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Enterprises which meet specific criteria qualify for incentives under Section 17 of the BOI Law Companies which do not qualify for incentives under the BOI Law may opt to consider incentives available under the "normal laws"(see next chapter).

Described below are types of investments that qualify for incentives under Section 17 of the BOI Law and applicable conditions. It should be noted that all enterprises qualifying for concessions would also be eligible for the following:

o Entitled to repatriate profits, dividends and capital proceeds.

o Expatriates income will be taxed at a concessionary rate of 15 per
cent for the first five years.

NON-TRADITIONAL EXPORT ORIENTED MANUFACTURING
EXPORT-ORIENTED SERVICES


A new company that manufactures non-traditional goods* and exports 90 per cent of its output or sells 90 per cent of its output to a BOI approved direct exporter, is considered an Export Oriented Manufacturing Company.

A new company with a minimum project cost (investment) of Rs. 12.5 mn or equivalent in any other foreign currency, is entitled to certain BOI concessions. These include a concesstonary tax rate of 15 per cent for 20 years and exemption from exchange control, import duties and excise duty on project related goods imported or purchased locally.

The above basic incentive package is further enhanced to include tax holidays ranging from 5 to 20 years contingent on size of total investment, type of investment and location of investment.


For the purpose of qualifying for BOI incentives, a service company that generates 70 per cent of its total output to non-residents for payment in foreign currency is considered export-oriented.

A company providing a service that generates more than 70 per cent of total output to improve/enhance

* Non.traditional goods are defined to include goods other than black tea sold in bulk, CTC tea, tea packets/bags, crepe, sheet and scrap rubber, coconut oil, copra. fresh coconuts, coconut fibre, uncut gemstones or such other
commodities as may be specified by the Minister of Finance.

North Sai/j exports innovative windsails, iports bags and wallets.
o Exemption from income tax on capital gains due to transfer of shares, although stamp duty is payable.

the quality/character of exportable products of a BOI-approved export-i ,riented company is classified as an indirect exporter of services -for example a garment washing plant or quality testing services.

A minimum investment criteria does not apply to companies exporting services, directly or indirectly. These projects are entitled to a concessionary tax rate of 15 per cent for 20 years and are exempt from exchange control. They are also exempt from import and excise duties on projects related to articles imported or purchased locally.

LARGE SCALE PROJECTS

 

An enterprise with a total project cost exceeding Rs 500 million (US$8.0 million) in productive capital is classified as a Large Scale Project and is eligible for a tax holiday that varies according to the size of the investment.

Following is a list of tax holidays according to the project's size. Note that the tax holiday and exchange control exemption are available for both export and non-export oriented projects. In addition, manufacturing projects must employ at least 100 people to become eligible for concessions.
Export oriented projects are free of import duties and excise duties on imported machinery and raw

Project Size (Rs Million)
Tax Holiday (Years)
500 to 1,499
10
1,500 to 2,499
12
2,500 to 4,499
15
Above 5,000
20

materials for the duration of the project. They also receive a further concessionary tax rate of 15 per cent after the total tax holiday and up to a cumulative period of 20 years.

The above concessions for non-export oriented enterprises only apply during the project est~blishment period as determined by the BOI.

 

Projects with an investment above Rs 2,500 million qualify for further incentives as "flagship" companies under the Inland Revenue Act and GST Act. These incentives are:

o Lower rate of 15 per cent on income tax of expatriate employees throughout the company tax holiday period.

o Non-resident consultants to such companies who provide certain specified services are exempt from Sri Lankan income tax in excess of tax in their home country for the services rendered.

o Supply in Sri Lanka of architectural, engineering quantity surveying or construction management services by a non-resident person to a company with which an agreement has been entered into by BOI under
Awe/i Lnka'sfactoty: largest among the company's 15 global manufactunng sites.

THRUST INDUSTRIES


With a view to promoting specific industries in which Sri Lanka is known to have a competitive advantage, particularly in terms of raw material and human resources availability, the BOI has introduced a new package of incentives and concessions to those companies investing in the following areas (hereafter referred to as "Thrust

Industries"):

o Electronics and Components for Electronic Assembling

o Ceramic, Glassware and Mineral based products.

o Rubber based Industries

o Light and Heavy Engineering Industries

o any Manufacturing or Service Industry of a Pioneering nature as determined by the Board.

The incentives and concessions are extended to existing as well as new companies.

 


New Companies

Any new company within the "thrust industry" category undertaking a minimum investment of Rs: 50 million, exporting not less than 900/o of output and employing a minimum of 50 persons shall be eligible for a tax holiday of 10 years and to import project related items on duty free basis. For those companies investing in excess of Rs. 1,500 million, the tax incentives

An existing non BOI enterprise already engaged in a "thrust industry" would be entitled to import plant, machinery and equipment on a duty free basis for the purpose of moderntsation. In addition, the company will be eligible for a five year tax holiday provided the company reaches a 500/0 export level within a period of 5 years or a 10 year tax holiday if the enterprise reaches 9O0/o exports within 5 years.
section 17 of its law shall be exempt extended for large scale projects from the application of GST. would be applicable.

Existing non BOI Companies

An existing non BOI enterprise presently engaged in a "thrust industry" and already exporting 900/0 of its output will also be granted a ten year tax holiday. However if the investment is greater than Rs. 1,500 million, they would be entitled to the incentives applicable to large scale projects described earlier.

 

ADDITIONAL INCENTIVES FOF THE ELECTRONICS SECTOR
INCENTIVES FOR PROJECTS LOCATING IN DESIGNATED INDUSTRIAL ZONES


In order to encourage investors in the field of advanced electronics, the BOI has introduced and administers a scheme of financial assistance which provides direct financial grants to eligible enterprises through a special Technology Transfer Fund.

Companies qualifying for direct grants under this scheme should be engaged in the export of advanced electronic components, usually manufactured in a "clean room" environment. Assistance under this scheme, granted on a case-by-case basis on crileria established by the BOI, can take the form of financial grants linked to incremental export turnover and/or reimbursement of costs associated with training, acquiring equipment for testing and calibrating, manufacture of prototypes, dies and moulds and developing - programs pertaining to quality assurance.

 


Existing Company

Any existing export oriented company (BOI and non-BOI) would be entitled to incentives under the BOI Law provided such an enterprise sets up an expansion unit or relocates to a zone (industrial estate) which is designated by the BOI as "difficult" or "most difficult". Such companies should commence expansion or relocation before 31.12.1999, employ a minimum of 150 people and export 500/0
of its output (in the case of apparel,

the
export criteria would be 900/o). Companies locating in "difficult" zones would be entitled to a five year income tax exemption whilst those locating in "most difficult" areas would be eligible for a 8 year income tax exemption period. (See next page for details of designated zones.)

The tax holiday shall be reckoned from the date on which the ongoing tax exemption period is due to expire or the date on which the expansion unit effects its first commercial export in the event an enterprise is currently not exempted from income tax.

New Company

Any new company setting up operations in the zones classified as "difficult" or "most difficult" too would be entitled to a five or eight year tax holiday respectively, subject to meeting the criteria set out above.

CLASSIFICATION OF INDUSTRIAL ESTATES
MOST DIFFICULT
DIFFICULT
District Name of lndustrial Estate (I.E.)  
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
     
   
TEXTILE INDUSTRY
SOFTWARE INDUSTRY


Existing textile manufacturing or processing companies undertaking an additional investment of Rs. 5 million to modernise their existing plant, would be entitled to incentives under the BOI Law. These companies will be granted exemption from customs duty on all project related items such as plant,

machinery, raw material etc. In addition, such companies will also be eligible for a five year tax holiday provided..the enterprise achieves 500/s export orientation within a period of .5 years.

If a new or existing textile manufacturing company undertakes an investment of Rs 500 mn and above, incentives described under Large Scale Projects shall be available.

 


All new companies engaged in the development of software for commercial purposes employing not less than 25 technically qualified people would be entitled to a tax
holiday period of 5 years and duty ft e imports of project related items ir espective of export orientation. The tax holiday period shall be extended upto 8 years if the ci terprise achieves 70% export or entation within the first 5 years of eration. These incentives shall also b available to those companies w ich have already signed ag eements with the BOI.

 

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Source: Board of Investment (BOI) , Sri Lanka
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