How to Start a Business in Sri Lanka: Foreigner’s Guide

Starting a business in Sri Lanka as a foreigner can be an exciting but challenging process. It is important to note that Sri Lanka is an emerging economy, with many opportunities for entrepreneurs to invest in a growing market. 

Here are some key insights to keep in mind when starting a business in Sri Lanka as a foreigner:

1. Conducting Market Research

Before starting a business in Sri Lanka, it’s important to do your research on the market and industry you plan to enter. Identify potential competition, cultural differences, and regulatory requirements that may affect your business. 

• Understanding the local market: Market research helps foreign investors understand the local market and consumer behavior in Sri Lanka. It provides information on the demand for various products and services, the competition, pricing strategies, and market trends.

• Identifying investment opportunities: Market research can help foreign investors identify investment opportunities in Sri Lanka. It can provide information on emerging sectors, industries, and regions that offer growth potential.

• Assessing risks: Market research helps investors assess the risks associated with investing in Sri Lanka. It provides information on political stability, regulatory environment, economic conditions, and other factors that may impact investment decisions.

• Developing a market entry strategy: Market research can help foreign investors develop a market entry strategy that is tailored to the Sri Lankan market. It provides information on the best ways to reach customers, the most effective marketing channels, and the cultural nuances that may impact business operations.

LankaPropertyWeb offers a number of tools that can assist you in your market research if you are looking to invest in the Sri Lankan real estate market. Sri Lanka Real Estate Market Outlook Report 2023 is one of the most comprehensive research guides conducted on the Sri Lankan real estate market. It analyses real estate market trends and data of nearly a decade and provides predictions on the future of the Sri Lankan real estate market. 

In addition to this, LankaPropertyWeb offers a number of technical tools that can help you with your research. You can view them here.

2. Choosing the Proper Business Structure

As a foreigner, it is important to choose the suitable business structure that best suits your needs and business objectives. The three most common business structures in Sri Lanka are sole proprietorship, partnership, and limited liability company or a branch office. The Companies Act No. 07 of 2007 should be followed in registering a company in Sri Lanka.

In Sri Lanka, the regulations regarding foreign ownership percentage vary across different industries. Certain industries prohibit foreign ownership entirely, while others permit a maximum of 40% ownership, and some allow full ownership of up to 100% by foreigners. It’s important to keep in mind the specific limitations that apply in each industry.

There are certain sectors and industries in Sri Lanka that are exclusively reserved for individuals of Sri Lankan origin. These sectors include; 

• pawn brokering, 
• money lending, 
• providing security services (whether private or otherwise), 
• coastal fishing, and 
• retail trading with an investment of less than $5 million.

Industries in Sri Lanka where foreign ownership is limited to 40% or less include; 

• education, 
• travel agencies, 
• mass communications, 
• freight forwarding, 
• shipping agencies, 
• deep-sea fishing, 
• timber-based industries using local timber, 
• mining and primary processing of non-renewable natural resources,
• growing and primary processing of tea, cocoa, coconut, rubber, rice, spices, and sugar, and 
• production of goods subject to internationally determined quota restrictions for Sri Lanka’s exports.

There are industries in Sri Lanka where Line Ministry approval is necessary for foreign ownership, and the percentage of foreign ownership may depend on the Line Ministry’s approval. These industries include; 

• air transportation, 
• coastal shipping, 
• lottery, 
• large-scale mechanized mining of gems, 
• any industry involved in producing coins, currency, or security documents, 
• aircraft and military equipment, 
• arms, explosives, and ammunition, and 
• industries dealing with drugs, poisons, and other harmful substances.

Foreign ownership of up to 100% is allowed in any industry in Sri Lanka except for the categories mentioned earlier. However, companies looking to operate in Sri Lanka as foreign entities must obtain permission from the Board of Investment (BOI). While not all foreign companies require approval from BOI, those in the retail, manufacturing, and branch office sectors require such permission. The process of obtaining BOI approval typically requires an investment of approximately $5 million USD.

Buyer and Seller Assistance service offered by LankaPropertyWeb can further assist you with this.

3. Legal Requirements / Obtain Required Licenses and Permits

Certain industries require approvals from relevant government departments to legally conduct business. These approvals typically come in the form of licenses and permits that must be obtained before beginning operations. Examples of industries that may require departmental approvals include food and beverage, manufacturing, construction, and environmental services. It is important for business owners to research the specific requirements for their industry and seek professional assistance if needed to ensure full compliance with regulations. Failure to obtain the necessary approvals can result in penalties and legal complications that could negatively impact the success of the business.

4. Professional Guidance 

In Sri Lanka, all businesses that are owned by foreigners are required to have a local company secretary who can provide guidance and assistance with all relevant procedures. Typically, law and accounting firms in Sri Lanka also offer company secretary services as part of their suite of services.

5. Choosing the right location

When launching a business in any country, choosing the correct location is crucial, and Sri Lanka is no exception. There are many commercial properties for rent in Sri Lanka, which you can browse through on online marketplaces. When deciding where to establish your business in Sri Lanka as a foreigner, there are various variables to consider. A dozen development projects provide approximately 2.2 million square feet of Grade A office spaces in Colombo. In addition, approximately one million (1Mn) square feet of grade A office space is currently under construction and will be available by 2025 (Sri Lanka Real Estate Market Outlook Report 2023). The World Trade Center Colombo (WTC) and the One Galle Face Office complex are at the top of the Grade A list in terms of aggregate capacity. Here, we will look at some of the major factors to consider while deciding on a location for your business in Sri Lanka.

• Considerations for Market and Industry: 

The first stage is to establish which industry or market you will be targeting in Sri Lanka. Certain locations may be better suited to your needs than others, depending on the sort of business. For example, if you are beginning a tourist-related business, you should cite it in a tourist-friendly location. If, on the other hand, you are launching a manufacturing or industrial business, it may be more advantageous to place your business near ports or industrial zones.

• Accessibility and Infrastructure: 

Sri Lanka’s infrastructure has improved in recent years, with modern motorways, ports, and airports. However, certain places may still lack access to essential infrastructure, such as consistent electricity and water supplies. It is critical to assess the accessibility and infrastructure of the potential location for your business. If your company requires a lot of transportation, choose a location that is conveniently accessible by highways, railways, or ports. Similarly, you’ll want to make sure that the area provides consistent access to basic amenities like water, electricity, and internet access.

• Government Regulations: 

Establishing a business in Sri Lanka necessitates adherence to local regulations and legislation. The Sri Lankan government provides many advantages to foreign businesses. It is critical to assess these incentives and comprehend the regulatory environment of the region you are contemplating. You should also make sure that the place you choose is in accordance with zoning rules and environmental restrictions.

• Local Workforce: 

For firms, the availability of trained labor is critical. The place you select should have an adequate supply of skilled labor. There may be a skilled labor shortage in some places, making it difficult to locate suitable employees. When deciding on a place, consider the local job market, educational standards, and the availability of training programs.

• Business Support Services:

Starting a business in a foreign nation can be difficult, particularly if you are unfamiliar with the local business environment. As a result, it is critical to choose a location that provides business support services. Look for places with business incubators, networking events, and financial resources.

• Safety and Security:

Safety and security are important considerations to consider while launching a business in Sri Lanka. Before making a final decision, look at the crime rate and the safety of the area. It is best to locate your company in areas with a good reputation for safety.

6. Considering the Local Culture

Starting a business as a foreigner in Sri Lanka necessitates careful consideration of the local culture. Understanding and respecting the culture is essential for establishing solid relationships and a successful business.

The first step is to learn everything there is to know about Sri Lankan culture, customs, and traditions. Find out about their culture, language, religion, values, and beliefs. This understanding will assist you in developing better ties with the locals and avoiding cultural blunders. Sri Lanka is primarily a Buddhist country, and Buddhism is central to their way of life. As a result, it is critical to adhere to Buddhist norms and beliefs, such as refraining from public shows of affection and dressing modestly in religious settings.

Another critical factor to consider is local business etiquette. Personal relationships and trust are highly valued in Sri Lanka, and it is critical to invest time and effort in developing strong relationships with potential business partners, suppliers, and customers. In all business contacts, it is also critical to be patient, kind, and respectful.

It is critical to be informed of local laws and regulations while beginning a business in Sri Lanka. The Sri Lankan government has severe regulations in place for international investors and corporations. As a result, it is vital to speak with a local lawyer and accountant to ensure that all legal criteria are met.

Furthermore, language problems might make doing business in Sri Lanka difficult. While English is commonly spoken, a basic mastery of the indigenous language, Sinhala or Tamil, is required to converse effectively with the inhabitants.

Finally, you must tailor your items or services to the Sri Lankan market. Sri Lankan consumers have distinct interests and inclinations, and understanding their requirements and desires is crucial to your company’s success.

7. Hiring Employees 

Hiring staff in Sri Lanka can be a complicated procedure, and foreigners should keep various legal and cultural issues are various legal and cultural issues that foreigners should keep in mind. In this essay, we will discuss some crucial things to consider while employing international staff in Sri Lanka.

• Tax & Legal Considerations

As a foreigner launching a business in Sri Lanka, it is critical to understand the legal criteria for recruiting staff. The Employment Ordinance and the Industrial Disputes Act control labor legislation in Sri Lanka. These laws define both employers’ and employees’ legal rights and obligations.

Obtaining a Business Registration Number (BRN) from the Department of Registrar of Companies is one of the initial stages in employing staff. This registration is required for any business operating in Sri Lanka, and the company must be registered prior to hiring staff.

In Sri Lanka, employment contracts are required, and employers must furnish employees with a written contract describing the terms and conditions of employment. The job description, compensation, working hours, and leave rights are all examples of these phrases.

The employer is legally bound to contribute a portion of the employee’s monthly salary to the Employees’ Provident Fund (EPF) and the Employees’ Trust Fund (ETF). The EPF is an employee retirement savings plan, whereas the ETF is a welfare fund that offers benefits to employees in the event of injury, disability, or death. The employer and employee both need to contribute to these funds, with a deduction from the monthly salary. Employers will need to contribute 12% and 3% for EPF and ETF respectively from the employee’s salary and the employee needs to contribute 8% for the EPF fund.

Any employee earning above LKR 100,000 a month will need to pay income taxes and the employer is responsible for deducting these from the salary and making the payments to the Inland Revenue Department, which is known as the Advance Personal Income Tax (APIT), which is a form of PAYE.

• Considerations Based on Culture

Sri Lanka has a distinct cultural and social context, therefore it is critical for a foreigner to grasp cultural conventions and practices while employing staff. Building relationships with employees and respecting their culture and customs can aid in the creation of a healthy work environment.

Language is an essential cultural factor. Sinhala, Tamil, and English are the official languages of Sri Lanka. While English is widely used in business settings, it is crucial to examine potential employees’ language skills, especially if your company requires communication with customers or clients who speak a certain language.

Gender is another key cultural aspect. There are cultural conventions about gender roles and expectations in Sri Lanka, and it is necessary to be mindful of these while employing staff. Certain jobs, for example, may be considered more suitable for men or women, therefore it is critical to avoid gender discrimination.

• Recruiting the Best Employees

Finding the proper workers is critical to your company’s success. It can be difficult for a foreigner to navigate the local job market and identify the best prospects. Online job boards and social media platforms are one approach to finding potential employees. Local recruiting companies can also help you identify qualified applicants through the hiring process.

When employing new personnel, take into account their qualifications, experience, and cultural fit. Sri Lanka’s workforce is highly educated, with numerous competent professionals in industries such as information technology, engineering, and finance. Cultural fit, on the other hand, is vital, and it is critical to examine how well potential employees mesh with your company’s values and culture.

8. Invest in Sri Lanka

The Sri Lankan real estate market has become an appealing alternative for foreign investors and ex-pats, thanks to a rapidly rising population and a thriving tourism economy.

The strategic location of Sri Lanka, which serves as a gateway to the Indian subcontinent and Southeast Asia, is one of the most significant benefits of investing there. Sri Lanka has a thriving economy that has had a growth rate above 3% in most years in the last decade. The highest growth rate in the last 10 years was in 2012 when the economy grew by 9.0%. Furthermore, the government has taken a number of steps to strengthen the country’s infrastructure and ease of doing business. These policies have made the country more appealing to foreign investors.

The Sri Lankan real estate market is especially tempting because it is more affordable than other countries in the region. Residential, commercial, and industrial properties are among the investment opportunities available in the market. Foreign investors might engage in the booming tourism business by purchasing land, flats, or villas.

Foreigners and expatriates can invest in Sri Lanka via a variety of avenues. They can buy property or stock in property firms directly. They can also invest in real estate investment trusts (REITs) that are listed on the Colombo Stock Exchange. These investment options provide investors with a variety of ways to diversify their portfolios.

Before investing in Sri Lankan real estate, it is critical to conduct thorough research and acquire legal and financial guidance. A foreign investor must receive the relevant permissions from the Central Bank of Sri Lanka and follow all land laws and regulations in the country.

As the leading online real estate marketplace in Sri Lanka, LankaPropertyWeb not only functions as an advertising platform. LankaPropertyWeb is constantly on the lookout for properties worth investing in and showcasing them to a worldwide audience so that the right buyer finds them. 

When you are investing in the Sri Lankan real estate market, it is important that you have an idea about your ROI. LankaPropertyWeb assists you here with their state-of-the-art ROI calculator.

9. Buying a business in Sri Lanka

If you decide to invest in or buy a business in Sri Lanka, instead of setting one up, then there are plenty of opportunities across a wide spectrum of businesses up for sale or looking for investors in Sri Lanka.

From export-oriented sectors such as agriculture and textiles to hotels and guest houses linked to tourism, many lucrative business ventures or joint partnerships are available for an investor to come in and take ownership. Businesses looking for an investor or currently available for sale can be found in a listings portal such as LPW’s Business for Sale section.

10. Obtaining Visas and Work Permits

Obtaining visas and work permits as a foreigner looking to start a business in Sri Lanka can be an intimidating procedure, but with the appropriate advice, it can be a simple and uncomplicated one. It is critical to understand that the regulations and procedures may differ based on your place of origin and the nature of your business. It is strongly advised to obtain professional guidance from a local immigration lawyer or consultant to ensure that all relevant requirements are met.

• Visa Prerequisites

You will require a visa to enter Sri Lanka as a foreigner. Depending on the purpose of your travel, many types of visas are available. The most frequent sort of business visa is the Business Visa, which is valid for a maximum of three months. A Business Visa can be obtained via the Sri Lankan embassy or consulate in your native country. A valid passport, a return ticket, and proof of adequate funds to maintain yourself during your stay in Sri Lanka are required.

The Golden Paradise Visa Program is a long-term residency program intended for investors who want to enjoy Sri Lanka while contributing to its booming economy. This program provides investors and their families with long-term benefits.

Under the Golden Paradise Visa Scheme, visa holders can invest in a government-approved investment, obtain lands and buildings under lease, purchase condominium projects in the country as well and purchase Sri Lanka Development bonds.

The validity period of this visa is 10 years and a visa fee of USD 2000 is payable for 10 years. The visa can be renewed after 10 years and our Buyer and Seller Assistance program can help you with the process.

• Requirements for a Work Permit

Before beginning work in Sri Lanka, foreigners must get a Work Permit. In Sri Lanka, the Work Permit is issued by the Department of Immigration and Emigration. You will need to produce the following documents to obtain a Work Permit:

1. A valid passport
2. a duplicate of your business visa
3. A letter of appointment or an employment contract from the company for which you will be working in Sri Lanka.
4. Evidence of your credentials and experience
5. A medical certificate
6. Police clearance certificate from your home country

It is vital to know that the Work Permit is attached to the employer, and you will be unable to work for another company unless you secure a new Work Permit.

11.  Company Registration Process

You must first register your company in Sri Lanka before applying for a Work Permit. In Sri Lanka, company registration is handled by the Registrar of Companies.

To check that there are no other registered companies with similar names, look for the company name you’ve chosen on the Department of Registrar of Companies website. If your chosen name is deemed to be too close to an already existing company, it will most likely be rejected.

Once your company name has been approved, you will need to fill out the following forms and submit them to the Department of Registrar of Companies.

• Form 1 (Section 4) – Application for Registration
• Form 18 (Section 203) – Consent and Certificate of Director
• Form 19 (Section 221) – Consent and Certificate of Secretary
• Articles of Association

Following that, you must make your company exclusive in the local community by publishing a public notice in at least three local newspapers. Remember to properly display your company’s name, type, address, and registration number on your notification.

12.  Opening an IIA Bank Account

For international entrepreneurs who want to invest in Sri Lanka, opening an IIA (Investment Inflow Account) bank account is a standard necessity. You must first get the appropriate authorization from the Board of Investment (BOI) or the relevant regulatory agency before opening an IIA bank account. The BOI is in charge of stimulating foreign investment in Sri Lanka and provides a variety of incentives and benefits to investors, such as tax breaks and duty-free imports of machinery and equipment.

After obtaining the relevant authorization, you can open an IIA bank account with a local bank. It is critical to select a reputed bank with a significant presence in Sri Lanka to facilitate business transactions and provide access to a variety of financial services. You must supply all required papers, such as your passport, visa, business registration, and proof of address, as well as a minimum deposit amount, which varies depending on the bank.

After opening an IIA bank account, you can freely move funds into and out of Sri Lanka, subject to the Central Bank of Sri Lanka’s regulations and limits. To avoid legal complications, it is critical to follow all applicable rules and regulations, including foreign exchange regulations and anti-money laundering laws. It is also critical for compliance and transparency to keep accurate and complete records of all financial transactions.
Starting a business in Sri Lanka as a foreigner is a mammoth undertaking due to the many government regulations and cultural differences. However, the long process and the amount of research required are definitely worth it, due to the many benefits the country has to offer. The strategic geographic positioning, tropical climate, natural resources, and the sheer whole-hearted nature of the Sri Lankan people are factors that make investing in Sri Lanka appealing. Buyer and Seller Assistance offered by LankaPropertyWeb can assist you further if you are looking to invest in this beautiful and bountiful island nation.

Further Reading

If you require further reading about setting up a business in Sri Lanka, you can read the detailed guide from the Central Bank of Sri Lanka, from here.