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If you are a prospective investor seeking to embark on a Foreign Direct Investment (FDI) endeavor in Sri Lanka, it is likely that you are in search of a thorough and authoritative resource to guide you through the process.
Undoubtedly, engaging in Foreign Direct Investments in Sri Lanka presents a captivating opportunity, albeit one that can be accompanied by inherent complexities.
Considering your desire to gain a comprehensive understanding of the intricacies involved in this realm, you have arrived at an ideal destination.
In the following blog, we will cover the important areas of FDI in Sri Lanka. Our aim is to provide you with an all-encompassing guide that covers every facet of this investment approach. The collective expertise of our team has been instrumental in contributing significantly to the development of this article. Updated – June 2024
FDI In Sri Lanka
Control is a crucial ingredient in foreign direct investment since investors actively participate in managing and influencing business operations. This is also possible when investing in Sri Lanka, which offers several options for foreign direct investment, such as mergers and acquisitions, joint ventures, obtaining voting stock, or expanding one’s existing business to Sri Lanka. Read more about Off Shoring in Sri Lanka here
However, investing in a foreign country can be complex, requiring extensive research and understanding of local business practices. The Board of Investment in Sri Lanka provides valuable assistance to foreign investors looking to engage in foreign direct investment.
The involvement of Sri Lanka's Board of Investment in attracting Foreign Direct Investment
If you’re a foreign investor interested in investing in Sri Lanka, you need to approach the Board of Investment (BOI), which is the only government agency responsible for promoting, approving and assisting foreign direct investments (FDI) in Sri Lanka. This agency can also provide your project with various concessions and incentives.
Establishing a business entity and registering it with the Board of Investment (BOI) in Sri Lanka.
To start a project in Sri Lanka with the Board of Investments, you must engage in a negotiation process similar to any other business negotiation. You’ll present your proposal and discuss it with the BOI.
Once the discussion is concluded, you can sign a valid agreement for the entire project’s lifecycle, backed by the country’s constitution. Any investor interested in lawful FDI in Sri Lanka through BOI must pursue two primary processes: understanding the project type and submitting the necessary documents and establishing a local firm under the Companies Act. Let’s examine these two steps more closely.
The BOI Act of Sri Lanka:Section 16
Criteria for application
Establishing a new company where all shares are held by foreign investors and either transferring ownership or issuing new shares to foreign investors for an existing BOI company.
Minimum investment
$250,000
Regulations that apply
Custom laws
IRD laws.
Exchange Control regulations.
Payments and fees
Application fees + Annual fees
Who can apply to this
Shareholders of the company or their representatives.
If you want to apply for foreign direct investment (FDI) in Sri Lanka under Section 16, you have the following options:
1. Establishing a new company with complete foreign ownership, as long as it does not meet the criteria for eligibility under Section 17. Section 16 covers sectors not covered by Section 17 of the BOI Act. However, certain restricted sectors like printing money and retail trading are still prohibited under this section.
2. Transferring or issuing new shares of an existing non-BOI company to foreign investors. If you choose to apply under Section 16, your project will primarily be governed by the regular laws of Sri Lanka.
Additionally, your project will be subject to standard Customs Laws, Exchange Control Regulations, and IRD laws.
In this case, foreign investment is permitted without fiscal concessions or tax benefits.
The BOI approves projects that:
- Facilitate foreign investment entry.
- Establish new companies with foreign ownership
- Transfer or issue new shares in an existing non-BOI company to foreign investors.
To obtain approval under this section, a minimum investment of USD 250,000 is required. There are two ways to meet this requirement:
- Full foreign investment (100% ownership)
- Joint venture investment with a local company.
You can download the application from the links provided on the BOI website.
Payment and fees:
The initial application fee is USD 200 plus 15% VAT. (Previously 12%)
To make payments from abroad, a bank draft or cheque may be used while payments made from Sri Lanka can be done through a bank draft or cheque, or by providing a cash equivalent of the stated value.
Investment application processing fees
$330
Processing fee to examine the Article of Association
$170
Annual license fee
$400
Who can apply for Section 16 under the BOI Act?
Under section 16, a new company can be established by submitting an application, which can be done by a shareholder or their authorized representative. If you’re a foreign investor purchasing shares in a local company, then you’ll need to submit the application yourself and it can be downloaded via the BOI website. Once the application is completed, it must be submitted to the Director of Investments or the Senior Manager of the BOI for review and approval.
The BOI Act of Sri Lanka:Section 17
Criteria for application
Establishing a fresh enterprise in accordance with Section 17 of the BOI Act or enlarging a pre-existing company operating under the BOI.
Minimum investment
This is based on the type of project and industry.
Regulations that apply
Customs Ordinance, Inland Revenue Act, Exchange Control Act, etc
Payments and fees
Application fees + Annual fees
Who can apply to this
Shareholders of the company or their representatives.
Under Section 17 of the BOI Act, you have the opportunity to submit an application for a Foreign Direct Investment (FDI) in Sri Lanka if you fall into one of the following categories:
- Establishing a new company that fulfills the criteria outlined in Section 17 of the BOI Act. The minimum investment amount required will vary depending on the nature of your project and the industry you choose to engage in. For instance, a manufacturing project necessitates a minimum investment of USD 500,000, whereas the development of apartment complexes requires a minimum investment of USD 3,000,000.
- Expanding an existing company that already operates in Sri Lanka.
By applying under Section 17, your project will be carefully reviewed and approved by the Board of Investments (BOI) in Sri Lanka. This entails that the BOI will assume responsibility for:
- Granting specific exemptions to your project.
- Determining the applicability of certain laws, including the Customs Ordinance, Inland Revenue Act, and Exchange Control Act (the complete list is provided within the BOI Act).
To benefit from the incentives provided under this section, you must invest the minimum required amount for your respective industry.
Once your project is approved under the provisions of Section 17, you will be entitled to enhanced capital allowances, as mandated by the Inland Revenue Act of Sri Lanka.
However, it is important to note that the exemptions and incentives will only be granted if all the specific requirements of the project are met.
Your eligibility to receive these incentives will depend on factors such as the invested amounts, employment generated, project locations, and export activities.
Section 17:Payments & Fees
To commence the process, you will need to pay an initial fee of USD 275 + 15% VAT (previously 12%), which can be paid in cash (equivalent to rupees) or through a bank draft made in the name of the “Board of Investment of Sri Lanka”. Additionally, depending on the nature of the project you are embarking upon, you will be charged a fee over and above the initial application fee. To gain clarity on the initial costs for different types of projects, let us delve a little deeper.
Strategic development project
$3850
Other Projects
$2200
Supplementary agreements
$550
Apart from paying the initial application fees, there will be a requirement to pay annual fees for certain projects.
Annual Fees
Infrastructure based projects
$2750
Agriculture projects
$940
Coir Industries & Handicraft projects
$1210
The BOI website provides detailed information regarding the breakdown of annual fees for infrastructure-based projects, which are categorized based on the project’s implemented duration and value.
Who can apply for Section 17 under the BOI Act?
It is a simple process to apply for a company registration under section 17. Shareholders or their representatives, with a letter of authorization, can apply. Foreign investors buying shares of a local company must apply themselves. The application forms are available for download on the BOI website, and once completed, they need to be submitted to the Board of Investment’s Business Center along with the application fees.
How to apply to the BOI of Sri Lanka?
Whether you apply under Section 16 or Section 17, it is mandatory to provide the following documents:
- A draft of the Articles of Association.
- Names of the proposed Shareholders and the quantity of shares held by each Shareholder, duly signed by the applicant.
- Names and addresses of the proposed Directors, signed by the applicant.
- Proof of inward remittance along with the bank credentials of the proposed investors.
- Project report, which should align with the project’s nature.
- Information regarding the land intended for the project.
Once the application process is completed, the next step would be the registration of the business. Read our full guide on Business Registration here
Sri Lanka’s investment policy revolves around the achievement of sustainable development goals and aligns with the country’s comprehensive development strategy.
The investment policy places emphasis on investments that contribute to:
- Economic activities.
- Areas where public and private investments can mutually reinforce each other.
- Creating decent employment opportunities.
- Enhancing sustainability.
Legislation plays a crucial role in facilitating investments within the country. Some of the primary legislations governing foreign direct investments (FDIs) in Sri Lanka include:
- Board of Investment Law No.4 of 1978 (BOI Act) Amended – 2023
- Finance Act No.12 of 2012. Amended – 2023
- Inland Revenue Act No.24 of 2017. Amended – 2024
- Strategic Development Projects Act No.14 of 2008. Amended – 2022
- Foreign Exchange Act No.12 of 2017 Amended – 2023
- Land policy. Amended – 2024
Business Investment: Essential Guidelines
When it comes to business investment, adhering to the following principles is crucial for success:
Dos of business investment:
- Thoroughly evaluate the location and demographic structure of the target country.
- Engage the services of a reputable professional who specializes in the relevant field, providing invaluable guidance throughout the investment process.
- Establish connections with the government authority responsible for foreign direct investment (FDI) to gain a comprehensive understanding of the prerequisites and potential incentives available.
- Conduct a comprehensive study of the country’s culture and business environment, ensuring a nuanced understanding of the local context.
- Develop compelling marketing materials that can be effectively disseminated to government entities, investors, and prospective customers.
- Collaborate and maintain strong relationships with local counterparts, leveraging their expertise and insights.
Don’ts of business investment:
- Embark on business operations without adequately considering and comprehending the target market and the country in which you intend to invest.
- Underestimate the importance of the local market, as understanding consumer needs and market dynamics is vital to capturing a solid customer base.
- Fail to factor in crucial elements such as wage levels, labor skills, tax rates, infrastructure, transportation, economic indicators, growth potential, political stability, and other pertinent considerations.
Moreover, it is essential to explore the available local investment opportunities. In the context of Sri Lanka, there are specific investment avenues that every investor should consider.
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