Investments in Sri Lanka

1.      What are the permitted investments in Sri Lanka?

Any person resident outside Sri Lanka may proceed with the following categories of capital transactions (i.e. investments) in Sri Lanka, subject to the exclusions and 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. invest in Units in Unit Trusts or Mutual Funds.
  10. invest in Government Securities (treasury bills, treasury bonds and any other securities issued by the Government of Sri Lanka).
  11. invest in Securities issued by the Central Bank of Sri Lanka or any state-owned enterprise or any other statutory body.
  12. invest in Sri Lanka Development Bonds (SLDBs).
  13. 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).
  14. invest in immovable properties.
  15. invest in branch office or project office which engage in commercial activities with a minimum investment of USD 200,000.
  16. 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 (ix) are not mandatory.

3.      Procedure to be followed for proceeding the investments

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.

4.     What are the businesses in which non-residents are prohibited (exclusions), limited (limitations), or require special approval to acquire shares?

  1. Prohibited Sectors (exclusions)
    Non-residents cannot acquire voting shares in companies engaged in:
    • Pawn broking
    • Coastal fishing (as defined by the Minister responsible for fisheries)
    • Retail trade where the capital contributed by non-residents is less than USD 5 million
  2. Sectors with Ownership Limitations (Limitations)

Non-residents may acquire up to 40% of voting shares, unless a higher percentage is approved by the Board of Investment of Sri Lanka, in companies engaged in:

    • Production of goods subject to internationally determined export 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
    • Deep sea fishing (as defined by the Minister responsible for fisheries)
    • Mass communication
    • Education
    • Freight forwarding
    • Travel agencies
    • Shipping agencies

iii. Sectors Requiring Special Approval
Non-residents may acquire voting shares only up to the percentage approved by the relevant government legal or administrative authority in the following sectors:

    • Air transportation
    • Coastal shipping (as defined by the Minister responsible for shipping)
    • Industrial undertakings specified in the Second Schedule to the Industrial Promotion Act, No. 46 of 1990, including:
      1. Manufacturing of arms, ammunition, explosives, military vehicles, equipment, aircraft, and other military hardware
      2. Manufacturing of poisons, narcotics, alcohol, dangerous drugs, and toxic, hazardous, or carcinogenic materials
      3. Production of currency, coins, or security documents
    • Large-scale mechanized gem mining
    • Lotteries

5.     What are the businesses in which non-residents are prohibited or require approval to open and maintain places of business in Sri Lanka?

  1. Prohibited Businesses

Non-residents cannot open or maintain places of business in the following sectors:

    • Money lending (except for branches of foreign banks registered under the Banking Act, No. 30 of 1988)
    • Pawn broking
    • Retail trade where foreign capital contribution is less than USD 5 million
    • Coastal fishing (as defined by the Minister responsible for fisheries)
    • Growing and primary processing of tea, rubber, coconut, and rice
    • Mining and primary processing of non-renewable national resources
    • Freight forwarding
    • Shipping agency business
    • Mechanized gem mining
    • Lotteries

ii. Businesses Requiring Prior Government Approval

Non-residents may open or maintain businesses only with permission from the relevant legal or administrative authority in the following sectors:

    • Production of goods where Sri Lanka’s exports are subject to internationally determined quota restrictions
    • Growing and primary processing of sugar, cocoa, and spices
    • Timber-based industries using local timber
    • Deep sea fishing
    • Mass communication
    • Education
    • Outbound travel agency business
    • Local air transportation
    • Industries manufacturing or producing:
      1. Arms, ammunition, explosives, military vehicles, aircraft equipment, and other military hardware
      2. Poisons, narcotics, alcohol, dangerous drugs, and toxic, hazardous, or carcinogenic materials
      3. Currency, coins, and security documents

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