Legal System

Sri Lanka’s legal system is a hybrid one, drawing from multiple legal traditions including Roman-Dutch law, English common law, statutory law and customary laws (such as Kandyan, Tesawalamai and Muslim personal laws). This pluralistic structure is a result of the country’s colonial history and its diverse cultural and ethnic make-up.

While Roman-Dutch law remains the foundation of the common law (especially in private law matters), English common law principles influence areas such as commercial law, criminal procedure, evidence, administrative law and constitutional interpretation. In addition to written laws, Sri Lanka recognises the doctrine of judicial precedent, whereby decisions of the Supreme Court, as the highest court of the land, are binding on all lower courts. Decisions of the Court of Appeal are also binding on subordinate courts, though not on the Supreme Court or the Court of Appeal itself.

Judicial Order

Sri Lanka’s court system is hierarchical and constitutionally established, with specialised jurisdictions allocated across various tiers of courts.

The Supreme Court

The Supreme Court of the Democratic Socialist Republic of Sri Lanka is the apex court, and exercises:

• constitutional jurisdiction;
• final appellate jurisdiction;
• writ jurisdiction in limited matters;
• supervisory jurisdiction; and
• original jurisdiction in respect of fundamental rights under the Constitution.

The Court of Appeal

The Court of Appeal has both appellate jurisdiction and writ jurisdiction, hearing appeals from the High Court of the Republic, and entertaining applications for writs such as certiorari, mandamus, prohibition, quo warranto and habeas corpus under the Constitution.

Provincial High Courts

Each High Court of the Provinces exercises appellate and revisionary jurisdiction over all courts and tribunals within its respective province, and is vested with writ jurisdiction in terms of Article 154P of the Constitution. In addition, the High Court of the Western Province in Colombo has special original jurisdiction in:

• commercial matters within the Western Province, where the value in dispute exceeds LKR50 million;
• applications under the Companies Act, No 07 of 2007 (including winding-up, derivative actions, etc);
• matters arising under the Securities and Exchange Commission of Sri Lanka Act, No 19 of 2021; and
• all proceedings under the Intellectual Property Act, No 36 of 2003, including infringement actions and cancellation of registrations.

The High Court

The High Court of the Republic is vested with original criminal jurisdiction to try serious offences committed within Sri Lanka’s territorial waters, including acts of piracy, marine pollution, illegal fishing, and unlawful acts against maritime navigation. It also exercises admiralty jurisdiction under the Admiralty Jurisdiction Act, No 40 of 1983, enabling it to adjudicate maritime claims, including those related to ship arrests, cargo disputes, collisions, salvage, crew wages and ship mortgages.

District Courts

The District Courts are courts of first instance for all civil matters, including family law, succession, contract disputes, delict, taxation and land cases.

Small Claims Courts

Small Claims Courts have jurisdiction over minor civil claims not exceeding LKR2 million and have simplified proceedings to reduce caseloads in District Courts.

Magistrates’ Courts

Magistrates’ Courts exercise original criminal jurisdiction over summary offences and minor statutory violations. In addition, they are vested with non-summary jurisdiction to conduct preliminary inquiries in respect of indictable offences that are to be tried before the High Courts of the Provinces. These inquiries are conducted to determine whether there is sufficient evidence to commit the accused for trial.

Primary Courts

Primary Courts exercise limited original jurisdiction in both civil and criminal matters. Their jurisdiction extends to offences under local government laws and by-laws enacted by Municipal Councils, Urban Councils and Pradeshiya Sabhas. In addition, they are empowered to hear disputes relating to the possession of land where such disputes are likely to result in a breach of the peace.

General Requirements

Foreign investment in Sri Lanka is primarily governed by the Foreign Exchange Act, No 12 of 2017, and is subject to certain sector-specific restrictions, approvals and compliance requirements. Foreign investors seeking to invest in Sri Lanka must comply with the Foreign Exchange (Classes of Capital Transactions Undertaken in Sri Lanka by a Person Resident Outside Sri Lanka) Regulations, No 2 of 2021, and with other directives issued under the Foreign Exchange Act.

While Sri Lanka generally adopts a liberal policy towards foreign direct investment (FDI), full foreign ownership is not permitted in certain sectors, and investment in others may require special approval or minimum capital thresholds. Prohibited or restricted areas for foreign investment typically include retail trade with less than USD5 million of investment, coastal fishing, and pawn-broking and certain regulated professions (eg, legal practice). These restrictions are periodically revised by the government, and reference must be made to the most recent regulations to determine the permissibility of investment in a given sector.

All inward remittances for investment purposes must be routed through Inward Investment Accounts (IIAs) opened with licensed commercial banks in Sri Lanka, and must be properly documented. Failure to comply with these procedures may restrict the repatriation of returns or capital at a later stage.

Board of Investment of Sri Lanka

The Board of Investment of Sri Lanka (BOI) is the country’s principal investment promotion agency, established under the Board of Investment of Sri Lanka Law, No 4 of 1978. The BOI functions as a central facilitation point for foreign and domestic investors. Approval from the BOI is typically sought where:

• the investment qualifies under a BOI-approved sector or scheme;
• fiscal incentives such as duty exemptions are being claimed;
• strategic development status is being pursued under the Strategic Development Projects Act; or
• a foreign investor seeks to increase their shareholding percentage or obtain approval for 100% foreign ownership in sectors where ownership is otherwise limited or restricted.

BOI approval is not mandatory for all foreign investments, particularly for minority equity participation in non-restricted sectors. In addition, investments approved by the BOI are entitled to operational conveniences such as streamlined import/export procedures, land allocation in industrial zones, and assistance with obtaining work visas for expatriate staff.

The Colombo Port City Economic Commission

Foreign investments made within the Colombo Port City Special Economic Zone are governed by a distinct regulatory framework under the Colombo Port City Economic Commission Act, No 11 of 2021. The Colombo Port City Economic Commission serves as the single-window regulator for all business and investment activity within the zone.

Any person wishing to undertake a business, commercial or financial activity in Port City must first obtain a business registration and relevant authorisations or licences from the Commission. Unlike the general regime administered by the BOI, Port City offers a highly liberalised environment with no foreign ownership restrictions, guaranteed capital and profit repatriation, tax incentives, and exemptions from certain domestic laws (subject to the specific guidelines and rules issued by the Commission).

All remittances into and out of Port City must be routed through Port City Investment Accounts (PCIAs), and compliance with the Commission’s directives is mandatory for continued operation. Investors seeking to benefit from the Port City regime must ensure that their project or enterprise aligns with the permitted activities and is duly structured to fall within the scope of the Special Economic Zone as defined under the Act.

Additional Considerations

In addition to the foregoing, sector-specific approvals may be required from relevant regulatory bodies, such as:

• the Central Bank of Sri Lanka, in respect of regulated sectors (eg, finance and banking);
• the Telecommunications Regulatory Commission of Sri Lanka, for ventures involving telecommunications infrastructure and services;
• the National Medicines Regulatory Authority, for the manufacture, importation, marketing and distribution of pharmaceuticals, medical devices and borderline products; and
• the Central Environmental Authority, for investments involving industrial activity or development projects requiring Environmental Impact Assessments (EIAs) or other forms of environmental clearance.

Compliance With Listing Rules

In the event of investments in companies that are listed on the Colombo Stock Exchange, compliance with the Listing Rules of the Colombo Stock Exchange will be required. The prior approval of the Securities and Exchange Commission of Sri Lanka (SEC) is required for any private placement of shares in a listed company if the proposed share issue will result in an increase of 20% or more of the company’s post-issue outstanding shares.

Foreign investors may generally invest in Sri Lanka without the requirement for obtaining any special purpose approvals, provided that the investment is made in compliance with the Foreign Exchange Act, No 12 of 2017, and regulations. Nevertheless, if the proposed investment requires BOI approval or if the foreign investors want to set up their business within Colombo Port City, they must submit an application along with a detailed business proposal, including information about the nature of the project, proposed shareholding, and funding arrangements. Once the application is reviewed and approved, the investor will enter into a formal investment agreement with the BOI or the Colombo Port City Economic Commission.

If an investor proceeds without obtaining prior approval, the investment may be treated as unauthorised. This could lead to restrictions on repatriation of profits and capital, possible penalties or regulatory enforcement, and legal complications. Procedural non-compliance may arise in various forms, including:

• failure to channel foreign investment through an IIA;
• undertaking investments in restricted sectors without prior approval;
• engaging in foreign exchange transactions without the prior approval of the Central Bank of Sri Lanka where such approval is legally required; and
• breach of conditions imposed under the BOI or Port City agreements, or violations of sector-specific approvals (eg, operating outside permitted business activities).

Where such non-compliance is detected, the relevant regulatory authorities (such as the Director of the Department of Foreign Exchange, the Central Bank of Sri Lanka, the Board of Investment of Sri Lanka, the SEC, etc) may initiate investigative or enforcement action. In some cases, a compoundable offence may be resolved by payment of a penalty determined by the relevant authority. However, in more serious or wilful breaches, sanctions may include:

• monetary fines;
• suspension or cancellation of licences or investment approvals;
• prohibition on repatriation of profits or capital;
• forfeiture of improperly held assets; and
• criminal prosecution, in cases of deliberate fraud, misrepresentation or evasion.

Furthermore, non-compliance may adversely affect investor credibility and future dealings with regulatory authorities. In cases involving BOI or Port City registered enterprises, the BOI or the Commission may also exercise its right to terminate the investment agreement and recommend cancellation of associated approvals and exemptions.

Foreign investors operating under the BOI or the Colombo Port City Economic Commission are required to comply with a range of legal, regulatory and contractual obligations. These typically include:

• remitting capital through designated investment accounts;
• complying with sector-specific or project-specific conditions; and
• meeting any timelines or milestones agreed with the relevant authority.

Investors must also ensure ongoing compliance with Sri Lankan laws relating to taxation, labour, environmental protection and company administration.

Where approvals or incentives are granted under a BOI agreement or Port City registration, the investor is also expected to honour any commitments set out therein, such as capital infusion deadlines, local employment targets or reporting obligations. Non-fulfilment of such commitments may result in withdrawal of approvals, suspension of incentives or other regulatory sanctions.

The right to appeal or challenge decisions affecting foreign investment in Sri Lanka depends on the applicable regulatory framework and the nature of the administrative or contractual relationship between the investor and the regulatory agency.

For investments under the BOI or the Colombo Port City Economic Commission, investors may seek administrative review of adverse decisions by making representations to senior officials, or to the Director General of the BOI or of the Colombo Port City Economic Commission. This internal review process is often the first recourse and is typically expected to be exhausted prior to initiating formal dispute resolution by referring the matter to arbitration.

In addition, the affected parties may seek judicial redress by way of a writ application to the Court of Appeal, challenging the legality or procedural propriety of the administrative act. In addition, if the decision amount to an infringement of a fundamental right, a fundamental rights application may be filed before the Supreme Court, subject to the 30-day time limit.

Sri Lankan administrative law principles generally require that internal or administrative review mechanisms be pursued first, before resorting to court action, unless such remedies are unavailable, are futile or have been unreasonably delayed.

The most common legal structure adopted by foreign investors in Sri Lanka is the limited liability company incorporated under the Companies Act, No 7 of 2007. This may take the form of a private limited company or a public limited company, depending on the scale and intended nature of operations.

Foreign investors typically choose their legal structure based on:

• the nature of the business;
• regulatory requirements;
• sector-specific approvals;
• tax considerations; and
• whether they wish to benefit from BOI or Port City concessions.

Private Limited Company

A private limited company is generally preferred due to fewer regulatory burdens, and it requires a minimum of one shareholder and one director, with no restriction on foreign shareholding unless the business falls within a restricted sector. It offers limited liability to its shareholders and there is no minimum capital requirement. This structure is best suited for greenfield projects, subsidiaries of foreign companies, or for most business cases due to its simplicity and flexibility.

Public Limited Company

A public limited company is permitted to offer its shares and other securities to the public and is generally used by larger enterprises, particularly where the investors intend to raise capital from the market. If a public company seeks to list its shares on the Colombo Stock Exchange (CSE), Listing Rules and SEC guidelines impose a minimum capital requirement and minimum public float, which indirectly requires a larger shareholder base. This, however, is a regulatory requirement for listing, not for incorporation.

Company Limited by Guarantee

A company limited by guarantee is a special category used primarily for non-profit purposes, such as charities, professional associations, NGOs, chambers of commerce, and certain educational or cultural institutions. These companies do not have share capital or shareholders but are formed by guarantors, who undertake to contribute a specified amount to the assets of the company in the event of winding up. They require a minimum of two members and two directors, and there is no restriction on foreigners forming guarantee companies.

Overseas Companies

Foreign companies may also establish a branch office, a project office or a liaison office in Sri Lanka. A branch office is permitted to carry out commercial activities similar to that of the parent company, and a project office is for carrying out a particular project by the parent company; however, both of these require a minimum inward remittance of USD200,000. A liaison office, by contrast, does not have any minimum investment requirement, but is restricted to non-profit-generating activities such as communications, market research and co-ordination (ie, it cannot engage in trade or revenue-generating operations).

Offshore Companies

For doing business within the Colombo Port City Special Economic Zone, entities must register with the Colombo Port City Economic Commission and operate in accordance with the prescribed rules for businesses within the zone. The Colombo Port City regime permits 100% foreign ownership and provides for a simplified registration process tailored to international service-oriented businesses.

Incorporating a company in Sri Lanka under the Companies Act, No 7 of 2007, involves a series of procedural steps and generally takes between seven and 14 working days, depending on the complexity of the structure and the efficiency of document submission.

The process begins with the reservation of a unique company name, which is done by submitting an online request through the e-ROC online portal of the Registrar General of Companies. Name approval typically takes three to five working days. Once approved, the following incorporation documents must be prepared and submitted:

• Form 1 (limited liability company)/Form 5 (company limited by guarantee) – company registration form (includes company details);
• Form 18 – consent and certificate of each director;
• Form 19 – consent and certificate of the secretary; and
• articles of association – either the standard version provided in the Companies Act or a customised version.

These documents, along with the prescribed registration fee, must be submitted online through the e-ROC online portal of the Registrar of Companies. If all documentation is in order, the Certificate of Incorporation is issued within five to 12 days.

Following incorporation, post-registration formalities include:

• opening of the IIA and a corporate bank account;
• obtaining a Taxpayer Identification Number (TIN) from the Inland Revenue Department; and
• registering for VAT, EPF/ETF or other statutory requirements, depending on the nature and size of the business.

The incorporation timeline is slightly longer for companies limited by guarantee or for foreign company branches, as they are subject to additional procedural and regulatory requirements.

Private limited companies in Sri Lanka are subject to a number of ongoing reporting and disclosure obligations under the Companies Act, No 7 of 2007, aimed at ensuring transparency, corporate accountability and regulatory compliance.

Any change in company management, such as the appointment or resignation of directors or the company secretary, must be reported to the Registrar of Companies by filing Form 20 within 20 working days of the change. Amendments to the articles of association require the passing of a special resolution and must be filed along with the revised articles within ten working days.

All private companies are required to prepare annual financial statements. These financial statements must be prepared in accordance with the Sri Lanka Accounting and Auditing Standards Act, No 15 of 1995, and in compliance with relevant Sri Lanka Accounting Standards (SLFRS/LKAS).

In addition, every company must file an annual return (Form 15) within 30 working days of its annual general meeting. This return must provide updated information on the company’s registered office, directors, shareholders, share capital and other key particulars.

Failure to comply with these reporting obligations may result in the imposition of penalties by the Registrar General of Companies.

Most common legal entities, such as private and public companies, operate under a unitary (one-tier) board structure, in accordance with the Companies Act, No 7 of 2007. Under this structure, a single board of directors is responsible for both the management of the company’s day-to-day affairs and for the oversight of its strategic direction and compliance obligations.

In private companies, directors frequently assume both executive and non-executive roles, and decision-making is often closely aligned with shareholder interests, particularly in closely held companies. Shareholders exercise their rights primarily through resolutions passed at general meetings, including the appointment and removal of directors, approval of dividends, actioning of reserve rights, and amendments to the articles of association.

There is no statutory provision under Sri Lankan law for a two-tier board structure (ie, a separate supervisory and management board), making the one-tier system the default and standard corporate governance framework for companies incorporated in Sri Lanka. However, companies may internally assign functional roles (eg, managing director, non-executive chairman) or may have multiple tiers of governing structures to promote oversight and accountability, particularly in larger or regulated entities. This is generally the case in companies limited by guarantee.

The liability of directors and officers is primarily governed by the Companies Act, No 7 of 2007, which imposes both fiduciary and statutory duties on directors. These duties include:

• acting in good faith in the best interests of the company;
• exercising powers for proper purposes;
• avoiding conflicts of interest; and
• performing their functions with care, diligence and skill (see Sections 187–189 of the Companies Act).

Directors may be held personally liable for breaches of these duties, particularly in cases involving unlawful distributions, trading while insolvent, or misstatement of financial information. Officers, including company secretaries, may also face liability for non-compliance with statutory requirements, failure to maintain proper records, or facilitating regulatory breaches. They are also liable for securities law violations or breaches of statutory obligations under laws such as the Employees’ Provident Fund Act or the Employees’ Trust Fund Act.

In the case of listed companies, directors and senior management must additionally comply with the “fit and proper” criteria under the Listing Rules of the Colombo Stock Exchange and relevant provisions of securities laws. They are expected to avoid conduct such as insider trading, misrepresentation of material facts, and falsification of financial statements. Directors of listed entities operating in regulated sectors (such as banking, finance and insurance) must also satisfy the sector-specific fit and proper requirements imposed by regulators such as the Central Bank of Sri Lanka and the SEC.

The principle of separate legal personality protects shareholders from personal liability; as such, they are generally not liable for the debts or obligations of the company, other than for any amount unpaid on their shares. Nevertheless, Sri Lankan courts will pierce the corporate veil in exceptional circumstances, such as in cases involving fraud or offences related to bribery, corruption or money laundering.

The nature of the legal rules governing employment relationships in Sri Lanka is primarily regulatory and protective of employees based on equitable standards.

Employment contracts are recognised and enforceable, but they must comply with the minimum standards set by statute. Contractual terms more favourable to the employee than those prescribed by law are valid, but any term less favourable than the statutory minimum is void to the extent of such inconsistency.

The principal statutes regulating employment include:

• the Wages Boards Ordinance, which sets standards, minimum wages and working conditions in all trades;
• the Shop and Office Employees (Regulation of Employment and Remuneration) Act, No 19 of 1954, for employees in shops and offices;
• the Factories Ordinance, which is applicable to industrial establishments and sets basic health and occupational safety standards;
• the Industrial Disputes Act, No 43 of 1950, which regulates terminations, disciplinary action and resolution of disputes;
• the Termination of Employment of Workmen (Special Provisions) Act, No 45 of 1971 (TEWA), which requires prior approval or consent for termination of certain categories of employees;
• the Payment of Gratuity Act, No 12 of 1983; and
• the Employment of Women, Young Persons and Children Act.

In addition, employers must comply with statutory provisions governing working hours, leave entitlements and termination benefits, as well as social security obligations under the Employees’ Provident Fund Act and the Employees’ Trust Fund Act.

In unionised workplaces or sectors with active trade unions, collective bargaining agreements (CBAs) may supplement statutory protections and apply in parallel to individual contracts. These CBAs, once registered under the Industrial Disputes Act, become legally binding on both parties. While CBAs can provide better terms than those mandated by statute, they cannot reduce or override statutory protections.

Furthermore, case law plays a significant role in interpreting statutory provisions, especially in areas such as unjust dismissal, constructive termination and employer obligations, although statutory law takes precedence.

Employment contracts may be concluded either in writing or verbally, as there is no statutory requirement mandating written contracts. Verbal contracts are legally valid and enforceable, provided the essential elements of a contract are present – such as offer, acceptance, intention to create legal relations, and consideration.

In practice, Labour Tribunals regularly uphold employment relationships established through conduct and surrounding circumstances, supported by documentary evidence such as salary slips, attendance records or letters of appointment. Nevertheless, best practice dictates that employers issue letters of appointment or employment agreements, especially to satisfy evidentiary requirements and to clarify the terms of engagement (including probation, termination, job duties and benefits).

Regardless of whether the contract is written or oral, certain statutory conditions are automatically implied into all employment relationships. These include provisions relating to minimum wages, working hours, weekly rest, leave entitlements, public holidays, termination procedures and retirement benefits, arising from legislation mentioned in 4.1 Nature of Applicable Regulations.

There is no legal restriction on the duration of employment contracts in Sri Lanka. Both permanent and fixed-term contracts are recognised. However, courts and tribunals are cautious of abuse of fixed-term arrangements. Where fixed-term contracts are renewed repeatedly without a genuine basis, they may be reclassified as permanent contracts, giving rise to the same protections and entitlements as permanent employment, including the need to obtain prior approval under TEWA for termination.

Additionally, Sri Lankan law now prescribes a statutory minimum retirement age of 60 years for all private sector employees, as introduced by the Minimum Retirement Age of Workers Act, No 28 of 2021. Employment contracts that specify a lower retirement age must be adjusted accordingly, unless an exception is provided by regulation. Employers may, however, retain employees beyond age 60 based on mutual agreement.

Working time regulations are primarily governed by the Shop and Office Employees (Regulation of Employment and Remuneration) Act, No 19 of 1954, and by the Wages Boards Ordinance for all other trades.

For employees falling under the Shop and Office Employees Act, the standard working time is generally limited to eight hours per day and 45 hours per week, excluding intervals for rest and meals. Overtime work, defined as work performed in excess of the standard daily or weekly limits, must be compensated at a premium rate. The standard rate for overtime is 1.5 times the normal hourly wage, while work performed on public holidays is usually paid at two times the normal rate. The law imposes a cap on overtime, limiting it to a maximum of 12 hours per week.

For sectors covered by the Wages Boards Ordinance, working hours and overtime entitlements are determined by the respective Wages Board constituted for the trade. While the structure of these boards allows for some variation depending on the nature of the industry (eg, manufacturing, plantation, hospitality), the standards generally align with the framework established under the Shop and Office Employees Act. In most cases, Wages Boards also provide for overtime compensation at 1.5 times the regular wage, though specific entitlements and limits may vary slightly across sectors.

Employers are legally obligated to maintain accurate records of working hours and overtime, and failure to compensate for overtime in accordance with applicable law may attract penalties and enforcement action by the Labour Department.

Sri Lanka is not an “employment-at-will” jurisdiction. The termination of individual employment contracts is governed by TEWA, which imposes strict limitations on the unilateral termination of employment by employers.

Under TEWA, an employer cannot lawfully terminate the services of a “workman” other than for misconduct, except with the prior written consent of the employee or the prior written approval of the Commissioner General of Labour. This applies even where the employment contract permits termination on notice. Accordingly, termination without cause or justification, commonly known as “at-will termination”, is not legally permissible under Sri Lankan law.

Where approval is sought, the employer must justify the termination on valid grounds, such as redundancy or closure of business operations. The Commissioner General has the discretion to reject the application or to impose conditions, including payment of compensation, based on factors such as the employee’s length of service, age, salary and the circumstances of the termination. The amount of compensation is calculated according to the formula prescribed by the Commissioner General. In addition, employees with five or more years of continuous service are entitled to gratuity under the Payment of Gratuity Act, No 12 of 1983, irrespective of the reason for termination, other than for proven misconduct.

Employers who fail to obtain the required consent or approval risk having the termination declared unlawful, which will result in reinstatement of the employee or an order to pay retrospective compensation.

For collective redundancies, the procedure is similarly governed by TEWA. Termination of multiple employees requires prior approval from the Commissioner General of Labour, and the employer must continue to pay salaries and other dues until such approval is obtained. Where a trade union exists, consultation is required, although there is no formal statutory requirement for a negotiated agreement. In practice, employers often seek to implement mutual separation schemes, offering employees ex gratia compensation packages in exchange for resignation, in order to avoid the uncertainty and delay involved in obtaining formal approval for termination.

Employee representation is primarily facilitated through trade unions and is regulated by the Trade Unions Ordinance. There is no general statutory obligation for employers to consult or inform employees in the ordinary course of business or for routine employment matters. However, employee representation becomes relevant, and in some cases expected or required, where trade unions are recognised or where employment matters escalate into collective disputes, redundancies or collective terminations.

When a trade union represents employees, it is empowered to act on their behalf in collective bargaining, grievance resolution and dispute settlement processes. In such situations, employers are expected to engage with the union in good faith. While Sri Lankan law does not mandate the formation of works councils or joint consultative bodies, some enterprises (particularly larger or unionised workplaces) voluntarily establish employee relations mechanisms to promote communication and industrial harmony.

In the case of BOI-approved enterprises, the BOI actively promotes co-operation between management and labour and in industrial peace through its Industrial Relations Officers. The Manual on Employment Policy and Labour Standards issued by the BOI outlines the labour standards and employment practices that must be observed by BOI-approved companies, both within and outside Export Processing Zones (EPZs). This Manual encourages proactive communication and dispute prevention practices, and reiterates that the national labour laws apply fully to all BOI enterprises. Importantly, the terms and conditions of employment in BOI-approved companies must not be less favourable than those prescribed under applicable Sri Lankan labour laws.

The Ministry of Labour and the Department of Labour are responsible for enforcing labour laws and for overseeing industrial relations. These institutions play a central role in dispute resolution and in maintaining compliance across all sectors.

The taxation of employment income is governed by the Inland Revenue Act, No 24 of 2017 (as amended). Both employees and employers are subject to tax obligations arising from the employment relationship.

Employees are liable to pay income tax through the Advance Personal Income Tax (APIT) system, under which the employer is required to deduct and remit tax at source on employment income. For the 2024/2025 year of assessment, tax applies to annual employment income exceeding LKR1.2 million, and from 1 April 2025, the threshold has increased to LKR1.8 million per annum. Tax is imposed at progressive rates ranging from 6% to 36% based on the employee’s chargeable income.

APIT applies to both residents and non-residents who derive income from employment in Sri Lanka. Residency for tax purposes is determined based on physical presence and other criteria under the Inland Revenue Act.

Sri Lanka does not impose any separate social security taxes or national insurance-style contributions beyond the mandatory Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF). Under the EPF scheme, employers are required to contribute 12% of the employee’s monthly salary, while employees contribute 8%. In addition, employers must contribute 3% to the ETF. No other payroll taxes are levied on employers in Sri Lanka.

Income Tax

Companies are subject to taxation if they:

• are incorporated in Sri Lanka;
• are managed or controlled from Sri Lanka; or
• derive income from a source within Sri Lanka.

The residency test under the Inland Revenue Act, No 24 of 2017 applies to both local and foreign entities, including permanent establishments.

The standard corporate income tax rate is 30%, applicable to most companies. However, a higher rate of 45% applies to businesses involved in gaming, betting, liquor and tobacco. Withholding tax (WHT) in Sri Lanka applies to passive and cross-border payments made to non-residents and resident persons. The applicable rates are as follows:

• dividends – 15%;
• interest – 10%; and
• all other payments (excluding dividends) such as royalties, technical service fees, management fees, rent and contract payments – 14%.

These rates may be reduced where a relevant Double Taxation Avoidance Agreement (DTAA applies), provided that the recipient furnishes a valid certificate of residence and other documentation to prove beneficial ownership and eligibility for treaty benefits.

VAT and SSCL

Value added tax (VAT) is currently levied at a standard rate of 18%. The Simplified VAT (SVAT) scheme previously available to exporters and BOI companies is being phased out, and VAT-registered entities must now rely on a refund mechanism to recover input VAT.

A 2.5% Social Security Contribution Levy (SSCL) applies to businesses with quarterly turnover exceeding LKR15 million or annual turnover exceeding LKR60 million, unless exempt. The SSCL is calculated on turnover, not on profit, and is separate from income tax.

Other Taxes

In addition to the foregoing, companies must pay stamp duty on specified instruments and customs and excise duties depending on the nature of the business.

The OECD’s Two-Pillar Solution

As of July 2025, Sri Lanka has not implemented Pillar Two of the OECD’s Two-Pillar Solution and has not introduced a Qualified Domestic Minimum Top-Up Tax (QDMTT). The country has not signed the OECD/G20 Statement on a Two-Pillar Solution to Address the Tax Challenges Arising from the Digitalisation of the Economy, and is therefore not expected to qualify for safe harbour treatment under the OECD’s transitional rules. Companies operating in Sri Lanka that are part of multinational groups above the EUR750 million threshold should monitor developments, particularly if the parent entity is in a Pillar Two-adopting jurisdiction, as top-up taxes may be triggered at the group level under the Income Inclusion Rule (IIR) or the Undertaxed Profits Rule (UTPR).

Sri Lanka offers a range of tax incentives and credits aimed at promoting investment, exports, innovation and sectoral development. These incentives are primarily made available under:

• the Inland Revenue Act, No 24 of 2017;
• the Board of Investment of Sri Lanka Law, No 4 of 1978; and
• the Strategic Development Projects Act, No 14 of 2008.

Under the Inland Revenue Act, eligible businesses may claim enhanced capital allowances for qualifying investments in plant, machinery and infrastructure, particularly in priority sectors such as renewable energy, agriculture and manufacturing.

Enterprises approved by the BOI may benefit from customs duty exemptions and simplified administrative procedures, depending on the scale of investment, export orientation and employment generation. These benefits are typically granted through an agreement entered into with the BOI and are subject to compliance with the policy guidelines.

Projects recognised as Strategic Development Projects (SDPs) under the Strategic Development Projects Act, No 14 of 2008 may be granted significant tax concessions, including the following.

• Tax holidays of up to 25 years.
• Exemptions from VAT, customs duty and PAL on imports of project-related goods and services.
• Exemptions from income tax and other levies, subject to meeting prescribed thresholds in relation to capital investment, job creation and national economic importance. Approval is granted by the Cabinet of Ministers, based on a recommendation from the Minister of Finance.

In the Colombo Port City Special Economic Zone, businesses that obtain Business of Strategic Importance (BSI) status from the Cabinet of Ministers (based on a recommendation from the Colombo Port City Economic Commission) are eligible for full exemption from all taxes, duties and levies for a period of up to 25 years. This includes income tax, VAT, WHT and stamp duty. The Port City regime is designed to promote international commercial and financial services, and applicants must satisfy criteria related to capital inflow, foreign exchange earnings, and global business activity.

Sri Lanka does not permit tax consolidation under the Inland Revenue Act, No 24 of 2017 (as amended). There are no provisions for group relief, intra-group transfer of tax credits, or unified filing status under the law. Each company within a corporate group is treated as a separate legal and taxable entity, and there is no mechanism for filing a consolidated tax return or pooling taxable profits and losses across group companies. Accordingly:

• each company must file its own tax return, compute its tax liability independently, and comply separately with all payment and reporting obligations; and
• losses incurred by one company cannot be transferred or set off against the income of another company within the same group, even if 100% owned.

However, a company may carry forward its own unrelieved tax losses and offset them against future taxable income for up to six consecutive years, subject to continuity of ownership and continuity of business activity requirements.

Sri Lanka applies thin capitalisation rules under the Inland Revenue Act, No 24 of 2017 (as amended), which place a cap on the amount of interest expense (financial cost) that a company may deduct for tax purposes. These rules are intended to discourage excessive debt financing and erosion of the tax base through interest deductions.

Under the current regime, companies must ensure that the level of debt is reasonable in relation to their capital structure (ie, the company’s share capital and reserves). The deductible financial cost is calculated based on:

• the value of the financial instruments that gave rise to the cost; and
• four times the company’s issued share capital and reserves at year-end (excluding any revaluation reserves).

If the company’s actual financial cost exceeds the amount computed under this rule, the excess is disallowed as a tax deduction for that year. However, the disallowed portion may be carried forward and deducted in subsequent years, subject to the same limitation.

The regime is purpose-built to counter base erosion and profit shifting (BEPS) in line with international best practice. These rules work in tandem with transfer pricing regulations, which require all related-party financing arrangements to reflect arm’s length terms and be properly documented.

Sri Lanka has implemented a comprehensive transfer pricing regime under the Inland Revenue Act, No 24 of 2017 (as amended). These provisions require that transactions between associated persons, whether domestic or cross-border, be conducted on an arm’s length basis – that is, under terms and conditions comparable to those that would apply between independent parties dealing at arm’s length.

Transfer pricing rules are designed to prevent profit shifting and erosion of the tax base, and they apply not only to foreign multinational enterprises but also to domestic groups and BOI-approved entities, where transactions occur between associated persons.

The transfer pricing rules apply to transactions involving:

• the sale or purchase of goods;
• provision of services;
• licensing of intellectual property or other intangible assets;
• financing arrangements; and
• any other transactions that may affect taxable income.

Taxpayers are required to:

• maintain contemporaneous documentation to justify the method used to determine the arm’s length price;
• disclose related-party transactions in the prescribed transfer pricing disclosure form, filed together with the annual income tax return; and
• submit a transfer pricing certificate confirming compliance, if the value of transactions exceeds specified thresholds.

The Commissioner General of Inland Revenue is empowered to adjust the taxpayer’s income where the actual pricing is not consistent with the arm’s length principle. Such adjustments may result in additional tax assessments, interest and penalties.

There is a comprehensive set of anti-evasion and anti-avoidance rules set out in the Inland Revenue Act, No 24 of 2017 (as amended), including:

• Section 35 – empowers the Commissioner General to disregard or re-characterise any arrangement entered into primarily to gain a tax advantage, ensuring that tax outcomes reflect the substance over the form;
• Section 33 – permits the Commissioner General to recalculate income to align related-party transactions with arm’s length standards, thus preventing profit shifting through pricing manipulation; and
• Section 34 – enables the Commissioner General to reallocate profits or income among associated persons to prevent artificial income shifting designed to reduce tax liabilities.

These rules empower the tax authorities to counteract artificial arrangements, misstatements and schemes designed to avoid or evade tax liability, whether through deliberate misrepresentation or aggressive tax planning. Together, these rules form a powerful multi-layered system aimed at curbing tax avoidance.

Taxpayers should be aware that every arrangement lacking commercial substance, involving non-arm’s length pricing or resulting in artificial income transfers may be challenged by the Commissioner General under these provisions, with the potential for adjustments, penalties and even criminal proceedings in serious cases.

Sri Lanka applies a range of ad valorem rates depending on the nature of the product, its use and its origin. Raw materials and essential capital goods generally enjoy low or zero tariff rates, while finished consumer goods, especially those competing with local industries, are subject to higher rates. Tariffs on agricultural products, textiles and apparel, and automobiles tend to be among the highest. These duties are designed to offer protection to domestic manufacturing, agriculture and assembly sectors, which are considered sensitive or strategically important to the national economy.

In addition to basic customs duties, imports may attract other levies – such as the value added tax (VAT) at 18%, the port and airport development levy, excise duty (on selected goods such as liquor and vehicles) and the social security contribution levy at 2.5% – depending on the category of goods and importer status.

Tariff preferences are available under various regional and bilateral trade agreements – including the South Asian Free Trade Area (SAFTA), the Indo-Sri Lanka Free Trade Agreement, and the Sri Lanka-Singapore Free Trade Agreement – through which reduced or zero duties may apply on qualifying goods. However, Sri Lanka maintains a sensitive list under these treaties to retain tariff protection for key sectors.

Global trade developments – such as shifting supply chains, currency volatility and rising protectionism in other jurisdictions – have also influenced Sri Lanka’s customs and tariff policies. The government periodically reviews rates and trade concessions in response to these external economic factors, as well as to manage foreign exchange outflows and support domestic producers.

In 2025, the USA imposed a 44% tariff on Sri Lankan goods in retaliation for high import duties, threatening key export sectors such as apparel and rubber. In response, Sri Lanka is implementing a National Tariff Policy to simplify the system and gradually phase out para-tariffs, aiming to boost competitiveness and align with international trade norms amidst growing global and economic pressures.

Sri Lanka does not impose any merger control notification thresholds based on revenue, market share or asset value, and there is no mandatory pre-merger notification requirement for private unlisted companies unless otherwise required by a sectoral regulator.

Amalgamations and company mergers are regulated under the Companies Act, No 7 of 2007, which sets out procedural requirements for amalgamations, including court-supervised amalgamations. For listed companies, the SEC has issued the Takeovers and Mergers Code of 1995 (as amended), which requires prior notification to, and approval from, the SEC when an acquirer crosses specified shareholding thresholds in a listed company. Such transactions must also be disclosed to the Colombo Stock Exchange (CSE) in accordance with its rules.

Separately, entities operating in regulated sectors – such as banking, insurance, finance and telecommunications – must obtain prior approval from the relevant regulator (including the Central Bank of Sri Lanka, the Insurance Regulatory Commission of Sri Lanka, or the Telecommunications Regulatory Commission of Sri Lanka) before completing any merger, acquisition or corporate restructuring within those sectors.

While there is no unified merger control regime, certain sectors impose mandatory notification and approval requirements that must be complied with prior to the completion of a merger or acquisition.

In the banking and finance sector, approval must be obtained from the Central Bank of Sri Lanka under the applicable financial sector statutes (such as the Banking Act or the Finance Business Act). The parties must submit a formal application with relevant corporate and financial documents, including details of the proposed transaction and its impact on capital adequacy and market concentration. The review period varies but typically takes several weeks to a few months depending on the complexity of the transaction and regulatory queries.

In the telecommunications sector, mergers or acquisitions involving licensed operators must be notified to the Telecommunications Regulatory Commission of Sri Lanka (TRCSL). There is no codified timeline, but the TRCSL assesses such transactions on a case-by-case basis, considering market effects, spectrum allocation and technical capacity. Approval is generally required before completing any change in control.

For listed companies, any acquisition or takeover falling within the scope of the Takeovers and Mergers Code (the “TOM Code”) requires prior SEC approval. The TOM Code stipulates that once an offer is announced the entire takeover process must be completed within 60 calendar days, unless an extension is granted by the SEC under special circumstances. The acquirer must disclose the offer and obtain SEC clearance before any shares are acquired above the relevant thresholds.

In all these cases, parties must comply not only with sector-specific procedural steps but also with any disclosure obligations applicable under the Companies Act, the Listing Rules or other relevant laws. There are currently no standardised pre-merger filing procedures or timelines for unregulated sectors.

Anti-competitive agreements and concerted practices are primarily regulated under the Consumer Affairs Authority Act, No 9 of 2003. This generally prohibits agreements, decisions or practices that have the effect of substantially lessening competition in any market in Sri Lanka. This would include classic cartel conduct such as price fixing, bid rigging, market allocation and collusive limitation of supply or production.

The Consumer Affairs Authority (CAA) is the designated enforcement agency empowered to conduct investigations, issue directions and take administrative action against anti-competitive conduct. However, the existing legal framework is limited in both scope and enforcement capacity. It does not clearly distinguish between horizontal and vertical agreements, lacks a formal leniency or whistle-blower mechanism, and does not provide for significant civil or criminal penalties. Moreover, enforcement tends to be reactive and complaint-driven, rather than proactive or systematic.

The Act does not explicitly require that anti-competitive conduct occur within the country’s borders; rather, the relevant test is whether the conduct has a substantial effect on competition in Sri Lankan markets. As such, agreements concluded abroad may still fall within the purview of the CAA if they affect domestic trade or consumers.

There have been ongoing discussions and stakeholder consultations on introducing a modern and comprehensive competition law framework to replace or significantly reform the current regime. These reforms are expected to:

• establish a clearer prohibition structure;
• provide for merger control;
• introduce investigative and sanctioning powers; and
• align with international best practices in competition law enforcement.

Under the Consumer Affairs Authority Act, it is prohibited for any enterprise that holds a dominant position in the market to abuse that dominance in a way that prevents, restricts or distorts competition. The Act does not define “dominance” using formal market share thresholds, but in practice the CAA assesses whether an enterprise has the ability to act independently of market forces, competitors and consumers.

Forms of abuse may include:

• unjustified price discrimination;
• imposing unfair purchase or selling prices;
• limiting production or markets; and
• predatory pricing or refusal to deal.

However, the current legal regime does not expressly address economic dependency or exploitative abuses in vertical relationships (such as unjustified termination of long-standing supply arrangements or coercive exclusivity), and there is no standalone provision dealing with essential facility doctrines or dominant platforms.

The effects-based test applies, meaning that even if the conduct takes place outside Sri Lanka it may be caught under the law if it has the effect of distorting or harming competition in the Sri Lankan market.

The CAA has administrative powers to investigate and issue directions but does not have powers to impose substantial penalties, grant injunctive relief or prosecute offenders through a specialised tribunal. As such, enforcement of unilateral conduct cases remains rare and discretionary.

A patent is a form of intellectual property granted to protect an invention that is novel, involves an inventive step and is industrially applicable. Patent protection is governed by the Intellectual Property Act, No 36 of 2003. A granted patent confers the exclusive right to prevent others from commercially exploiting an invention, such as making, using, selling or importing the patented product or process, without the patent holder’s consent.

The term of protection for a patent in Sri Lanka is 20 years from the date of filing the application, subject to the payment of prescribed annual renewal fees.

The registration process begins with filing a patent application at the National Intellectual Property Office of Sri Lanka (NIPO), including a description, claims, drawings (if any) and an abstract. The application undergoes a formal examination, followed by a substantive examination and an international-type search report to determine novelty and patentability. If the examination results are favourable and the invention is not challenged during the publication period, the patent is granted and published in the Gazette.

Patent enforcement mechanisms include both civil and criminal remedies. The patent holder may file a civil action for infringement, seeking remedies such as injunctive relief, damages, account of profits or destruction of infringing goods. Infringement may also give rise to criminal liability, including fines and imprisonment in aggravated cases. Prosecution must be commenced within three years of the offence or within two years from its discovery by the prosecutor, whichever occurs first. In addition, Sri Lanka Customs is empowered to detain suspected counterfeit goods at the border upon request by the rights-holder.

A trade mark is a visible sign capable of distinguishing the goods or services of one enterprise from those of another. It may consist of words, names, symbols, logos, shapes or a combination thereof. Trade mark protection is governed by the Intellectual Property Act, No 36 of 2003, and is granted for an initial term of ten years from the date of application, with the possibility of renewal for successive ten-year periods.

The registration process begins with filing an application at NIPO. The application undergoes a formal and substantive examination. If found acceptable, the mark is published in the Government Gazette, triggering a three-month opposition period during which third parties may object to the registration. If no opposition is filed or if opposition is unsuccessful, the trade mark is registered, and a certificate is issued.

Enforcement of trade marks can be pursued through civil or criminal proceedings. Civil remedies include injunctions, damages, account of profits, and orders for the destruction or forfeiture of infringing goods. In criminal cases, wilful infringement can attract fines or imprisonment. Legal action for infringement must be instituted within three years of the offence or two years from its discovery by the prosecutor, whichever occurs first. Sri Lanka Customs is empowered to detain suspected counterfeit goods at the border.

An industrial design is the visual appearance of a product, such as its shape, pattern or combination of colours, that makes it look special or unique. It can be a flat design or a 3D form, and it must be something that can be used as a pattern for making items in industries or by craftsmen and that is not dictated solely by function. Industrial designs are protected under the Intellectual Property Act, No 36 of 2003.

Protection is granted for an initial period of five years from the date of application, and may be renewed twice, each time for an additional five years, allowing for a maximum duration of 15 years. To obtain protection, an application must be filed with NIPO, including clear representations or drawings of the design and a description. The application undergoes formal and substantive examination to confirm that the design is new and original. Once approved, the design is registered and published in the Government Gazette, and a certificate of registration is issued.

Enforcement of design rights can be undertaken through civil proceedings, such as for injunctive relief, damages or account of profits. In cases of wilful infringement, criminal sanctions may also be pursued. Legal action for infringement must be instituted within three years of the offence or two years from its discovery by the prosecutor, whichever occurs first.

Sri Lanka Customs can assist by seizing infringing or counterfeit goods at the border upon request by the rights-holder.

Copyright is the exclusive legal right granted to the authors and creators of original literary, artistic, musical and dramatic works, as well as software, films, broadcasts and sound recordings. It protects both economic rights (such as reproduction, distribution and public communication) and moral rights (such as the right of attribution and integrity).

In Sri Lanka, copyright is governed by the Intellectual Property Act, No 36 of 2003. Copyright arises automatically upon the creation and fixation of a work in a tangible form without the need for registration.

The duration of protection depends on the type of work:

• for all copyrightable works (ie, literary, artistic and musical works) – protection lasts for the life of the author plus 70 years after death;
• for cinematographic films and sound recordings – 70 years from the date of publication;
• for applied art – 25 years from the year of creation or publication, whichever is earlier; and
• for anonymous or pseudonymous works, the duration is 70 years from the date the work was first made available to the public, unless the identity of the author is revealed earlier.

Enforcement of copyright may be pursued through civil or criminal proceedings. Civil remedies include injunctions, damages and orders for delivery or destruction of infringing copies. In criminal matters, wilful infringement can attract fines or imprisonment. Legal action for infringement must be instituted within three years of the offence or two years from its discovery by the prosecutor, whichever occurs first. Customs authorities may seize pirated or counterfeit goods at the border upon the request of the rights-holder.

The Intellectual Property Act, No 36 of 2003 extends protection to additional categories of intellectual property beyond traditional patents, trade marks and designs.

Geographical Indications (GIs) are protected in Sri Lanka under the Intellectual Property Act. A GI is a sign used on products that have a specific geographical origin and possess qualities, reputation or characteristics essentially attributable to that location, such as “Ceylon Tea” or “Ceylon Cinnamon”. Protection arises either through registration with NIPO or under the unfair competition provisions of the Act, even without registration, where misuse is likely to mislead the public.

In addition, software and databases, when they meet the threshold of originality, are protected as literary works under copyright law. This protection arises automatically upon creation and fixation and endures for the lifetime of the author plus 70 years. This includes both source code and object code in the case of software, and original compilations of data in the case of databases.

Trade secrets are protected in Sri Lanka under the concept of “undisclosed information” in the Intellectual Property Act, as well as through principles of unfair competition. This includes confidential business information such as formulas, recipes, customer lists, algorithms, business strategies and methods. These are not subject to registration but are protected through confidentiality obligations, non-disclosure agreements (NDAs) and the general principles of contract and delict (tort).

In cases involving wilful misappropriation or breach of trust, criminal sanctions may apply under relevant laws such as the Penal Code or the Computer Crimes Act. Effective protection of these rights depends significantly on the use of internal controls, contractual safeguards and judicial enforcement, where necessary.

Data privacy is governed and regulated by the Personal Data Protection Act, No 9 of 2022 (PDPA), which provides a comprehensive legal framework for the processing of personal data. The PDPA applies to both public and private sector entities, including foreign entities that process personal data in Sri Lanka or of individuals located in Sri Lanka.

It sets out key principles such as lawfulness, fairness, transparency, purpose limitation, data minimisation and accountability. It grants data subjects specific rights, including the right to access, rectify, erase and object to the processing of their personal data. Data controllers and processors are required to:

• implement appropriate security measures;
• maintain records of processing activities; and
• in most cases, obtain freely given, specific, informed and unambiguous consent before processing personal data.

In addition to the PDPA, data protection is indirectly supported by:

• the Computer Crimes Act, No 24 of 2007, which criminalises unauthorised access, data theft and related cyber offences; and
• the Electronic Transactions Act, No 19 of 2006, which recognises the legal validity of electronic records and signatures and facilitates secure data exchange.

Together, these statutes represent a significant advancement in Sri Lanka’s data governance landscape, aligning it more closely with international standards such as the EU General Data Protection Regulation (GDPR).

The PDPA has extraterritorial application and extends its scope to cover certain activities of foreign entities. Specifically, it applies to any natural or legal person, whether incorporated or operating outside Sri Lanka, who processes the personal data of individuals located in Sri Lanka, in the course of:

• offering goods or services to such individuals; or
• monitoring their behaviour, in so far as that behaviour takes place within Sri Lanka.

This means that foreign companies collecting, analysing or storing the personal data of Sri Lankan residents – whether via websites, apps or other digital platforms – are subject to the same obligations as local data controllers and processors under the PDPA.

Cross-border transfers of personal data are permitted only if the recipient country or foreign entity ensures an adequate level of data protection, or where appropriate safeguards are in place (such as standard contractual clauses or binding corporate rules). Data controllers must ensure that the rights of data subjects in Sri Lanka are not prejudiced by such transfers.

The Data Protection Authority of Sri Lanka is the independent regulatory body tasked with enforcing the country’s data protection regime. The Authority will play a central role in ensuring compliance with the PDPA across both public and private sectors.

Its core functions include:

• monitoring and ensuring compliance with the provisions of the PDPA;
• investigating complaints, either upon receipt or on its own initiative;
• conducting audits and inspections of data controllers and processors;
• issuing binding directions, codes of practice, and guidelines to promote responsible data handling;
• imposing administrative penalties and requiring corrective actions in cases of non-compliance; and
• overseeing data breach notifications, including the assessment of risk and response measures.

The Authority is also empowered to collaborate with international regulatory bodies and to issue adequacy decisions or approve cross-border transfer mechanisms. It acts as the primary guardian of personal data rights, ensuring that individuals’ privacy is respected and upheld in both the public and private spheres.

The Authority is expected to become fully functional during the transitional implementation period set out in the PDPA, after which enforcement powers will be exercised in full.

Sri Lanka is currently undergoing a significant wave of legal and institutional reforms, driven by the government’s commitment to economic recovery, fiscal transparency and good governance, particularly in line with its obligations under the International Monetary Fund (IMF) programme. These reforms are designed to strengthen investor confidence, modernise regulatory frameworks and address structural weaknesses exposed by the recent economic crisis.

Recent legislative initiatives have focused on:

• combating bribery and corruption, with stricter enforcement and disclosure obligations;
• reforming anti-money laundering (AML) laws to align with Financial Action Task Force (FATF) standards;
• introducing new legislation on public financial management and procurement;
• modernising revenue administration and strengthening the independence of the Central Bank of Sri Lanka; and
• enacting new laws on proceeds of crime and contract enforcement, including the digitalisation of commercial courts.

In the area of tax law, the 2025 Budget introduces key changes:

• an 18% VAT on digital services supplied by non-resident providers; and
• a 15% concessionary corporate income tax rate for qualifying foreign service exporters.

Further reforms in the areas of data protection, company law, beneficial ownership and labour law are expected. The government’s continued engagement with development partners and multilateral agencies is likely to result in further labour law modernisation, corporate governance reform and liberalisation of foreign investment restrictions. Additionally, reforms are under way to restructure state-owned enterprises (SOEs), streamline the public sector, and promote public-private partnerships, thereby creating a more competitive and investment-friendly legal environment.