Sri Lanka’s legal system is a combination of English common law, Roman-Dutch law and customary law.

The Parliament of Sri Lanka has the power to make laws, including laws having retrospective effect and which repeal or amend the Constitution. Certain legislative powers of the Parliament are delegated to the Provincial Councils. Every Provincial Council may, without going through the Parliament, make statutes applicable to the relevant province. Acts of Parliament supersede provincial statutes.

Statutes enacted by the Parliament are the primary source of law in Sri Lanka. Judicial precedents, statutes enacted by Provincial Councils and customs also constitute law. The hierarchy of these sources of law is Parliamentary statutes, provincial statutes, judicial precedents and customs.

The Supreme Court is the highest and final superior court. The Appellate Courts of Sri Lanka are the Supreme Court, the Court of Appeal and the High Court. The courts of first instance are the High Court (in respect of serious offences), the Commercial High Court, the District Court and the Magistrates’ Court. The High Courts, the Court of Appeal and the Supreme Court have civil and criminal jurisdictions while the District Courts and Magistrates’ Courts have jurisdiction over civil and criminal matters, respectively.

Foreign investment in Sri Lanka is regulated under the Foreign Exchange Act No 12 of 2017 (the “FE Act”) and regulations issued thereunder. The FE Act vests responsibility for promoting and regulating foreign exchange with the Central Bank of Sri Lanka (CBSL). The CBSL is responsible for the implementation of the provisions of the FE Act and regulations issued thereunder.

The Foreign Exchange (Classes of Capital Transactions undertaken in Sri Lanka by a Person Resident Outside Sri Lanka) Regulations No 2 of 2021 as amended by the Gazette Extraordinary No 2235/22 dated 6 July 2021 (the “FE Regulations”), issued under the FE Act, specify the permitted investments that any person resident outside Sri Lanka, country funds, regional funds, investment funds and mutual funds established outside Sri Lanka (permitted investors) may engage in. Such investments must be made in compliance with the FE Regulations including the mechanism of channelling funds into or out of Sri Lanka relating to such investments.

Shareholding

Permitted investors may acquire, hold or divest all classes of shares under an entitlement to shares or conversion to shares issued by companies incorporated in Sri Lanka subject to the following exclusions and limitations.

Exclusions

These include pawnbroking, coastal fishing, and retail trade where the capital contributed by non-residents is less than USD5 million.

Limitations

In relation to companies carrying on the following businesses, permitted investors are only permitted to invest up to 40% of the number of fully paid voting shares unless a special approval of the Board of Investment of Sri Lanka (BOI) for such higher percentage is given:

• production of goods subject to internationally determined quota restrictions;
• growing and primary processing of tea, coconut, cocoa, rice, sugar and spices;
• mining and primary processing of non-renewable national resources;
• timber-based industries using local timber;
• deep sea fishing (as defined by the Ministry assigned the subject of fisheries);
• mass communication;
• education;
• freight forwarding;
• travel agencies; and
• shipping agencies.

In relation to companies carrying on the following businesses, permitted investors may invest in voting shares only up to the percentage of number of fully paid voting shares for which general or special approval has been granted by the relevant legal or administrative authority established by the government of Sri Lanka (GoSL).

• Air transportation.
• Coastal shipping (as defined by the Ministry assigned with the subject of fisheries).
• Industrial undertaking specified in the Industrial Promotion Act, No 46 of 1990, namely:
1. any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment, aircraft and other military hardware;
2. any industry manufacturing poisons, narcotics, alcohol, dangerous drugs and toxic, hazardous or carcinogenic materials; and
3. any industry producing currency, coins or security documents.
• Large-scale mechanised mining of gems.
• Lotteries.

Debt Securities and Loans

Permitted investors may invest in debt securities issued by companies incorporated in Sri Lanka in designated foreign currency or in Sri Lankan rupees (LKR), including debt securities listed on the Colombo Stock Exchange.

The granting of loans to companies incorporated in Sri Lanka, the GoSL or state-owned enterprises, licensed commercial banks, licensed specialised banks, licensed finance companies and specialised leasing companies is subject to the FE Regulations.

The FDI regime in Sri Lanka is notably favourable to foreign investors. The FE Regulations, discussed in 1.2 Regulatory Framework for FDI, were issued, repealing the previous regulations issued under the FE Act, in February 2021.

There are numerous financial and regulatory incentives available to foreign investors investing in Sri Lanka. Additional protections and concessions such as protection from nationalisation and expropriation, duty concessions for importation of project-related items during the construction period, and facilitation of work visas are available for companies established with the approval of the Board of Investment of Sri Lanka (BOI). At present, tax exemptions are not granted to BOI-approved companies due to policy considerations.

Whilst the political risk and uncertainty – including the risk of expropriation, nationalisation and political force majeure – is low in Sri Lanka, especially in the context of recent Cabinet decisions to privatise several state-owned enterprises, investment agreements and treaties supported by constitutional guarantee provide adequate protection for foreign investors against such risks. Such agreements enjoy the force of law and legislative, executive or administrative action cannot be taken to contravene the provisions of a bilateral investment agreement, except on grounds of national security.

Sri Lanka has entered into 29 Bilateral Investment Treaties and several other investment agreements and treaties. Protection offered to foreign investors under such agreements and treaties includes, inter alia, protection against expropriation and nationalisation, most favoured nation status, national treatment, etc.

Furthermore, there are no regulatory restrictions or limitations on repatriation of income and proceeds arising out of permitted investments made in compliance with the FE Regulations.

In view of the prevailing industry-specific foreign ownership and land ownership restrictions, foreign investors adopt investment structures including issuance of different classes of shares in acquiring companies in Sri Lanka. There are no significant differences between structures used to acquire public and private companies.

M&A transactions involving the shares of a company listed on the Colombo Stock Exchange (CSE) must be executed in compliance with the Takeovers and Mergers Code of 1995 (as amended) administered by the Securities and Exchange Commission (SEC) of Sri Lanka. In addition, such transactions must be carried out in compliance with the Listing Rules of the CSE. Please refer to 6.1 Applicable Regulator and Process Overview for details of the antitrust/competition regime.

The SEC together with the Institute of Chartered Accountants of Sri Lanka published the Code of Best Practices on Corporate Governance in 2013 with the objective of establishing good corporate governance practices in the Sri Lankan capital market. Every company listed on a licensed stock exchange in Sri Lanka is required to comply with the Code of Best Practices on Corporate Governance.

Furthermore, the Companies Act No 7 of 2007 (as amended) (the “Companies Act”) contains rules, procedures, accounting and reporting requirements for companies incorporated or registered in Sri Lanka, including private and public companies. The Companies Act lays down the duties of directors, which include the duty of directors to act in good faith and to comply with the provisions of the Companies Act and articles of association of the company, as well as the standard of care in exercising their duties and performing their functions.

The Companies Act provides minority shareholders with remedies against oppression and mismanagement. Any shareholder or shareholders having a complaint:

• that the affairs of the company are conducted in a manner prejudicial to the interests of the company;
• that a material change has taken place in the management or control of the company and that by reason of such change it is likely that the affairs of the company are conducted in a manner prejudicial to the interests of the company; or
• that the affairs of the company are conducted in a manner oppressive to the shareholders,

can make an application to court for an order provided that such shareholder or shareholders:

• constitute not less than 5% of the total number of shareholders; or
• held shares which together carry not less than 5% of the voting rights at a general meeting of the company,

at any time during the six months prior to making of such application.

Furthermore, in terms of the Companies Act, any shareholder entitled to vote on a resolution to:

• alter the Articles to impose or remove a restriction on the business or activities of the company;
• approve a major transaction; or
• approve an amalgamation of the company,

who casts their votes against the passing of such a resolution or, in the case of a circular resolution, does not sign such resolution, is entitled to require the company to purchase the shares held by them if the resolution is duly passed by the other shareholders.

There are no specific disclosure obligations for FDIs in Sri Lanka. In terms of the FE Regulations, foreign investors are required to open and maintain a special purpose bank account known as an inward investment account (IIA) with a licensed commercial bank (LCB) in Sri Lanka to route the consideration for permitted investments and repatriate any distributions or sales proceeds derived therefrom. LCBs are required to ascertain the bona fides of the person who carries out such transactions and that such transactions are in compliance with the FE Regulations by obtaining documentary evidence.

Whilst both bank financing and access to the capital markets are primary sources of finance in Sri Lanka, a 50% tax concession for the years 2021–22 for newly listed companies on the CSE (prior to 31 December 2021) and the ability to maintain a corporate tax rate of 14% for three subsequent years have promoted the number of new listings on the CSE. However, a recent Budget proposal seeks to cancel these concessions and such proposed cancellation is being challenged in the Supreme Court by companies which have listed on the CSE with the intention of availing themselves of the said concessions.

Capital markets in Sri Lanka are regulated by the Securities and Exchange Commission Act No 19 of 2021 (the “SEC Act”) and the rules and regulations issued thereunder. The SEC Act makes provision for the establishment of the Securities and Exchange Commission of Sri Lanka (SEC), regulation of market institutions, public offers of securities, market intermediaries, protection of investors and several enforcement measures to deal with market misconduct.

The CSE is the main stock exchange in Sri Lanka. Listing rules of the CSE are applicable to any company which is listed on the CSE or which proposes to be listed on the CSE subject to the oversight of the SEC. Foreign investors are permitted to invest in shares listed on the CSE and issued by companies incorporated in Sri Lanka. Foreign investors are also permitted to invest in debt securities in Sri Lanka rupees or any designated foreign currency listed on the CSE, subject to conditions set out in the Gazette Extraordinary No 2235/22 dated 6 July 2021.

Furthermore, the FE Regulations permit non-resident investors to invest in shares or debt securities of companies not incorporated in Sri Lanka and listed on the CSE without any restriction by routing funds through the accounts maintained in offshore banking units of any licensed commercial bank in Sri Lanka. As per Section 81 of the SEC Act, any listed foreign entity may seek a listing on any exchange licensed by the SEC (ie, the CSE) subject to the approval of the SEC.

For the purpose of the FE Regulations, investment funds are treated as non-resident investors. Therefore, foreign investors structured as investment funds would be subject to the FE Regulations and there are no exemptions available.

General Competition Regime

There is no general merger control regime in Sri Lanka. However, the Consumer Affairs Authority Act No 9 of 2003 (the “CAA Act”) regulates the anti-competitive practices of companies in Sri Lanka and may take action against any merger which may lead to anti-competitive practices. As set out in Section 34 of the CAA Act, the Consumer Affairs Authority (CAA) is responsible for investigating allegations of anti-competitive practices. Anti-competitive practices have been defined as where a person in the course of business pursues a course of conduct which of itself or when taken together with a course of conduct pursued by persons associated with them, has or is intended to have or is likely to have the effect of restricting, distorting or preventing competition in connection with the production, supply or acquisition of goods in Sri Lanka or the supply or securing of services in Sri Lanka.

Sector-Specific Regime

Furthermore, regulated industries, such as utilities, telecommunications, banking and insurance are subject to the purview of their respective regulators (including, for example, the Public Utilities Commission of Sri Lanka (PUCSL), the Telecommunications Regulatory Commission of Sri Lanka (TRCSL), the Monetary Board of Sri Lanka (MBSL) and the Insurance Regulatory Commission of Sri Lanka (IRCSL)) with regard to mergers and acquisitions.

Banking

Under the Banking Act No 30 of 1988 (as amended) (the “Banking Act”), written approval from both the MBSL and the Sri Lankan Minister of Finance is required for the merger or consolidation of a licensed commercial bank or a branch with any other licensed commercial bank or a licensed specialised bank.

Furthermore, the Banking Act prohibits any individual, partnership or corporate body, either directly or indirectly or through a nominee or acting in concert with any other individual, partnership or corporate body, from acquiring a material interest in a licensed commercial bank incorporated or established within Sri Lanka by or under any written law without the prior written approval of the MBSL with the concurrence of the Sri Lankan Minister of Finance.

Contravention or failure to comply with the said requirement is an offence under the Banking Act.

For the purposes of the Banking Act, “acting in concert” means acting pursuant to an understanding (whether formal or informal) to actively co-operate in acquiring a material interest in a licensed commercial bank so as to obtain or consolidate control of that bank, and the term “material interest” means the holding of over 10% of the issued capital of a licensed commercial bank carrying voting rights.

Insurance

Under the Regulation of Insurance Industry Act No 43 of 2000 (as amended), any transaction relating to amalgamation of an insurance business requires the approval of the District Court. Any such application for approval must also include the observations of the IRCSL on the proposed amalgamation of the insurance business.

Any person who contravenes or fails to comply with the said requirement will be guilty of an offence and will, on conviction after summary trial before a magistrate, be liable to a fine of not less than LKR50,000 and in the case of a continuing offence to a further fine of not more than LKR2,000 for each day on which the offence is continued after conviction.

Telecommunication

The telecommunications industry is regulated by the TRCSL and mergers and takeovers in the industry must be conducted in terms of the rules and relevant regulations stipulated in the Sri Lanka Telecommunications Act No 25 of 1991 (as amended).

Public Utilities Commission

Public utilities industries are regulated under the Public Utilities Commission Act of Sri Lanka No 35 of 2002 (the “PUCSL Act”). In relation to each public utility industry, the PUCSL is empowered to regulate and inquire into anti-competitive practices, monopolies, acquisitions, abuses of a dominant position and merger situations, and to carry out an investigation either of its own motion or on a complaint or request made to it by any person with respect to the creation or suspected creation of a merger.

If the PUCSL is satisfied that a merger situation exists but does not operate, or is not likely to operate, against the public interest, the PUCSL may authorise the merger subject to any conditions it considers necessary or expedient.

This does not apply in this jurisdiction.

This does not apply in this jurisdiction.

Please refer to 6.1 Applicable Regulator and Process Overview. The relevant statutes do not provide for an appeal process available for foreign investors aggrieved by a decision of the regulators.

Whilst there is no specific foreign investment review regime, all FDIs are subject to the FE Act and FE Regulations. Please refer to 1.2 Regulatory Framework for FDI for further information. There is no national security review regime applicable to FDI in Sri Lanka.

This does not apply in this jurisdiction.

This does not apply in this jurisdiction.

As per the FE Regulations, every authorised dealer (ie, licensed commercial bank) or restricted dealer (ie, licensed specialised bank) engaged in capital transactions in foreign exchange are required to ascertain the bona fides of the person who carries out the transaction and that such transaction is in compliance with the FE Regulations through documentary evidence to that effect. Every authorised dealer or restricted dealer should exercise all due diligence in executing such capital transactions in foreign exchange under the FE Regulations. In the event the bona fides of a transaction cannot be satisfied, any authorised dealer or restricted dealer (such as a licensed commercial bank) has the ability to block remittance of funds.

As per Section 7 of the FE Act, if any person is aggrieved by a decision of an authorised dealer or a restricted dealer, they may, within 14 days of that decision being communicated to them, appeal against such decision to the CBSL. The CBSL will, after giving such person and the dealer a reasonable opportunity of being heard, affirm, vary or revoke such decision.

In addition to the FE Act and FE Regulations, foreign investors in Sri Lanka must be mindful of the Land (Restrictions on Alienation) Act No 38 of 2014 (the “Land Alienation Act”). In terms of the Land Alienation Act, transfer of title of any land situated in Sri Lanka after 1 January 2013 is prohibited to a foreigner, a company incorporated in Sri Lanka with a foreign shareholding of 50% or more (save and except a listed company with a foreign shareholding of 50% or more with effect from 1 April 2018) and a foreign company.

Any transfer of land in contravention of this restriction will be void and of no effect in law.

A company incorporated in Sri Lanka with a foreign shareholding of less than 50% which has purchased land will be permitted to increase its foreign shareholding to over 50% without voiding the purchase of land, provided that such company maintains its foreign shareholding at less than 50% for a minimum period of 20 consecutive years from the date of acquiring the land.

However, foreigners, foreign companies and companies incorporated in Sri Lanka with 50% or more foreign shareholding are permitted to enter into leases of property for a period not exceeding 99 years.

The main direct tax imposed on companies doing business in Sri Lanka is income tax administered under the Inland Revenue Act No 24 of 2017, as amended (IRA), while indirect taxes include value added tax (VAT), Social Security Contribution Levy (SSCL) and import-related taxes such as the ports and airport development levy, customs duty and excise duty.

Income tax is chargeable based on the residency rule, where a resident person is liable for income tax based on its source (eg, business or investments) for that year, wherever the source arises (ie, worldwide income) while a non-resident is liable for income from any source for that year, to the extent such income arises in or is derived from a source in Sri Lanka.

Rules applicable to residency and tax rates may vary based on the type of person (eg, partnership, trust or company) and type of business activities carried out by that person. For instance, a company is considered as a resident if:

• it is incorporated or formed under the laws of Sri Lanka;
• it is registered or the principal office is in Sri Lanka; or
• at any time during the year the management and control of the affairs of the company are exercised in Sri Lanka.

Any company which does not meet any of the criteria above would be treated as a non-resident. The standard income tax rate is 30%, and 40% is applicable to profits from conducting betting and gaming, manufacture and sale or import and sale of any liquor or tobacco product.

VAT is charged on supply of goods and services, VAT-registered persons carrying out a taxable activity in Sri Lanka or on the importation of goods into Sri Lanka by any person. The standard rate of VAT is 15%, where the applicability will be determined based on the exemptions and exclusions provided in the Value Added Tax Act No 14 of 2002 (as amended). A taxable activity includes any activity carried on as a business, trade, profession or vocation, or every action in the nature of a trade and anything done in connection with commencing or ceasing such activity. VAT is chargeable and payable to the Department of Inland Revenue of Sri Lanka (DIR) when the value of a person’s taxable supplies reaches the VAT registration turnover threshold. At this point, the person must obtain a VAT registration and collect the VAT from its customers and pay the same net of VAT incurred to the DIR. However, there are proposals underway to revise the VAT rate to 18% and remove exemptions currently available.

The current VAT registration turnover threshold is LKR20 million per quarter or LKR80 million per year.

SSCL is, inter alia, payable by importers, manufacturers, traders (wholesale or retailers) and service providers for every quarter at the rate of 2.5% on the liable turnover, subject to exemptions, as per the Social Security Contribution Levy Act No 25 of 2022 (the “SSCL Act”). The threshold for registration is the aggregate turnover for a quarter exceeds or is likely to exceed LKR30 million. In relation to importation, SSCL is applicable irrespective of the said threshold.

Any dividends paid by the local company to its shareholders would be withholding tax at the rate of 15%; in the event of any non-resident shareholders, the same would subject to the terms of the treaties entered into between Sri Lanka and the respective country of residence of such investor (DTAT) (provided that such shareholder is permitted to enjoy the benefits under the DTAT). 

Interest accruing to or received by any person outside Sri Lanka on any loan granted to any person in Sri Lanka or to the government of Sri Lanka by such person is exempt from income tax as per the IRA.

Hence, such payments will not be subject to withholding requirements in Sri Lanka. The said exemptions will be available to any non-resident investors irrespective of the provision of the treaties entered into between Sri Lanka and the respective country of residence of such investor.

As per the IR Act, other investment income (such as interest, royalty, rent and service fees and insurance premium) which has a source in Sri Lanka and employment income payable by the local company to its employees are subject to withholding tax in Sri Lanka, at varying rates, subject to exclusions and exemptions provided in the IR Act. With regard to a non-resident recipient, application of such income tax would be subject to the provisions of the relevant DTAT.

Commonly used tax planning strategies include foreign investors providing cross-border loans as returns to non-resident investors on such loans are exempt from income tax in Sri Lanka.

Any gains arising from disposal of any investment asset (ie, land or buildings, a membership interest in a company, partnership or trust, a security or other financial asset) and an option, right or other interest in any said asset held as an investment (ie, not effectively connected to a business activity) are subject to capital gains tax in Sri Lanka, in relation to individuals at the rate of 10% and for entities at the rate of 30%. Exemptions provided in the IRA are as follows:

• gains from disposal of listed shares (ie, shares quoted in any official list published by any stock exchange licensed by the SEC); and
• gains from sovereign bonds issued by or on behalf of the government of Sri Lanka, denominated in local or foreign currency, derived by non-resident persons (other than through a Sri Lankan permanent establishment).

Concepts such as blocker corporations are not provided with any exemptions in Sri Lanka. However, certain double taxation avoidance agreements provide for exemptions in relation to capital gains. Such exemptions/benefits can be utilised by persons who meet the requirements of the relevant double taxation avoidance treaty and/or IRA.

The IRA empowers the Commissioner General of Inland Revenue (CGIR) to determine the tax liability of a person who has obtained any tax benefit if:

• a scheme has been entered into or carried out;
• such person has obtained a tax benefit in connection with the scheme; and
• having regard to the substance of the scheme, it can be concluded that a person, or one of the persons, who entered into or carried out the scheme did so for the sole or dominant purpose of enabling the aforementioned person to obtain a tax benefit.

Such a determination can be made as if the scheme had not been entered into or carried out, or as if a reasonable alternative to entering into or carrying out the scheme would have instead been entered into or carried out, or that any transaction which reduces or would have the effect of reducing the amount of tax payable by any person is artificial or fictitious and can make compensating adjustments to the tax liability of any other person affected by the scheme.

The IRA along with regulations issued thereunder establishes a transfer pricing regime in Sri Lanka. Accordingly, where any income, gains and profits arising in, derived or accruing from, or any loss incurred by any person in Sri Lanka engaged in any transaction entered into with its associated enterprises must be ascertained having regard to the arm’s length price.

Regulations on transfer pricing set out extensive provisions on determination of associated enterprises, pricing methodologies and reporting requirements. Accordingly, instances where parties are treated as associated enterprises are set out below:

• where any person or enterprise holds, directly or indirectly, shares or otherwise carries the majority of the voting power in the other enterprise;
• where any person or enterprise holds, directly or indirectly, shares carrying not less than 50% of the voting power in each of such enterprises;
• where one enterprise guarantees not less than 25% of the total borrowings of the other enterprise; and
• where more than half of the board of directors or members of the governing board, or one or more executive directors or executive members of the governing board of one enterprise are appointed by the other enterprise.

The definitions of “workman” and “employee” as contained in the statutes regulating employment matters in Sri Lanka apply equally to all categories of employees, irrespective of whether the employment is regular, fixed-term, casual or seasonal. Although a contract of employment is not required to be in writing to be legally binding, for employees covered by the Shop and Office Employees (Regulation of Employment & Remuneration) Act No 19 of 1954 (SOEA), a written contract is required in the language in which the employee is conversant.

Furthermore, common law implied terms (reasonableness, good faith, etc), statutorily guaranteed minimum terms, collective agreements, awards of labour courts, customs/practices in the workplace are all implied by law into the terms of employment.

The SOEA and the Factories Ordinance No 45 of 1942 (FO) provide for the health/safety/welfare of employees in shops/offices and factories (eg, sufficient lighting/ventilation, sanitary/washing facilities, temperature control, first-aid, resting facilities for female workers, and safety measures in machinery/equipment/ancillaries in factories), whereas the Workmen’s Compensation Ordinance (WCO) provides for the payment of compensation to employees who have suffered illness/injury in the course of their employment and for payment of compensation to an employee’s dependants upon death.

Termination and Redress

Notwithstanding the provisions in employment contracts, the prevailing employment/labour laws provide for lawful termination in only the following cases:

• with the prior written approval of the Commissioner of Labour (the “Commissioner”);
• with such employee’s consent; and
• where there is justifiable cause for termination.

Whilst an employee may terminate the contract with notice, termination with notice by the employer without justifiable cause is unenforceable and rendered wrongful/unjust.

An industrial dispute may be referred to the Commissioner, who is empowered to refer the dispute to be settled by:

• an available collective agreement;
• conciliation; or
• arbitrator(s) (on mutual consent).

Redress to employees claiming wrongful/unjust termination lies by way of filing applications within six months of the termination to the Labour Department or a Labour Tribunal (LT), which are empowered to order reinstatement with back-payment of wages or compensation in lieu of reinstatement and back-payment of wages, in any “just and equitable” quantum.

Collective Bargaining Agreements

Collective bargaining agreements (CBAs) are binding on all parties (employer(s), workmen/trade unions) to and covered by such agreements and any less beneficial terms in individual employment contracts inconsistent with the provisions of the CBA are invalid.

In Sri Lanka, since 1961/1971, CBAs have been entered into by the Employment Federation of Ceylon in relation to various trades – such as the mercantile trades (clerical, supervisory, allied grade employees), motor transport, engineering, tea/rubber exports and coir mattress/bristle fibre exports – on behalf of member companies who have agreed to be bound by such agreements.

Although the number of member companies covered by these agreements have reduced over the years, two large factory chains in Sri Lanka entered into CBAs recently; the latest being the agreement entered into by the Free Trade Zones and General Services Employees Union with a factory in Sri Lanka’s largest free trade zone in 2021.

Minimum Wage and Retirement

The National Minimum Wage for employees, irrespective of industry, is LKR12,500 while the minimum daily wage is LKR500.

However, the Budgetary Relief Allowance Act No 36 of 2005 provides that if an employee’s monthly wage is less than LKR20,000, they are entitled to an allowance of LKR1,000 per month with effect from 1 August 2005 (to be reflected separately in salary slip as “BRA-1”). Thereafter, the Budgetary Relief Allowance Act No 4 of 2016 was enacted which provided that if an employee’s monthly salary is less than LKR40,000, such employee is entitled to an allowance of LKR1,500 with effect from 1 May 2015 and a further LKR1,000 with effect from 1 January 2016. These budgetary payments under the second Act should be reflected as “BRA-2”. These requirements apply to all types/level of employees.

Accordingly, in practical application, even though the minimum wage is stipulated as LKR12,500, a wage earner of LKR 12,500 would have to be paid a remuneration of LKR 16,000.

Furthermore, all wages boards have fixed minimum wages payable to various classes of workers. These wages have been fixed based on daily/monthly wages, piece/contract rates, depending on the type of work.

With the implementation of the Minimum Retirement Age of Workers Act, 2021 the minimum retirement age of employees of the private sector is now set at 60 years.

Superannuation Benefits

These include the following.

• Employees Provident Fund (EPF) – an employer is required to contribute 12% of the employee’s total monthly “earnings” and the employer is required to deduct and contribute 8% of each employee’s salary to the EPF.
• Employees Trust Fund (ETF) – a further 3% of the employee’s total monthly earnings to the ETF is to be contributed by the employer.
• Payment of Gratuity – an employee with a continuous/uninterrupted employment for a period of five years or more is entitled to a gratuity on the cessation of services where 15 or more have been employed within a period of one year prior to the cessation date; failure to settle the gratuity within 30 days of termination results in a surcharge payable by the employer.

Where lateral transfers are caused during an acquisition/investment transaction, the above employee entitlements are generally continued.

The manner in which an employee can be transferred to another entity that is a subsidiary/affiliate is governed by the contract of employment.

In the case of a mere change of control, the status of the employees remain the same. However, where the business of the employing entity is being changed, no automatic transfer of employees shall take place. Instead, such transfer shall be effected with the consent of employees (eg, continuous/uninterrupted service, negotiated severance arrangements, and dismissal of employees upon approval by the commissioner).

Intellectual property is an important aspect in screening FDI in Sri Lanka. Generally, in order to review the intellectual property owned by a target company – which could be either registered, not registered or pending registration with the National Intellectual Property Office of Sri Lanka (NIPO) – searches are conducted at the NIPO. Any existing licensing agreements, assignment deeds, transfer agreements, ongoing dispute settlements before the Director General of NIPO or ongoing litigations before courts in connection to intellectual property owned by a target company are also scrutinised in this process. There are no special sectors or industries subject to particular rules.

In Sri Lanka, IP rights are protected under the Intellectual Property Act No 36 of 2003 (the “IP Act”) and regulations made thereunder. The IP Act has not been sufficiently updated to bring in provisions that are necessary for the protection of IP rights in line with the developments that take place in technology. Furthermore, there are considerable delays with regard to practical enforcement of the registration process, dispute resolution, etc. There are no particular sectors where it would be difficult to obtain intellectual property protection or that are subject to significant limitations on protection or enforcement. However, there are certain limitations placed on the registrability of intellectual property involving certain categories of goods specified by the Department of Wild Life Conservation of Sri Lanka (eg, horn, bone, ivory, whale bone, game and edible bird’s nests).

The Personal Data Protection Act No 9 of 2022 (PDPA) sets out the conditions for lawful processing of personal data, rights of data subjects, transparency and accountability obligations and prohibitions on sending unsolicited messages without the data subject’s consent. Rights of data subjects such as right of access to personal data, right to rectification, right to erasure, etc are recognised under the PDPA. The PDPA further makes provision for the establishment of a Data Protection Authority.

The provisions in the PDPA which relate to the protection of personal data and the rights of data subjects will only come into operation when the Minister to whom the subject of data protection is assigned appoints a date by an Order published in the Gazette, which shall not be earlier than 18 months and not later than 36 months from 19 March 2022 (ie, between 19 September 2023 and 19 March 2025).

The provisions of the PDPA apply to the processing of personal data in the following circumstances:

• where the processing of personal data takes place wholly or partly within Sri Lanka; or
• where the processing of personal data is carried out by a controller or processor who:
1. is domiciled or ordinarily resident in Sri Lanka;
2. is incorporated or established under any particular law;
3. offers goods or services to data subjects in Sri Lanka including the offering of goods or services with specific targeting of data subjects in Sri Lanka;
4. specifically monitors the behaviour of data subjects in Sri Lanka including profiling with the intention of making decisions in relation to the behaviour of such data subjects in so far as such behaviour takes place in Sri Lanka.