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Exchange Control Laws Applicable for foreign Investments

In accordance with the Foreign Exchange Act No 12 of 2017, the Minister in charge has gazetted relevant regulations in the Extraordinary Gazette No 2045/56 dated 17-11-2017 with the Exchange Control Provisions applicable for foreign investments which read as follows;

A person resident outside Sri Lanka is permitted to Invest, acquire or hold all classes of shares or an entitlement of shares issued by companies incorporated in Sri Lanka, subject to the exclusions & limitations given below;

Exclusions:–

Investment in shares of a company proposing to carry on any of the following businesses:

1.Pawn broking

2.Retail trade with a capital of less than Five Million US Dollars

3.Coastal Fishing

Limitations:–

(a) Foreign investments in the areas listed below will be approved only up to 40% of the stated capital of such company or if a special approval has been granted by the Board of Investment of Sri Lanka for a higher percentage of foreign investment in any company, only up to such higher percentage.

  1. 1.Production of goods where Sri Lanka’s exports are subject to internationally determined quota restrictions
  2. 2.Growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar and spices
  3. 3.Mining and primary processing of non-renewable national resources
  4. 4.Timber based industries using local timber
  5. 5.Deep Sea Fishing (as defined by the Ministry assigned the subject of Fisheries)
  6. 6.Mass Communication
  7. 7.Education
  8. 8.Freight Forwarding
  9. 9.Travel Agencies
  10. 10.Shipping Agencies

(b) Investment in shares of a company carrying on or proposing to carry on any of the businesses specified below only up to the percentage of the stated 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 administrative authority set up for the approval of foreign investments in such businesses

  1. 1.Air transportation;
  2. 2.Coastal shipping (as defined by the Ministry assigned the subject of Shipping);
  3. 3.Industrial enterprise in the Second Schedule of the Industrial Promotion Act, No. 46 of 1990, namely –
  4. 4.Any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment aircraft and other military hardware;
  5. 5.Any industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, hazardous or carcinogenic materials; any industry producing currency, coins or security documents;
  6. 6.Large scale mechanized mining of gems;
  7. 7.Lotteries

General Conditions for Permitted Investments

  • Capital Investments shall be made through an “Inward Investment Account (IIA)”.
  • Income from such investments and proceeds of disposal shall be credited to IIA.
  • All income, proceeds on sale of the above investments transferred from a person who is non-national by way of inheritance may be repatriated through an IIA opened by the beneficiary.
  • Resident entities involved with the capital transactions, including Investee Company, company secretaries and all intermediaries including stockbrokers, unit trusts, mutual funds and financial institutions shall be responsible to ensure that capital transactions are carried out in compliance with all legal requirements.
  • The commercial bank and the person engaged in capital transactions shall retain all information and documentary evidence in proof of the permitted capital transactions engaged in, for a period of six years from each such transaction
  • The documentary evidence on inflows or outflows of funds, disposal or acquisition of assets, receipts of income or returns on capital transactions and any other documentary evidence should prove the legality of such transactions substantially
  • The commercial bank and the person engaged in capital transactions shall facilitate compliance with the provisions of the Regulations by providing necessary documents at the time of such transactions