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Doing business in Sri Lanka

How quickly can I set up a business?

It depends on the type of business and the registration required. It would generally vary between 1-3 weeks.

What is the minimum investment needed?

‘Retail Trade’ requires minimum investment of USD 5Mn if the company to be formed is to be registered with the Board of Investment of Sri Lanka (BOI). The minimum investment other than that for ‘Retail Trade’ is USD 250,000/-. Where the company is formed without registering with the BOI, there is no minimum investment other than for “Retail Trade’ which is USD 5Mn.

The minimum investment to operate as a ‘branch office’ of the parent entity is USD 200,000/=. No requirement to register the branch office with the BOI.

How can I raise finance?

The initial minimum investment where applicable should be made by the initial shareholders. For any excess, borrowings could be made from banks subject to providing acceptable guarantee or security.

What are the legal requirements for setting up my business?

Option 1: To form a separate private limited company with shareholders being the parent company, or with individual owners.

Option 2 – To form a ‘branch’ of the parent company registering similarly an ‘overseas company’.

Partnership or proprietorship businesses are not permitted.

What structure should I consider?

Private Limited Company

• Shareholders; minimum 1, Maximum 50.
• Directors: minimum 1, maximum not specified (usually 15).
• Annual Audit, Tax Returns mandatory.
• Profit can be paid as dividends and surplus funds repatriated at winding up subject to deduction of applicable taxes.

Branch Office

• An ‘authorize person’ should be nominated for the Sri Lanka branch by the parent entity.
• Annual Audit and Tax Returns mandatory.
• Profits and surplus funds at winding up could be repatriated subject to deduction of applicable taxes.
• Foreign investments are prohibited for few industries and limited to 40% of the equity for some other industries.

What advice can you give me in regards to payroll and taxation requirements?

1. Statutory contributions towards Employees Provident Fund (EPF) (Employer 12%, Employee 8%) and Employees Trust Fund (ETF) (3% by the employer) should be made on the Gross Salary.

2. An employee will be liable to income tax if the monthly salary exceeds LKR 250,000/-.
An employee is eligible to receive “Retiring Gratuity” at the time of retirement if he has completed 5 years of continued service, at the rate of half month last drawn salary for each year of service.

Is there anything else that I should know?

Any foreign investment to be made either as ‘equity’ or ‘loan’ should be brought in via an “Inward Investment Account” (IIA) to be opened by each such Investor or shareholder in a commercial bank in Sri Lanka. Payment of dividends and surplus funds on winding up should be channelled through the IIA.

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