How to Do Business In Sri Lanka?

Doing business in Sri Lanka involves a structured process, especially for foreign investors, and is governed by specific laws and regulations.

The country offers various investment opportunities in key economic sectors.

Here is a guide on how to do business in Sri Lanka:

1. Choose a Business Structure

The structure of your business will determine the registration process, liability, and tax implications. Common options include:

• Private Limited Company:
  • Minimum of 1 shareholder and 1 director (maximum 50 shareholders).
  • Must appoint a local company secretary.
  • Foreigners often choose this structure.
  • Requires annual audit and tax returns.
• Overseas Company (Branch Office):
  • A branch of a foreign parent company.
  • Requires a nominated ‘authorised person’ in Sri Lanka.
  • Minimum investment of $200,000 USD is generally required.
• Sole Proprietorship or Partnership:
  • Generally reserved for local citizens for most businesses. Foreigners can be prohibited from engaging in these for certain sectors, particularly small-scale retail.

2. Understand Foreign Ownership Rules & Minimum Investment

Sri Lanka has specific regulations on foreign ownership based on the industry:

• 100% Foreign Ownership Allowed in Most Sectors: This includes IT/Software Development, Business Process Outsourcing (BPO), Construction, Accounting Services, Food and Lodging, and Retail Trade (provided the investment capital exceeds $5 million USD).
• 40% Foreign Ownership Cap: Applies to industries like Education, Travel Agencies, Mass Communications, Freight Forwarding, Shipping Agencies, and some agriculture-related industries.
• Reserved for Sri Lankans Only: Industries like Pawn Brokering, Money Lending, Security Services, Coastal Fishing, and Retail Trade (if investment is less than $5 million USD).

Minimum Investment:

• For a company registered with the Board of Investment (BOI) under Section 16, the minimum investment threshold is typically $250,000 USD.
• For a Branch Office, the minimum investment is generally $200,000 USD.
• For Retail Trade, the minimum investment must be $5 million USD to allow foreign participation.

Note: Any foreign equity or loan investment must be channeled through an Inward Investment Account (IIA) opened at a commercial bank in Sri Lanka.

3. Business Registration Process (Private Limited Company)

The registration process is primarily managed by the Department of the Registrar of Companies (ROC) and generally takes 1-3 weeks.

1. Name Search and Reservation: Search and reserve your proposed company name through the ROC online portal. This usually takes about two days.
2. Sign Consent Forms: The company secretary and director(s) must sign consent forms (Form 18 and Form 19).
3. Submit Registration Documents: Submit the following to the ROC:
   • Form 1 (Registration of a Company)
   • Form 18 (Consent and Certificate of Director)
   • Form 19 (Consent and Certificate of Secretary)
   • Articles of Association (two copies)
4. Issue Public Notice: Give a public notice of your company’s incorporation in the daily newspapers and Government Publication Bureau within 60 days of incorporating.
5. Obtain a Tax Identification Number (TIN): Register with the Inland Revenue Department (IRD).
6. Register for VAT (if applicable): Register for Value Added Tax (VAT) with the IRD if your turnover exceeds LKR 3,750,000 per quarter.
7. Obtain an EPF/ETF Number: Register with the Department of Labour for mandatory employee contributions (Employees Provident Fund and Employees Trust Fund).
8. Open a Corporate Bank Account: Open a bank account in the company’s name.

4. Key Business Laws and Regulations

The legal system is based on a combination of English Common Law, civil law principles, and local statutes. Key regulations include:

• Companies Act, No. 7 of 2007: Governs the formation, management, and dissolution of all companies.
• Labour and Employment Laws: The standard working hours are 45 hours per week. Employers must make statutory contributions to the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF) on behalf of employees.
• Taxation Laws: Governed by the Inland Revenue Act, among others.
• Intellectual Property Laws: Sri Lanka is a member of the WTO, and the Intellectual Property Act governs trademarks (protected for 10 years, renewable), patents (protected for 20 years), and copyrights.

5. Key Sectors for Investment

The Sri Lankan government actively encourages foreign investment in several priority sectors, often facilitated by the Board of Investment (BOI):

Board of Investment (BOI):

The BOI acts as a primary point of contact for foreign investors, particularly for large-scale projects. They can grant special incentives, including tax benefits, for projects meeting certain investment thresholds (e.g., $3 million USD upwards for special incentives or $250,000 USD for normal facilitation).