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Sweeping tax concessions for International Financial City Project
View(s):Sweeping tax concessions have been given to the International Financial City or Port City project to be built in a reclaimed sea area of 269 hectares. The tax concessions have been announced by Development Strategies and International Trade Minister Malik Samarawickrema in a gazette notification issued this week under the Strategic Development Projects Act.
The project work, to be undertaken in two phases, will include the construction of wave protection breakwater, land reclamation, ground improvement, and revetment, canals to connect seawater, artery roads, and utilities.
The total investment on the project is US$ 1,337 million with a Project implementation period of eight years, the date of which will be notified after the Third Supplementary Agreement is signed between the Board of Investment and the Chinese project company.
The tax concessions will include exemptions from Corporate Income Tax covering 25 years.
The exemption period will start when the Project Company makes taxable profit or six years after the beginning of the construction of the project, whichever occurs earlier. However, it will exclude the period between March 6, 2015 and August 12, 2016, the date on which the Tripartite Agreement between the project company, the Government of Sri Lanka and the Urban Development Authority was signed.
Additionally dividends distributed to the shareholders out of the profit will be exempted from income tax during the 25 years.
There will also be an exemption on Withholding Tax on interest on foreign loans taken for capital expenditure and on technical fees paid to consultants; on management fees and royalty payments provided however the total of such charges doesnot exceed three percent of the gross operating revenue; on marketing fees provided however the total of such fees does not exceed 1.5 percent of the gross operating revenue and on incentive management fees provided however the total of such fees does not exceed 10 percent of the gross operating profit.
The expatriate staff of the project company will be exempted from the Pay as You Earn Tax (PAYE) subject to a restriction that this concession shall apply subject to the maximum number of 30 employees at any given time.
All imports of project related goods and local purchases of project related goods or services required for the implementation of the project as approved by the BOI will be exempted from the payment of Value Added Tax (VAT), during the project implementation period of eight years. Any contractor or a sub-contractor who also supplies to such contractor will be entitled to the deferment as permitted in the VAT Act.
Other tax concessions will apply to the Ports and Airports Development Levy, the Construction Industry Guarantee Fund Levy imposed under the Finance Act, Excise duty payments, and Nation Building Tax (NBT) and customs duty exemptions on importation of project related items
The ministry says this project is expected to bring significant economic and social benefit to the country by the development of Colombo Port City creating a new land area, through potential employment generation and consequent income earning opportunities for the people of Sri Lanka. It is expected to attract secondary foreign direct investment for the development of the reclaimed land and by developing the planned Colombo International Finance Centre in the Colombo Port City and the consequent large foreign exchange turnover that could be generated.
The Port City project company is CHEC Port City Colombo (Private) Limited while China Harbour Engineering Company Limited (CHEC) is the contractor for engineering, procurement and construction of the project. They are subsidiary companies of China Communications Construction Company Limited.