We were waiting for the Sri Lanka government to make an announcement last week and they did. (See an example from Reuters below in full)
This is not what people in the property business and many others were expecting. The government have now made it very clear they do not want foreigners buying land in Sri Lanka unless it it approved by the government.
There are not many countries where foreigners are expected to pay 100% tax on a LEASEHOLD property. The option of freehold ownership has been removed.
But the statement made by government spokesman Keheliya Rambukwella is just inaccurate. It would appear that the government are fearful that they will not have a strong grip on property development in the country mainly concerning hotels. Sri Lanka is well behind in developing the required number of hotels rooms if it is to reach it’s tourist targets in the next few years. So the easy option is to blame foreigners.
Foreigners make a significant contribution to the Sri Lanka economy. The great majority of foreigners who have purchased land here have developed houses, villas, guest houses, boutique hotels, restaurants and other businesses. It is true that many have also purchased very small land plots and built small retirement homes and/or holiday home where many still come for 3 months each year to escape the European winter.
You will not see many abandoned half-finished projects that are under foreign ownership. Foreign investors have a reputation for getting things done and completing projects. Plus they employ staff in so many different areas.
The great majority of half baked, half-finished and abandoned projects belong to Sri Lankans. Lack of planning, lack of finance and lack of experience all contribute to the sight of so many unfinished hotel projects in Sri Lanka.
Admittedly, most foreigners are not here to build large scale hotel projects. That’s the job of professional property developers from Sri Lanka or other parts of the world.
The big question that still remains unanswered and I doubt if anyone within government would be brave enough to offer any answers is on the subject of ‘corporate ownership’. Many hotels/restaurants/villas and current projects are owned by a Sri Lanka registered company where the shareholders are foreigners. Sale and purchase via the corporate route does not attract tax liability. However my legal friends tell me the government will monitor and restrict the share ownership of foreigners to just 25%. Step forward the ‘Trustee’ who holds the other shares.
(If you need further information please write to me).
The whole situation is messy. It is not good for the future development of Sri Lanka. Do these people in government really think they can do it all themselves? I can understand to a certain level that they want to know what is going on with large scale projects. The government claim they can help more and provide better tax incentives to foreigners who are investing over USD 10 million.
Many of us thought that after the end of the war in 2009 Sri Lanka would develop into a true free market economy and attract a significant level of foreign direct investment.
I think the government of Sri Lanka has made a big mistake.
COLOMBO | Thu Feb 21, 2013 9:39am EST
Feb 21 (Reuters) – Sri Lanka has decided to ban land sales to foreigners after finding that some offshore investors did not use land and property purchases to benefit the nation’s economy, the government spokesman said on Thursday.
The decision comes as the $59 billion economy is struggling to boost foreign direct investment despite gradually stabilising macroeconomic economic conditions since the end of a three-decade war.
The cabinet has decided to prohibit foreigners from purchasing absolute ownership of state and private lands in Sri Lanka, government spokesman Keheliya Rambukwella told reporters.
“Wealthy foreigners buy lands and do not utilise them fully. They just keep it for their private consumption and don’t contribute to the national economy such as by boosting tourism,” he said.
However, Rambukwella said long-term leases of land will still be allowed, and law will not apply to diplomatic missions.
Foreign direct investment (FDI) last year totalled $1 billion, only half of the government’s target and the same figure as for 2011.
Government officials say the slowdown in advanced economies hit FDI in 2012, while economists say inconsistent economic policies in Sri Lanka have contributed to the below-target result.
On Thursday, Sri Lanka’s Central Bank Governor said in Mumbai that he expects $1.8 billion FDI in 2013.
Sri Lankan President Mahinda Rajapaksa last November proposed banning state land purchases by foreigners. The sale of a prime hotel construction site in Colombo to a Chinese firm had previously been cancelled after the opposition said the price was too low.
Sri Lanka’s parliament passed legislation in November 2011 allowing the government to acquire enterprises or assets it deems underperforming or underutilised. (Reporting by Ranga Sirilal; writing by Shihar Aneez; editing by Stephen Nisbet)
propertyinsrilanka 
Thank you very much for your sensibview. Please let me know what would be the position of a company owned by a foreigner 24% and the Sri Lankan 76% of the owenrship of the company. Can this copmpany purchase a property from a private party 100% tax free and escape fromthe ban??
YES, this company would be free from any taxes.
This is very clear and well writen. Interesting view on the current cliamte in the market. In regards to the Company ownership of property in sri lanka, would it be possible for over 25% of the share ownership of a company come from foreigners if this was spread out over a number of different foreign investors? Or is it a clear 25% foreigners : 75% Sri Lankan company?
Thanks
Hi there, great indepth information here.
Just to confirm what you’re saying is that the government has banned land sales to foriegners and foriegners now pay the 100% tax and 5% duty stamp ONLY to be able to lease the land for 99 years?
Thanks!
Hi there. Thank you for a very informative article. I am so ignorant of owning shares in a company. We are interested in buying a small guest house, owned by a British lady, which has BOI investment. Does this mean that we can only own 25% of this business. What are the implications for us?
The agent involved has been very vague!
Kind regards
Virginia.
Any recent update? Thank you so much for putting this article together, much appreciated.
I believe that the government has made a U-Turn on the implementation of the 100% tax on leases and has now decided on a range of 7.5% to 15% on 99 year leases. Lawyers are also able to devise structures where the freeholds are secured for the foreign purchasers without the payment of the 100% transfer tax. I think the way forward would be for foreign purchasers to take a 99 year lease and to have a local trustee (such as the lawyer or Sri Lankan friend) hold the freehold on trust for the foreign purchaser.
please can you give me a good lawyer in matara that can help me on the latter of your post about a local trustee to hold the freehold on trust, to find out if this is legal and has no problems for me thank you
http://www.lankabusinessonline.com/news/sri-lanka-to-set-tax-of-around-10-pct-for-foreigners-leasing-land/867538628
Sri Lanka to set tax of around 10-pct for foreigners leasing land
14 May, 2013 18:41:06
May 14, 2013 (LBO) – Sri Lanka’s new restrictions on foreign ownership of property will have provisions that will allow non-nationals investing in the country to lease land with a tax of 5 to 15 percent, senior government officials said.
Investment promotion minister Lakshman Yapa Abeywardena said it was the policy of the administration to stop the sale of land outright to foreigners but foreign investors will be allowed to lease land for up to 99 years, after paying a tax.
“We will allow foreigners to lease land and we have requested that the tax be kept below 10 percent,” minister Abeywardena said.
Chairman of the Board of Investment of Sri Lanka MMC Ferdinando said a tax of between 5 to 15 percent for leases had been discussed and the Treasury was expected to issue a circular soon.
This is terrible news, We are looking at investing in a 10 million dollar project , for a resort , but no way will we invest when we do not 100% own the land. We looked at Thailand and it is the same story, Philippines same story . So we will need to look else where in Asia where they do not have restrictive regimes. What upsets me is that if a Sri Lankan comes to Holland they can buy any land they wish and own it 100%. and not have to fear that the government one day decides to disown the property. But as a dutch national we can not buy in sri lanka or any other asian country without restrictions. and Holland does not even have that much land and is densely populated, But still you can buy land and own it 100%. Sad and frustrating to not be able to finish the marketing plan due to ownership and it is too risky to invest and be surprised that the Asian suddenly decides to kick you out of your own project and you loose all your investment.
Dimitri, I am interested in the same sort of program and am keenly reading many sources to get to the bottom of this. In the meanwhile I am in Karachi, and the Govt here has excellent FDI rules, like, everything is allowed, and many foreigners are taking advantage while some are scared to come here because of the negative media. There is a cool spot for a resort here and its away from the posh area of the city by 1 km of sea only, its an island, and I dream to do something there, having a leisure marine background. If you are adventurous, get in touch, maxxximusmarine@gmail.com.
P.S: To the author of this blog: Fantastic effort here, Many thanks for the clarity, I do look forward to an update on the latest on the link you have posted for investment/purchase of property (which says ‘will be updated soon’) and will get in touch when visiting SL in the near future. I hope you dont mind my passing my em add to Dimitri. I request you to keep in touch too as I do have business plans for SL if the laws permit and will need your help. Cheers, Raja
Best to just stay home and build house outside city. These Asian countries sure like the money we bring and the upgrade in lifestyle, but just look at what happens when we leave, houses falling apart, poor management, land never developed, projects left to fall apart. The housing market already slowing in Thailand and other area’s and when the money stop’s maybe one smart country will allow complete freehold and then just watch as the money floods in. The big question here is who is going to do it first and you can watch how that country becomes richest in the area. Why not just put limit on amount of land that can be owned by expats then problem solved. If you have a limit for property for different types of projects, homes, condo’s, hotel’s problem solved. No need for all these LLC, CORPS and all the bad dealings that go along with them a lot of the time.
An absolute disgrace I have been holidaying in Sri Lanka for nearly 8 years now and love the country but ths current governments anti-investor attitude is going to leave the country in the quagmired in the global slow lane. In the UK,a Sri Lankan or any other foreign national (buyer/investor) are not restricted from land ownership, no 100% tax on house purchases or any other ridiculously high tariffs targeted at foreign purchasers, no restriction on apartment purchases no matter what floor it is on.
Following the last budget in November 2013, the Sri Lankan government is now allowing the sale of 99 year leases to foreigners at 15% tax. Sale of freeholds are possible to joint venture companies which is 51% or more owned by Sri Lankans. It looks like this is the way forward for anybody wanting to buy a property in Sri Lanka.