The Sri Lankan government offers a wide range of incentives for investors. These incentives are available to both foreign and domestic investors without preference, provided the investment is undertaken through a company incorporated in Sri Lanka

Incentives offered fall under two classes or "regimes" and the investor may be eligible for inducements provided by either of these regimes. These are:

 

Regulations have been framed under Section 17 of the BOI Law to 'rant specific incentives to new and existing enterprises satisfying specific eligibility criteria. These incentives usually entail a combination of exemptions covering income tax, customs duty and foreign exchange controls, which are conferred on an eligible company by way of signing an Agreement with the BOI. It should be noted that exemptions from the Goods and Services Tax (GST) Act, National Security Levy Act and Excise (Special Provisions) Act cannot be conferred on a company by virtue of signing a BOI Agreement. Exemptions or concessions if applicable under these statutes, are available to all companies regardless of whether they have signed a BOI Agreement

 

Firms that do not qualify for concessions under Section 17 of the
BOI Law may seek incentives available under the "normal laws" of the country conferred through the Inland Revenue Act, Goods and Services Tax (GST) Act, Excise (Special Provisions) Act and the Customs Ordinance.

Foreign investment entry to operate under the normal laws is granted under Section 16 of the BOI Act which entitles the enterprise to repatriate profits and dividends attributable to foreign shareholders. Since specific rights and privileges outside the Inland Revenue, Customs Ordinance and Exchange Control Laws are not granted to companies approved under Section 16, the signing of a BOI Agreement is not necessary.

Note that export oriented companies operating under the normal laws are eligible to borrow in foreign currency under new guidelines issued by the Central Bank.

The BOI is responsible for the approval of all foreign direct investment. Foreign citizens need to invest at least US$50,000 in the equity of the enterprise in order to qualify for approval under sections 16 or 17 of the BOI Law and to be eligible for a resident visa.

 

o Investments exceeding Rs 250 million, (US$ 4.2 million) or where the investment is undertaken in designated 'backwards areas', attract an investment allowance of 100 per cent of the capital, against a maximum of 75 per cent of the assessable income.

Any unutilised allowance could be carried forward indefinitely for claim in subseouent years.

With effect from 1st April, 1998, Sri Lanka introduced a Goods & Services Tax (GST) replacing the Business Turnover Tax. There are two rates of GST - a standard rate of l2.50/o and a zero rate. Export of goods to a customer outside Sri Lanka is zero-rated. A 45-day deferment period is available on imported inputs utilised for exports. GST is not due on the importation to a designated Free Trade Zone.

Investment incentives available under the BOI Law and normal laws are presented in summary form on pages 42 to 51 A more detailed description of these incentives follows. You may also refer to page 66for a overview of Sri Lanka's tax system including VAT.

The important general principles governing investment incentives for export companies under both the BOI Law and 'normal laws' are summarised below for simplicity.
A more detailed description is given in ensuing chapters.

o All raw material inputs utilised for the purpose of processing for exports can be imported/purchased duty- free.

o Companies are entitled to exemption from import duty on capital and intermediate goods provided minimum export criteria are met or if such purchases are effected by companies engaged in "promoted" sectors as defined under the BOI Law and Customs Ordinance.

o If an income tax holiday is not applicable, income from exports is taxed at a maximum rate of 15 per cent. The normal rate of income tax in Sri Lanka is 35 per cent except agriculture, fisheries, tourism, construction and other promoted sectors where the rate is 1500.

Furthermore, any company which invests in new plant, machinery or equipment and is not entitled to a tax holiday will be eligible for the following investment tax allowance:
o Investments up to Rs 250 million (US$4.2 million) attract an investment allowance of 75 per cent of the capital, against a maximum of 50 per cent of the assessable income, in the year in which the acquisition and use of the plant, machinery or equipment occurs.

Source: Board of Investment (BOI) , Sri Lanka