Sri Lanka has one of the most liberal capital markets in the region. The Sri Lankan Rupee is fully convertible on the current account (trade in goods and services). Foreign direct investments and portfolio investments are also freely convertible. The government has declared capital account convertibility as a longer term policy.
Foreign Investment is open to the following category of Investors
Country Funds and Regional Funds,
Approval must be obtained by the Ministry of Finance. This takes a few days and is usually a formality.
1. Companies Incorporated outside Sri Lanka
2. Individuals Residing outside Sri Lanka.
3. Criteria for Approval of Country Funds
Credits to the Account
Proceeds received through other Corporate Actions
Debits to the Account
Funding a Purchase
Repatriation of Sale Proceeds
Repatriation of Dividend proceeds and other proceeds received via Corporate Actions
All debits and credits should be channeled through SIERA. Any remittance from SIERA out of Sri Lanka will be permitted on producing to the commercial bank at which the respective account is held documentary evidence of the transaction giving rise to the remittance (dividend warrant, contract note).Whilst a tax clearance certificate from the Department of Inland Revenue is not required for remittances in respect of transactions related to listed companies, it is required in respect of unlisted companies confirming that all taxes attributable to the respective transactions have been duly discharged. This process is fairly routine in view of the deduction of withholding tax at source.
In September 1991, the Colombo Stock Exchange (CSE) introduced a new computerized book entry clearing and settlement system operated by the Central Depository System (Pvt.) Limited, (CDS) a wholly owned subsidiary of the CSE. As at the end of June 1992, all companies listed on the Exchange were registered in the CDS. The CDS has nominee status for all shares deposited with it. However, it does not provide nominee services such as entitlement distribution or proxy services. The CDS, instead provides a listing of beneficial shareholders to each listed company as at record date to enable the company to forward dividends, rights, bonus, annual reports and proxies directly to the beneficial shareholders or their respective custodians. Investors who wish to trade in shares should open an account with the CDS. This aspect is handled by the brokering firms and normally takes one day.
Foreign investors are allowed to invest up to 100% of the issued capital of most of the listed companies in the Colombo Stock Exchange. The following are the exceptions.
Shipping and Plantation companies 40%.
Foreigners are permitted to hold 100% of shares in insurance companies.
Companies with restrictive provisions : These are few companies that restrict non-national participation beyond a certain limit, through a restrictive provision in their Articles of Association.
Banks :- Foreigners can hold 60% of a Bank.