opportunities to Invest in Sri Lanka - Everything You Need to Know

City Group has identified Sri Lanka as one of its 3G economies (Global Growth Generators). 3G grouping is based on a weighted average of six growth drivers: i) measure of domestic saving/investment, ii) demographic prospects, iii) health, iv) education, v) qualities of institutions and vi) policies and trade openness.

Stability and return on investment (ROI) are two key factors that any investor looks to when assessing the potential of foreign investment engines. As the gateway to Asia, Sri Lanka boasts an open economy, attractive tax rates, an excellent location and solid infrastructure, thus making it an incredibly favourable destination for foreign investment. The safety of foreign investment is guaranteed by the constitution. It has bilateral investment protection agreements with 27 countries and double taxation avoidance agreements with 38 countries.

Sri Lanka is a founder member of the Multilateral Investment Guarantee Agency (MIGA), an agency of the World Bank. This provides a safeguard against expropriation and non-commercial risks.

As the Island nation grows socially, economically and financially, the government’s strategy has already started gearing itself to take Sri Lanka and Sri Lankan tourism to new heights (2.5 million visitors in 2016).

The Board of Investment of Sri Lanka (BOI) is the central facilitation point for investors. They provide assistance and advice throughout the investment process.

The BOI currently facilitates investors on a sector-focused approach. These sectors (together with special units to handle high profile projects and regional initiatives) cover all vital areas of the economy.

Sectors

• Tourism & Leisure
• Agriculture
• Knowledge Services
• Infrastructure
• Utilities
• Education
• Apparel
• Other Manufacturing
• Regional Programmes (300 Factories Programme)

Where to Set up

As an investor, you may select the following options to locate your project within Sri Lanka:

1. Locate your project within a BOI administered Export Processing Zone or Industrial Park (with required infrastructure facilities) on long-term lease basis. These zones/parks are more suitable for industrial manufacturing and processing businesses.

2. Locate your project outside zones.

•  By obtaining a privately owned land on outright purchase or lease basis, or
• By obtaining a government owned land available for long term lease under different government agencies. Acquisition of government lands involve a comparatively longer process and valuation is based on current market price.

How to Set Up

There are three ways to set up your project under BOI in Sri Lanka:

(1) Section 16 : Minimum Investment US$ 250,000.
Approval under Section 16 of the BOI Act permits foreign investments entry to operate only under the 'Normal Laws' of the country, that is, for such enterprises, provisions of the Inland Revenue, Customs and Exchange Control Laws shall apply.

(2) Section 17 : Minimum Investment app. US$ 500,000.
Under Sec.17 projects are approved with fiscal concessions such as Exchange Control and Custom duty exemption. Further, considering the minimum requirement of investment, the BOI will recommend a corporate tax exemption period through Inland Revenue Department.

(3) Strategic Development : In terms of the Strategic Development Projects Act No 14 of 2008 (as amended), exemptions not exceeding twenty five years may be granted for a Strategic Development Project  either in full or part from one or more of the enactments such as The Inland Revenue Act No.10 of 2006,The Value Added Tax Act No. 14 of 2002,The Finance Act No. 11 of 2002,The Excise (Special Provision) Act No.13 of 1989,The Economic Service Charge Act No. 13 of 2006,Customs Ordinance (Chapter 235),The Nation Building Tax Act, No 9 of 2009 and The Port and Airport Development Levy Act, No.18 of 2011.

The approval process for a SDP entails publication of a gazette notice on identifying the project; obtaining cabinet approval for same, publication of an Order in the gazette specifying the exemptions granted and then placing it before parliament for approval by Resolution of parliament.

Strategic Development Project  (SDP) means a project which is in the national interest and which is likely to bring economic and social benefit to the country and which is also likely to change the landscape of the country primarily through the strategic importance attached to the proposed provision of goods and services, which will be of benefit to the public; substantial inflow of foreign exchange; substantial employment generation; envisaged transformation in terms of technology.

Investment Incentives

(1) Investment Under 'Normal Laws' - (Section 16)
Approval 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 the Inland Revenue, Control Laws shall apply. <Read More>

(2) Investment with Tax Incentives (Section 17) - As per Budget 2012
A new tax incentive regime has been introduced with the budget 2012 to promote private investments, both domestic and foreign. These new incentives are applicable to following categories of investments:

1. Small Enterprises
2. Medium Enterprises
3. Large Enterprises
4. Project Expansions
5. Strategic Import Replacement Enterprises

The details of the qualifying investment and the incentives granted for the enterprises under each category are highlighted below. <Read More>

(3) Investment Incentives under Strategic Development projects Act no 14 of 2008
<Read More>


Duty Free Facilitation
Companies signing an agreement with the Board of Investment of Sri Lanka are entitled to duty free facilities under Sec. 17 of BOI Law No. 4 of 1978. Companies that export more than 90% of goods or services produce are entitled to be free of Customs Duty on capital goods and raw materials. Other companies are entitled to capital goods (also construction materials where applicable) free of Customs Duty during the project implementation period.

Prior to signing an agreement, the company should forward the list of items that it requires to set up and operate the project. These lists will be evaluated and approved by the Sector groups.

Exemption from Exchange Control Regulations
Exchange Control exemption is granted only for Export-oriented projects under Sec. 17 of BOI Law and Strategic Development Projects. At present, a project is considered as an export oriented project only if it exports 90% of its production. Parts I, IA, II, III, IV V & VI of the Exchange Control Act are exempted for these companies and they could operate FCBU (Foreign Currency Banking Unit) accounts. 

For More Info: "Invest in Sri Lanka - Everything You Need to Know" : The Board of Investment of Sri Lanka (BOI)


How We Can Help You

InvestSriLanka represents a firm of professionals that shares a common goal of taking Sri Lanka forward by bringing in quality investments in Leisure, Finance, Construction, Agriculture, Alternative Energy and Education.

We welcome your proposals. Alternatively, we are happy to provide you a host of information on current projects and proposals in several spheres of investment. We should be happy to work with you from the concept to construction to commissioning of your special project. Our multi-disciplinary firm of professionals is prepared to offer its services at whatever level of expertise called for. In fact, we would be proud to.

Let us start our exchange of ideas now. Please Contact: investsrilanka@gmail.com

Sri Lanka Allows Local Firms to Borrow Abroad for Working Capital, Investment, Restructuring or Settling Foreign Loans

07th April 2011, www.lankabusinessonline.com

Sri Lanka's central bank has begun allowing companies to borrow abroad, calling for applications from firms for loans up to 20 million US dollars.

Companies can borrow for working capital, investment, restructuring or to settle existing foreign currency loans, central bank officials said.

Borrowing costs, including interest rates, should not exceed the prevailing Sri Lanka International Sovereign Bond rate in the secondary market plus 200 basis points, according to a central bank advertisement in local media.

The repayment period shall be at least three years from the date of the final loan disbursement.

Three categories of companies are eligible to borrow abroad with one consisting of firms which have to repay loans out of their own foreign exchange earnings.

These include merchandise exporters registered with the Export Development Board, and firms in tourism and tourist entertainment centres, shipping and domestic air travel.

In the other two categories, companies and sole proprietorships which do not have to have foreign exchange earnings can borrow abroad and will have to repay loans by converting rupee earnings, central bank officials said.

These include firms in agriculture, plantations, fisheries, food processing, education, power generation, research and development, health care, construction of housing and roads, mass transportation, environmental protection, vehicle assembly, port services, information technology and manufacturing.

Sole proprietorships include those in consultancy services, handicrafts, advertising, publishing, sports services, fashion and film, and entertainment industry.

Related Info :

• Foreign Loans for Local Entrepreneurs in Sri Lanka. Procedure for Granting Permission Introduced

Foreign Loans for Local Entrepreneurs in Sri Lanka. Procedure for Granting Permission Introduced

07th April 2011, www.cbsl.gov.lk

The Exchange Control Department of the Central Bank of Sri Lanka has introduced a new procedure for granting permission to obtain loans from foreign sources for projects which contribute to the economic development in Sri Lanka.

WHO WILL BE ELIGIBLE TO BORROW?
1st Category
Companies engaged in the following businesses will be considered for granting permission subject to the condition that repayments should be made out of foreign exchange earnings of the company.
• Merchandise exporters registered with the Export Development Board
• Tourism
• Tourists Entertainment Centres
• Gem and Jewellery
• Shipping
• Domestic Air Travel

2nd Category
Companies engaged in the following businesses will be considered for granting permission irrespective of the capacity to repay the loans out of foreign exchange earnings of the company.
• Agriculture, Livestock and Plantation
• Fisheries
• Food Processing
• Education and Training
• Power Generation and Transmission
• Research and Development
• Hospitals and Provision of Health and Health Care Services
• Commercial Housing Construction
• Construction of Roads and Bridges
• Mass Transportation
• Environmental Protection
• Departmental Stores
• Vehicle Assembling
• Ports & Ancillary Services
• Industrial Parks
• Urban Infrastructure (water supply, sanitation and sewage projects)
• IT Service Providers
• Heavy Industries and Manufacturing

3rd Category
Sole proprietorships in the following businesses will be considered for granting permission irrespective of capacity to repay the loans out of foreign exchange earnings of the proprietorship.
• Consultancy Services
• Handicrafts manufacturers registered with the Government Authorities
• Advertising, Publishing, Photography
• Services related to sports
• Fashion Modeling and Film Industry
• Entertainment Industry (Music, Dancing, Event Management etc.)

WHO WILL BE ELIGIBLE TO LEND?
• International Banks or Financial Institutions
• Multilateral Financial Institutions
• Foreign shareholders or parent companies of the borrowing companies
• Export credit agencies
• Individual lenders: subject to furnishing of a confirmation from the banker of his/her country of residence that he/she had been maintaining an account with the said bank at least for a period of one year prior to the date of lending along with evidence that he/she is a tax payer in the country of residence;

WHAT ARE THE STIPULATED TERMS FOR LOANS?
• Maximum amount to be borrowed: USD 20 million

• Repayment period: Shall be at least three years from the date of final loan disbursement

• Cost of Borrowing: All costs including fees, charges and interest applicable for the loans shall not exceed the prevailing Sri Lanka’s International Sovereign Bond rate in the secondary market + 200 basis points;

WHAT COULD BE THE PURPOSE OF BORROWING?
Working capital, investment in the business, restructuring of a company or to settle existing foreign currency loans.

details of the procedure to be followed in order to obtain the approval from the Central Bank and the application form required to be submitted to the Central Bank can be downloaded from the Central Bank of Sri Lanka Website www.cbsl.gov.lk

For further information, please call on 011-2477358 or 011-2477000 – Ext. 3126.

P.H.O. Chandrawansa
Controller of Exchange
Exchange Control Department

PDF of the Notice: Foreign Loans for Local Entrepreneurs - A Support to Rapid Economic Growth


Related Info :

• Sri Lanka Allows Local Firms to Borrow Abroad for Working Capital, Investment, Restructuring or Settling Foreign Loans

• Sri Lanka Relaxes Foreign Exchange Regulations. Allows Foreigners to Invest in Corporate Debt & Open Businesses, Locals to Borrow & Invest Overseas

• Sri Lanka to Relax Exchange Controls Further for Local Companies, Institutions and Individuals

Sri Lanka Relaxes Foreign Exchange Regulations. Allows Foreigners to Invest in Corporate Debt & Open Businesses, Locals to Borrow & Invest Overseas

23rd November 2010, www.lankabusinessonline.com

Sri Lanka has allowed residents to buy stocks abroad and foreign investors have been allowed to buy into local corporate debt and insurers have been given permission to invest up to 20 percent of their reserves abroad.

The exchange control relaxations are in effect from November 22, the government said in a statement issued with the budget.

Central Bank Governor Nivard Cabraal promised to liberalize exchange controls in a road map in January.

Foreign tourists and business visitors will also be allowed to open bank accounts in Sri Lanka.

Sri Lanka imposed exchange controls within two years of establishing a money printing central bank after abolishing a currency board arrangement which had allowed free capital mobility.

Exchange controls are needed to prevent a fall in an exchange rate when a central bank prints money to finance a budget deficit and tries to maintain an exchange rate peg at the same time.

The phenomenon is known as the 'impossible trinity' of monetary policy or the 'open economy trilema'.

The central bank is now conducting fairly tight monetary policy and has built up a large stock of foreign reserves.

The full government statement is reproduced below.

1. Permission is granted for foreigners to invest in rupee denominated debentures issued by local companies. To give effect to this, relevant Gazette notification has been issued by the Controller of Exchange.

2. Permission is granted for Sri Lankan companies to borrow from foreign sources with effect from 22.11.2010. The procedures and documents required in order to complete the process have been prepared by the Central Bank of Sri Lanka.

3. Permission is granted for foreign companies to open places of business in Sri Lanka with effect from 22.11.2010.

To give effect to this, necessary gazette notification to establish the procedure to be followed for this purpose has been issued to all concerned, while the Controller of Exchange has also issued instruction to the authorized dealers covering the bank accounts to be opened for this purpose.

4. Permission is granted to foreigners on tour or businesses in Sri Lanka to open accounts in foreign currency with effect from 22.11.2010. To give effect to this, necessary instructions will be issued by Central Bank of Sri Lanka to all the banks operating in Sri Lanka.

5. Permission is granted to the staff of foreign embassies in Sri Lanka to open new foreign currency accounts with effect from 22.11.2010. To give effect to this, necessary instructions have been issued by the Controller of Exchange to all authorized dealers operating in Sri Lanka.

6. Permission is granted to increase the advanced payments for imports from US $ 10,000 to US $ 50,000 with effect from 22.11.2010. To give effect to this, necessary instructions have been issued by the Controller of Import and Export to all authorized dealers operating in Sri Lanka.

7. Permission has been granted to Sri Lankan residents to invest in equity of overseas companies and make payments in respect of setting up of places of business outside Sri Lanka. To give effect to this, relevant orders under the Exchange Control Act have been issued by the Hon Minister of Finance and Planning and the Controller of Exchange has issued the necessary instructions to the authorized dealers operating in Sri Lanka.

8. Permission has been granted to insurers to invest up to 20 percent of the long term fund and technical reserves aboard. To give effect to this, relevant Gazette notification has been issued under the Regulation of Insurance Industries Act and directions have been issued to authorized dealers.

9. Permission is granted to importers and indirect exports of gem and jewellery to open foreign currency accounts with effect from 22.11.2010. To give effect to this, necessary instructions will be issued by the Controller of Exchange. Already exporters of such items are enjoying this facility.

Related Info:
Central Bank of Sri Lanka - Further Relaxation of Foreign Exchange Regulations

Sri Lanka Government Gazette

Foreign Currency Accounts for Sri Lankan Overseas Service Providers and Their Employees

Sri Lanka Relaxes Exchange Controls from March 11 in the First Phase of Foreign Exchange Liberalization Plan

10th March 2010, www.news.lk

Sri Lanka has relaxed several exchange controls relating to opening bank accounts abroad, forward foreign exchange cover and imports margin deposits and pre-payments from 11th March, in the first phase of a foreign exchange liberalization plan announced earlier in the year.

Central Bank Governor Ajith Nivard Cabraal said this is the first in the series of relaxations, and other controls will be relaxed in phases. Exporters, persons earning foreign exchange abroad from approved investments, people providing professional services abroad,people doing any job abroad and people who go abroad for education or medical treatment have been allowed to open bank accounts.

Forward foreign exchange cover has been allowed for remittances,approved foreign lending and borrowings as well as trade in goods and services. A 100 percent margin requirement against advanced payments for imports will be removed and importers will be allowed to pre-pay. Several different types of investment accounts for inward investments for shares and bonds will be unified into one account.

The central bank said in its monetary policy roadmap in January that over the year 2010, a series of foreign exchange controls would be relaxed. Sri Lankan residents would be allowed to invest abroad up to a specified limit, and foreigners would be allowed to buy corporate bonds. Foreigners, including tourists would be allowed to open bank accounts in Sri Lanka.