Setting up a business in Sri Lanka as a foreigner or a foreign company requires a good understanding of how the Sri Lanka board of investment operates, the BOI act of Sri Lanka and the requirements to set up a BOI registered company in Sri Lanka. However, this process can be very complex and challenging to follow.
Through this article, we want to simplify how to set up a BOI Company in Sri Lanka, discuss the benefits of being registered with the BOI, and guide you through the steps you need to complete to start a BOI registered company in Sri Lanka.
Table of contents.
The Board of Investment of Sri Lanka (BOI) is the main agency that approves any Foreign Direct Investments (FDI) or Local Investments. The BOI is governed by the Board of Investment Law No.4 of 1978 (BOI Law) and the various amendments to the same act. It was established in 1978 under the name ‘Greater Colombo Economic Commission’ and currently has over 1700 projects under its purview. The services provided to investors by the BOI include Import/Export Facilitation, Industrial Labor Relations, Legal Services, Engineering Approvals, and Environmental Clearances, to name a few.
In short, it is the agency that all foreign investments have to go through to obtain approval to commence business operations in Sri Lanka.
The BOI act of Sri Lanka mainly refers to the Board of Investment Law No.4 of 1978 (BOI Law). However, there are six amendments to this act which you can access below.
Collectively, these acts form the legal framework for the BOI to operate. In addition, however, investors have to abide by many other acts and regulations when applying to become a BOI registered company or when running a business in Sri Lanka.
1. Finance Act No. 12 of 2012 (Hub Operations)
This act was created to promote Sri Lanka as a trading hub and mainly deals with trading and services activities. It also covers Free Ports and Bonded areas and set up the basis for transactions in convertible foreign currencies.
2. Inland Revenue Act No. 24 of 2017
This is the apex act related to taxation in Sri Lanka that applies to foreign and local investors. This act covers the corporate income tax rates and exemptions in specific sectors such as SMEs, Exports of Goods, Education, Tourism, Construction services, Healthcare services and Agro-processing. It also covers zero corporate income tax rates for Agro framing, IT and export of services
3. Strategic Development Projects Act No 14 of 2008
This act was introduced to cover projects which carry a national interest. These include projects, wher
4. Foreign Exchange Act No. 12 of 2017
This act repealed the Exchange Control Act (Chapter 423) and introduced a more liberal exchange regime for Sri Lanka. This enabled investors to work with their preferred banks directly and encouraged the free flow of transfers through Inward Investment (IWS) accounts and Outward Investment Accounts.
In addition to this act there are some other limitations and exclusions that must be followed by residents outside Sri Lanka when Investing, acquiring or holding all classes of shares or an entitlement of shares issued by companies incorporated in Sri Lanka.
Exclusions:– Permission provided under the act does not apply in respect of shares of a company proposing to carry on any of the following businesses;
a. Foreign investment in the areas below is only approved up to 40% of the stated capital of such a company or if there is a special approval granted by the Board of Investment of Sri Lanka for a higher percentage of foreign investment in any company, only up to such a higher percentage.
i. Production of goods where Sri Lanka’s exports are subject to internationally determined quota restrictions
ii. Growing and primary processing of tea, rubber, coconut, cocoa, rice, sugar and spices
iii. Mining and primary processing of non-renewable national resources
iv. Timber based industries using local timber
v. Deep Sea Fishing (as defined by the Ministry assigned the subject of Fisheries)
vi. Mass Communication
viii. Freight Forwarding
ix. Travel Agencies
x. Shipping Agencies
b. Investment in shares of a company carrying on any of the businesses specified below is only allowed up to the percentage of the stated capital of the company. Such percentages must also have either a general or special approval granted by the Government of Sri Lanka or any legal or administrative authority set up for the approval of foreign investments in such businesses
i. Air transportation;
ii. Coastal shipping (as defined by the Ministry assigned the subject of Shipping);
iii. Industrial enterprise in the Second Schedule of the Industrial Promotion Act, No. 46 of 1990, namely –
iv. Any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment aircraft and other military hardware;
v. Any industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, hazardous or carcinogenic materials; any industry producing currency, coins or security documents;
vi. Large scale mechanized mining of gems;
5. Land Policy (Land Act)
Sri Lanka’s Land policy is made up of several acts, namely,
Under the provisions of these acts, Foreign investors can obtain land in Sri Lanka on a lease-hold basis, subject to a maximum tenure of 99 years, with no lease taxes charged. There are also provisions for outright transfer of ownership in situations where the foreign shareholding of a company is less than 50%. These acts also allow for Condominium properties to be purchased outright with no restrictions on nationality.
There are many terms for companies that have successfully gone through the approval of BOI of Sri Lanka. Some of the terms used include BOI company, BOI Companies in Sri Lanka, BOI registered company, BOI approved company, and BOI approved projects. Despite the minor variations in the terminology, they all mean the same thing; the company has fulfilled the necessary criteria to set up their business operations in Sri Lanka.
The BOI was established to promote FDI inflows by attracting business ventures. As a result, all BOI registered companies receive many incentives and benefits as part of the registration process. There are two main groups of incentives.
1. Fiscal Incentives
2. Non-fiscal Incentives
The Minimum investment for a BOI Sri Lanka project is US$ 250,000 to qualify as a section 16 project. However, investments above USD 3 million can be allowed as a section 17 project with special concessions.
1. BOI Guidelines for projects with concessions – approved under Section 17 of BOI Law
2. BOI Guidelines for projects without concessions – approved under Section 16 of BOI Law
There are currently 14 BOI Export Processing Zones in Sri Lanka with plans for 3 additional BOI Zones in the future.
How to set up a BOI registered company in Sri Lanka?
While the BOI facilitates foreign direct investments in Sri Lanka, there is still a lengthy process to be followed when doing this. For ease of reference, we will break it down into 3 phases.
Phase 1 – Submitting the BOI Sri Lanka Application and getting initial approval
Depending on how you want to seek approval, whether it is as a Section 16 project or a Section 17 project, you must submit two separate types of applications. To apply, you must be a shareholder in case of a new company or a shareholder’s representative who has a letter of authority to act on their behalf.
You must also pay the relevant application processing fees.
Section 16 applications must also contain the following.
Once you apply, the Project Screening Committee of the BOI assesses your application and, subject to meeting the criteria, grants you approval, including environmental/ engineering clearance in principle and approval from the land committee allocating BOI/Zone lands.
Following this approval, you are issued with a letter of Acknowledgment of Business Activity from the Appraisals department of the BOI. During this stage, you will also be assigned a project officer to help with the next steps.
Phase 2 – Incorporation of the company and formal approval
Phase 3 – Signing Agreement and commencement of operations
There are three main types of charges you have to pay the BOI Sri Lanka. In addition to this you also have to pay the VAT. These can be paid on the rupee equivalent as per the exchange rate at the time.
1. Application/Agreement Processing Charges
2. Annual Fees
3. Environment Protection Licensing Charges
The Board of Investment Sri Lanka website, https://investsrilanka.com has a range of online services accessible to potential and ongoing investors.
This article provides you with all the steps that you need to follow when applying for a BOI registration. However, we understand that you may need an expert to handle all of this for you without sacrificing your valuable time on this complex process.
We at Simplebooks have dedicated in-house experts to help with the BOI Sri Lanka registration process. Whether you need help to submit a new BOI application or with an already pending application we are here to help.
Contact us today for a free consultation
What is a BOI project in Sri Lanka?
A BOI project is a project approved by the Board of Investment of Sri Lanka. This allows foreign companies to set up their businesses in Sri Lanka with certain incentives. The BOI also help streamline the process for foreign companies to set up business in Sri Lanka
What is BOI approval?
The BOI approval is a permission given by the Board of Investment of Sri Lanka to a company to start commercial operation in Sri Lanka. These can be either a section 16 approval or a section 17 approval which comes with added incentives.
How many BOI zones are in Sri Lanka?
There are currently 14 BOI zones in Sri Lanka with plans for another 3 in the pipeline. These include Export Processing Zones, Industrial Parks and Export Processing Parks.
How do I register with BOI?
Submit the relevant Section 16 or Section 17 application form along with the relevant fees.
How can Foreigners Invest in Sri Lanka?
Foreigners can invest in Sri Lanka in a number ways including setting up BOI approved companies, investing in debt securities, invest, acquire and hold shares of any incorporated company in Sri Lanka, Acquiring immovable property, and granting loans not exceeding 3 years to Sri Lankan companies. They can also Invest in debt securities of licensed commercial banks, licensed specialized banks, licensed finance companies, specialized leasing companies subject to the approval of the relevant regulatory authorities
Who is the Chairman of BOI Sri Lanka?
Raja Edirisooriya was appointed as the Chairman of the Board of Investment of Sri Lanka on December 14th, 2021.