How can a foreigner open a company in Sri Lanka?

Sri Lanka is ideally located along the major shipping routes of South Asia and the Far East. Combined with an educated and inexpensive workforce, the country offers excellent investment opportunities for companies exploring new markets. Government incentives and a favorable tax regime make Sri Lanka a very attractive place to start a business. If you are a foreign entrepreneur and want to set up an office here, there are a few rules you need to know before registering your company.

Different industries in Sri Lanka have different rules regarding what percentage of a company can be owned by a foreigner. Some industries do not allow foreign ownership, while some allow a maximum of 40% and some allow 100% foreign ownership.

Businesses such as manufacturing, retail, branches, etc. require approval from the Board of Investment (BOI).

To obtain this, you will need to:

• Discuss your intentions and what you want to achieve with the BOI.
• Prepare an application for approval.
• Open a corporate bank account.
• Complete a name check with the Registrar of Companies.
• Get your Articles of Association approved.
• Submit your share certificate.
• Invest approximately $5 million USA.

Important! Not all businesses require BOI approval to conduct business.

Types of Companies

Limited Liability Company (LLC)

A limited liability company is the most common type of entity that foreigners set up in Sri Lanka. To set up this type of company, you must have at least one director and two shareholders, who do not have to be Sri Lankan citizens.

However, you must appoint a resident company secretary who resides in Sri Lanka. You must also have a registered address for your business. There is no minimum share capital required to set up an LLC in Sri Lanka.

Public Company

Two shareholders and two directors are required to set up a public limited company in Sri Lanka. Setting up such a company can be an attractive option for foreign investors looking to raise capital in the country. Public companies can be listed on the stock exchange. A certificate of commencement of business must be obtained before your company can commence operations.

Directors of public companies in Sri Lanka are required to file annual returns and submit annual audited accounts and financial statements.

Offshore Company

Companies registered in other countries can set up in Sri Lanka. However, offshore companies are not allowed to do business here.

Subsidiary Company

Another common type of company that foreigners can set up in Sri Lanka is a subsidiary company. These companies are required to comply with all the rules imposed on domestic companies.

Joint Venture

A joint venture is a is a business partnership between two or more companies. It can be with another foreign company or with a Sri Lankan company. Joint ventures can be incorporated or can operate as unincorporated companies, i.e. partnerships. Such arrangements are particularly popular in the export business.

Branch

Branches in Sri Lanka can be 100% foreign-owned. The parent company determines the scope of the branch. It has an independent management team and a corporate bank account based in the country. Branches must be registered with the Ministry of Finance and Planning. In addition to the requirement to pay standard taxes, there is an additional branch tax of 10%, which is levied on profits remitted abroad by the parent company.

The parent company is liable for all liabilities of the branch.

Representative Office

In Sri Lanka, it is fairly easy to establish a representative office that engages in limited activities. However, it cannot carry on commercial operations, engage in profit-making activities or make direct sales in the country. In addition, the representative office cannot engage in trading or investment activities and be wholly foreign-owned. A company secretary must be appointed who is a resident of Sri Lanka. These offices are not subject to any taxes due to their limited permitted uses.

Steps to Register a Company

1. Get your company name approved.

Start by checking the Department of Companies Registration website to make sure your chosen name has not already been registered. Names that are too similar to existing company names or that violate regulations will not be approved.

2. Fill out the registration forms.

Once your company name has been approved, you will need to fill out the following forms:

Form 1 (Section 4) - states the company name, type, address, number of directors, their details, and the number of shares.

Form 18 (Section 203) - contains the list of companies, the company name, details of the director(s), and the date of appointment.

Form 19 (Section 221) - contains the company details and secretary details.

All registration forms must be printed, handwritten forms will not be accepted during registration.

3. Obtaining the Articles of Association.

The Articles of Association are the document that sets out the rules for the operation of the company. Every Sri Lanka company is governed by its Articles of Association, as per the Companies Act No. 7 of 2007. This requires companies to notify the Registrar of Companies of any changes in company names, directors, shareholders and share capital.

4. Issuing a Public Notice.

Next, you will need to make your company exclusive in the local community by publishing a public notice in at least three local newspapers. Be sure to clearly state the company name, type, address and registration number in your notice.

5. Opening a Business Bank Account.

Finally, you'll need to open a business bank account under your company's name. Make sure the checking and online banking services you receive are ideal for you and your business.