Investment Incentives

Fiscal Incentives

The Inland Revenue Act No. 24 of 2017 provides an Incentive Regime granting Zero and reduced Corporate Income Tax rates (for specific sectors) and Enhanced Capital Allowances; based on capital investments made by the investors, effective from 1st April 2018.

Zero percent CIT Rate

Standard CIT Rate – 24%

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

  • Agro Farming (w.e.f. 01 April 2019)
  • Information Technology and enabling Services
  • 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 (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)
  • Gains and profits earned from any foreign source in foreign currency and remitted through a bank to Sri Lanka 

Reduced CIT Rates

The following sectors/activities enjoy reduced CIT rate of 14% unless comes under the exempted category.

  • Small and Medium Enterprises (annual gross turnover less than Rs.500 Mn).
  • 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
  • Specified undertaking
    • Commercial hub activities (entreport trade, offshore business)
    • Logistic services provided for local market
    • Deemed Exports
      • 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)
      • Goods : (Production or manufacturer and supply to an exporter of non-traditional goods)
  • Educational services
  • Promotion of tourism
  • Construction services
  • Agro processing
  • Healthcare services
  • Dividends received from a resident company. Note : 80% or more of gross income should be received from the specified activity.

The following sector enjoys reduced tax rate of 18%.

  • Manufacturing (Local Market)
Higher Rates

A higher rate of 40% will be applicable for the following sectors;

  • On gains and profits from conducting betting and gaming – 40%
  • On gains and profits from manufacture and sale or import and sale of any liquor or tobacco products – 40%

1.2 Enhanced Capital Allowance (ECA)

  • Enhanced capital allowances are granted to a person (an individual or entity) in addition to the normal depreciation allowance, as given in the below table. This facility is available for persons who make new investments in Sri Lanka.
Summary of the Investment Incentives
Location Expenses incurred on Depreciable Assets* Enhanced Capital Allowance Extended Period for Deducting Unrelieved Losses Exemption from Dividends tax & Exemption of employment income from WHT
Northern Province
> US$ 3 Mn and < = US$ 1,000 Mn
200%
10
X
> US$ 1000 Mn
200%
25
Other than Northern Province
> US$ 3 Mn and < = US$ 100 Mn
100%
10
X
> US$ 100 Mn and < = US$ 1,000 Mn
150%
10
X
> US$ 1000 Mn
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 specialized
    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;
    specialized 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 – applicable only for normal depreciation

1.3 Temporary Concessions

  • For investments below US$ 3 Mn.

Location Expenses incurred on Depreciable Assets* Enhanced Capital Allowance Period (After commencement of the Act)
Northern Province
Up to US$ 3 Mn
200%
Until April 2021
Other than Northern Province
Up to US$ 3 Mn
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
  • Other Temporary Concessions under the Inland Revenue Act
Sector Incentives Period (After commencement of the Act)

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

Dividend Tax Exemption

    • Dividend paid by a resident company to a member who is a non-resident
    • Dividend paid by a BOI registered Hub company

Port & Airport Development Levy Exemption

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

CESS Exemptions under Sri Lanka Export Development Act

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.

VAT Exemptions/Deferments

 

Within Zones* EPZs other than under * and Outside Zones

Export oriented

Exempted** 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

* Katunayake EPZ, Biyagama EPZ, Koggala EPZ, Kandy IP, Wathupitiwala EPZ, Malwatta EPP, Mirigama EPZ

** 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)

  • 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
  • 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)
  • Supply of residential accommodation by way of sale of Condominium housing unit by any person is exempt

Customs Duty Exemptions

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

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

Customs duty is applied

 

 

Non-Fiscal Incentives

 

Foreign Equity

100% foreign ownership permissible except for Pawn broking, Retail trade (where a capital contributed by a person resident outside Sri Lanka) with a capital of less than five million USD and Coastal fishing.

 

Repatriation of Earnings

All income, proceeds on sale of the investments can be repatriated through an Inward Investment Account opened by the Investor