Foreign ownership is welcome in almost all sectors of the economy, except a few regulated areas. Investors are permitted to repatriate 100% their profits and exempted from most of the exchange control regulations. They can also enjoy preferential tax benefits and constitutional guarantees on their investment.
Sri Lanka: A Regional Trading Hub
Being strategically located at the cross roads of east-west sea routes and serving as an entry point to the vast Indian market, Sri Lanka is well poised to become the trading hub in the region. According to the Lloyds Register, the Port of Colombo ranks the no. 1 port in South Asia and 26th in the world. While 23 major shipping lines and 7 feeder services operate out of Colombo, the port is computerized and linked to all major freight stations.
A number of major airlines operate flights from Bandaranaike International Airport (BIA), Colombo to many important cities in Europe, Middle-East, Australia and Indian sub-continent. The national carrier, Sri Lankan airlines now covers about 50 destinations in 28 countries.
Strategic location with sea and air connectivity, high literacy rate, well-educated and easily trainable workforce, market-friendly and transparent government policies, improved infrastructure, high quality education and healthcare facilities have made Sri Lanka an ideal location for foreign investors.
The Board of Investment (BOI) acts as the main mediator for foreign investors setting up limited liability companies. The legal framework for the business enterprises in Sri Lanka is comprehensive and transparent. Major legislations directly relevant to the investments, particularly, foreign investments are as follows:
- The Board of Investment Law No 4 of 1978
- The Companies Act of 2007
- The Exchange Control Act (Regulations issued under the Act)
- Sri Lanka Tourism Development Act No.38 of 2005
Entry and Exit of Foreign Investment
Inward remittances for investment, outward remittance of profits, dividends, royalties and other current account payments, and capital proceeds on liquidation/transfer of shares are permitted through the banking system. Investors are provided with a special bank account named the Share Investment Account (SIA), which is used for inward and outward remittances. The SIA can be opened with any commercial bank operating in Sri Lanka
Strong Resilient Economy
- Peaceful domestic environment, favorable government policies and improved investor confidence have facilitated all the key sectors to demonstrate a commendable performance.
- The improved performances in all key sectors of the economy contributed towards the high economic growth.
- With a 56.8% contribution, the services sector remains the largest contributor to the national economy.
- The strong economic performances in Sri Lanka have lifted country's per capita income substantially, which has enabled the country to be graduated to middle – income status from the list of Poverty reduction & Growth Trust (PRGT) eligible countries.
- The government has planned to transform Sri Lanka into a strategically important economic centre by developing five strategic hubs; a knowledge hub, a commercial hub, a naval & maritime hub, an aviation hub, and an energy hub, taking the advantage of Sri Lanka's strategic location & resources.
Supportive Government Policies
Sri Lanka pioneered South Asia's economic liberalization over three decades ago. Liberalizing many areas of the economy, the government has embraced strategies and policies that are more than conducive for international investment. In fact the policy environment is undoubtedly, compelling.
The following transparent investment laws aim to foster foreign direct investments.
- Total foreign ownership is permitted across almost all areas of the economy.
- No restrictions on repatriation of earnings, fees, capital, and on forex transactions relating to current account payments.
- Safety of foreign investment is guaranteed by the constitution.
- Existence of a transparent and sophisticated legal and regulatory framework. Covering all prerequisite business law enactments.
- Bilateral investment protection agreements with 28 countries and double taxation avoidance agreements with 38 countries including Nepal.
Sri Lanka is a founder member of the Multilateral Investment Guarantee Agency (MIGA), an investment guarantee agency of the World Bank. This provides a safeguard against expropriation and non-commercial risks.
Index of Economic Freedom measures the pro-business policy environment of a country. According to the Index of Economic Freedom – 2014, the country has been ranked 90 of 186 countries
Country World Ranking
Source: 2014 Index of Economic Freedom
In line with the government's policy, efforts are intensified to attract investments to target sectors in which Sri Lanka has strong foundation for growth as well as areas where it is nationally important to develop. By offering incentives to induce high value investment to priority sectors, the BOI promotes diversification of Sri Lanka's industry and services with special focus on advanced technology and value addition. The government has made necessary amendments to the tax system of the country that the overall tax regime for all sectors will be less complex and at a lower rate across the economy.
Target Sectors Actively Promoted by Sri Lanka through Board of Investment (BOI)
- Export Oriented Manufacturing
- Export Oriented Services
- Tourism, Tourism Related Projects
- Infrastructure Projects
- Higher Education/Skill Development
- Value Added Strategic Projects
- Agriculture (Agro Processing, Fish Based Industry, Dairy)
- Establishment of Industrial Estates, Special Economic Zones, Knowledge Cities.
Location and Connectivity
Sri Lanka is situated at the crossroads of major shipping routes connecting South Asia, Far East and the Pacific with Europe and the Americas. Sri Lanka is strategically located next to the fast-growing Indian sub-continent with close proximity to Southeast Asia and the Middle East. The country has strong air connectivity with over 100 weekly flights to India alone.
Sri Lanka is connected to the SEA-ME-WE III and IV (South East Asia – Middle East – Western Europe) fibre optic communication backbone with over 11 communication satellites orbiting above the south of the country.