With the end of the armed conflict in Sri Lanka in May 2009, there is a heightened interest in Sri Lanka as a destination for business and investment. Its strategic location close to India and the east-west international sea route; democratic system of governance with a constitution and rule of law; prospects of higher growth rates in the immediate future; and a vast latent potential for absorbing investments make it an ideal destination to look forward to doing business with this country.

For centuries known as the pearl of the Indian Ocean, Sri Lanka has been the cynosure of business interest from as far back as 1500BC. Its legacy of spice trading was foremost in establishing the nation as a focal maritime hub and an important port and trading post in the ancient world. These factors continue to operate in the modern times as well.

• Strategic location close to India and at cross-roads of east-west international shipping route


• Relatively open economy : Foreign investment is an important element in Sri Lanka’s economic growth model and is actively encouraged


• Growing relations with India: Free Trade Agreement between India and Sri Lanka is currently in operation offers access to Indian market. These openings are sought to be extended further through a bilateral Comprehensive Economic Partnership Agreement


• Highly literate (over 91%) and educated labour force offers human resources with comparative skill at competitive costs


• End of armed conflict offers significant business opportunities, in particular, for the rehabilitation and reconstruction of northern and eastern areas. The so called “Peace Divident” is operational in Sri Lanka


• Political stability, Increased Remittance, Better Investment Prospects, Enhanced FDI


• Colombo Port : ranked the best port in South Asia by Lloyds Register


• Wide range of incentives provided by the Board of Investments (BOI) including tax holidays and import duty exemptions


• Sri Lanka is ranked as the most liberalized economy in South Asia


• Investors are provided with preferential tax rates, constitutional guarantees on investment agreements, exemptions from exchange control and 100% repatriation of profits


• Immediate Takeoffs: Tourism, fisheries, agriculture, construction and financial services

BASIC ECONOMIC INDICATORS OF SRI LANKA

Population	21 million
Labour force	7.5 million
Literacy rate	91.2%
GDP (nominal)	$ 41 billion (2009 estimate); US$ 40.71 billion (2008)
GDP per capita (nominal)	$2030 (2009); US$ 1671 (2008)
GDP Composition	Agriculture, forestry and fishing (16.5%); Services (56.5%) Manufacturing (13.9%); Construction (9.1%); and Mining (2.2%).
GDP Growth rates (real)	3.5% (2009) 6% (2008) 6.8% (2007), 7.7 % (2006); 5.8% (2002-06).
FDI	US$ 2.6 billion (2003-08); US$ 779 million in 2008.
Main Investors	Malaysia, India, UK, Hong Kong
Exports	US$ 7.17 Billion (2009)
Imports	US$ 9.5 Billion (2009)
Trade Agreements	SAFTA, APTA, BIMSTEC, India-Sri FTA, Pakistan Sri Lanka FTA, GSP Plus
Natural Resources	Limestone, graphite, mineral sands, gems, and        phosphate
Main sectors of economy	Tourism, transport, telecom, banking and finance.
Agriculture products	Traditional Agriculture: Tea, rubber, Coconut, Agricultural crops, Paddy. *Investment opportunities in Agriculture:  Sugarcane, Maize, Potatoes, Chilies, Red onion, big onions and value addition on fruits. *According to the Government Policy of becoming self sufficient from major agricultural commodities
Industries	Textile and apparel, processing of rubber, tea, coconuts, tobacco and other agricultural commodities, light engineering, leather, foods and beverages,   gem and jewellery, porcelain and ceramics, furniture,   manufacture of chemicals, telecommunications, insurance, banking, cement, petroleum refining, IT enable  services etc.
Export commodities	Articles of Apparel and clothing accessories; coffee, tea, mate and spices; Rubber and articles thereof; Natural and cultured pearls and precious and semi-precious stones; fish and crustaceans, Molluscs and others; Electrical machinery and equipment; petroleum products; edible fruits and nuts etc.; and other vegetable textile fibers, paper yearn and woven fabrics of paper yarn.
Main export partners	USA (22.32%); UK (14.38%); Italy (6.14%); Belgium (5.17); Germany (4.89) in 2009. India – 4.56% in 2009 and 5.11% in 2008.
Import commodities	Mineral fuels, oils and products; Machinery and mechanical appliances; Electrical machinery and equipment and parts thereof; cotton; Knitted or crocheted fabrics; Plastics and articles thereof; Vehicles other railway or tramway rolling stocks; Cereals; Natural or cultured pearls and semi-precious and precious stones; and Paper and paper board and articles of paper pulp.
Main import partners	India (17.96%); Singapore (11.71%); China (9.34%); Iran (8.97%); Hong Kong (5.47%) in 2009. Imports from India in 2008 – 20.8%.
Tourist arrivals	Seen an over 50% increase in arrivals between January-April 2010 over corresponding period last year. 447,890 in 2009 as against 438475 in 2008, an increase of 2.14%.
Foreign Banks in Sri Lanka	Citibank, Deutsche Bank AG, Habib Bank, HSBC. ICICI Bank, Indian Bank, Indian Overseas Bank, MCB Bank, Public Bank Berhad, Standard Chartered Bank & State Bank of India
Local Commercial Banks	State-owned: Bank of Ceylon, and People’s Bank; Private: Seylan Bank, Hatton National Bank, Commercial Bank of Ceylon, DFCC Vardhana Bank, Sampath Bank, NDB Bank, Union Commercial Bank, Nations Trust Bank, Panasia Banking Corporation

GOVERNMENT POLICIES ON INVESTMENT

Sri Lanka started with economic reforms in 1977 and is widely considered as one of the more open economies in South Asia. Total foreign ownership is permitted in large areas of the economy. There are no restrictions on repatriation of earnings, fees, capital, and on foreign exchange transactions related to current account payments. There is a range of legal and regulatory framework available, and which is constantly being updated and upgraded, covering various areas of business law.

ACCESS TO KEY MARKETS

Sri Lanka has bilateral Free Trade Agreements with India and Pakistan providing duty free or preferential access to a market of over 1.3 billion. India-Sri Lanka Free Trade Agreement provides strategic access through Sri Lanka to about 4200 tariff lines at zero duty to India. The Pakistan-Sri Lanka Free Trade Agreement provides access to nearly 4,500 tariff lines at zero or preferential duty. Sri Lanka is also a participant country of multilateral trading arrangements such as South Asian Free Trade Area (SAFTA),  Asia-Pacific Free Trade Agreement (APTA) and is negotiating a similar arrangement under the Bay of Bengal Initiative for Multisectoral Technical and Economic Cooperation (BIMSTEC). Sri Lanka is also a beneficiary of GSP Plus Scheme of the European Union (EU) that provides access to 7,200 products originating from Sri Lanka to be imported to the EU at zero customs duty. Sri Lanka is the only country in South Asia to enjoy this facility.

CONSTITUTIONAL GUARANTEE FOR FOREIGN INVESTMENT

Bilateral investment agreements supported by constitutional guarantee provides protection for foreign investment in Sri Lanka.  Under article 157 of the country’s constitution, the agreement enjoys the force of law and no legislative, executive, or administrative action can be taken to contravene the provisions of a bilateral investment agreement except on grounds of national security. Sri Lanka has a Bilateral Investment Protection and Promotion Agreement with India.

LEGAL BASIS FOR BUSINESS

The Judiciary in Sri Lanka comprises a Supreme Court, Court of Appeal, Provincial High Courts and a number of subordinate courts. The Judges of the Supreme Court and of the Appeal and High Courts are appointed by the President. The Judges of the lower courts are appointed by the Judicial Service Commission.

Sri Lankan legislation matters pertaining to business includes the Board of Investment Law, the Intellectual Property Act, the Companies Act, the Securities and Exchange Commission Act, the Banking Act, the Industrial Promotion Act and Consumer Affairs Authority Act. Sri Lanka is a also signatory of many bilateral investment protection agreements and is a Party to the Multilateral Investment Guarantee Agency (MIGA) of the World Bank. Foreign investments also have Constitutional Guarantees in Sri Lanka. Arbitral awards made abroad are now enforceable in Sri Lanka.

The legal system in Sri Lanka allows acquisition and disposal rights on property to non-Sri Lankans. Private entities are also allowed to establish, acquire and dispose of their interests in commercial enterprises. The problem area, however, is the land system, which is heavily loaded against private ownership. Private land ownership is restricted to a maximum 50 acres per person, with the state owning some 80% of the land. Foreign investors are free to buy land from private vendors, but there is a 100% tax on land transfers to foreigners.

INDIAN INVESTMENTS IN SRI LANKA

India has been one of the main investor in Sri Lanka. Investments from India picked up rapidly after the signing of the FTA in year 1998 and it became effective in year 2000. The FTA has spurred bilateral investments by capitalizing on the opportunities generated by the FTA and availing of the comparative advantages both countries possess. As at end 2009, realized Foreign Direct Investment from Indian projects amounted to US$ 347 million. 

Please refer to the Chapter on India-Sri Lanka Economic Engagement for an overview of main investments into Sri Lanka by Indian companies.

STARTING A BUSINESS

Among key laws affecting foreign investment are: (i) The 1978 BOI Act, which was later replaced by a new BOI Law (announced in 2002), which streamlines tax incentives with the regular income tax law, and allows for decentralization of some of the BOI’s activities to the regions; (ii) The Securities and Exchange Commission Act (1987), with amendments; and (iii) The Takeovers and Mergers Code of 1995.

Sri Lanka’s Board of Investment (BOI) is the main investment promotion agency in Sri Lanka and is first stop for any foreign investor. It is an autonomous agency and is the primary government body responsible for foreign investment.  The BOI is structured to function as a central facilitation point for investors. It operates as a statutory body and its Board of Directors are drawn from the Private and Public sector and its several departments and seeks to facilitate the investment process. A high powered Cabinet Sub Committee has been set up to strengthen the BOI in its activities related to investor assistance to clear all bottlenecks and ensure speedy clearance of investment proposals so that investors can implement projects in a hassle free atmosphere.

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 Investment of Sri Lanka
Level 26, West Tower, World Trade Center,
Colombo 01,
Sri Lanka.
Tel: (+94 11) 2427060 (+94 11) 2427060/2434403-5
Fax: (+94 11) 2422407
E-Mail: infoboi@boi.lk
Website: http://www.investsrilanka.com

Status of Sri Lanka: Doing Business 2010 (Period June 2008 to June 2009)

Source: World Bank Report (Doing Business 2010 South Asia)

Source: World Bank Report (Doing Business 2010 South Asia)

Source: World Bank Report (Doing Business 2010 South Asia)

INVESTMENT FACILITATION VIA BOI

The BOI is the central facilitation point for investors. It provides assistance and advice on the investment process. The principal law applicable to foreign investment is BOI Law No. 4 of 1978 and amendments introduced in 1980, 1983 and 1992 and regulations made under the Act.

The services provided by BOI are:

• 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 Immigration Authorities for issuing Resident Visas.
• Facilitating Import/Export clearances
• Advising on Environmental norms/approvals
• Assistance in good Industrial relations & formation of Employees’ councils.

The 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. The mechanism through which such concessions are granted is the Agreement, which modifies, exempts and waives identified laws in keeping with the BOI regulations. These laws include Inland Revenue, Customs, Exchange Control and Import Control.

Under this route, 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 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 (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 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 BOI, 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.

Attachment A :: Please refer to the Attachment A for the Normal BOI incentives
Attachment B :: Please refer to the Attachment B for the special incentive package for the projects to be set up in the Eastern and Northern region

Actual investors tend to view BOI as most effective as a "one-stop-shop" where the investment is large (thus important to BOI) and where the venture is to be located in an EPZ where BOI are in control. Generally the experience of BOI is quite favourable and investors are appreciative of BOI's effort to
organise matters. However, there have been reports that the BOI sometimes has not been very effective in delivering some of the ‘one-stop-shop’ benefits where approvals have to be routed through other Sri Lankan agencies/departments.

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. Assistance can also be obtained in completing application forms and referring investors to the relevant department within the organization.

Completed forms must be submitted to the Appraisal Department. A fee of US$ 150, or the Rupee equivalent, is charged to process the applications. Once the completed form reaches the Appraisal Department, a case officer is assigned to assist and guide the investor throughout the approval process.

Obtaining Approvals

In most instances, foreign investment approval is transparent and simple. However, when a project is evaluated for fiscal concessions, comprehensive documentation is required in order to complete the assessment.  For regulated sectors the BOI forwards the duly completed application form to the relevant authorities who will recommend the approval of foreign investment.

If the project has met the necessary conditions, 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

For the agreement to be finalized investors are required to incorporate the business as a company with the Registrar of Companies and submit the following documents to the BOI:

• 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. 

Service Fees for Processing of Agreements

This fee is US$ 1,000 to cover legal costs plus US$ 1,500 for normal and infrastructure projects and US$ 500 for agricultural projects.

IMPLEMENTATION PROCEDURE FOR BOI PROJECTS

Site Selection

Export Processing Zones or Industrial Zones : If the investor wants to locate a project within one of the BOI administered Export Processing Zones (EPZ), he or she will be referred to the respective Director of the Zone or Zone Manager. The EPZs have provisions for the supply of potable water conforming to World Health Organization standards, a common wastewater treatment plant, and electricity supply and telecommunication facilities.

Outside the Zones: Enterprises intending to locate outside the EPZs should contact the Project Implementation Division. This Division is able to provide quick and detailed information on suitable land sites available through its Land Bank service.

Site Approval

Site locations are approved by the Engineering Approvals Department. The relevant guidelines and recommendations pertaining to site approval are included in the formal letter of site approval issued by the Director of Engineering Approvals to the investors. 

Environment Protection Licence 

Environmental Protection Licences (EPL) are issued by the Environment Department, according to the type of project. These licences should be obtained prior to the start of operations. The relevant inspection and license fees will be levied by the BOI. A guide on environmental norms together with other information is made available to the investor prior to the submission of applications.

Building Plan Approval 

The Engineering Approvals Department grants building plan approval. In order to obtain such approval, enterprises should submit blueprints of architectural, layout and service plans, which are certified by a chartered architect/engineer. All factory buildings constructed in Sri Lanka must conform to the Factories Ordinance, especially those requirements regarding health, sanitation, welfare and safety of workers. The BOI's General Guidelines for Factory Buildings can be obtained from the Promotion Department. 

Purchase of Construction Materials 

Companies approved under Section 17 of the BOI Act are entitled to purchase duty-exempt building materials for the purpose of plant/factory construction. Duty exempt materials must be first approved by the Appraisal Department and certified by the Engineering Department.

Purchase of Capital Equipment and Raw Materials 

In order to obtain duty free approval, each enterprise must submit a detailed list of project related capital equipment, spare parts and raw materials required for operational purposes to the Appraisal Department. 

Import of Project Related Goods and Export of Finished Goods

The Investor Services Department will liaise and assist the investor in the clearance of goods for both import and export.

Utilities and Telecommunications

Investors locating outside the Export Processing Zones may make a formal request to the Project Implementation Department to acquire infrastructure facilities such as electricity, water and telecommunications.

The provision of infrastructure facilities within a Zone is the responsibility of the Zone Manager.

Visas and Work Permits 

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

FOREIGN INVESTMENT RESTRICTIONS

Following the practice of most countries, Sri Lanka also has a list of business activities, which restrict foreign investment and require approval by other statutory agencies. The degree of restriction varies across different areas of investment. A comparative study among other Asian countries shows that our list of restricted activities is relatively small. The government is committed to reducing this list further to broaden opportunities for foreign investors.

Areas Totally Reserved For Sri Lankans

Foreign investment is not permitted in the following areas:

• Money lending
• Pawn broking
• Retail trade investment with a capital of less than One Million US Dollars
• Providing personal services other than for the export or tourism sectors
• Coastal fishing
• Education of students who are citizens of Sri Lanka and not over 14 years of age
• Award of local educational degrees

Areas Subject To Automatic or Conditional Approval

Foreign investments in the areas listed below will be approved limited to 40%. Foreign ownership in excess of 40% will be approved on a case-by-case basis by the BOI.

• Production of goods where Sri Lanka’s exports are subject to internationally determined quota restrictions
• Growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar and spices
• Mining and primary processing of non renewable national resources
• Timber based industries using local timber
• Fishing (deep sea fishing)
• Mass communications
• Education
• Freight forwarding
• Travel agencies
• Shipping agencies

Regulated Areas

Foreign investments in the areas listed below will be approved by the respective Government agency or BOI (upto the percentage of foreign equity specified by BOI). The BOI assists potential investors by referring applications to the appropriate agency and approval is usually straight forward.

• Air transportation
• Coastal shipping
• Industrial undertaking in the Second Schedule of the Industrial Promotion Act No. 46 of 1990, namely –
• any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment aircraft and other military hardware;
• any industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, hazardous or carcinogenic materials; and
• any industry producing currency, coins or security documents
• Large scale mechanized mining of gems
• Lotteries

Note: Please note that a slab system is in effect for the registration fee based on the issued shared capital. Only the minimum and maximum fee are indicated here.

LAND

The registration fee depends on the company's authorized share capital. The minimum share capital required to register a limited liability company is Rs 250,000.

	Lease premium for 30 years per acre	Annual ground rent per acre
Katunayake Export Processing Zone	US $ 50,000	US $3,850
Biyagama Export Processing Zone	US $ 50,000	US $3,850
Koggala Export Processing Zone	US $ 15,000	US $3,850
Pallekele Industrial Park (Kandy)	US $ 6,000	US $3,700
Mirigama Export Processing Zone	US $ 20,000	US $3,700
Wathupitiwela Export Processing Zone	US $ 40,000	US $3,700
Malwatta	US $ 15,000	US $3,700
Seethawaka Export Processing Zone	US $ 50,000	US $3,700
Mawathagama Export Processing Zone	US $ 15,000	US $3,700
Horana Export Processing Zone	US $ 20,000	US $3,700
Polgahawela Export Processing Zone	US $ 20,000	US $3,700
Mirijjawala Industrial Park	US $ 5,000	US $3,700

Note:    (1 acre: 4046 sq mtrs)
Construction Factory building (includes wiring and plumbing)

	US$ (M2)	Rs (M2)
Pre-fabricated building	123-138 12	800 - 14,300
Pre-fabricated building with air conditioning	203-222	21,100 - 23,100
Brick and mortar type building	120-129	12,450 - 13,400
Block and mortar type building	112-127	11,600 - 13,200

Note: Obtain the latest exchange rates BOI Publication July 2006

Miscellaneous Costs

Miscellaneous Costs (excluding Govenment Tax) For all BOI enterprises within and outside zones

Category	Nature of Projects		US$
Application Processing Fee	Section 17		Investment less then US$ 25M - US$155   Investment US$ 25M & above - 0.01% of the proposed Investment
	Section 16		180
	Projects over US$ 5 M		300
Agreement Processing Fee	Normal Projects		1,500
	Supplementary		500
	Agricultural Projects		500
	300 Enterprises Programme		1,000
Annual fee (per annum)	Normal Projects		2,200
	Infrastructure projects
	Infrastructure projects less than Rs. 100 M (Revised Annual Fee p.a until the Tax Concession period is over)		3000
	Infrastructure projects Rs. 100M- Rs.1000 M (Revised Annual Fee p.a until the Tax Concession period is over)		5000
	Infrastructure projects over Rs. 1000 M (Revised Annual Fee p.a until the Tax Concession period is over)		7500
	Agricultural Projects		750
	Coir Based Projects		1,000
	Ornamental Fish Projects		750
	300 Enterprises Programme
	Manufacturing		1,000
	Hospitals, Hotels, Tourism Sector and other Infrastructure Projects
	during PIP	2,500
	thereafter	1,000
	Agriculture Projects	500
	Coir Based Projects	500

Import / Export Charges (Including VAT)

	Rs.
Documentation Charges (per document)	395
Verification Charges
(a) Cargo Imported / Exported by Sea
FCL 20'	1,380
FCL 40' / 45'	2,760
LCL Cargo per CBM	100
(b) Cargo Imported by Air
1 - 10 Kg	80
11 - 50 Kg	160
51 - 100 Kg	240
(b) Cargo Exported by Air
LCL Cargo per CBM	100
Environmental Protection Licence Fee (excluding Tax)	15,000
EPL Inspection Fee (excluding Tax)	7,500

Office Rent (per Sq.ft.) (excluding Tax)

		Rs.
KEPZ (Plaza Complex)	Upper Floor	40
	Ground Floor	45
BEPZ (Admin. Complex)	Lower Ground Floor	25
	Ground 1st Floor	35
	1st Floor	30
KGEPZ	Ground Floor	30
	Ground 1st Floor	25
	Self Emp. Building	5

Factory Rent (excluding Tax)

SIP (per sq.mtr)	80
Other Zones (per Sq.ft)	6
Monaragala, Kurunegala, Hambantota & Trinco (per Sq.ft)	15

For Non-BOI Enterprises

	US$
Processing of memorandum of Articles	50
Recommendation of Visas for Expatriates (sect. 16)	10
Resident Visa Fee for expatriate workers	100

For Housing Rentals

	Rs
Furnishing bungalows	40,000-75,000
Unfurnished bungalows	20,000-40,000
Furnished flats	25,000-35,000
Unfirnished flats	18,000-25,000
Fully furnished and Serviced Luxury Apartments	US$ 2,300-4,500

Obtain the latest exchange rates BOI Publication July 2006

SERVICES OFFERED BY THE INVESTOR SERVICES DEPARTMENT  OF THE BOI

• Processing of Import / Export Documents
• Examination of Cargo, Imported and Exported 
• Issue of Certificates of Origin for Apparel and Textile products
• Approval for Subcontracts, Transfers, Loans of raw material
• Re-Import and Re-Export of Items
• Recommendations to the controller of immigration for issue of expatriate visas with the approval of Ministry of Public Security, Law & Order 
• Other Investor related approvals

Investor Services Centers of the BOI are located at:

• The Colombo Office at No.14, Sir Baron Jayathilake Mw, Colombo 01
• Export Processing Zone Katunayake
• Export Processing Zone Biyagama
• Export Processing Zone Koggala and
• Kandy Industrial Park - Pallekale

Registration with the Investor Services Department

After signing the agreement with the BOI, to obtain services from one of these centres, one has to first register with the respective Investor Service Centre. Documents required for registration:

• Registration of Enterprise
• BOI - agreement (Original)
• BOI – Project approval letter (Original)
• VAT / TIN Certificate (original) with a photocopy
• List of items approved by the Investment Dept to be imported by the enterprise
• BOI Registration Certificate (original)
• List of authorized signatories approved to sign import/export cusdecs (names, designations, NIC/Passport numbers and signatures of three personnel) – 02 originals certified by the Chairman / Managing Director of the enterprise
• A certified copy of Form 48 sent to the Registrar of Companies

 
After registration with the Investor Service Department you are also required to register with the ADP Unit of Sri Lanka Customs as per the FORM FOR THE REGISTRATION OF IMPORTERS & EXPORTERS IN TERMS OF SECTION 115 OF THE CUSTOMS ORDINANCE. You are required to register as a declarant with Sri Lanka Customs if you purpose to effect your own Imports without utilizing the services of a clearing agent.

After this, a company is deemed as registered with the Investor Services Department and eligible to obtain services as per the agreement signed with the BOI.

For more details of services rendered by the Investor Services Department, please visit their website at http://www.boi.lk/investorservices/index.php

REGISTRATION OF A COMPANY

Company Law

The Companies Act (No. 7 of 2007) contains the rules, procedures, accounting and reporting requirements for companies incorporated or registered in Sri Lanka. The registration of companies, filing of accounts and annual returns are done with the Registrar of Companies.

Following documents are required for registration:

• Memorandum and Articles of Incorporation
• Name of the Company Secretary
• Location of the Registered Office
• Particulars of the Directors
• List of machinery and equipment required for the project
• Letter of Approval from the BOI, which is sufficient to confirm to the Registrar that the foreign investment has been officially approved.

Type of Companies

• Private Companies: A private company must consist of at least two and not more than fifty members. It 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). It 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. If 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. It 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 that of a partnership. Joint ventures have become popular in recent years; particularly in export oriented projects.

BANKING AND FINANCE
The central bank is the apex institution in the financial system of Sri Lanka. The following types of financial institutions are available in Sri Lanka:

• Commercial Banks: At present there are 26 commercial banks in operation in the country. 10 of these are locally incorporated and the balance are branches of foreign banks. Two of the local commercial banks are state owned. Rapid technological advancement including an automated check clearing house that clears checks from most part of the country within three days, ATMs, credit cards, electronic funds transfer facilities and several financial derivatives are available. Several banks have introduced tele-banking and electronic business banking and many have extended banking hours with some services being made available 24 hours a day through automation. The banking system is now linked closely to the worldwide networks via SWIFT and credit card gateways. Almost all commercial banks have established Foreign Currency Banking Units.

• Development financial institutions: The Development Financing Institutions, in Sri Lanka are: (i) The Development Finance Corporation of Ceylon (DFCC); and (ii) The National Development Bank (NDB).They provide medium and long-term project finance, especially to the export sector.

• Merchant/ Investment banks: Merchant/ Investment Banks offer a wide array of services including identification and financing of project, leasing, bill discounting, underwriting share issues, margin trading facilities, loan syndication, bridging finance, participation in project equity, other forms of project finance, managing private share issues /placements, financial and management consultancy services etc. There are 10 such banks in Sri Lanka at present.

• Finance companies: Finance Companies engage primarily in accepting deposits from public, short-term lending and hire purchase activities. There were 25 finance companies licensed with the Central Bank of Sri Lanka at end of 1995. Activities of finance companies are closely monitored by the Central Bank.

• Leasing Companies: Leasing Companies specialising in lease finance mainly for commercial vehicle and equipment purchases are in operation in Sri Lanka. Other financial institutions such as commercial banks, merchant banks and finance companies, too, provide leasing facilities.

• Mortgage banks: These institutions engage in long-term lending to selected sectors. The State Mortgage and Investment Bank (SMIB) provide long term primarily for housing purposes. In addition SMIB provides other loans for agricultural purposes.

• Venture Capital Companies

• Savings Bank: The National Savings Bank (NSB) is the leading saving bank in Sri Lanka. NSB is state owned. Its primary activities are accepting various savings deposits from public, investing in government securities, and investing in long-term debt instruments.Recently the private sector has shown interest in setting up saving banks.

• Pension funds: Employees' Provident Fund and Employers' Trust Fund (Pension Funds) are Government administered pension funds. Their contributions come by way of legally stipulated contributions from employers and employees. EPF is the single largest investor in the domestic financial market. Its primary activities are investing in Government Securities, Treasury Bills, Inter-bank call money market, and Government guaranteed debentures. ETF, in addition to preceding activities, invests in the equity of companies. There are several privately managed pension funds. Contribution to these funds is mainly from private sector organisation. Their operations are similar to EPF.

• Insurance Companies: There are 7 companies engaged in insurance activities. Of these 5 undertake both life and general insurance, whilst one company confines itself to life insurance activities only. The main categories of general insurance are motor, fire, accident and marine. The Sri Lanka Export Credit Insurance Corporation offers export credit insurance facilities to exporters.

 
Banks and Financial Institutions in Sri Lanka

Central Bank of Sri Lanka	www.lanka.net/centralbank
Standard Chartered	www.standardchartered.com/lk/index.html
Bank of Ceylon	www.boc.lk
Citi Bank	http://www.citigroup.com/citi/global/lka.htm
Commercial Bank	www.combank.net
Deutsche Bank	www.db.com/srilanka
Development Finance Corporation of Ceylon	www.dfccbank.com
Hatton National Bank	www.hnb.net
Hongkong & Shanghai Banking Corporation	www.hsbc.lk/lk
People's Bank	www.peoplesbank.lk
Sampath Bank	www.sampath.lk
Seylan Bank	www.eseylan.com
Seylan Merchant Bank	www.smblk.com
State Mortgage Bank	www.lanka.net/smib
National Development Bank (NDB)	www.ndbbank.com
National Savings Bank	www.nsb.lk
Vanik Incorporation Ltd	www.vanik.lk
Merchant Bank of Sri Lanka Ltd	www.mbslbank.com
ICICI Bank	http://www.icicibank.lk/about.htm
State Bank of India	https://www.onlinesbiglobal.com/64LK/web/index.htm
Indian Overseas Bank	http://www.iob.in/colombo.aspx
Indian Bank

TAXATION SYSTEM

The Sri Lanka tax regime works on a self assessment and declaration system and is built on lines similar to the British and Indian system of taxation. In case, the tax authorities make an assessment higher than filed by the assessee,, the appeal procedure is available to the tax payer to challenge the assessment.

Sri Lanka has Double Taxation Avoidance Agreement with India apart from other countries including USA, UK, Singapore, Pakistan, Indonesia, Canada, Japan, France, Germany, and Italy. These are  based on UN principals and OECD model.

The principal taxes in Sri Lanka and there rates are as under:

Corporate Income Tax: The normal rate of corporate income tax for resident or non-resident companies is 35%. Taxes on exports are 15%. There is a special dispensation for priority sectors, tourism and construction being taxed at 15% and rates for the small companies is 15%. There are certain exemptions granted specifically under the BOI law for targeted industries. In addition, there are exemptions that flow from both the Inland Revenue Act and the BOI Law. The principal areas of exemptions under both laws are:

• Agriculture and primary processing of agricultural products
• Income earned outside Sri Lanka and remitted to Sri Lanka
• Services provided in and outside Sri Lanka to persons outside Sri Lanka
• Relocation of existing undertakings to regionally backward areas

Income tax is charged on the basis of the provisions of the Inland Revenue Act No. 10 of 2006 as amended by Inland Revenue Amendment Acts No. 10 of 2007, 9 of 2008 and 19 of 2009. The Inland Revenue Act provides the legal authority to charge, levy and collect income tax on the profits and income of every person, which arose or is arising to such person for every year of assessment commencing on or after 1st of April, 2006. In respect of a person who is deemed to be resident in Sri Lanka is chargeable with income tax in respect of his income from Sri Lanka and income derived by him from outside Sri Lanka. The liability to income tax therefore extends to his global income. A person who is deemed to be non-resident in Sri Lanka is chargeable with income tax in respect of only the profits and income, arising or derived from Sri Lanka. Return of Income Tax (IT) should be furnished on or before 30th day of the month of November that end of relevant assessment year. It is payable in five installments during a year.

Non-resident companies (companies whose head offices are located overseas, or are controlled from abroad) pay an additional tax of one-third of remittances abroad or one-ninth of taxable profits - whichever is less. Remittances exclude dividends for this purpose. BOI companies that meet specific criteria i.e. size of total investment, type of investment and location of investment, qualify for tax holidays ranging from 5-12 years. In addition, a concessionary rate of income tax of 15% up to a maximum period of 20 years is also extended to these BOI companies

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Personal Income Tax
 
Resident individuals pay personal income tax on a sliding rate scale up to a maximum of 35% of their income. The first Rs. 300,000 per annum is exempt from income tax.  Non-citizens of Sri Lanka who are employed in a qualifying BOI companies pay a concessionary tax of 15% of their Sri Lankan source of income. This benefit, with the exception of BOI approved "flagship" projects, is restricted to the expatriate's first five years of employment.
 
Value Added Tax (VAT): Value Added Tax (VAT) was introduced by the Act No.14 of 2002 and is in force from 1 August, 2002. VAT Act replaced the Goods and Services Tax (GST) which was almost similar tax on the consumption of goods and services. It is a tax on domestic consumption of goods and services. The goods imported into Sri Lanka and goods and services supplied within the territorial limits of Sri Lanka are the subject matter of this tax. It is a multi stage tax levied on the incremental Value at every stage in the production and distribution chain of Goods and Services. The tax is borne by the final or the ultimate consumer of Goods or services. It is an indirect tax and the Government will receive at the end, through all the intermediary suppliers in the chain of production and distribution, an amount equal to the amount paid by the final consumer. VAT is not charged on certain imports and on retail and wholesale supply of goods. There are certain supplies of goods and services, which is exempt from VAT.
The normal rate of VAT is 12%. However, luxury goods are taxed at a higher rate of 20% and there is no VAT on goods for exports and supply of services in Sri Lanka to be consumed outside Sri Lanka.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Nation Building Tax: The rate of tax is 3%. NBT is payable by every person (individual, company, body of persons) or partnership who:

• imports any article (other than any article in the personal baggage) into Sri Lanka or
• carries on the business of manufacture of any article or
• carries on the business of providing a service of any description.

Every liable person whose, liable turnover for any quarter exceeds Rs. 650,000/- should be registered with the Nation Building Tax (NBT) unit of the Department of Inland Revenue. As this tax is administered through the main computer system of the Inland Revenue Department, every person must have a Tax Payer Identification Number (TIN). Tax Payer Identification number can be obtained from Tax Payers Services Unit. The persons involved in a business of import and sales, are not necessary to be registered at the Inland Revenue Department. They have to pay NBT to the Custom Department at the point of import.  Only a manufacturer is entitle for a credit of NBT paid by him and even it should be in respect of any article imported by him, or purchased by him from another NBT registered manufactured and also such article should have been used exclusively in his business of manufacture. A service provider is not entitling for any credit for NBT paid by him. If there is any balance can be carried forward to be set off against the NBT payable in the subsequent quarter. However, there are no refunds of NBT to any registered person.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Economic Service Charge (ESC): Economic Service Charge (ESC) has been administered since 1 April 2006 under the Economic Service Charge (ESC) Act No. 13 of 2006, as amended from time to time. Prior to this, it has been administered under Finance Acts 11 of 2004 and 11 of 2005 from 01.04.2004 up to 01.04.2006. The ESC ranges from 0.1% to 1% on total turnover with a provision for set off against income tax for 5 years. ESC is allowed to be deducted from the income tax payable in that year of assessment and any ESC which cannot be so deducted is carried forward and deducted from the income tax payable, to the extent that it could be deducted in the succeeding four years of assessments. ESC thus operates as an advance payment of income tax in respect of any person whose liability to income tax exceeds the ESC liability and such person bears no burden of the ESC. A person whose contribution to income tax do not exceed ESC liability, for instance in the case of a loss making business, ESC has to be paid and no deductions can be effected elsewhere.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Debits Tax

Debit tax was introduced with the enactment of Debit Tax Act No. 16 of 2002 effective on 1 st of June, 2002. This was amended in 2003 and in 2007. The debit tax shall be levied at the rate of 0.1% on the total liable debits made during each calendar month from any current account maintained at a Commercial Bank or a Specialized Bank or from each savings account maintained at a Commercial Bank, a Specialized Bank or a Finance Companies. This is applicable on debits which exceeds Rs. 20,000/- per month.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Stamp Duty: Stamp Duties on immovable property and certain movable properties were devolved to the Provincial Councils by the 13th Amendment to the Constitution and stamp duties administered by the central government was suspended with effect from 1st May 2002. The government reintroduced stamp duty and enacted Stamp Duty (Special Provisions) Act No.12 of 2006, but for only ten instruments. Those specified instruments are:

• an affidavit,
• a policy of insurance,
• a warrant to act as notary public,
• a periodic license to carry on trade, business, profession or vocation,
• a claim or demand made by a credit card holder on the usage of the card,
• a share certificate on new/additional issue or transfer/assignment,
• a mortgage for a definite sum of money which affects a property,
• a promissory note,
• a lease or hire of any property,
• a receipt or discharge given for any money or other property.

Stamp duty can be paid - by affixing stamps, paying to specified bank or compounding of stamp duty by authorized persons.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Property Transfer Tax: This ranges between 4% and 100% for non-residents, including local companies with more than 25% shares held by non-residents subject to certain exemptions.

Dividend Tax: Dividends declared out of tax-exempt profits during the tax holiday period and one year thereafter, is tax free. A withholding tax of 15% on dividends applies to all companies other than quoted public companies. This can be credited against the individual income (10%) tax of the shareholders. Quoted public companies have to deduct the 10% withholding tax on dividends paid to non-resident shareholders.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Capital gains Tax: Sri Lankan income tax does not capture capital gains as a source of taxation. It is generally taxed as income.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Import Point Taxes

Taxes at Import Point have to be paid including Customs Duty, PAL, Cess and others. In case of items imported from countries with whom Sri Lanka has a Free Trade Arrangement, Customs duty may be at preferential rate, which could vary from complete exemption to certain margins of preference.

The rates of these taxes are available at the website of Sri Lankan Customs: http://www.customs.gov.lk/

Business Turnover Tax

In 1981, the Business Turnover Tax introduced by Finance Act No.11 of 1963 was replaced by the Turnover Tax Act No. 69 of 1981 and is effective from 13th November 1981. Goods & Services Tax was introduced w.e.f. 01.04.1997 (and presently Value Added Tax) to mitigate the cascading effect on domestic consumption Goods & Services. Turnover Tax is collected only from Wholesale & Retail sector and payable to Provincial Councils. Turnover Tax is charged for every quarter from every person who carries on any Wholesale or Retail business in Sri Lanka. The tax is payable for a quarter in respect of any business, if the Turnover for that quarter is not less than Rs.25,000.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

Double Taxation Avoidance Agreement (DTAA)

Sri Lanka has a DTAA with India apart from 36 other countries. Double Tax Relief Agreements signed between Sri Lanka and other countries provide for reduced tax rates on dividends, interest and royalties. Recently completed agreements include special provisions to ensure that foreign investors receive the benefits arising from the various tax incentives. The countries having tax treaties with Sri Lanka are:

Australia, Bangladesh, Belgium, Canada, China, Denmark, Egypyt, France, Finland, Germany, Hong Kong, India, Italy, Indonesia, Iran, Japan, Jordan, The Republic of Korea, Kuwait, Malaysia, Mauritius, Nepal, The Netherlands, Norway, Oman, Pakistan, Poland, The Philippines, Romania, Russia, Saudi Arabia, Singapore, Sweden, Switzerland, Thailand, The United Kingdom, The United Arab, The United States of America, Emirates, Yugoslavia.

For more details visit the Department of Inland Revenue website: http://www.inlandrevenue.gov.lk/

EXCHANGE CONTROL SYSTEM

Sri Lanka has liberalized exchange controls on current account transactions. However, in October 2006, the Central Bank imposed controls on foreign exchange transactions by requiring importers to keep a 50% deposit on letters of credit on non-essential imports. The requirement affects over 40 categories of consumer items including confectionary, liquor, personal care products, footwear and tableware and seemed designed to mitigate downward pressure on the Sri Lankan Rupee.

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 foreign investments must be remitted via the share investment external rupee account. 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.

For more details visit the Central Bank of Sri Lanka website:http://www.cbsl.gov.lk/

PROTECTION OF INTELLECTUAL PROPERTY

Intellectual Property Law

The Code of Intellectual Property Act No. 52 of 1979, embodies legislation relating to copyright, industrial design, patents, trademarks, trade names and unfair competition. Sri Lanka's Intellectual Property Law, which is based on the WIPO model law for developing countries, has incorporated internationally accepted principles & concepts of intellectual property.  All trademarks, designs, patents & copyrights need to be registered with the Registry of Patents & Trade Marks. A patent granted in respect of inventions is valid for a period of 15 years. Registration of a trademark is valid initially for 10 years & can be renewed for consecutive periods of 10 years. 

Sri Lanka is a signatory to several international conventions & treaties on Intellectual Property. They are:

• The Paris Convention for the Protection of industrial property
• The Madrid Agreement for the repression of false or deceptive indication of source on goods
• The Nairobi Treaty
• The Patent Cooperation Treaty
• The Universal Copyright Convention
• The convention establishing the WIPO
• The Agreement on TRIPS
• The Trade Mark Law Treaty

 
Though Sri Lanka has created a sound legal basis for protection of intellectual property rights (IPR) and violations of IPR attract stiff punishments under the law, with IPR coming under both criminal and civil jurisdiction, enforcement and implementation of these laws has been slow. The most prevalent counterfeit goods are clothing, compact discs, video CDs and software. Aggrieved parties can obtain redress for any IPR violations through the court system, where long delays are not unknown.

A new legal regime for the protection and management of Intellectual Property in Sri Lanka will be introduced shortly, giving due consideration to national requirements and international obligations. Among the new areas to be covered by the Intellectual Property Act (Amendments) are the protection of trade secrets, certification of trademarks and protecting goods originating from a certain geographical area. The proposed amendments would also streamline the enforcement mechanism. In addition, the maximum penalty for unlawful use of Intellectual Property will be increased from Rs. 20,000 to Rs. 500,000.

The main intellectual Property Right Administration body in Sri Lanka is the National Intellectual Property Office of Sri Lanka under the Ministry of Industry and Commerce of Sri Lanka.

For more details visit the website of the National Intellectual Property Office of Sri Lanka: http://www.nipo.gov.lk/

SECURITY AND EXCHANGE COMMISSION

The Securities and Exchange Commission of Sri Lanka (SEC) was established in pursuance of the Securities and Exchange Commission of Sri Lanka Act, No. 36 of 1987 as amended by Act No. 26 of 1991 and Act No. 18 of 2003. The Commission is responsible for activities as under:

• the creation and maintenance of a market in which securities can be issued and traded in an orderly and fair manner;
• the protection of the interest of investors;
• the operation of a Compensation Fund to protect investors from financial loss arising as a result of any licensed stock broker or licensed stock dealer being found incapable of meeting his contractual obligations; and
• the regulation of the securities market and to ensure that professional standards are maintained in such market.

Foreign Investment in shares

Foreign investment in the local equity market is open to approved Country Funds and Regional Funds (approval is given by the Securities and Exchange Commission of Sri Lanka), Citizens of Foreign States (whether resident in Sri Lanka or outside Sri Lanka), Sri Lankan residents outside Sri Lanka and Corporate Bodies incorporates outside Sri Lanka. Foreign investors may invest in up to 100% of the issued capital of a limited company in all sectors of the economy, except in the following activities, which are reserved for citizens of Sri Lanka:

(a)   Money Lending
(b)   Pawn Broking
(c)   Retail Trade with a capital investment of less than US$ 1 Million
(e)   Coastal fishing

Foreign investments are also subject to certain limitations set out in the notification of the Controller of Exchange in the government gazette no.1232/14 of 19 th April 2002 as amended by gazette no.1248/19 of August 08, 2002.

Procedure for Investments and Repatriation of Proceeds for Non Residents

Investment in shares in Sri Lanka and repatriation of proceeds should take place through Share Investment External Rupee Accounts (SIERA) opened with commercial banks. Individuals, Regional Funds, as well as Companies incorporated outside Sri Lanka are permitted to open SIERA accounts. The repatriation of proceeds arising out of investments, i.e. dividends paid on shares and sale proceeds of shares made through SIERA after 5 th June 1990 are not subject to Exchange Control regulations.

Special provisions have also been made in the Central Depository System to accommodate foreign clients operating in time zones different to that of Sri Lanka. The CSE has permitted free transfers between accounts in the System for transactions concluded by such clients. These transfers could only be affected before the expiry of two market days from the date of conclusion of the first transaction (T+2).

Procedure for Investments by Sri Lankan Non Residents

Non-resident Sri Lankans who have proceeded abroad to take up employment, set up a business or engage in a profession and continue to live abroad could remit money for investments in Sri Lankan companies through RANSI Accounts (Rupee Accounts for Non-Resident Sri Lankan Investments), maintained with authorised dealers.

Funds channeled through this account may be invested in shares, government securities, debentures, units in Unit Trusts and in real assets such as land and building. Payments for investment under the scheme have to be made by bank drafts purchased out of funds in a RANSI account.

All income from investments such as interest, dividends, profits and rental income could be credited to the RANSI account. The remittances to this account would be free to be taken back without exchange control restrictions. Funds realised on the sale and liquidation of investment could also be credited to the RANSI account.

For more information visit the website of the:

Securities and Exchange Commission of Sri Lanka: http://www.sec.gov.lk/

Colombo Stock Exchange: http://www.cse.lk/welcome.htm

LABOUR AND LABOUR RELATIONS

Sri Lanka has a total working age (between Age 15 to 64) population of about 16.5 million but only about half of this is gainfully employed. According to Sri Lanka’s Department of Census and Statistics, about 7.5 million people are employed of which 42% are in the Services sector, 26% in the industry and 32% in agriculture. High literacy levels in Sri Lanka (over 90%) ensure that the quality of labour is relatively high and is available at a competitive cost.

Strict labour laws have led to entrenched labour force that at times restricts labour productivity. It is very difficult to retrench labour under the Termination of Employment Act of Sri Lanka. According to the IMF, Sri Lanka has one of the most generous redundancy schemes in the world at a maximum of four years of salary for those employed for 20 years. The government interference in wage matters have not been infrequent and though there is no uniform national minimum wage, minimum wages apply to specific sectors.

Industrial relations have improved over the years though at times they have been have been problematic. There are more than 1,650 registered trade unions though their membership has been declining. There is a strong trade union tradition in Sri Lanka, and there is a constitutional right for workers to join or form a union, although only 15-20% of employees in industry and services are unionised. Only half of the Employers’ Federation of Ceylon’s membership is unionised, with a mere 50 companies using collective agreements to negotiate. Agriculture has stronger union representation. The Ceylon Workers Congress and Lanka Jathika estate workers union are the two largest unions representing workers in the plantation sector. The Labour Department has a process that involves a system of labour tribunals to settle industrial disputes. The Labour Commissioner acts as an arbitrator in disputes between labour and management.

Recruitment and Retirement

The minimum age for recruitment is 18 years and the normal age of retirement is 55 years. However, extensions beyond 55 years can be granted at the discretion of management. 

Equal Status 

There should be no discrimination between male and female workers in terms of remuneration and facilities.

Contract and Employment

A written contract of employment embodying terms and conditions of service including the designation or category of the employee, normal hours of work, rate of pay, period of training if any, probationary period, leave, holidays and superannuation contribution, has to be issued to every worker including trainees, and acknowledgement of receipt obtained by the employer. On termination or resignation any certificates in the custody of the management should be returned to the worker at least within 30 days from the date of termination/resignation.

Normal Working Days and Night Work

Normal Working Day
One-Shift Operation:	Monday to Friday: 9 hours per day inclusive of an interval of one hour.
	Saturday: 6½ hours inclusive of an interval of one hour.
Two Three-Shift Operation:	Monday to Friday: 8 hours per day inclusive of an interval of half an hour.
	Saturday: 5 ½ hours inclusive of an interval of half an hour.

For office employees, Saturday is a half day of 5 hours duration.

Night Work

There are no restrictions on employment of male workers on night shifts. Employment of female workers on night work from 10.00am on the following day will be allowed as a third shift, subject to certain conditions.

Overtime Remuneration

Any work performed in excess of the normal working day to be treated as overtime work and shall be remunerated accordingly. Every hour of such work should be paid at 1 ½ times the normal hourly rate of wages, which is determined by dividing the monthly rate of wages by 200. In calculating hours of overtime employment, any fraction of an hour less than ½ hour shall be treated as half an hour. Employees working on Sundays and Poya days should be paid 1 ½ times the daily wage rate. If an employee works beyond the normal working day on a Sunday he/she should be remunerated at double the daily wage.

Leave 

Vacation (Annual Leave): An employee shall be granted a 14-day vacation leave with pay from the second year of employment onwards if he/she has been continuously in employment during the year. 

Casual Leave: An office employee has to be granted 7 days casual leave with pay from the second year of employment.

Sick Leave: Sick leave to be granted at the discretion of management. Some enterprises grant such leave up to a maximum of 21 days. Employee must produce medical certificates to cover such leave.

Maternity Leave: (a) A female factory employee shall be allowed 12 weeks (84 days) paid leave in addition to other paid leave/holidays she is entitled to if the employee gives birth to a baby and the employee has no other children or has one other child; and (b) In case she has two or more children or in the event she miscarries the employee shall be allowed 6 weeks (42 days) paid leave in addition to other paid leave/holidays she is entitled to. 

Superannuation Benefits

Employees Provident Fund: An amount equivalent to 20% of the employee's total earnings has to be remitted to the Fund before the last working day of the succeeding month in respect of all employees.
An employee's contribution to the Fund is 8% and the employer has to contribute an amount equivalent to total earnings. Payment for work done on normal working hours on weekly holidays, poya days or public holidays should be considered for the computation of EPF and ETF contributions.

Employees Trust Fund: Employers are expected to remit an amount equivalent to 3% of the total monthly earnings of the employee before the last working day of the succeeding month. There is no contribution from the employee.

Gratuity: An employee who has completed five years' service shall be paid a gratuity on cessation of his employment irrespective of whether he has retired or resigned or his services have been terminated by the employer. Such gratuity shall be computed at the rate of half a month's salary for every year of completed service based on the consolidated salary last drawn by the employee. Payments should be made within 30 days of cessation of employment. An enterprise, which employs fifteen or more workers, is liable to pay such gratuity.

Termination of Services

Disciplinary: An employer can terminate the services of an employee on disciplinary grounds (e.g. misconduct, fraud, refusal to carry out lawful orders) provided the normal disciplinary procedure has been followed. For wrongful termination of services an employee can seek redress in the Labour tribunal before the expiry of 6 months from the date of such termination.

Non-disciplinary: In the case of workers who have been in employment for more than one year, lay-off, retrenchment or termination of services for reasons other than on disciplinary grounds can be effected only with either the prior written consent of the worker or the prior written approval of the Commissioner of Labour. Such approval will be granted after due inquiry. On cessation of employment, a worker should be issued with a letter with a reason for such cessation and a service certificate for a period of his employment.

Industrial Disputes: Any dispute or difference between the employer and employee should be promptly brought to the notice of the industrial relations department of the BOI so that such disputes could be resolved. Whenever lay-off, retrenchment, closure or termination of services of employees due to no-disciplinary reasons become necessary, requests should be made in advance to the industrial relations department of the BOI so that suitable arrangements could be made.

Employee's Council

Every enterprise should establish an Employee's Council with the concurrence of the Industrial Relations Department of the BOI. The Council should consist of 5-10 members representing different departments of the factory. The Electoral Board of the BOI will conduct the election to elect members to the Employee' s Council. Any disputes that cannot be resolved through discussion should be brought to the notice of the BOI.

Role of BOI

The Industrial Relations Department of the Board of Investment of Sri Lanka advises and assists enterprises to maintain a peaceful and harmonious industrial relations situation. Personnel from this Department will visit the enterprises and guide the investors on all aspects in the area of industrial relations. Enterprises should bring to the notice of the Department any difficulties, disputes or problems faced by them so that they could be resolved speedily.

For more details visit Department of Labour of Sri Lanka website: http://www.labourdept.gov.lk/

COMPETITION AND FAIR TRADING

Sri Lanka's competition policy is designed to create competitive market structures and discourage monopolistic practices. The Fair Trading Commission (FTC), established under the provisions of the FTC Act No. 1 of 1987, is the body empowered to control monopolies, mergers and anti-competitive practices, in addition to being responsible for formulating and implementing national pricing policies.

Following the liberalization of trade in 1977, internal trade policy in Sri Lanka has been geared to provide a more important role to market forces in trading activities relating to trading in goods and services. State intervention in internal trade is confined to maintaining price stability and ensuring an adequate supply of essential goods. State trading organizations under the Ministry of Internal and International Trade & Shipping Development & the two regulatory bodies -Department of Internal Trade & the FTC -play an important role in ensuring fair competition in a liberalized economy.

LAND AND PROPERTY OWNERSHIP

In terms of recent amendments to Finance Act 100% 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 twenty five per centum of the issued shares in such Company are owned by non citizen of Sri Lanka.

However exemptions are granted by Extra Ordinary Gazette No. 1386/18 dated 30/03/2005 to the following categories:

(1) Exemption on BOI Enterprises

	Business Activity	Investment criterion	Other Conditions
1.	Construction of housing units or condominium apartments for residents or non residents		a) 100 units should be constructed b) Each housing unit should be constructed on a land not exceeding 10 perches. c) Total value of the land is met by inward remittance of foreign currency
2.	Construction and operation of a hospital or a hotel project	US $ 10 Mn. or its Rupee equivalent	Total value of the land is met by inward remittance of foreign currency
3.	Infrastructure development or any other development determined by the Minister as being essential for economic progress of Sri Lanka	US $ 50 Mn or its Rupee equivalent	Total value of the land is met by inward remittance of foreign currency
4.	Manufacture of non-traditional goods for export	US $ 1 Mn or its Rupee equivalent	a) Land should be utilized to construct its manufacturing plant, office, stores, dormitories for workers b) Total value of the land is met by inward remittance of foreign currency

(2) Exemption on Other Agencies & Institutions etc.

(a) Lending institutions such as Bank, finance leasing institution, which are incorporated under Banking Act and Finance Leasing Act:

• When the ownership of the land is transferred to such institution to recover of a debt
• To carry on its business. (Para 1 to 05 in Regulation No. 1386/18).

 
(b) Condominium Unit situated on or above the fourth floor of condominium property, provided value of such unit is met by inward remittances of foreign currency (Para 7 in Regulation No. 1386/18).

(c) On a dissolution, of a company, a property which had been acquired by this company prior to 5th October 2004 and transferred to another company consequent on merger of that Company.

ARBITRATION

An Arbitration Centr.e has been established in Colombo for the settlement of commercial disputes expeditiously, economically and privately. A new law has already been enacted for this purpose. The Centre will be affiliated with the Arbitration Institute of the Stockholm Chamber of Commerce and will follow its standards and norms. The Arbitration Act gives recognition to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This means that arbitration awards made abroad are now enforceable in Sri Lanka. Similarly awards made in Sri Lanka can be enforced abroad.

THRUST SECTORS ACCORDING TO BOI

• Manufacturing: Rubber products/Auto-components/Processed food/Personal care Products/Steel and light engineering products/electrical equipment/chemicals
• Agri-processing (without growers system)
• Knowledge-based service sector (IT/ITES/Tertiary education etc..)
• Healthcare – Hospital and manufacturing of healthcare products
• Tourism – Hotels and allied activities

Large scale housing (North and East) – Private Public Partnerships

INDUSTRIAL ZONES UNDER BOI



The BOI operates 12 industrial zones with all infrastructure facilities provided by the agency. A further 12 new zones, including sectoral  ones for IT/BPO, Gem & Jewellery, Textiles and Chemicals are under the PPP model. The zones provide investors, with being developed suitable sites on long term lease.

Export Processing Zones

• Katunayake EPZ
• Biyagama EPZ
• Koggala EPZ
• Malwatta EPP
• Mirigama
• Wathupitiwela
• Mawathagama
• Polgahawela
• Horana
• Kandy
• Seethwaka
• Mirijjawela

SPECIAL FOCUS ON NORTH AND EAST

With the end of the armed conflict, a major focal point of acceleration of economic growth is likely to be the northern and eastern provinces of Sri Lanka

Northern Province

The northern province comprises the districts of Jaffna, Killinochchi, Mannar, Vavuniya and Mullaitivu
Land area: 8884 sq. km.
Represents 13.5% of the total land area of the country
Estimated population: 1042 (Thousands-2008)
Main products of Northern Province, particularly Jaffna, include sea products, red onion, mangoes, grapes & tobacco

Eastern Province

The eastern province is comprised of the districts of Trincomalee, Batticaloa and Ampara
Land area: 9996 sq. km.
Population: 1419 (Thousands-2008)
Source: Department of Census and Statistics, Statistical Abstract, 2008

GROSS DOMESTIC PRODUCT

Province                              2006                       2007
Eastern                                 4.9%                      5%
Northern                             2.8%                      2.9%
Source: Annual Report-2008, Central Bank of Sri Lanka

Huge potential lies in Eastern and Northern Province which is based on rich endowments such as:

• Large stretches of beautiful beaches and ecological conservation areas. The province include the beaches of Nilaveli, whale watching, dolphin spotting, pigeon island, wild elephants of Luhugala and Yala, ancient ruins and Hindu kovils of Ampara, etc.
• Very productive agricultural crop land with low population density that can be developed for high intensity and productive agricultural enterprises through improved irrigation
• Livestock and fishery resources can be developed substantially. Seas are enriched with many high value marine species such as prawns, lobsters and Beche-De-Mer
• Trincomalee port can become a major commercial and industrial hub for the South Asia region.
• Seismic data has shown potential of oil under the sea in Northern Sri Lankan waters, particularly in the Mannar Basin

Board of Investments newly announced incentives for Investments in North and East Sri Lanka

I. Greenfield Projects :
Projects/Sector	Min. Investment	Min. Employment	Tax Holiday
Textile & Apparel Products	Rs. 40 Mn	100	15 Years
Food & Beverages, Wood Products, Paper & Paper Products, Rubber & Plastic Prod-ucts, Fishing Boats & Fishing Gear	Rs. 40 Mn	50	15 Years
Hotels, Tourism & Recreation	Rs. 40 Mn	25	15 Years
Rice Mills, Ice Manufacturing Plants & Cold Rooms	Rs. 15 Mn	20	15 Years
Dairy Farming & Livestock Development, Cultivation & Processing of Fruits & Vege-	Rs. 15 Mn	20	20 years
tables
Fisheries Industry	Rs. 7.5 Mn	20	15 Years
II. Revival of Sick Companies :
The above concessions will also be available for revival of a sick company located in  the Eastern Province provided they set up a new company with the acquisition of assets of a sick company.
III. Other Concessions :
Import of Capital Goods construction materials are permitted to be imported on duty  free basis. Export Oriented Projects with a Minimum 80% exports may also import Raw materials on duty free basis

Government Gets into Action: Several Government Sponsored Programs are Under Way

Government initiated two major programmes for rehabilitation and reconstruction of northern and eastern province. Identifying priorities is a key theme of these programmes.

Uthuru Wasanthaya (Flourishing North): Flourishing north mega development plan focuses on three main aspects: Security, Resettlement and Infrastructure Development

The project is implemented in two stages 180-days program, short term plan and the long term plan. At present the government is implementing the 180-day accelerated plan to resettle people. Under the 180-day program resettling internally displaced people is a primary target. Establishing water supply schemes is another component in developing towns and villages for resettlement.

Nagenahira Navodaya (Eastern Revival): A three year development project which was commenced in year 2007 has short term and medium term goals. It has focused on resource allocation among all communities to create ethnic harmony. Total estimated funds are US$ 4.2 billion out of which 52% is to be met from foreign aid. The rest will be financed by the government and domestic borrowings.

2 year program for rebuilding schools, roads, railways, hospitals, court houses and electricity

Positive Signs for the Way Forward

• North and East have generally been resilient towards negative shocks. These provinces continued to grow despite the conflict and the tsunami in 2004. Conflict affected areas such as Liberia, Uganda, Afghanistan and others have not shown such growth
• Sri Lanka government has proven to utilize its foreign aid quite effectively at time of crisis
• After elections held in the North and east recently, better governance and smooth running of local institutions will commence gradually