Capital Transactions

A. Permitted Investments

Any person resident outside Sri Lanka including country funds, regional funds, investment funds and mutual funds established outside Sri Lanka may engage in the following types of capital transactions in Sri Lanka which requires remittance of foreign exchange into Sri Lanka in terms of the general permission granted by the Government Gazette Notification No. 2045/56 of 17.11.2017 issued under the provisions of the Foreign Exchange Act No.12 of 2017;

  1. subject to the exclusions and limitations specified in the aforementioned Government Gazette Notification No. 2045/56 of 17.11.2017,  to invest, acquire or hold all classes of shares or an entitlement to shares issued by the companies incorporated in Sri Lanka under the Companies Act, No. 07 of 2007;

  2. invest, acquire or hold all classes of shares in a company not incorporated in Sri Lanka and listed in the Colombo Stock Exchange;

  3. acquire or hold shares issued by companies incorporated in Sri Lanka under the Companies Act, No. 07 of 2007 against the value of machineries supplied by a non-resident investor;

  4. invest in debt securities or granting loans with a tenure of 3 or more years to companies incorporated in Sri Lanka (other than Licensed Commercial Banks, Licensed Specialized Banks, Licensed Finance Companies, Specialized Leasing Companies and Companies limited by guarantee and overseas companies) in foreign exchange or in Sri Lanka Rupees;

  5. grant loans to or investing in debt securities issued in foreign currency or Sri Lanka Rupees by Licensed Commercial Banks, Licensed Specialized Banks, Licensed Finance Companies, Specialized Leasing Companies subject to the approval of the relevant regulatory authorities;

  6. Subject to the provisions or restrictions of any other written law, investments in-

    1. Units in Unit Trusts;
    2. Government Securities (treasury bills and treasury bonds);
    3. Securities issued by the Central Bank of Sri Lanka or any other statutory body;
    4. Sri Lanka Development Bonds (SLDBs);
    5. Deposits in licensed financial institutions;
    6. Immovable properties; or
    7. Any other investment categories approved by the Minister.

All capital transactions undertaken in terms of (a) to (d) above, shall be subject, inter-alia, to the following,

  1. All funds for capital investments referred to above shall be routed through an Inward Investment Account (IIA) opened and maintained in any foreign currency designated by the Central bank or Sri Lanka Rupee with a LCB;

  2. All Income received from such investments and proceeds of disposal of the investments shall be credited to the IIA through which the investment was made.

B. Opening and Operating a place of business in Sri Lanka 

An overseas company registered under the Companies Act, No. 07 of 2007, may carry on business in Sri Lanka as a branch, project, liaison, representative office or any similar office (overseas company) subject to the terms and conditions published in the Government Gazette Notification No. 2045/56 of 17.11.2017,

An overseas company engaged in permitted commercial, trading or industrial activity needs to invest a minimum of United States Dollars (USD) 200,000 or equivalent amount in other designated foreign currencies, out of remittances received from abroad and channeled through an IIA opened with a LCB in Sri Lanka to the credit of an account of the overseas company.

Further, based on the requirement, the parent company could make payments for the maintenance of the overseas company out of the funds in the IIA of the parent company.

Profits, surplus funds, franchise/royalty payment from the overseas office (net of tax) may be remitted out of Sri Lanka through the IIA of the parent company through which the investment was routed. 

Reference:

Gazette

Direction on IIA

A general permission has been granted by the Minister in terms of the provisions of the Foreign Exchange Act No. 12 of 2017 (the Act) for resident person in Sri Lanka to make payments to persons resident outside Sri Lanka by purchasing foreign exchange from any licensed commercial bank as an authorized dealer (LCB) for the following capital transactions outside Sri Lanka, subject to the limitations and terms and conditions stipulated under the Government Gazette Notification No. 2045/56 of 17.11.2017

  1. To acquire and hold shares and debt securities of companies incorporated outside Sri Lanka, units in regulated unit trusts and mutual funds and sovereign bonds issued by foreign governments or any other foreign governmental organization rated at or above the sovereign credit rating of Sri Lanka at the time of the investment.,

  2. To set up and maintain a branch, liaison, marketing, agency, project, representative or other similar office in a foreign country (other than by an individual).

    Table 1 – Limits for Outward Investments

Eligible Resident Investor

Type of Investment

Permitted limit

(i)  A company listed at the Colombo Stock Exchange

Shares, Units, Debt Securities and Sovereign Bonds

USD 2,000,000 or an equivalent amount in any designated foreign currency, per calendar year

(ii) A company not listed at the Colombo Stock Exchange

USD 500,000 or an equivalent amount in any designated foreign currency, per calendar year

(iii) A partnership registered in Sri Lanka

USD 300,000 or an equivalent amount in any designated foreign currency, for life time

(iv) An individual

USD 200,000 or an equivalent amount in any designated foreign currency, for life time

(v) A company or a partnership

Setting up of Overseas offices

USD 300,000 or an equivalent amount in any designated foreign currency, per calendar year

 

The aggregate limits for investments specified in Table 1 above shall be the aggregate  investments made under these Regulations and any outward payment previously made in terms of the general permission granted in terms of the repealed Exchange Control Act, No. 24 of 1953.

Any investments exceeding the limits above shall require a special approval of the Monetary Board in terms of Section 7 of the Act. All applications shall be forwarded to the Head of the Department of Foreign Exchange of the Central Bank of Sri Lanka along with the documentations specified in the Guideline and Checklist in order to obtain the permission.

The outward remittances required to make permitted investments shall be routed through an Outward Investment Account (OIA) opened and maintained by the eligible resident investor with a LCB. Any income from such investments and disposal proceeds shall be brought into Sri Lanka through the same OIA within three months from the date of the payment.

Eligible Resident investor shall maintain all OIA with one LCB and an investor who requires to open and maintain OIA with more than one LCB shall obtain a special approval from the Head of Foreign Exchange Department of the Central Bank of Sri Lanka by submitting a request through the respective LCB.

Resident investor shall obtain a clearance letter from the Department of Foreign Exchange that there is no pending investigation under the provisions of the Foreign Exchange Act No.12 of 2017 or the repealed Exchange Control Act No. 24 of 1953 for each outward remittance for the investments. The request for the clearance letter shall be forwarded as per the specimen format provided by the Department of Foreign Exchange.

Reference:

Gazette

Direction on OIA

Guideline and Checklist

Specimen for the clearance letter

 

Bank guarantees, Bonds or Standby Letters of Credit, Corporate Guarantees and Migration Allowance

General permission has been granted in terms of the Government Gazette Notification No. 2045/56 of 17.11.2017 for LCB to issue and renew bank guarantees, Bonds or Standby Letters of Credit and for companies incorporated in Sri Lanka to issue corporate guarantees in respect of capital transactions and remit out the claims, subject to the Directions issued to the LCB by the Central Bank of Sri Lanka. 

Any guarantee exceeding the above limits and does not fall under the categories specified in the above mentioned general permission shall require a special approval of the Monetary Board under section 7 of the Act. An application in this regard shall be submitted to the Head of Department of Foreign Exchange of Central Bank along with the documentations specified in the Guideline and Checklist in order to obtain the permission.

Migration Allowance

Reference:

Gazette

Direction on IIA

Guideline and Checklist