1.      What are the permitted capital transactions?

Any person resident outside Sri Lanka may proceed with the following categories of capital transactions (i.e. investments) in Sri Lanka, subject to the limitations, terms and conditions stipulated in the Regulations No.2 of 2021. 

1. invest in all classes of shares issued by companies incorporated in Sri Lanka subject to the exclusions and limitations imposed under the Regulations No. 2 of 2021.
2. invest in non-listed debt securities with a tenure of 3 or more years issued by the companies incorporated in Sri Lanka
3. invest in debt securities issued, by licensed commercial banks, licensed specialized banks, licensed finance companies or specialized leasing companies
4. invest in listed debt securities issued in any designated foreign currency
5. grant loans with a tenure of 3 or more years to companies incorporated in Sri Lanka under the Companies Act, No. 7 of 2007
6. grant loans by the parent company incorporated outside Sri Lanka to its branch office or to a project office registered in Sri Lanka, as an overseas company under the Companies Act, No. 7 of 2007
7. grant loans to the Government of Sri Lanka or to the State-Owned Enterprises
8. grant loans in foreign currency or in Sri Lanka Rupees to licensed commercial banks, licensed specialized banks, licensed finance companies and specialized leasing companies,
9. grant loans with a tenure of less than 3 years to companies incorporated in Sri Lanka under the Companies Act, No. 7 of 2007, which hold Business Foreign Currency Accounts, provided that all repayments of such loans are made of foreign exchange earnings of the borrower.
10. invest in Units in Unit Trusts or Mutual Funds.
11. invest in Government Securities (treasury bills, treasury bonds and any other securities issued by the Government of Sri Lanka).
12. invest in Securities issued by the Central Bank of Sri Lanka or any state-owned enterprise or any other statutory body.
13. invest in Sri Lanka Development Bonds (SLDBs).
14. term deposits in Licensed financial institutions, by means of Sri Lankan Rupee or any designated foreign currency subject to the section 4 of the Foreign Exchange Act (FEA).
15. invest in immovable properties.
16. invest in branch office or project office which engage in commercial activities with a minimum investment of USD 200,000
17. invest in liaison office, representative office, regional office or other similar office in Sri Lanka which do engage in any non-commercial, non-trading or non-industrial activity.

2.      Mechanism of channeling funds pertaining to the investments

Required funds in respect to the above investments shall be brought into Sri Lanka through an Inward Investment Account (IIA) opened by such non-resident investor with an Authorized Dealer (AD) in Sri Lanka.

Any income and capital proceeds received from such investments shall be repatriated through the same IIA, through which the investment was made.

However, the requirements of routing funds through an IIA pertaining to the investments referred items (v) to (x) are not mandatory.

3.      Procedure to be followed for proceeding the investment

Investors shall liaise with an AD in Sri Lanka in order to open IIA and to proceed with the remittances pertaining to the permitted capital transactions in Sri Lanka.

References:

Regulations No.2 of 2021 published in the Government Gazette Notification No.2213/35 dated 03.02.2021

Directions No.15 of 2021 issued to Authorized Dealers on Inward Investment Account

1.      What are the permitted capital transactions?

Any eligible person resident in Sri Lanka may proceed with the following categories of capital transactions (i.e. investments) outside Sri Lanka, subject to the limitations and terms and conditions stipulated in the Regulations No. 1 of 2021.

1. Ordinary Shares,
2. Units, Preference Shares,
3. Corporate Bonds,
4. Debentures
5. Sovereign Bonds
6. Overseas Offices
7. Employee Share Ownership Plan or Employee Share Option Scheme

Any investment exceeding the limits specified in the Regulations No 1 of 2021 requires a special permission under the Section 7(10) of Foreign Exchange Act, No 12 of 2017 (FEA). Such requests shall be forwarded to the Director, Department of Foreign Exchange of the Central Bank of Sri Lanka.

2.      Mechanism of channeling funds pertaining to the investments

The outward remittances pertaining to the above investments, shall be routed through an Outward Investment Account (OIA) opened by the eligible resident person with an Authorized Dealer (AD) in Sri Lanka.

Any income or capital proceeds received from such investments shall be brought into Sri Lanka via the same OIA, within three months from the receipt of proceeds.

3.      Procedure to be followed for proceeding the investment

Eligible resident investors shall liaise with an AD in Sri Lanka in order to open OIA and to proceed with the remittances pertaining to the permitted capital transactions outside Sri Lanka.

An eligible resident investor shall obtain a clearance letter from the Department of Foreign Exchange that there is no pending investigation under the provisions of the FEA or the repealed Exchange Control Act for each outward remittance for the capital transactions. The request for the clearance letter shall be forwarded as per the specimen format provided by the Department of Foreign Exchange.

Special notes to the applicants

• The eligible person who wishes to remit the funds pertaining to the capital transactions are abided to submit any information/documentary evidence to the satisfaction of the AD on the compliances to the regulations and any failure to do so would be caused to decline the request.
• Currently, the Order issued under Section 22 of the FEA, has imposed temporary suspensions/limitations on outward remittances for the permitted capital transactions by residents.

References

Regulations No.1 of 2021 published in the Government Gazette Notification No.2213/34 dated 03.02.2021

Order issued under Section 22 published in the Government Gazette Notification No.2389/08 dated 18.06.2024

Directions No.14 of 2021 issued to the Authorized Dealers on Outward Investments Account