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Local or foreign investors who do not qualify for incentives under Section 17 of the BOI Law can take advantage of incentives available under the normal laws of the country. These fall into the following broad categories:

Incentives for industry and services using advanced technology
Incentives for direct and indirect exporters

A more detailed description follows:

ADVANCED TECHNOLOGY


For companies that do not satisfy export and/or minimum investment criteria under the BOI Law and also use advanced technology, as defined earlier, may apply for incentives under the normal laws through the Fiscal Incentives Committee, serviced by the Ministry of Industrial Development. These incentives are available to both the industrial and services sector.

Under this regime, new firms in the manufacturing and service sectors which:

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use advanced technology

employ a minimum of 50 people

invest a minimum of Rs4 million (US$65,000) on machinery

are approved by the Ministry of Finance are entitled to tax and import duty concessions that include:

a five year tax holiday

tax-free dividends if paid out of exempt profits during tax holiday and one year thereafter

import duty waiver and corresponding turnover tax exemption on machinery and equipment imported for the purpose, within one year of approval by the Fiscal Incentives committee

Existing firms which meet the same criteria are eligible for all concessions where the corporate tax exemption is on incremental profits. If the investment in machinery is lower than Rs4 million (US$65,000) for an existing company, the benefits are limited to the import duty waiver and corresponding turnover tax exemption.

DIRECT AND INDIRECT EXPORTERS


Incentives are available, under the Inland Revenue Law, to exporters not qualifying for concessions under Section 17 of the BOI Act. These concessions are outlined below.

Profits sourced from the export of non-traditional goods are liable for payment of income tax at 15 per cent until April 1, 2014. Dividends declared will be subject to 15 percent tax.

Enterprises that supply to export operations also benefit from a 15 per cent tax on the profits of such sales until April 1, 2014. Dividends are also taxed at 15 per cent.

Manufactured items supplied to an exporter are exempt from turnover tax, if such supplies are covered by domestic letters of credit or backed by international letters of credit or confirmed export orders.

Profits sourced from the following services for payment in foreign currency are liable for payment of income tax at a maximum rate of 15 per cent: ship repair, ship breaking, repair and refurbishment of marine cargo containers and computer software.

Companies that export gems and jewellery receive an open-ended exemption from income tax on their profits and income.

Companies that operate and maintain facilities for the storage of specified goods brought into the island for re-export or operate yachts and pleasure crafts registered with the Director of Merchant Shipping are exempt from taxes on profits and income.

Offshore companies that earn profits and income through the use of a Sri Lankan registered ship in international operations are exempt from income tax in respect of profits other than those arising from operations to and from a Sri Lankan port.

Firms in the agricultural and fisheries sectors are entitled to a five year tax holiday on profits and income.

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Other general benefits include accelerated depreciation allowances and exemption from turnover tax on import and export sales.

Several schemes help exporters obtain duty-free access to imports and local purchases, if they are required for export production. These schemes are administered by the Committee on Exemption of Fiscal Levies and are serviced by the Export Development Board. They include the following:

General Exemption on Fiscal Levies on Import of Capital and Intermediate Goods

Full entitlement if production is for 50 per cent export and 50 per cent entitlement if 25 to 50 per cent is exported.

In ward Processing Scheme

Clearing of imports by submitting a block bank guarantee of 25 per cent of duties payable and a personal bond for the balance.

Manufacture-in-Bond Scheme

Using customs approved bonded warehouses for duty-free clearance of goods against a block bank guarantee of 25 per cent of duties payable on such goods not converted for export purposes.

Customs Duty Rebate Scheme

Exporters who have paid duty for export production other than for garments can receive this rebate if they have not benefited from any other exemption scheme.

EXEMPTIONS LIST


Articles given below can now be imported without customs duty and after obtaining approval from the concerned line agencies.

Agriculture
Seeds, fruits, spores, plants and parts thereof imported for the purpose of planting. Green houses, poly tunnels, drip irrigation systems and parts thereof.

Parts, components and accessories for the manufacture/assembly of machines for cleaning, sorting or grading seed, grain or dried leguminous vegetables, machinery used in the milling industry or for the working of cereals or dried leguminous vegetables.

Technical grade, separate chemically defined active ingredients used in formulation of pesticides and plant growth regulators for the agriculture industry.

Fisheries

Raw materials, components, parts and accessories for the manufacture of fishing boats.

Fish caught by fishing vessel which is operating from a Sri Lanka Port and which has been duly registered at a Port or Registry in Sri Lanka or issued with Landing Permit by the Ministry of Fisheries.

Ornamental fish imported for re-export.

Livestock

Ingredients for the manufacture of animal and poultry food.

Craft Industry

Import of brass in the form of sheets, ingots, nuggets and scrap and any other input required by the craft industry.

Health

Machinery, medical and surgical instruments, apparatus and accessories, including medical and dental equipment and ambulances for the provision of health services.

Raw materials imported for the manufacture of pharmaceuticals.

Ayurveda, Siddha and Unani raw and prepared drugs and medicinal plants.

Homeopathic drugs recommended by the Homeopathic Council of Sri Lanka.

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Education

Temporary import of professional and scientific equipment and pedagogic material. Apparatus, drugs and chemicals imported for educational purposes or for research work.

Industries

Project related machinery, equipment, parts and inputs including raw material and accessories for the textile and garment industry.

Capital and intermediate goods, and transport equipment for use exclusively at the place of production, imported for the exclusive use of an industry which exports and/or supplies to direct exporters, 50% or more of its output.

Inputs (raw materials and components and parts) imported under Inward Processing Scheme for export.

Materials imported for the fabrication of plant, machinery and equipment to be used in an industry which exports 500/0 or more of the output.

Machinery and equipment imported under the Fiscal Incentives Scheme for utilizing advanced technology.

Tourism

Goods, machinery and equipment required for refurbishing of approved tourist hotels or rest houses and vehicles required for tourist industry. Vehicles only for a period of one year.

Communications

Machinery, equipment and accessories required for the provision of a telecommunication service.

Transport

Materials including chassis fitted with engines imported for the manufacture/assembly of tractors, lorries, trucks and buses.

Power & Energy

Raw materials, components and parts required for the manufacture of energy saving lamps.

Trade

Goods imported for display or use at exhibitions, fairs, meetings or similar events approved by the Secretary to the Treasury.

FINANCIAL ASSISTANCE TO
SRI LANKAN EXPORTERS


The Export Development Board (EDB) offers further schemes to assist local exporters, regardless of whether they meet BOI criteria. These schemes are outlined below:

Direct Financial Assistance

The EDB invests in the equity of export ventures which are claimed as innovative and pioneering. Such investments do not exceed 30 per cent of equity. The EDB also grants "pioneering status" to some types of projects in which it may invest. Such projects also benefit from the reimbursement of some expenses including feasibility studies, design and technical expertise, overseas market exploration and media promotion expenses.

The status of "Pioneering Project" can be given by the EDB to an enterprise considering the export of a new product. Such a venture will then be eligible for assistance up to 80 per cent of the cost of product or market research with a limit of Rs. 200,000 (US$3,250). Assistance for the expansion of exports in the short term is available up to Rs 1 million

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(US$16,000) to manufacturing and processing exporters.

Small scale export-oriented manufacturers can receive low interest loans from the EDB up to Rs250,000 (US$ 4,000) for machinery, training and research and development.

Small and medium-scale exporters receive financial assistance of up to Rs500,000 (US$ 8,000) to execute orders prior to trade fairs. Low interest loans are also available to resolve special needs of exporters who are not eligible for other schemes.

Product Oriented Special Financial Assistance

The following product categories receive incentives and assistance from the EDB:

  • Diamond cutting

  • Handloom textiles

  • Gems and jewellery

  • Electronics

  • Rubber products

  • Horticulture

  • Spices and essential oils

  • Coir products

Financial Assistance for Market Development and Promotion

The EDB also offers assistance for participation in overseas trade fairs and exhibitions and to establish marketing outlets overseas. Support is also provided to establish a quality assurance system conforming to ISO 9000

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Source: Board of Investment (BOI) , Sri Lanka
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