Foreign Investment
Sri Lanka provides for 100% foreign ownership in the following sectors:

1. Exports
2. Tourism
3. Infrastructure
4. Services
5. Agriculture
6. Dairy & livestock development
7. Electronics

Enterprises outside the above categories are required to be set up in the form of joint ventures with Sri Lankan partners. Certain types of activities are reserved only for Sri Lankan citizens.

A Board of Investment (BOI) operates as a One-Stop - Service centre for foreign investors.  Moreover, for foreign investment, there are no restrictions on repatriation of earnings and fees. Foreign exchange restrictions for current account transactions have been removed so that foreign investors can repatriate dividends or royalty payments through any commercial bank.

Incentives
The incentives offered to investors can be classified as follows :

1. General incentives for specific categories of industry and services
2. Special incentives for units which satisfy certain eligibility criteria

General incentives for specific categories of industry and services :
These concessions fall under the following broad categories:

1. Incentives for industries and services using advanced technology which include

(a) five year tax holiday on profits
(b) tax free dividends if paid out of exempt profits
(c) No import duty or turnover tax on machinery and equipment

2. Incentives for direct and indirect exporters, which include essentially tax exemption or payment of concessional tax at 15%. The following categories of export companies are allowed this benefit.

Profits exempt from tax

• Companies that operate and maintain facilities for the storage of specified goods brought into the island for re-export

• Offshore companies that earn profits and income through the use of Sri Lankan registered ships in international operations

• Firms in agriculture and fisheries sectors are entitled to a 5 year tax holiday

• Companies that export gems and jewellery

Special Incentives for Units which Satisfy Certain Eligibility Criteria :
Special incentives are available, for companies satisfying export criteria and/or a minimum investment criteria. These incentives aim to diversify exports towards advanced technology and value addition, and to encourage investment in large scale projects including infrastructure. These incentives are as follows:

1. 5-20 years full tax holiday
2. Concessionary tax (at 15%)
3. Import duty exemption on project related goods
4. Exemption from turnover tax on sales
5. Exchange control exemption
6. Concessionary tax for expatriates (at 15%)

Incentives for Export Oriented Enterprises :
The BOI operates three export processing zones at Katunayake, Biyagama, Koggala, and one Industrial park at Kandy. Infrastructure facilities at these zones include reliable power supply, treated water, telecommunication systems, paved roads, security systems and chain link fencing.

The Export Development Board (EDB) offers further schemes to assist local exporters, regardless of whether such exporters meet the BOI criteria. These schemes include:

1. Direct financial assistance
2. Product oriented special financial assistance
3. Financial assistance for market development and promotion

FOREIGN INVESTMENT LEGISLATION

INVESTMENT POLICIES

The principal Law applicable to foreign investment is Law No.4 of 1978 (known as BOI Act) and amendments introduced in 1980, 1983 and 1992 and Regulations made under the Act.

The BOI Act provides for two types of investment approvals.

• Under Section 17 of the Act, the BOI is empowered to grant special concessions to companies satisfying specified eligibility criteria. These criteria are designed to meet strategic economic objectives of the Government. The instrument through which such concessions are granted is the Agreement which modifies, exempts and waives identified laws in keeping with the BOI Regulations; such laws  include Inland Revenue, Customs, Exchange Control and Import Control.

• Approval under Section 16 of the BOI Act permits foreign investment entry to operate only under the normal laws of the country.

• Both foreign and local investors are treated equally for the purpose of granting approvals and incentives.

LEGAL FRAMEWORK AND PROCEDURES

INVESTMENT APPROVAL

Preliminary information and Application
A foreign investor who wishes to invest in Sri Lanka may first contact the Promotion Department of the BOI Designated `country officers' in this department will advise investors on investment opportunities and explain the incentive package. The country officer can also assist the investor in completing the Application Form and refer the application to the relevant departments within the BOI.

All investors have to submit a formal application to the BOI. This has two components

• approval of investment

• approval of site

Application forms can be obtained from the Promotion Department. Completed application forms must be submitted to the Appraisal Department. A fee of US $ 100 is charged to process the application. A case officer from the Appraisal Department will then be assigned to assist and guide the investor at all subsequent stages. The case officer will be the principal contact who will obtain relevant approvals and clearances from the line agencies and ministries.

Approval
The Appraisal Department will

• approve the application and decide on the applicable BOI investment incentives and conditions

• advise on incentives available under the normal laws of the country as appropriate.

• expedite clearance by relevant line ministries and agencies.

Foreign investment approval in most instances is automatic. The application is processed within 3 working days of receipt of a correctly completed Application Form. However when the project is evaluated for special concessions, 4 weeks are needed to complete the evaluation. The relevant authorities will consider approval of foreign investment in regulated sectors usually within 30 days. BOI will obtain such approvals on behalf of potential investors. The Board of Investment will then inform the applicant in writing, detailing the conditions, privileges and benefits granted if the project has met the necessary conditions.

Upon receipt of the Letter of Approval, the applicant must respond in writing agreeing to the terms and conditions. If any changes or special conditions and privileges are sought, they should be requested at this time.

Agreement
The investor must then incorporate the business as a company with the Registrar of Companies and submit the following documents to the BOI

• the Memorandum and Articles of Association

• name of company secretary

• location of the registered office

• particulars of Directors

• list of machinery and equipment required for the project in order to finalize the agreement.

The Registrar of Companies attends to the incorporation and registration of companies. The Letter of Approval issued by the BOI is sufficient to confirm to the Registrar that the foreign investment has been officially approved. The formal Agreement is usually signed within 30 days of issuance of Letter of Approval.  The Agreement will confirm the incentives and concessions. The company will be entitled to under Section 17 of the BOI Act.

Procedure For Implementation of a BOI Project
Site Selection

If the investor wishes to locate a project within one of the BOI administered Export Processing Zones (EPZ), he will be referred to the respective Director (Zone)/Zone Manager.

The EPZs have provisions for the supply of potable water conforming to WHO standards, a common waste water treatment plant, electricity supply, telecommunication facilities etc.

Enterprises intending to locate outside the jurisdiction of EPZs should contact the Project Implementation Division. The division is able to provide quick and detailed information on suitable land sites available through its Land Bank service.

Site Approval

The Technical Services Department approves site locations. Site approval application forms can be obtained from the Promotion Department. The infrastructure requirements and the environmental concern of a project are addressed jointly by the Engineering and the Environment Departments of the Technical Services Department. The relevant guidelines and recommendations pertaining to the site approval would be included in the ormal letter of site approval issued by the Director (Technical Services) to the investor. Once the site approval is granted, the investor could purchase the selected land or finalize the leasing agreement.

Environment Protection Licene

The issue of the Environmental Protection Licene (EPL) under the National Environmental Act will be carried out by the Environment Department, where necessary. The industries required to obtain such licenes should do so, prior to commencement of operations. The relevant inspection and license fees will be levied by the BOI. A guide on environmental norms is made available to the investor, along with other information, prior to the submission of the application.

Building Plan Approval

All factory buildings constructed in Sri Lanka must confirm to the Factories Ordinance, especially the requirements stipulated with regard to health, sanitation, welfare and safety of workers. The BOI's General Guidelines for Factory Buildings can be obtained from the Promotion Department. The Engineering Department grants building plan approval. In order to obtain such approval, enterprises should submit blueprints of architectural, layout and service plans, certified by a Chartered Architect/Engineer to the Engineering Department.

Purchase of Construction Materials

Companies approved under Section 17 of the BOI Law are entitled to purchase duty-exempt building materials for the purpose of plant factory construction. Duty-exempt materials must be certified by the Engineering Department.

Purchase of Capital Equipment and Raw Materials

Each enterprise must submit to the Appraisal Department a detail list of project related capital equipment, spare parts and raw materials required for operational purposes. The Appraisal Department, in consultation with the Engineering Department would then examine the list and grant approval for duty free purchase by the enterprise as appropriate.

Import of Project Related Goods and Export of Finished Goods

The Investor Services Department will liaise and assist the investor in the clearance of goods for both import and export.

Utilities and Telecommunications

Investors locating outside the Export Processing Zones may make a formal request to the Project Implementation Department to acquire infrastructure facilities, i.e. Electricity, Water and Telecommunication. The Department is able to recommend to and coordinate with relevant authorities to make priority connections to project sites.

The provision of infrastructure facilities within a Zone is the responsibility of the Zone Manager.

Visas and Work Permits

Enterprises that wish to employ expatriate personnel must obtain a letter of recommendation from the Appraisal Department. This letter must then be submitted to the Department of Immigration and Emigration to obtain necessary visas and work permits. Visas can be renewed on the recommendation of the Appraisal Department. However please note that investors should arrive in Sri Lanka on an entry visa and not on visit/tourist/business visa.

Summary of Key Operational Functions of BOI

INCENTIVES FOR FOREIGN INVESTORS
The Sri Lankan government offers a wide range of incentives for investors, both domestic and foreign. There is no incentive bias between the foreign and local investor. The incentives offered belong to two classes or regimes, and the enterprise may become eligible for incentives offered by either of these two regimes.

The two regimes are:
Board Of Investment (BOI) Incentives Under Section 17 of the BOI Act
Special incentives, outside identified laws of the country, are available to enterprises approved by the BOI, under Section 17 of the BOI Act, if they meet certain criteria.

General Incentives Under the Normal Laws of the Country
The incentives offered under this regime are also available to both local and foreign investors. Firms that do not qualify for concessions under Section 17 of the BOI Act may seek incentives available under the normal laws of the country such as Inland Revenue Act, Turnover Tax Act, Excise (Special Provisions) Act and Customs Ordinance. Foreign investment entry to operate under the normal laws is conferred under section 16 of the BOI Act which entitles the enterprise to repatriate profits and dividends attributable to foreign shareholders.

The BOI is responsible for the approval of all foreign direct investment. Foreign investors need to invest at least U.S. $ 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.

Incentives Under Section 17 of the BOI Act
Enterprises which satisfy specific eligibility criteria qualify for incentives under Section 17 of the BOI Act. The incentives offered by the BOI were expanded in November 1995. The new incentives represent a two-pronged strategy: diversification of exports towards advanced technology and value addition, and investments in large scale projects including infrastructure.

For the purpose of granting the new incentives, advanced technology has been defined as follows by the Ministry of Finance.

i) Technology which introduces a new design, formula or process for the manufacture of an article or in the provision of a service, resulting in one or more of the following:

a) Higher productivity resulting in lower cost of production
b) Quality improvement of product/service 
c) Better Utilization of raw materials
d) Upgrading of technical skills
e) Minimizes/ controls environmental pollution and/or wastage

ii)  Manufacture of products using a technology hitherto not applied in Sri Lanka (excluding technology involving only simple processing)

iii) Technology for the local processing of raw materials, which are currently  imported in processed form, excluding simple types of processing

iv)  Technology hitherto unutilized in Sri Lanka that would make use of local resources to provide public utilities and infrastructure services.

Given below is a list of the types of investment that qualify for incentives under Section 17 of the BOI Law, with applicable conditions. It should be noted that all enterprises qualifying for concessions would also be:

- exempt from income tax on capital gains due to transfer of shares (However, stamp duty shall be payable)

- exempt from the provisions in the Import and Export Control Act.

- subject to the National Security Levy (currently 2% on imported capital goods)

- entitled to repatriate profits and dividends.

- expatriates income will be taxed at a concessionary rate of 15% for the first five years.

BILATERAL OR MULTILATERAL INVESTMENT GUARANTEES IN FORCE

Clause in the Sri Lankan Constitution ensures the sanctity of the agreements.

These agreements provide for the following:

- Protection against nationalisation

- Prompt and adequate compensation if required

- Free remittance of earnings, capital and business fees

- Settlement of disputes under the International Convention for the Settlement of Investment Disputes (ICSID).

Bilateral agreement exist between Sri Lanka and the following countries: Belgium, China, Denmark, Egypt, France, Germany, Italy, Japan, Korea, Luxembourg, Malaysia, The Netherlands, Norway, Romania, Singapore, Sweden, Switzerland, Thailand, the United Kingdom and the United States of America.

Sri Lanka is also a founder member of the Multilateral Investment Guarantee Agency (MIGA). This provides further safeguards against expropriation and non-commercial risk. Investors may also refer disputes for arbitration under the Rules of the International Chamber of Commerce.

Property insurance can be obtained in foreign currency through domestic or foreign insurens.

PROCEDURES FOR REPATRIATION OF PROFITS/INVESTMENT
Within this liberal environment, foreign investors can freely remit dividends, capital or royalty payments through any commercial bank. Sale proceeds of shares can be remitted if the sale price is acceptable to the Central Bank.

Eligible enterprises under the BOI law may operate a foreign currency account in a commercial bank, borrow offshore and operate a Sri Lankan currency account with any commercial bank.