Sri Lanka is the second richest country in South Asia after Malaysia. The jurisdiction has a rather developed economy with an emphasis on the tea industry, tourism, textiles and service. It also suggests favourable conditions for doing business and making investments.
Major Forms of Legal and Business Presence in Sri Lanka
If you think about establishing your commercial presence in Sri Lanka, you may actually accomplish this in one of the next forms:
- Private Limited Company – a legal entity that can be established by two shareholders at least whose liability is limited to the amount of the contributions made. The shares of this commercial vehicle cannot be freely transferred or offered to the public. There are no requirements for the minimum chartered capital for this entity. One director is required to operate a company. The maximum number of shareholders is 50 in this case.
- Public Limited Company – a corporate entity where the liability of shareholders is also restricted to the amount of the contributions made. Still, in this case, shares may be freely offered to the public and transferred. This vehicle is used for involving extra financing mostly. Two shareholders are required at least to establish this company with no upper limit of the number of shareholders. Two directors are required to operate a public company.
- Unlimited company – a business vehicle where the liability of shareholders is not restricted in any way – even their personal property may be called to cover losses in the case of the company’s liquidation.
- Partnership – a commercial formation that is based on the oral or written agreement where partners jointly conduct business. Partners are also jointly liable and bear unlimited liability for the results of the partnership’s operation. This formation is set up for a limited period of time. The minimum number of partners, in this case, is 2 and the maximum – 20.
- Offshore company – is a commercial vehicle that is registered in Sri Lanka for conducting business outside its territory only. Any restrictions for abroad investors are absent in this case.
- Branch – an overseas company may establish its business presence in Sri Lanka and conduct the same types of business activities as it carrying out abroad. Passing the registration procedure and investing at least USD 200,000 are required in this case.
- Company Limited by Guarantee – this commercial vehicle is more suitable for promotional and non-profitable activities. When establishing a company, the participants agree to contribute certain amounts in the case of liquidation.
Registration Requirements and Steps
Company registration in Sri Lanka, a private limited company, for instance, may require passing these preliminary steps:
- Identifying your commercial priorities
- Selecting and approving a business name for a future entity. This name in any case should comprise the words “Private Limited” or their abbreviations “(Pvt) Ltd”. Certain restrictions are applied to the business names. Each suggested name should be verified on a case-by-case basis.
- Arranging the registered office for a future commercial vehicle.
- Collecting the data about founders, beneficial owners and management of a company.
- Drafting statutory documents for a future entity. There are certain requirements for the company’s Articles of Association. This constituent document has to contain the list of objectives of a future entity, the description of rights and obligations of its shareholders as well as the description of the company’s management and administration.
- Forming and submitting the package of documents to the Department of the Registrar of Companies.
- Registration for tax and social security purposes.
- Obtaining licenses and permits (required for certain types of commercial activities only).
This outline of the registration procedure may slightly vary taking into account the peculiarities of a certain business case.
Legal and Regulatory Framework
The local legal system is combined. Both common law and civil law aspects are attributed to it. The commercial legal framework is favourable for establishing business by foreigners. The local government applies certain steps to simplify the registration process and encourage involving capital from abroad. Still, restrictions for making foreign direct investments in certain industries (security management, retail trade, coastal fishing, etc.) exist.
The Companies Act, the Exchange Control Act, the Societies Ordinance are major legal acts regulating the procedure of establishing and operating companies in Sri Lanka. The Registrar of Companies, the Board of Investment, the Central Bank of Sri Lanka are major regulatory bodies for the purposes of launching and operating local businesses.
Advantages of the Jurisdiction
Company incorporation in Sri Lanka may be promising in view of the following benefits the jurisdiction is associated with:
- Opportunity to register your business online
- Comparatively low costs for establishing and running a business
- Good opportunities for asset protection
- Favourable conditions for making investments, especially large ones.
Tax System of Sri Lanka
If you evaluate an option of setting up a company in Sri Lanka, you may need to know about the following advantages the jurisdiction offers:
- Corporate income tax rate – 24 %
- Personal income tax rate – 18 %
- Value-added tax rate – 8 %
- Withholding tax rates – (i) dividends – 14 % (ii) interests – 14 % (iii) royalties – 14 %
- Capital gains tax rates – (i) corporate – 10% (ii) individual – 10 %.
How Prifinance Specialists May Assist You
If you assess an option of registering a company in Sri Lanka, Prifinance specialists may consult you more precisely whether this can be beneficial in your concrete case as well as suggest alternative options. Our specialists are ready to prepare for you the set of registration documents, complete the registration procedure and open a bank account for a future entity. If you need our legal support during the further operation of a company in Sri Lanka, Prifinance is also ready to provide you with any required consultations and clarifications. Reach us for more precise discussions and suggestions.