Investments In Sri Lanka. Bitter or Sweet?

on February 18, 2022

Sri Lanka, formerly known as Ceylon and officially the Democratic Socialist Republic of Sri Lanka, is an island country in South Asia. It lies in the Indian Ocean, southwest of the Bay of Bengal and southeast of the Arabian Sea – also famously known as the pearl of the Indian ocean.

The country benefits from a land of staggering contrast and spectacular beauty and owes it all to its compactness. Along the coast, visitors can explore amazing beaches, safari tours, guided walks through ancient cities and experience the culture of modern Sri Lanka.

Sri Lanka is situated strategically at the crossroads of major shipping routes to South Asia, the Far East and the continents of Europe and America, making the country a convenient port of call for shipping lines and airfreight services. Further, Sri Lanka’s proximity to the Indian sub-continent positions the country as a gateway to a market of 1.3 billion people. These factors have combined to generate keen interest in the country’s logistics sector, as well as from manufacturers looking for opportunities in the South Asian region.

Board of Investment of Sri Lanka ( BOI) was established in 1978 under the greater Colombo Economic Commission to promote investment in Sri Lanka. Companies formed under the BOI approval also enjoy greater incentives and less foreign exchange controls.

The Country’s strategic location also provides a greater opportunity to enter in to free trade and partnership with several Asian countries. There are free trade agreements in place with India, Pakistan, Singapore and is part of the EU GSP+ agreement.

Bandaranaike International Airport (CMB) is the main international airport located 30 kilometres north of the island’s capital Colombo. Sri Lankan Airlines, the national carrier, covers direct flights from all major airports in the world.

Currency & Foreign exchange and Taxes

The currency is Sri Lankan rupees and it is managed and controlled by the Central Bank of Sri Lanka. Foreign exchange is controlled so repatriating funds out of the country is restricted. Investors do need to follow a controlled procedure when investing into the country to ensure profits and capital can be repatriated.  General tax rates for companies are 24%. Small, medium and specific industries enjoy a special rate of 14%. Withholding tax is not applicable for dividends and is subject to the provisions of the relevant DTAAs. Interest attracts a withholding tax of 5%, regardless of the residency status of the receiver.

Standard Vat rate in the country is 8%, threads hold is SLRS 75 million per quarter or 300 Mn per annum.  A special VAT rate of 15% applies to financial services. There are specific industries and services that qualify for 0% rates for VAT.

For more information on tax and rates please contact our expert team who will be happy to assist you.

Investing in Sri Lanka

The country last reported a GDP of USD 83 Billion and a growth rate of minus 1.3%. The unemployment rate is 5.2% ,current inflation sits at 14.2%. bank base interest rate is 5.5%, and the country has a trade deficit of USD 1085 Million.  Its quite common to see these rates in the developing regions.

The Government is currently focussed on investing large sums in to infrastructure projects supported by ADB & IMF. While Infrastructure development stands in the front stage of these projects, Port City is one of the largest and ambitious projects.

Next to Colombo’s leafy business district, the expanse of sand reclaimed 665 acres of new land from the sea and is being transformed into a high-tech city which will host an offshore international financial centre, residential areas, and a marina – prompting comparisons with Dubai, Monaco, or Hong Kong. The main funding and for the project comes from China.

There are several industries that have seen private foreign investments in the country. Some of the key industries noted are the BPO, IT services, Apparel, hotel & leisure, construction, plantations, residential development & support services around infrastructure development. These projects attract a high return compared to the return enjoyed in US and Europe to compensate for the political and economic risk in the country. It’s common for investors to partner with local industry experts as local knowledge is key when dealing with authorities and people in the country.

More details of current investment and projects can be found on

Trade between UK and Sri Lanka has continued to grow over the last decade. Sri Lanka was the UK’s 73rd largest trading partner in 2021. In 2020 the outward stock of foreign direct investment from the UK in Sri Lanka was £ 249 Million. Total trade in goods and services between the UK and Sri Lanka was £ 1 billion in the four quarters to the end of 2020.

The top 5 goods exported from the UK to Sri Lanka in the four quarters to the end of Q3 2021 were:

  • Paper & paperboard (£18.1 million or 12.3% of all UK goods exported to Sri Lanka)
  • Mechanical power generators (intermediate) (£9.2 million or 6.3%)
  • Specialised machinery (capital) (£9.2 million or 6.2%)
  • Miscellaneous electrical goods (intermediate) (£8.3 million or 5.7%)
  • Medicinal & pharmaceutical products (£7.5 million or 5.1%)

The top 5 goods imported to the UK from Sri Lanka in the four quarters to the end of Q3 2021 were:

  • Clothing (£445.5 million or 67.7% of all UK goods imported from Sri Lanka)
  • Scientific instruments (capital) (£23.5 million or 3.6%)
  • Textile fabrics (£22.9 million or 3.5%)
  • Fish & shellfish (£18.1 million or 2.8%)
  • Rubber manufactures (£17.9 million or 2.7%)

The perceptions among foreign investors have been changing since 2012 after several incidents of scams and fraud which caused many large projects to suffer after partnering with local entrepreneurs. These cases are increasing and have created a bitter feeling among investors. Whilst local partnerships offer the best solution to local expertise and are the most practical solution for  investing in foreign countries, the increase in these frauds and scams is going to  inhibit the popularity of foreign investments in Sri Lanka. The Government should proactively focus on these projects and create a well-defined statutory framework and legal consequences to local entrepreneurs carrying out such scams and fraud schemes. Economically, Sri Lanka is in dire straits, with the Government declaring that the economy is in its most challenged state since gaining independence – especially in the current climate, when the country is trying to build its foreign reserve post COVID.

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