KPMG in Sri Lanka provides updates on two significant developments for that foreign investors should be aware of: new restrictions on land ownership by foreigners and the enforcement of Sri Lanka’s transfer pricing rules as of 1 April 2015.
Sri Lanka has imposed new restrictions1 on the sale, transfer or lease to foreigners of land, properties, and condominium units. The restrictions prohibit the transfer of any land to a foreigner, foreign company, a local company with more than 50 percent foreign shareholding, with some exemptions.
For example, the prohibition would not apply where a condominium unit is situated on or above the fourth floor of a building, as long as the entire value is paid upfront through an inward foreign remittance before the deed of transfer is signed.
The new land law also introduced a land lease tax of 15 percent on foreigners’ leasing of land. Among the leases exempt from the tax are long-term (35+ year) leases of condominium units above the fourth floor where the entire lease amount is paid upfront.
A concessionary land lease tax rate of 7.5 percent is applicable for lease of condominium units on or above the fourth floor where the lease is less than 35 years and for leases up to 99 years for units below the fourth floor.
Land law implications on dual citizens
The restriction of purchases of land does not apply to dual citizens. There is also an exemption from being chargeable to land lease tax.
Sri Lanka introduced transfer pricing provisions into law in 2006 and regulations in 2008, which made transfer pricing rules legally enforceable. The law and regulations were further revised in 2013 and in March 2015, and the Revenue Authorities have indicated that the provisions would be enforced from 1 April 2015.
The Revenue Authorities recently took measures2 to enforce compliance reporting on transfer pricing, requiring the following persons to comply:
These persons will need to obtain an Accountant’s Report on transactions with associated undertakings and file it with their income return, starting from the year of assessment 2015–16.
1Land (Restriction on Alienation) Act No. 38 of 2014.
2ExtraordinaryGazette Notice No.1907/26 dated 25 March 2015.