Frequently asked questions for first-time buyers & sellers

1.⁠ ⁠Golden Paradise Visa Program:

Eligibility: Foreign investors who deposit a minimum of USD 200,000 in a
commercial bank recognized by the Central Bank of Sri Lanka.
Validity: 10-year residence visa, renewable.
Conditions: Investors may withdraw up to 50% of the initial investment
after the first year from the visa issuance date.
Applicable To: The primary applicant, spouse, and dependents.
Visa Fee: USD 200 per year.

2.⁠ ⁠Investment in Condominium Property:

Eligibility: Foreigners investing in condominium properties in Sri
Lanka.
Investment Requirements:
Urban Areas: Investment of USD 200,000 grants a 10-year residence visa.
Urban Areas: Investment of USD 150,000 grants a 5-year residence visa,
extendable.
Suburban Areas: Investment of USD 75,000 grants a 5-year residence visa,
extendable.
Applicable To: Applicant, spouse, and dependents.
Visa Fee: USD 200 per year.

3.⁠ ⁠Direct Investments:

Eligibility: Foreign investors making substantial direct investments in
Sri Lanka.
Investment Requirements:
USD 300,000: Grants a 5-year residence visa.
USD 500,000: Grants a 10-year residence visa.

Applicable To: Applicant, spouse, dependents, and support staff
(assistants, cooks, caregivers) with a monthly remittance of USD 1,500
per person.

Visa Fee: USD 200 per year.

4.⁠ ⁠Investments in Treasury Bonds, Treasury Bills, Sri Lanka Development
Bonds:

Eligibility: Foreign investors purchasing government securities.

Investment Requirements:

USD 250,000: Grants a 5-year residence visa.
USD 400,000: Grants a 10-year residence visa.
Applicable To: Applicant, spouse, and dependents.
Visa Fee: USD 200 per year.

5.⁠ ⁠Investments in the Sri Lankan Share Market:

Eligibility: Foreign investors investing in the local stock market.

Investment Requirements:
USD 100,000: Grants a 5-year residence visa.
USD 200,000: Grants a 10-year residence visa.
Applicable To: Applicant, spouse, dependents, and support staff with a
monthly remittance of USD 1,500 per person.
Visa Fee: USD 200 per year.

Additionally, Sri Lanka has introduced a new permanent residence visa
scheme for individuals of Sri Lankan descent and their dependents who
are currently unable to apply for dual citizenship. The initial visa is
valid for 10 years and is renewable.

For retirees, the “My Dream Home” program allows foreign nationals over
55 years of age to reside in Sri Lanka under a long-term resident visa,
issued in two-year blocks. Applicants must deposit USD 15,000 in a fixed
deposit account in an approved Sri Lankan bank and remit a monthly
income of USD 1,500 for the principal applicant and USD 750 for each
dependent.

In Sri Lanka, the perch is a widely used unit of measurement, particularly for land area. It is part of the old British imperial system and remains common in real estate and land transactions in the country.

1 perch = 25 square meters or 272.25 square feet.

Additionally:

•40 perches = 1 rood

•160 perches = 1 acre

This system coexists with the metric system, which is officially adopted in Sri Lanka, but many people still use perches informally when dealing with property.

The Capital Gains Tax (CGT) is a tax applied to the profit realized when investment assets are sold. This tax is calculated based on the difference between the selling price and the purchase cost of the asset, with adjustments for any improvement or selling-related costs.

In Sri Lanka, CGT was reintroduced under the Inland Revenue Act, No. 24 of 2017, and has been effective since 1st April 2018. The main details include:

1.Applicable Assets:

•Land

•Buildings

•Machinery

•Investments (excluding shares listed on the stock market, which are exempted).

2.Calculation of Taxable Amount:

•Deduct costs associated with purchasing, improving, or selling the asset from the sale price to determine the capital gain.

3.Tax Rate:

•A fixed rate of 10% is applied to the profits from the sale of these assets.

This tax ensures that profits from appreciating assets contribute to government revenue, while exempting certain investments like stock market shares under the current legislation.

WHAT’S AN INVESTMENT ASSET?

A Capital Asset (eg. Land or building, a financial asset) held as part of an investment

WHAT ARE THE EXEMPTIONS FROM CGT?

• The principal place of residence of an individual provided that it has been owned by the individual continuously for the last 3 years before disposal and lived in at least 2 years of those 3 years (calculated on a daily basis).
• If the profit/gain is less than 50,000 and if the total profits gained within the year (through multiple gains) is less than 600,000
• Investment asset realised in two or more parts
• Realisation of investment asset that is jointly owned
• A property or land gifted to blood relations
• Trading stock or depreciable asset

HOW IS THE COST CALCULATED?

The cost of the investment asset as at 30^th Sept 2017. i.e. if you bought a land in 2000, then the cost would be the value of that land as at 30^th Sept 2017. If you acquired the asset after that date, then it’ll be the cost of acquiring the asset.

HOW IS THE CAPITAL GAIN CALCULATED?

Eg.

• Land purchased on 10^th Jan 2010 for                   = Rs. 10,000,000
• Built a house on the land in 2012. Cost                = Rs. 15,000,000
• Market value of land & house as at 30.09.2017  = 32,000,000
• House renovation costs on 01.12.2017                  = Rs. 1,000,000
• Land+house sold on 01.10.2018 for                       = 35,500,000
• Property advertising, valuation and legal costs   = 400,000

Cost of land & house + improvements + incidentals         = 32,000,000 + 1,000,000 + 400,000
= 33,400,000

Capital gain of property as at 01.10.2018                          = <selling price> – <cost as at 30/09/17>
= 35,500,000 – 33,400,000
= 1,600,000
CGT to be paid                                                    = 10% of 1,600,000 = 160,000

WHEN IS AN ASSET DEEMED REALISED (I.E. YOU NEED TO PAY CGT)?

• Amount received or receivable on the realisation (cash received for sale)
• Consideration received other than cash (eg. Exchange of asset to another asset)
• Amount received in respect to owning the asset (eg. Altering, repair)
• Grant of an Option
• Transfer of ownership of asset (eg. Sale, exchange, distribute, transfer, cancel, loss, destroy)
• Death of an individual
• Realisation with retention of asset (lease, write-off, change of residence)

CHANGE OF RESIDENCE(SECTION 69 & 70 OF THE INLAND REVENUE ACT, NO. 24 OF 2017)

If a foreigner becomes a citizen of Sri Lanka and becomes a non-resident in the previous country, then any assets held in the foreign country by that person will be deemed realised and will be required to pay CGT on the value.

When a person resident in Sri Lanka ceases to be resident in Sri Lanka, the person shall be treated as having immediately before the person ceases to be so resident realised all assets owned by the person.

These shall not apply to an asset that is a domestic asset of the person immediately before becoming a resident or after ceasing to be a resident.

WHAT HAPPENS WITH THE TRANSFER OF AN ASSET?

On a transfer of an asset to an associate (child, grandchild, relative etc.), spouse or former spouse/death or divorce, the acquisition cost to the acquirer will be the Net Cost of the asset (Net Cost as at 30.09.2017) or cost of acquisition after 01.04.2018. For a swap, the market value of the asset will be considered.

Eg.

1. A buys a land at Rs. 5,000,0000
2. Land value as at 30.09.2017 is 6,000,000 (Net Cost)
3. A transfers a land to B on 15.08.2018
4. A has a no gain / no loss (i.e. no CGT to pay)
5. B sells land on 30.12.2018 at 7,500,000.
6. Taxable capital gain to B is 7,500,000 – 6,000,000 = 1,500,000

HOW AND WHEN SHOULD I PAY CGT?

You need to submit the CGT return and pay the tax within 1 month from the realisation of an investment asset

CAN I SET CGT AGAINST LOSS FROM ASSETS?

No, it cannot set off against loss of capital

WHEN WAS THIS ANNOUNCED?

The Sri Lankan government first unveiled plans to introduce a capital gains tax in the 2017 budget speech. It was proposed that 10% rate shall be applicable for transactions involving capital assets which include any immovable property.

However, Sri Lanka has a history with capital gains taxes which were notably set at 45% and then reduced to 25% in 1978 and finally abolished in 2002, coincidentally by the current premier, Hon. Ranil Wickramasinghe

WHO WILL THIS APPLY TO?

According to the sources available, the CGT will be applicable to both foreigners and locals with the only two criteria being if the property has been purchased within the 10-year period and if a profit has been made on a subsequent sale.

WHAT IS THE REASON FOR THE TAX TO BE IMPLEMENTED?

There has been many a reason put forward to support the inclusion of a CGT, chief among which is that the government’s spending on infrastructure has massively helped raise the prices of real estate property and thus it is suitable for the government to also benefit off of such transactions.

This is also a part of reforms suggested by the International Monetary Fund (IMF) which has advised the administration on raising its tax revenue ratio to the GDP. The government expects to raise Rs. 5 Billion from the imposition of the CGT an equivalent of 0.27% government’s expected tax revenue for the year 2017.

HOW MANY OTHER TAXES WILL ALSO BE APPLICABLE?

Currently, only other tax that will be applicable on the property is a stamp duty of 4%, which is charged on registering a deed of ownership.

EFFECT OF THE TAX ON SRI LANKAN PROPERTY MARKET

Industry opinion over the CGT implementation has been divided. While some see it as a necessary step, many have voiced concerns over the unclear nature of the implementation. The lack of clarity in issues such as if the CGT will be enacted with the power to retrospectively charge the tax has been a concern for many stakeholders.

According to Reuters, since the Prime Minister’s announcement of the CGT implementation it is estimated that foreign investors have sold over Rs. 5 Billion worth of assets.

Another key contention of stakeholders has been the lockout effect of capital being invested in less productive assets as investors will seek to avoid paying the CGT by holding the property for more than 10 years.

WHAT IF I HAVE FURTHER QUESTIONS ON CGT?

You can refer to the Inland Revenue Act, No. 24 of 2017 or contact us to get advice.

In Sri Lanka, property tenure refers to the legal ownership and rights associated with land. There are two primary types of property tenure:

1. Freehold:

This is the outright ownership of land or property, providing the owner with full rights to use, sell, or transfer the property as they wish, subject to local laws.

2. Leasehold:

This is a temporary form of ownership where the government or a private individual grants rights to use the land or property for a specified period under an agreed lease. The terms of the lease, including its duration and conditions, can vary depending on the intended use of the property and the agreement between the parties.

Renting and owning a home offers distinct advantages and disadvantages that don’t directly compare.

Advantages of Renting:

•Freedom from most maintenance responsibilities.

•Flexibility to relocate more easily.

However, renting comes with limitations:

•No opportunity to build equity.

•No tax benefits.

•Exposure to potential rent increases.

•Limited freedom to decorate or modify your living space.

•Dependence on a landlord for housing stability.

Advantages of Owning a Home:

•Builds equity with each mortgage payment, contributing to an investment.

•Provides tax breaks to help offset financial responsibilities like insurance, real estate taxes, and maintenance.

•Offers freedom to customize your living space.

•Provides long-term stability and security.

While homeownership comes with significant responsibilities and costs, many find that the benefits of freedom, stability, and investment potential make it a worthwhile choice.

It’s not mandatory, but it’s highly recommended. Being present during the inspection allows you to:

•Ask Questions in Real-Time: The inspector can clarify findings and discuss potential issues immediately.

•Gain Insights: You’ll hear an objective perspective on the property and its condition.

•Learn About Maintenance: Use the opportunity to ask about general upkeep and preventive care for the home.

Your presence ensures you fully understand the inspection report and any potential concerns, helping you make a well-informed decision about the purchase.

While your real estate agent’s advice is invaluable, trust your instincts when deciding on a fair price. Consider these factors:

•Recent sale prices of similar homes in the area

•The home’s condition

•Time the property has been on the market

•Financing terms

•The seller’s circumstances

By the time you’re ready to make an offer, you should have a clear understanding of the home’s value and your budget. Be ready for negotiations, as buyers and sellers often go back and forth to reach an agreed price.

Your real estate agent will guide you in making an offer, which typically includes:

•Complete legal description of the property

•Down payment and financing details

•Proposed move-in date

•Price you are offering

•Proposed closing date

•Length of time the offer is valid

•Details of the deal

Keep in mind that a sale commitment is contingent on successfully negotiating a satisfactory contract with the seller, not just making the offer.

Typical Range: 3% to 5% of the property value.

Payment Responsibility: Usually paid by the seller.

Buyer’s Fee: This may apply if the agent is acting as a buyer’s agent.

Clarification: It’s recommended to confirm at the outset whether the fee is the responsibility of the seller, the buyer, or shared between both parties.

In Sri Lanka, the property tax system involves several key components related to stamp duty and legal fees when leasing or purchasing property. Here’s a breakdown:

1. Stamp Duty

•Leasing Land (up to 99 years):

A 1% Stamp Duty is charged on the total lease amount.

•Buying Property:

•3% Stamp Duty on the first LKR 100,000.

•4% Stamp Duty on amounts exceeding LKR 100,000.

2. Legal Fees

•Lawyers typically charge between 1% and 3% of the property’s value for preparing legal documents such as sales agreements and title transfers.

Other Possible Costs

•Notarial Fees: Additional charges may apply for notarizing documents.

•Registration Fees: A separate fee might be required for registering the property transfer.

•Valuation Reports: Some transactions may require official valuation reports, which come with their own costs.

Landlords in Sri Lanka should be aware of the following taxes when leasing or selling property:

•Stamp Duty: A 1% stamp duty is payable when rent is collected, applicable to leases for both foreigners and locals.

•Value-Added Tax (VAT):

•Leasing: VAT at 15% is applicable if the lease is to a VAT-registered person, except for residential premises.

•Sales: The sale of land and buildings (excluding residential premises) is subject to VAT at 15% on the property value.

It’s essential to stay informed and compliant with these regulations. Consult a tax professional for personalised advice.

Owning and operating real estate in Sri Lanka entails certain taxes and charges, primarily levied by local authorities and, in some cases, the Urban Development Authority (UDA).

1. Assessment Rates

•Payable To: The local authority of the area where the property is located.

•Basis of Calculation:

•Based on the annual value of the property, determined by the local authority after a property inspection or valuation.

•Rates vary depending on the location and type of property.

•Payment Frequency: Quarterly.

2. Urban Development Authority (UDA) Charges

•Applicable To:

•Only certain premises, depending on the nature and use of the property.

•Purpose:

•These charges are imposed for properties within areas designated for urban development or for specific types of properties subject to UDA regulations.

Additional Notes

•Property owners should confirm the applicable taxes and charges with local authorities or the UDA, as these may vary depending on the location, zoning regulations, and property use.

•Non-compliance with tax payments can lead to penalties or restrictions on property-related activities.

By adhering to these tax obligations, property owners can ensure smooth possession and operation of their real estate assets.

Stamp Duty

1. Deed of Transfer:

•3% for the first USD 751 (LKR 100,000).

•4% for every additional USD 751 (LKR 100,000) or part thereof.

2. Lease Agreements:

•USD 0.1 (LKR 10) per USD 7.5 (LKR 1,000) or part thereof.

Land Tax on Leases

The land tax applies in specific cases:

1.15% Land Tax:

Applicable to:

•Foreign individuals.

•Foreign companies.

•Sri Lankan-incorporated companies with 50% or more foreign shareholding (direct or indirect).

2.7.5% Reduced Land Tax:

Applies under these conditions:

•Lease to a Sri Lankan-incorporated company (with >50% foreign shareholding) that has actively operated in Sri Lanka for 10 consecutive years prior to the lease.

•Land transferred to a subsidiary where the holding company (foreign-owned >50%) has operated for 10 consecutive years in Sri Lanka.

•Condominium parcels:

•Above the 4th floor for leases less than 35 years.

•Below the 4th floor for leases over 99 years.

•Lease in Special Licensed Zones, Tourist Development Areas, or Industrial Estates.

•Cases with substantial foreign investments, approved by the Cabinet of Ministers.

Exemptions from Lease Tax

No lease tax applies in the following cases:

•Land leased to:

•Diplomatic Missions or International Organizations under the Diplomatic Privileges Act.

•Dual citizens of Sri Lanka.

•Foreign investors with pre-2013 agreements complying with inward remittance rules.

•Long-term leases (35+ years) for condominium parcels above the 4th floor, paid entirely via foreign remittance.

•Land in Bonded Areas or Free Ports.

•Leases approved under Strategic Development Projects or for foreign companies relocating international or regional operations.

Payment Responsibility

•Stamp Duty: Paid by the purchaser in property transfers or the lessee in lease agreements, unless otherwise agreed.

Foreign investors should consult legal and financial advisors to ensure compliance with these tax obligations and benefit from applicable exemptions or reduced rates.

Exchange Control regulations govern transactions involving non-residents in Sri Lanka, particularly in property transfers and remittances.

Key Requirements:

1. Controller of Exchange Consent

•Required for transferring property to or from a non-resident.

•Consent is needed for:

•Proceeding with the sale of property to a non-resident.

•Remitting proceeds of the sale by the non-resident out of Sri Lanka.

2. General Permission for Sri Lankan Residents

•Sri Lankan residents can make payments to non-residents of Sri Lankan origin for real estate purchases without requiring additional approval.

•However, non-residents must still obtain consent to remit sale proceeds abroad.

3. Remittance Limitations for Non-Residents

•If a non-resident sells property, remittance of proceeds is limited to the amount brought into Sri Lanka as inward remittances during the original purchase.

•Full proceeds are not remittable without specific permissions.

4. Remittance for Sri Lankan Emigrants

•Initial remittance limit: USD 150,000 (LKR 20 million).

•Annual subsequent remittance: USD 20,000 (LKR 2.7 million), with consent from the Controller of Exchange.

Practical Implications:

•Non-residents and emigrants must carefully document inward remittances related to property purchases to ensure smooth repatriation later.

•Buyers and sellers should consult financial and legal advisors to comply with the Exchange Control Act and avoid delays in transactions.

These rules highlight the importance of maintaining compliance with Sri Lanka’s Exchange Control laws for all property and financial transactions involving non-residents.

Sri Lanka offers a range of competitive incentives to attract foreign investments, supported by Investment Protection Agreements, Double Taxation Relief Agreements, and Free Trade Agreements with countries like India and Pakistan.

Key Incentives for Foreign Investors:

1. Board of Investment (BOI) Registration

Foreign investors can register with the BOI under Section 17 of the BOI Law No. 4 of 1978 to access incentives based on:

•Investment scale (small, medium, or large-scale).

•Project expansion.

•Strategic import replacement projects (e.g., fabric, pharmaceuticals, milk powder, cement).

2. Tax and Duty Exemptions

Incentives vary by sector (manufacturing, agriculture, services) and may include:

•Tax holidays.

•Duty-free imports for capital goods and raw materials (for export-oriented services).

•Exemptions from VAT, Customs Duty, and Port and Airport Development Levy (PAL).

•Exemptions from Exchange Control restrictions.

3. Strategic Development Projects (SDP)

Investments classified as Strategic Development Projects under the Strategic Development Projects Act No. 14 of 2008 (as amended) may receive:

•Full or partial exemptions from Income Tax, VAT, and other levies for up to 25 years.

4. Special Concessions for Specific Activities

Enterprises involved in the following activities, per agreements with the BOI, benefit from significant tax exemptions under the Finance Act of 2013:

•Entrepôt trade (import, minor processing, and re-export).

•Offshore business.

•Front-end services for clients abroad.

•Headquarters operations for financial supply chain and billing management.

•Logistics services (e.g., bonded warehouses, multi-country consolidation operations).

5. Sector-Specific Restrictions

Some sectors are closed to foreign investment or require government approval. Investors should consult the BOI website to confirm if their business activity is eligible.

Why Invest in Sri Lanka?

With its strategic location, robust legal protections, and targeted incentives, Sri Lanka provides an attractive environment for foreign investors. For more details, visit the BOI – Invest in Sri Lanka website.

Prohibited Transfers:

Transfer of land is prohibited to:

•Foreign individuals

•Foreign companies

•Companies incorporated in Sri Lanka with a foreign shareholding of 50% or more, either directly or indirectly.

Subsidiary Restrictions:

Companies with foreign shareholding exceeding 50% cannot establish a subsidiary in Sri Lanka for the purpose of purchasing immovable property.

Definition of Land:

Includes state or private land, submerged land, and buildings on the land.

Exemptions

Transfers to the following entities or individuals are exempted:

1. Diplomatic or International Organizations:

Diplomatic missions, multilateral, or bilateral organizations recognized under the Diplomatic Privileges Act.

2. Condominium Property:

A condominium parcel above the fourth floor (excluding ground and common floors) if:

The entire value is paid upfront via inward foreign remittance before the deed transfer.

3. Foreign Investors (Pre-2013 Agreements):

If aligned with Cabinet decisions prior to January 1, 2013, involving direct foreign currency investment under written laws applicable before that date.

4. Inheritance:

By intestacy, gift, or testamentary disposition to a foreign next of kin of the landowner.

5. Dual Citizens:

Individuals holding dual citizenship in Sri Lanka.

6. Banks with ≥50% Foreign Shareholding:

Through auctions or court decrees related to loan recovery.

7. Financial Institutions:

To enforce a lease, agreement to sell, or recover loans via court decree.

8. Active Companies (Pre-Land Act Certification):

Companies operating in Sri Lanka for 10+ consecutive years as of the Land Act certification date.

Increasing Foreign Shareholding in Local Companies

1. Restrictions for Companies Holding Land:

Companies with <50% foreign shareholding cannot increase foreign ownership to 50%+ for 20 years from the transfer date.

2. Consequences of Exceeding 50% Foreign Ownership:

The land transfer becomes void.

3. Rectification Period:

•Companies listed on the Colombo Stock Exchange (with minimum shareholder criteria): 12 months to reduce foreign shareholding.

•All other companies: 6 months.

•If reduced within the rectification period, the transfer remains valid.

Mortgage Restrictions

•Land transferred or leased to foreigners under exemptions cannot be mortgaged or pledged for five years from the date of transfer.

Secretaries’ Certificates

•For land transferred to companies with <50% foreign shareholding:

•A certificate from the company secretary confirming the foreign shareholding is required upon registration.

•Updates must be submitted every six months.

This legal framework ensures controlled foreign ownership while allowing limited exemptions under specific conditions.

Can foreign residents purchase property in the country?

Yes, foreign residents can purchase property, but the money must be transferred into the country via a Securities Investment Account (SIA) held at a local bank.

What is a Securities Investment Account (SIA)?

An SIA is a special account required for foreign residents to channel funds into the country for specific investments, such as property purchases. The same account is used to repatriate the money (including any gains) after the property is sold, in the currency originally deposited.

What if the property was inherited or purchased without using an SIA?

If the property was inherited or purchased without an SIA (e.g., bought as a citizen or before the SIA requirement), there are restrictions on taking money out of the country:

•You can withdraw up to $20,000 annually.

•Alternatively, you can withdraw the entire amount at once, provided you can prove the source of the money to the local bank and the Central Bank. This process can take several months to complete.

Is there a limit on bringing money into the country?

Yes, as per Budget 2017, you can bring in up to $45,000 without declaring the source of the funds.

Can foreigners borrow money from local banks to purchase property?

Yes, Budgets 2017 and 2018 allow foreigners to borrow funds from local banks to purchase condominiums, up to 40% of the property value.

Renting property in Sri Lanka involves two main types of agreements: Tenancy Agreements and Lease Contracts, each governed by different legal principles. Additionally, the applicability of the Rent Act significantly affects the terms, rights, and responsibilities of landlords and tenants.

Key Legal Framework:

1. The Rent Act:

•Governs most rental agreements in Sri Lanka, but with specific exceptions (detailed below).

•Generally, the law under the Rent Act favours tenants, imposing restrictions on landlords.

2. Exceptions to the Rent Act:

Properties not governed by the Rent Act include:

•Residential properties occupied by the owner as of January 1, 1980, and let since.

•Business premises constructed after January 1, 1980.

•Properties used by foreign individuals or companies under specified conditions.

•Premises exceeding certain annual value thresholds or owned by companies.

Types of Agreements:

1. Tenancy Agreement

•Non-Fixed Term:

•Typically informal; may or may not be written.

•Can be terminated by either party with at least one month’s notice.

•If disputes arise, eviction requires legal intervention.

•Without the Rent Act:

•Terms (e.g., rent, deposit, payment methods) are freely negotiated.

•Not subject to taxes or fines, unlike lease contracts.

•Advisable to use notary services for greater legal security.

•With the Rent Act:

•Rent is fixed based on state-assessed property value.

•Provides stronger tenant protections; landlords can only terminate contracts for specific reasons, such as:

•Late rent payment (over one month).

•Illegal/immoral use of premises.

•Significant property damage.

2. Lease Contract

•Fixed-Term Agreement:

•Provides more security for both parties.

•Must be written and signed in front of two witnesses and a notary.

•Requires registration at the Land Registry to protect the tenant legally.

•Without the Rent Act:

•Terms are freely negotiated, including rent and deposit amounts.

•With the Rent Act:

•Deposits cannot exceed three months’ rent.

•Additional payments (e.g., gratuities or commissions) are prohibited.

•A Certificate of Conformity is mandatory to prove lawful occupation of the premises.

Practical Considerations:

Rental Deposits & Agreements

Regardless of the governing law:

•Key Terms to Address in Contracts:

•Security deposit and refund conditions.

•Payment terms and responsibilities for repairs/rates.

•Inventory of goods (if furnished).

•Mutual obligations of landlord and tenant.

•Termination:

•Standard notice period is one month.

Legal Safeguards for Tenants:

•Always ensure agreements are officially documented.

•Engage a lawyer to verify property ownership and legal status.

•Verify property documentation, including the Certificate of Conformity.

Foreign Tenants:

•Additional precautions are advisable to avoid scams, including hiring legal experts to check for encumbrances and legal ownership.

Summary

The rental process in Sri Lanka varies significantly based on the type of agreement and whether the property falls under the Rent Act. Tenancy agreements offer flexibility but less security, while lease contracts provide structured, fixed-term arrangements. Understanding the applicable legal framework ensures that both landlords and tenants can negotiate terms effectively and protect their rights.

Foreign entities can establish a business presence in Sri Lanka subject to Exchange Control laws and other regulatory requirements.

Methods of Establishing Presence:

1.Incorporating a Company: Fully owned subsidiaries, majority control, or minority stake in local companies.

2.Acquiring Shares: Purchase of shares in existing Sri Lankan companies.

3.Registering as an Overseas Company: Includes offshore companies with investment concessions under commercial hub operations.

Key Registration Steps:

•Submission of statutory forms and constitutional documents to the Registrar-General of Companies.

•Payment of stipulated registration fees.

Foreign Investment Regulations:

•Investment must be remitted via a Securities Investment Account (SIA) at a local bank.

•Profit Repatriation: 100% of profits can be repatriated through the SIA.

Disclosure Obligations:

•Both local and registered overseas companies must comply with continuous public disclosure requirements by filing with the Registrar-General of Companies.

Industry-Specific Restrictions:

Foreign ownership is restricted in protected sectors, including:

•Agriculture (tea, rubber, spices).

•Mining and timber industries.

•Deep-sea fishing.

•Mass communications, education, and travel agencies.

Foreign investment in certain sectors requires Board of Investment (BOI) approval, especially for industries like air transportation, military manufacturing, and large-scale mining.

Prohibited Sectors for Foreign Investors:

•Money lending (except margin provision for listed securities).

•Pawn broking.

•Retail trade under USD 1 million.

•Coastal fishing.

•Security services.

Investment Incentives:

Foreign investors may secure exemptions and concessions (tax holidays, duty waivers) through registration under the BOI Law No. 4 of 1978 or recognition as a Strategic Development Project under relevant legislation.

Employment of Foreign Nationals:

•Employment is restricted to cases where expertise is essential to the national economy.

•Valid visas are mandatory for all foreign workers.

Exchange Control Highlights:

•Restricted foreign ownership (up to 40%) in certain sectors unless BOI approval is obtained.

•Full compliance with remittance and investment laws is required.

Foreign corporations should consult local legal and tax advisors to navigate Sri Lanka’s regulatory landscape effectively.

Sri Lanka’s property ownership and transactions are governed by various legal frameworks, ensuring transparency and clarity in property dealings. Below are the key legislations:

Key Property Legislations

1. Land (Restrictions on Alienation) Act No. 38 of 2014

•Imposes restrictions on the transfer of land to foreign individuals, foreign companies, and certain legal entities.

2. Apartment Ownership Law No. 11 of 1973 (as amended)

•Governs the ownership and transfer of apartments and condominium properties.

3. Ceiling on Housing and Property Law

•Limits the maximum number of residential properties an individual or entity can own.

4. Prevention of Frauds Ordinance

•Requires all transactions involving land (e.g., transfers, leases, mortgages) to be executed in the presence of a notary public and two witnesses to ensure validity.

5. Registration of Documents Ordinance

•Regulates the registration of property-related documents, ensuring priority rather than validity.

•Registration provides evidence of a claim to ownership or interest in the property.

6. Stamp Duty Act

•Imposes stamp duty on property transactions, making payment of this duty a legal requirement for the registration of property documents.

7. Land Reform Law

•Limits land ownership to specified ceilings and regulates the redistribution of excess land for public benefit.

8. Registration of Title Act No. 21 of 1998

•Introduces a system of title registration for property, providing a certificate of title as conclusive proof of ownership.

•This Act is not yet fully operational across the country.

Property Ownership in Sri Lanka

1. Types of Ownership:

•Property can be owned by:

•The state

•Private individuals

•Corporate entities

2. Private Land Transactions:

•Ownership is established through deeds of transfer or gifts executed before a notary public and two witnesses, as required by the Prevention of Frauds Ordinance.

3. Other Property Transactions:

•Leases, mortgages, and other dispositions must comply with the Prevention of Frauds Ordinance.

•Such documents must also be registered under the Registration of Documents Ordinance to establish priority.

4. Registration of Title:

•Under the Registration of Title Act, a certificate of title serves as definitive proof of ownership once registered.

•This system, however, is not yet fully implemented across Sri Lanka.

Key Notes on Registration

•Registration Priority:

While registration is not required to validate a deed under the Registration of Documents Ordinance, it establishes priority in ownership claims.

•Proof of Ownership:

Under the Registration of Title Act, registration provides conclusive evidence of ownership.

Conclusion

Sri Lanka’s property laws emphasize due diligence, notarization, and registration to protect ownership rights and ensure fair transactions. Familiarity with these legal frameworks is crucial for both local and foreign individuals or entities engaging in property dealings.