The principal law applicable to foreign investment is BOI Law No. 4 of 1978 and amendments
Since its inception, the BOI has been granting incentives including fiscal incentives as a strategy to attract FDI.
As per the powers vested by the said Law, the BOI could deviate from the laws and acts stipulated in the Schedule B of the BOI act including Inland Revenue law, Customs Ordinance and Exchange Control Act. Accordingly, the BOI granted investment incentives including tax holidays, tax concessions, and granted exemptions from customs Ordinance & exchange control laws for qualified investments. The BOI exercised its authority under the BOI Law until 2011 and in 2012 BOI-Inland Revenue tax concessions were amalgamated and the BOI followed the same tax concessions granted under the Inland Revenue Act thereafter.
In 2017, the government introduced a new Inland Revenue Act in consultation with IMF, allowing the government to scrap the complicated tax system and establish a "fair but transparent" tax policy for Sri Lanka with plans to increase government revenue from direct taxes.(Further more details click here)
According to a United Nations Economic and Social Commission for Asia and the Pacific (UNESCAP) media release, Instead of providing traditional tax holidays for investments , Sri Lanka has moved to a new incentive regime with the introduction of the new Inland Revenue Act. Accordingly, investors will be granted Incentives by way of Accelerated Depreciation Allowance (ADA) and Tax Credits (TC) based on the investments made on depreciable assets. ( Further more Please click here )
(Source : Sri Lanka (October 2017) 7th Meeting of the Asia Pacific FDI Network, Thailand )
Note : However, it is recommended that a potential investor checks with the BOI Sri Lanka for the latest changes to this policy as at the time of writing the BOI had not yet reflected the above change on its official website. The BOI has a point of contact for investors which can be reached via BOI Sri Lanka.
The exchange Control Act (Chapter 423) has been repealed and a new foreign exchange Act No. 12 of 2017 has been introduced in July 2017.
The new Exchange Control Act has further liberalized foreign investments and the regulation to implement. This act has been gazetted on 1st November 2017.
The Regulation issued under the previous Exchange Control Act (Regulation No. 1232/14 dated 19.04.2002 as amended by regulation No.1248/19 dated 08.08.2002 and regulation No 1970/49 dated 10.06.2016) granted permission for the issue and transfer of shares in a company up to 100% of the issued capital of such company, to approved country funds, approved regional funds, corporate bodies incorporated outside Sri Lanka and individual’s resident outside Sri Lanka (inclusive of Sri Lankans resident outside Sri Lanka) subject to the exclusions, limitations and conditions herein after setting out.
(i) Pawn Broking
(ii) Retail trade with a capital of less than One Million US Dollars
(iii) Coastal Fishing
Foreign investments in the areas listed below could get approval only up to 40% of the issued capital of such company or a higher percentage of foreign investment when approval has been granted by the Board of Investment of Sri Lanka.
i. Production of goods where Sri Lanka’s exports are subject to internationally determined quota restrictions
ii. Growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar and spices
iii. Mining and primary processing of non- renewable national resources
vi. Timber based industries using local timber
vii. Fishing (deep sea fishing)
viii. Mass communications
x. Freight forwarding
xi. Travel agencies
xii. Shipping agencies
The permission granted in respect of the shares of a company engage in following areas only up to the percentage of the issued capital of the company for which percentage either general or special approval has been granted by the Government of Sri Lanka or any legal or
i. Air transportation
ii. Coastal shipping
iii. Large scale mechanized mining of gems;
v. industrial enterprise 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; any industry producing currency, coins security documents.
Administrative authority set up for the approval of foreign investment in such businesses.
Sri Lanka has a very robust framework regarding labour regulations which are governed by the Department of Labour. The relevant acts governing labour regulations are clear, and it is recommended for a potential investor to be familiar with the list. Full document, please click here.
(Source: Department of Labour: )
The principal document which regulates the ownership of land in Sri Lanka, especially by parties outside the country, is the Land Act, No. 38 of 2014 (Restrictions on Alienation), the full original text. Please click here.
In the section 2 of original text, there is a prohibition of the transfer of land (state owned or privately owned) to the following with certain conditions and exemptions.
In 2014, this act was amended and the relevant amendments can be found on click here.
Further amendments to this act has been carried out by the GoSL:
The most recommended course of action for a potential investor attempting to ascertain the latest applicable laws for a foreign investor regarding land is to obtain the legal advice from a land law professional based in Sri Lanka.
For more information of Business Laws and Regulations in Sri Lanka. Please click here.