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Investment Incentives


  1. 1 Enhanced Capital Allowances

  2. Enhanced capital allowances are granted to a person (an individual or entity) as given in the below table. This facility is available for persons who make new investments in Sri Lanka.

    Expenses incurred on Depreciable Assets (US$ Mn.) Enhance Capital Allowance (ECA) Period for Deducting Unrelieved Losses Tax exemptions on dividends & employment income
    Northern Province Other than Northern Province
    > 3 and > = 100 200% 100% 10 x
    >100 and > = 1,000 200% 150% 10 x
    >1,000 200% 150% 25

    Depreciable Assets:

    • Class 1 : computers and data handling equipment together with peripheral devices.
    • Class 2 : buses and minibuses, goods vehicles, construction and earthmoving equipment, heavy general purpose or specialised trucks, trailers and trailer-mounted containers, plant and machinery used in manufacturing.
    • Class 3 : railroad cars, locomotives, and equipment, vessels, barges, tugs, and similar water transportation equipment, aircraft, specialised public utility plant, equipment, and machinery, office furniture, fixtures and equipment, any depreciable asset not included in another class.
    • Class 4 : buildings, structures and similar works of a permanent nature.
    • Class 5 : intangible assets, excluding goodwill.

     
     

  3. 2. Temporary concessions for investments below US$ 3 Mn.

  4. Expenses incurred on Depreciable Assets (US$ Mn.) Enhance Capital Allowance (ECA) Applicability
    Northern Province Other than Northern Province
    < 3 200% 100% Until April 2021

    Depreciable Assets:

    • Class 1 : Computers and Data handling equipment.
    • Class 4 : Buildings and structures and Plant or machinery that are used to improve business processes or productivity and fixed to the business premises.

     
     

  5. 3. Other Temporary Concessions under the Inland Revenue Act

  6. Sector Incentives Applicability
    Headquarters Relocation
    (established on or after October 1, 2017)
    CIT Rate at 0% Until April 2021
    Research and Development Additional deduction equal to
    100% of the total amount of research and development expenses
    Until April 2021

     
     

  7. 4. CIT Rate

    • Standard CIT Rate – 24%
    • Reduced Rates
      • The following sectors/activities enjoy reduced tax rate of 14% unless comes under the exempted category.
        1. Small and Medium Enterprises (annual gross turnover less than Rs.500 mn).
        2. Conducting a business of sale of goods or merchandise where the payment for such sale is received in foreign currency and remitted through a bank to Sri Lanka
        3. Specified undertaking
          • Commercial hub activities (entreport trade, offshore business)
          • Logistic services provided for locals market
          • Deemed Exports
            1. Services :
              (Supply of services to any exporter of goods or services essentially related to the manufacture of such goods or services exported by such exporter either directly or through any export trading house, and the payment for such services are made by such exporter to such person in Sri Lanka in foreign currency)
            2. Goods :
              (Production or manufacturer and supply to an exporter of non-traditional goods)
        4. Educational services
        5. Promotion of tourism
        6. Construction services
        7. Agro processing
        8. Healthcare services
        9. Dividends received from a resident company
        10. Note : 80% or more of gross income should be received from the specified activity

      • The following sector enjoys reduced tax rate of 18% .
        1. Manufacturing (Local Market)
    • Higher Rates
      • A higher rate of 40% will be applicable for the following sectors;
        1. On gains and profits from conducting betting and gaming – 40%
        2. On gains and profits from manufacture and sale or import and sale of any liquor or tobacco products – 40%

     
     

  8. 5. 0% CIT Rate

  9. The following sectors enjoy 0% CIT rate from the year of assessment 2019/2020

    1. Agro Farming (w.e.f. 01 April 2019)
    2. Information Technology and enabling Services
    3. Export of Services
      1. rendered in or outside Sri Lanka
      2. to any person to be utilized outside Sri Lanka and
      3. the payment is received in foreign currency and remitted through a bank to Sri Lanka
      4. (May include;
        Commercial Hub Activities: front-end services, headquarter operations, logistic services for exports,
        Transshipment operations,
        Freight forwarding,
        Ship repair, ship breaking repair and refurbishment of marine cargo containers

    4. Gains and profits earned from any foreign source in foreign currency and remitted through a bank to Sri Lanka [other than referred to in item (iii)]

     
     

  10. 6. Dividend Tax Exemption

  11. – Dividend paid by a resident company to a member who is a resident or a non-resident person

    – Dividend paid by a BOI registered Hub company

     
     

  12. 7. PAL Exemptions

  13. Importation of Capital Goods – Investment over US$ 50 Mn

    Exemption from PAL on importation of project related capital goods by BOI enterprise during the project implementation/construction period but prior to the commencement of commercial operations.

    Importation of Raw Materials

    Exemption from PAL on importation of raw materials for any export oriented projects for the life time of the project

     
     

  14. 8. CESS Exemptions under Sri Lanka Export Development Act

  15. Importation of Capital Goods – Investment over US$ 50 Mn

    Exemption from CESS on importation of any goods by BOI enterprise during the project implementation/construction period but prior to the commencement of commercial operations, if invested on or after March 6, 2019.

    Importation of Raw Materials

    Exemption from CESS on importation of raw materials for any export oriented projects for the life time of the project

    Tourism Projects

    Exemption from CESS on importation of any furniture classified under HS Code 94.03 (other furniture and parts) imported by BOI registered tourism enterprise.

     
     

  16. 9. VAT Exemptions/Deferments

  17. Importation of Capital Goods & Raw Materials

    Within Zones ✓1 EPZs other than under ✓1 and Outside Zones
    Export oriented Exempted✓2 for Capital Goods Deferred for Capital Goods (Plant, Machinery, Equipment and Construction items) – During project implementation period

    Further deferred for Plant, Machinery and Equipment for Life time of the project
    Exempted for Raw Materials : Life time of the project Deferred for Raw Materials : Life time of the project

    Special Exemptions for importation of raw materials by Garment manufactures and Fabric manufactures for Life time of the project
    Non-Export Oriented Deferred for Capital Goods
    Plant, Machinery, Equipment and Construction items : During project implementation period

    ✓1 Katunayake EPZ, Biyagama EPZ, Koggala EPZ, Kandy IP, Wathupitiwala EPZ, Malwatta EPP, Mirigama EPZ

    ✓2 If the investor intends to get local purchases by registering under SVAT, he may enjoy the deferment facility under Section 22(7) of VAT Act.

    Note: All exempted suppliers need to pay VAT at the time of importation. They cannot enjoy either VAT exemption or deferment facility

    Recent Exemptions to VAT – Zero per centum (0%) (w.e.f. 01 December 2019)

    1. Supply of services by a hotel, guest house, restaurant or other similar businesses providing similar services, registered with the Sri Lanka Tourism Development Authority, if not less than sixty per centum (60%) of the total value of the inputs are sourced from local supplies/sources
    2. Import of goods (Fabrics)
      (set out in the H.S. Code and description specified in Column I and II of Schedule of the Extraordinary Gazette Notification No.2095/20 dated November 1, 2018)
    3. Supply of residential accommodation by way of sale of Condominium housing unit by any person is exempt

     
     

  18. 10. Customs Duty Exemptions

  19. Importation of Capital Goods Importation of Raw Materials
    Export oriented

    Exempted for Capital Goods (Plant, Machinery, Equipment and Construction items) – During project implementation period.

    Further exempted for Plant, Machinery and Equipment for Life time of the project.

    Exempted for Raw Materials : Life time of the project
    Non-Export Oriented

    Non-Export Oriented Exempted for Capital Goods (Plant, Machinery, Equipment and Construction items) – During project implementation period.
    Customs duty is applied

    Customs duty is applied

     
     

  20. 11. Exemptions under Hub Regulation No. 1 of 2019

  21. Qualifying Criteria

    Eligible Activities Minimum Investment Annual Re-export /export turnover Location
    Free Port
    (Colombo/ Hambantota)
    Bonded Area
    KEPZ/KGEPZ/BIA
    Specified Bonded Area
    MRIA/ Mirijjawila
    Outside Free
    Port/Bonded Area
    1. Entrepot Trading
      • – An import, minor processing and re-export
      • – Any manufacturing activity for export as defined in the principle act and established in a Specified Bonded Area.
    US$ 5 Mn
    (50% in Fixed Assets within 12 months)
    US$ 20 Mn
    (Within 5 years)
    1. Off-shore business where goods can be procured from one country or manufactured in one country and shipped to another country without bringing the same into Sri Lanka.
    US$ 1 Mn
    (40% in Fixed Assets within 12 months)
    US$ 10 Mn
    (Within 5 years)
    1. Providing front-end services to client abroad.
    1. Operations of headquarters of leading buyers for the management of the finance supply chain and billing operations
    1. Logistic services such as bonded warehouse or in the case of operation of multi-country consolidation in Sri Lanka
    US$ 3 Mn
    (30% in Fixed Assets within 12 months)
    US$ 15 Mn
    (Within 5 years)

    KEPZ- Katunayake Export Processing Zone, KgEPZ- Koggala Export Processing Zone, BIA- Bandaranayake International Airport, MRIA – Mattala Rajapakse International Airport

    • Note:
      • At least 65% of total Investment to be from foreign sources including transfers from any approved Foreign Exchange Account.
      • No approval will be granted for logistic services to any re-export business/activities or transshipment related to;
        • – Spices and allied products namely pepper, arecanuts, nutmeg, mace, tamarind, cinnamon, clove, ginger, turmeric, and cardamom
        • – Waste and /or processing of waste or resource recycling business
      • Enterprises referred to the commercial hub regulations are subject to the restrictions and prohibitions imposed in Schedule B to the Customs ordinance.
      • If more than 65% of the domestic demand for such goods/product is being met out of imports to the country, 40% of the annual re-export turnover (ex-factory value) of the enterprise is allowed for domestic sale for a maximum period of 08 years on annual reconciliation basis. Above concession is limited to; any auto fuels, liquid petroleum gas, propane, butane, and fertilizer or any other good as approved by the Cabinet of Ministers
      • Any enterprise fails to reconcile the value of sale to domestic market during a year with its export turnover on annual basis, shall be allowed to carry forward that unreconciled value of domestic sales during the initial 4 years from the date of first commercial sale.
      • Any goods/product brought for re-export, should not be warehoused or stored for more than 18 months, if stored more than 18 months, will be ordered to send within 30 days from the completion of such 18 months

    Exemptions

    • Exemptions from the application of Provisions of the following Acts
      • – Customs Ordinance (Chapter 235)
      • – Foreign Exchange Act No. 12 of 2017
      • – Imports & Exports (Control) Act, No. 1 of 1969,
      • – Acts referred to in schedule of Part IV of Finance Act No. 12 of 2012 as amended by
        Finance Act No. 12 of 2013;
        • VAT Act No. 14/2002
        • NBT Act No. 09/2009 (Abolished w.e.f. 01 December 2019)
        • Export Development Act No. 40/1979
        • Special Commodity Levy Act No. 48/2007
        • PAL Act 18/2011
        • Excise SP Act. No 13/1989
    • Supply of any goods to an enterprise engage in the following eligible activates shall be treated as export and VAT and NBT will be zero rated.
    • 0% CIT if qualified for export of services
      • – (rendered in or outside Sri Lanka to any person to be utilized outside Sri Lanka and the payment is received in foreign currency and remitted through a bank to Sri Lanka)
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