Sri Lanka legislation guide
By Kandiah Neelakandan
Murugesu & Neelakandan
Tel: +94 11 237 1100 Fax: +94 11 237 1111/1122 Website: www.mnlaw.lk
Sri Lanka is strategically located on the East-Western sea route. The Colombo harbour serves as a hub port for South Asia because of its ideal geographical location with minimum deviation from shipping lines, while the Bandaranaike International Airport is a regional hub for air transportation. A new international harbour is also now being developed in Southern Sri Lanka. Thus, the country is expected to be a major hub for the South Asia region for trade, investment, commercial and financial services.
Foreign investment
Foreign investment in Sri Lanka’s local equity market is open to approved country funds and regional funds, citizens of foreign states (whether resident in Sri Lanka or outside Sri Lanka) and Sri Lankans resident outside Sri Lanka. Foreign investors may invest up to 100% of the stated capital of a limited company, subject to certain exclusions, limitations and conditions.
Foreign investment is permitted in all sectors of the economy except in certain activities that are reserved for citizens of Sri Lanka: money lending; pawn broking; retail trade with a capital investment of less than US$1 million; and coastal fishing.
Furthermore, there are certain regulated areas where foreign investment is permitted, as specified by the governmental agency or the Board of Investment of Sri Lanka (BOI), up to specified percentages of foreign equity as may be prescribed from time to time.
The BOI, which functions as the central facilitation point for investors, is empowered to grant special concessions to enterprises that sign agreements with it under Section 17 of the BOI Law.
Investment protection
Foreign investment is guaranteed protection by the Constitution under Article 157, which generally provides for: protection against nationalisation; prompt and adequate compensation if required; free remittance of earnings, capital and business fees; and settlement of disputes under the ICSID.
Any treaty or agreement between the Sri Lanka Government and a foreign government for the promotion and protection of foreign investment has the force of law and no executive or administrative action can be taken against such an agreement.
Strategic development projects
The Strategic Development Projects Act enacted in 2008, was amended by Act No. 12 of 2011 to more effectively promote strategic development projects. This Act supersedes the Board of Investment Law enacted in 1978 in many respects, and applies to large projects that are likely to bring economic and social benefits to Sri Lanka.
The Minister in charge of the subject of investment is empowered to declare a project as a strategic development project, subject to approval of the Cabinet of Ministers (in consultation with the Minister of Finance), and may grant exemptions from one or more of various statutes for a period not exceeding 25 years.
Inland Revenue
The Inland Revenue Act has been amended by the Act No. 22 of 2011 granting a tax holiday of three years to undertakings engaged in the manufacture of any article (other than any liquor or tobacco products) in which the sums invested in the acquisition of fixed assets is not less than SLR50 million (US$456,000) after October 22 2010 but before March 31 2012. Furthermore certain activities (including exports, manufacture and services) have been granted tax holidays ranging from five to seven years.
The profits and income arising from any Islamic finance transaction relating to any Islamic finance instrument are given recognition for tax purpose in terms of the recent amendment.
Insurance
Regulation of Insurance Industry (Amendment) Act No. 3 of 2011 is the first major amendment to Regulation of Insurance Industry Act No. 43 of 2000 (the Principal Enactment). The main areas of change are:
Mandatory listing on a licensed stock exchange
In terms of Section 53, every insurer is required, within three years of being issued with a licence under section 15 of the Act, to be listed on a licensed stock exchange. This is provided that every insurer who now holds a valid licence shall be required to be listed on a stock exchange within five years.
Segregation of long term and general insurance business
An insurer who is now engaged in carrying on both a long term insurance business and a general insurance business is required, within four years, to segregate the two businesses into separate companies.
Licensing provisions have also been amended, whereby licences will be issued for either a general insurance business or a long term insurance business.
Secured transactions
The Secured Transactions Act No. 49 of 2009 was enacted by the Parliament of Sri Lanka to provide for the securing of obligations in respect of movable property, maintenance of a secured transaction register, and for connected matters. The Act promotes further access to credit by recognising collateral in movable assets and was brought into operation on August 1 2011.
The legal rights of a debtor who registers secured interests in the Secured Transaction Registry, which is maintained at the Credit Information Bureau (CRIB), are protected above any other obligation.