Foreign companies barred temporarily in incorporating their entities in Sri Lanka
Foreign owned companies have been barred temporarily from incorporating their entities in the island on a directive issued by the President’s office, Department of Registrar of Companies announced without giving any reasons.
This suspension will not be applicable for Board of Investment approved companies, a senior official of the department said.
Foreigners can usually incorporate companies in Sri Lanka provided the activity is not on a negative list for foreign investment.
According to the law of Sri Lanka, no foreigners can incorporate a retail business. However foreign investors are allowed to start a wholesale business if they deposit at least US$1 million in a Sri Lankan bank account.
The Companies Act defines ‘overseas companies’ as companies or bodies corporate incorporated outside Sri Lanka, which establish a place of business in Sri Lanka.
Such overseas companies must, within one month of establishing the place of business, submit certain documents and information to the Registrar General of Companies and obtain registration as an ‘overseas company’.
Once registered, such overseas companies have the same power to hold lands in Sri Lanka, as if they are companies incorporated in the island.
The previous government announced in its 2018 budget that it would allow majority-foreign-owned companies listed on the Colombo Stock Exchange to purchase and build on freehold land.
This matter is now under the consideration of the present government and that may be one of the reasons for the temporary ban on foreign company registrations, a senior official who wished to remain anonymous, told the Business Times.
The Business Times reliably learnt that a number of legal foreign entities have not actually been operating business activities in the country, nor have they fulfilled minimum requirements set out in relevant regulations.
Further, the government found that several concessions that were granted to foreign owned companies are still not operational.
Government authorities are currently closely monitoring companies and concessions granted to such companies during the previous regime, he disclosed.
Sri Lanka will also prohibit foreign contractors from competing for state projects and provide benefits for local construction companies, the government’s national policy document for the next five years revealed.