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Buying A Property in Sri Lanka for Foreigners and Expats – 2024

Buying A Property in Sri Lanka for Foreigners and Expats – 2024

What Are the Rules and Regulations for Expats and Foreigners Buying and Renting Property in Sri Lanka?

Foreigners can buy apartments/condominiums from the ground level up, but they cannot purchase land on freehold terms. Land can only be leased for up to 99 years. Condominiums, defined as a group of residences with shared facilities, can be purchased by foreigners provided the entire value is paid upfront through an inward foreign remittance before executing the relevant deed of transfer. Private companies with up to 49% foreign ownership can buy or lease property in Sri Lanka.

Under current legislation, foreigners can enter the property market using the following options:

  1. Leasing the property
  2. Inheriting
  3. Receiving a gift from parents
  4. Being part of a private company with a local shareholding of above 50%
  5. Being part of a locally listed public company
  6. Buying an apartment/condominium (any floor)
  7. Obtaining dual citizenship

How to Set Up a Private Limited Company in Sri Lanka

Foreigners can establish private companies in Sri Lanka, subject to various restrictions and rules. The following are the usual steps for a foreigner to establish a private business in Sri Lanka to purchase land:

  1. Get All Required Permits and Approvals: Secure the appropriate permissions and approvals from the relevant authorities, such as obtaining a business visa, registering with the Department of Registrar of Companies, and receiving clearance from the Board of Investment (BOI) if the investment exceeds a particular level.
  2. Choose a Company Structure: Opt for a business format such as sole proprietorship, partnership, or private limited company. A private limited company is the most preferred structure for foreign investors due to limited liability protection.
  3. Register the Company: Register the firm with the Department of Registrar of Companies.
  4. Create a Bank Account: Open a bank account in Sri Lanka in the company’s name after registration.
  5. Get the Appropriate Land Permits: Ensure the land being purchased is eligible for foreign ownership and secure the essential permits from the appropriate authorities.
  6. Acquire the Property: Proceed with the land purchase once all the relevant permissions and approvals have been received.

Forming a private corporation and purchasing land in Sri Lanka can be complicated and time-consuming. It is advisable to seek the help of a local attorney or business consultant knowledgeable about the regulations.

Buying Land

Foreigners cannot buy land outright due to the prohibition on land sales to foreigners from the 2013 budget. Land can only be leased for up to 99 years. Foreigners or companies (with more than 50% foreign ownership) no longer need to pay the 15% land tax from January 1, 2016 (LAND (RESTRICTIONS ON ALIENATION) (AMENDMENT) – issued September 2, 2016).

VAT & Taxes on Apartment Sales

An 18% VAT is imposed when buying a property from a VAT-registered company (e.g., a developer). The rate increased from 15% to 18% on January 1, 2024. When purchasing from an individual (who is not VAT registered) in the secondary market, VAT may not be applicable. A 2.5% SSCL tax is imposed when purchasing from a company or individual liable to pay this tax.

Taxes for Property

  • There is a 1% stamp duty for leasing land up to 99 years.
  • When buying property, there is a 3% stamp duty on the first LKR 100,000 and 4% thereafter. Lawyers typically charge 2-3% for preparing the documents.

Taxes for Landlords

  • Landlords need to pay a 1% stamp duty when the lease agreement is filed at the Land Registry.
  • VAT is payable at 18% if the lease is to a VAT-registered person, other than on residential premises.
  • Landlords are liable to pay a 10% withholding tax (WHT) when renting to a company if the rent is above LKR 100,000 per month.

Capital Gains Tax (CGT)

A 10% capital gains tax on profits became effective from April 1, 2018. It applies to both foreigners and locals. For assets owned/bought before April 1, 2018, the value is calculated as at September 30, 2017. Gains of less than Rs. 50,000 are exempt from CGT, and if the property being sold has been your principal place of residence for 2 of the last 3 years, CGT is not applicable.

Residency Visas

A residency visa cannot be obtained by simply buying a property. However, foreigners who invest over USD 250,000 can obtain a residence visa in Sri Lanka under the Resident Guest Scheme Visa program. A 5-year visa can be obtained by investing USD 300,000 or above, and a 10-year visa for investments over USD 500,000. Those over 55 can obtain a 2-year renewable visa under the My Dream Home Visa Program by depositing USD 15,000.

The Golden Paradise Visa Program is a long-term residency program for investors contributing to Sri Lanka’s economy. Eligibility requirements include:

  1. Establishing a Golden Paradise Foreign Currency Account (GPFCA) with at least USD 200,000 in a local bank regulated by the Central Bank of Sri Lanka (up to 50% of the minimum investment amount can be withdrawn after one year).
  2. Providing documents proving the deposit and confirming the payment transfer.
  3. Obtaining a police clearance report within six months from the country of residence.
  4. Providing a medical report from a licensed local hospital stating all candidates are free of Malaria, Filariasis, Tuberculosis, and HIV/AIDS.
  5. Submitting a copy of the passport’s Bio Info Page.
  6. Providing marriage certificates, police clearance reports, and birth certificates of dependents.
  7. Completing a residence visa application and a Personal Particular Form.

Under the Golden Paradise Visa Scheme, visa holders can invest in government-approved investments, lease lands and buildings, purchase condominium projects, and buy Sri Lanka Development bonds. The visa is valid for 10 years with a USD 2000 fee and can be renewed.

Can Foreigners Obtain a Mortgage/Loan?

Foreigners cannot obtain a mortgage from local banks, but dual citizens and non-resident Sri Lankans can. Contact us if you need assistance with applying for a mortgage.

Moving Money In and Out of the Country

Foreign residents need to channel money into the country via a special SIA (Securities Investment Account) – now called Inward Investment Accounts (IIAs) – held at a local bank. Once the property is sold, the money can be taken out through the same account in the currency it was deposited in. An annual limit of $20,000 applies if the money wasn’t brought in via an SIA account.

Can You Buy Land in Sri Lanka as a Foreigner?

The Sri Lanka Land Reclamation and Development Corporation Act, No. 15 of 1968, and Land (Restrictions on Alienation) Act No. 38 of 2014 stipulate restrictions on transferring land ownership to foreigners. Starting from January 1, 2013, it is illegal to transfer land ownership to non-citizens, companies with 50% or more foreign ownership, or foreign companies. However, public companies with more than 50% foreign ownership can purchase immovable real estate properties from April 1, 2018.

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