Setting up in Sri Lanka

Investment with Tax Incentives (Section 17) - (As per Budget 2012)

A new tax incentive regime has been introduced with the budget 2012 to promote private investments, both domestic and foreign. These new incentives are applicable to following categories of investments.

  • Small Enterprises
  • Medium Enterprises
  • Large Enterprises
  • Project Expansions
  • Strategic Import Replacement Enterprises

The details of the qualifying investment and the incentives granted for the enterprises under each category are highlighted below.

1) Small Scale – New Enterprises

New enterprises engaged in any of the following activities, provided that the investment is made on or before 31st March 2015 will be eligible to tax holidays as follows.

Category Qualifying Criteria Tax Incentives
Min. Investment* (Rs. Mn) Min. Export
Req. (% of Output)		 Full Tax
Holiday (years)
1.
 Manufacturing(Other than any liquor or tobacco products) for domestic and/or export market
50   4
2.
 Agriculture
Agriculture and/or Agro Processing Animal Husbandry and/or Processing Fisheries and/or Fish Processing.
 25   4
3.
 Services
Creative work including art work Information Technology
Essential Services related to Agriculture & Animal Husbandry
25   4

* Minimum Investment means the value of “fixed assets” such as land, plant, machinery and equipment.

  • Custom duty will be exempted on imports of;
  • Project related capital goods and,
  • Raw materials of export oriented projects

2) Medium Scale - New Enterprises

New enterprises engaged in "specific activities" provided that the investment is made on or before 31st March 2015 will be eligible to tax holidays as follows.

Category Qualifying Criteria Tax Incentives
Min.
Investment*
(Rs. Mn)		 Min. Export
Req.
(% of Output)		 Full Tax Holiday (years)
1. Manufacturing
Other than any liquor or tobacco products)**

50 – 100

100 – 200

Over 200

  4

5

6
2. Agriculture
Agriculture and/or Agro processing,Animal Husbandry and/or processing,Fisheries and/or Fish processing

50 – 100

100 – 200

Over 200

  4

5

6
3. Services
Information Technology
Software Development
Business/ Knowledge Process Outsourcing
Health Care
Education
Beauty care
Cold room and storage
Tourism
Sports and fitness centers
Creative work including art work
50 – 100

100 – 200

Over 200

  4

5

6

* Minimum Investment means the value of “fixed assets” such as land, plant, machinery and equipment.

** Products covered by this provision shall satisfy the Rules of Origin criteria which includes

  • a) Minimum of 35% domestic value addition
  • b) Sufficient Process and,
  • c) Transformation of H.S. Code at 4-digit level in converting imported inputs into final product.

  • Custom duty will be exempted on imports of;
  • Project related capital goods and,
  • Raw materials of export oriented projects

3) Large Scale – New Enterprises

A 6 -12 year tax holiday period has been introduced to large scale projects engaged in "specific activities".

Category Qualifying Criteria Tax Incentives
Min.
Investment*
(Rs Mn) 		Min. Export Req. (% of Output) Full Tax Holiday (years)
1.
 Agriculture or Forestry
Cultivation of food crops, industrial crops or horticulture Forestry
Animal Husbandry:
Dairy, poultry, Swine, Goat etc.


300 – 500

500 – 700

700 – 1,000

1,000 – 1,500

1,500 – 2,500

Above 2,500

  6

7

8

9

10

12
2.
2.1
 Manufacturing
Manufacturing, Production or processing of non-traditional goods
for exports, including deemed exports;
300 – 500

500 – 700

700 – 1,000

1,000 – 1,500

1,500 – 2,500

Above 2,500

90% (75% for Apparel & Textile) 6

7

8

9

10

12
2.2
 Manufacturing for domestic and/or export market
a) Boats, Pharmaceuticals, Tyres and Tubes, Motor Spare Parts, Furniture, Ceramics, glass ware or other mineral based products, rubber based products, Cosmetic products, edible products manufactured out of locally cultivated agricultural products, construction materials.
300 – 500

500 – 700

700 – 1,000

1,000 – 1,500

1,500 – 2,500

Above 2,500

N/A

6

7

8

9

10

12

3.
 Services
  • Provided to a person or partnership outside Sri Lanka***
  • Tourism or Tourism Related Projects,
  • Providing Hotel Services, Guest Houses or Similar Services,
  • Infrastructure Projects including Construction of Commercial Buildings,
  • Development of any warehousing or storage facility,
  • Power Generation using Renewable Resources
  • Establishment of Industrial Estates, Special Economic Zones or Knowledge Cities,
  • Urban Housing or Town Centre Development,
  • Provision of Any Sanitation Facility or Waste Management Systems,
  • Development of Water Services,
  • Development of internal water ways, and /or related transport (passenger/freight)
  • Construction of Hospitals and Provision of Health Care Services,
  • Maintenance /repair of maritime vessels/ aircrafts
  • Sporting Services (e.g. Motor Racing or Golf Course)
  • Information Technology
  • Software development
  • Business/knowledge process outsourcing
  • Any Project in Light or Heavy Engineering Industry,
  • Artificial insemination for cattle (Dairy development)
  • Higher Education/skills Development /adult education
  • Processing & Solid Waste Management
300 – 500

500 – 700

700 – 1,000

1,000 – 1,500

1,500 – 2,500

Above 2,500 		  6

7

8

9

10

12

* Minimum Investment means the value of “fixed assets” such as land, plant, machinery and equipment

*** 70% of turnover should be in convertible foreign currency as applicable

  • Custom duty will be exempted on imports of;
  • Project related capital goods and,
  • Raw materials of export oriented projects

4) Expansion of Existing Enterprises

To encourage project expansions, special incentive scheme has been introduced for existing enterprises (applicable for both BOI & Non-BOI enterprises).

Category Qualifying Criteria Tax Incentive
Min.
Investment (Rs Mn) 		Min. Export Req. (% of Output)
Any Existing Enterprise 50   The investment will be treated as a qualifying payment deductible from the assessable income of the enterprise subject to a maximum of 25% of the investment for each year of assessment falling within the period of 4 years commencing from the year of investment since 01.04.2011.

5) Strategic Import Replacement Enterprises

To encourage import substitution, tax incentives have been granted for both new and existing enterprises (applicable for both BOI & Non-BOI enterprises) engaged in the following sectors.

Sector Minimum Investment
(USD. Mn.)		 Tax Incentive
New Enterprises Existing Enterprises
i. Fabric 5 5 years Tax holiday followed by a concessionary tax rate of 12% concessionary tax rate (12%) for 5 years coupled with, qualifying payment relief (Investment is considered as a qualifying payment deductible from the assessable income of the enterprise subject to a maximum of 25% of the investment for each year of assessment falling within the period of 4 years commencing from the year of investment).
ii. Pharmaceutical 10
iii. Milk Powder 30
iv. Cement 50

6) VAT, Customs Duty, and PAL – Exemptions on Imports of Capital Goods

To reduce the upfront cost incurred on account of importation of project related plant, machinery and equipment, the applicable VAT, Customs Duty, and PAL will be deferred during the project implementation period, and such deferment will be treated as an exemption on the fulfillment of the conditions specified by the Board of Investment of Sri Lanka.

Please note sectors are open for investment subject to (i). Areas Reserved for Sri Lankans, (ii). Areas Subject to Automatic or Conditional Approval and (iii). Regulated Areas.