Business Opportunities in Sri Lanka
If you are considering setting up a company in Sri Lanka, it is safe to assume you have a solid plan and some capital. Several start-ups have emerged in Sri Lanka in the last decade. The government has endeavored to encourage trade and entrepreneurship. Establishing a company incorporation Sri Lanka is hassle-free as compared to other countries.
Residence is not mandatory, as some sectors allow limited 100% foreign ownership. Other reasons are a good market structure and a conducive atmosphere. Business in Sri Lanka is a great idea because of its social stability among residents and high employment rate.
Benefits of Starting a Business in Sri Lanka
The advantages of setting up a company in Sri Lanka are:
- Company incorporation in Sri Lanka is smooth, digital, and cost-effective, and the country has a good business environment with easy availability of skilled workers.
- Sri Lanka has relaxed trade laws and lowered tax rates. Sri Lanka is the only country with free trade agreements with India and Pakistan. The country also has free trade agreements with other Asian countries. Some countries are recognized as major markets (Singapore, Israel, Iran, and Egypt). These free trade agreements help in eliminating tariffs and cross-border obstacles
- The agreements ensure the easy flow of goods and services between the parties. As a result, companies can also access cheaper inputs and trade liberalization. Sri Lanka is at the crossroads of the most vital sea routes connecting South Asia, the Pacific Ocean, the Americas, the Far East, and Europe
- About 50% of container transportation and 70% of the world’s energy supply pass through the coast of Sri Lanka
- The geo-strategic location is ideal for starting a business in Sri Lanka.
- It allows you to enter new markets and open transactions by embarking on transportation routes
- It helps in generating more profit from selling to business owners
- In South Asia, Sri Lanka is the most liberalized economy. Some open market economies and trade policies make it a great place to do business.
- Sri Lanka’s international business owners/investors can take part 100% in the investments they make
- The country is proud of its bilateral investment protection agreements. This is with 28 countries and double taxation agreements with almost 38 countries
- The country has sophisticated and transparent regulatory and legal frameworks providing excellent foreign investment security
Requirements for Starting a Business in Sri Lanka
The requirements to do business in Sri Lanka involve an extensive and dedicated legal investigation. This is due to the strictness of Sri Lanka’s intellectual property law. The procedure for incorporation of a company in Sri Lanka is as follows:
- Select your company name and permission
- Choose an enterprise type
- Submit details of proposed directors and shareholders
- Fill forms and other documents
- Fill online application
- Issue a public notice in the newspaper
Step 1 – Business name registration Sri Lanka – Company Naming
A crucial step in Sri Lanka business incorporation is to choose a unique name for the business. Then you need to complete the company registration in Sri Lanka. This should be done according to the repository available at http://www.drc.gov.lk.
Step 2 – Other Important Instruments are:
- Secretary: If you want to start a business in Sri Lanka, you need a resident secretary. Legally, you must get written consent from your secretary before starting your business in Sri Lanka. The secretary represents the company after the company’s incorporation. S/He is allowed to perform timely compliance.
- Articles of Incorporation are the company’s general laws and regulations. These cover the internal employee regulations and by-laws governing the organisation’s functioning.
- A Memorandum of Association is the initial document required for the company’s incorporation in Sri Lanka. It signifies the officeholders’ intention, objectives, and goals to form a company.
- Physical/Virtual address is another vital aspect of starting a business in Sri Lanka. It provides an address for communication with customers or governments.
- A bank account in Sri Lanka is recommended for transactions with domestic customers. Officers can open a corporate bank account for foreign-affiliated companies. This can be done after the corporate establishment certificate is issued.
- To run your business, you need to create a website. You also must create a logo that is unique to your organisation.
- Registered phone number is another key requirement. It is open to accept phone calls and communications. The administrator’s responsibility is to ensure connectivity during company business hours.
Multiplier is well-equipped with a team of professional accountants, company secretaries, and lawyers. It is ready to assist you in every step of setting up a company in Sri Lanka. It helps you with everything, from drafting to submitting all the required documents to start a business in Sri Lanka.
Step 3 – Taxation
Value-added tax (VAT) must be paid to companies that include freelance activities and services. With the transfer of authority to the legislature (based on the 13th Amendment of the Constitution), the legislatures of all states except North Eastern Province are wholesale or retail except for sale by manufacturers.
According to this law, there are no tax exemption restrictions. Any company active in the wholesale or retail of goods or goods is subject to VAT, regardless of sales. Manufacturers, etc., must continue to pay sales tax to the central government.
Step 4 – Legal System
Some of the critical Labour Laws to abide by and that regulate the various aspects of the employer-employee relationship in Sri Lanka are:
- Shop and Office Employees (Regulation of Employment and Remuneration) Act.25
- Wages Boards Ordinance
- The Employees’ Provident Fund Act (EPF)
- The Employees’ Trust Fund Act (EPF)
- Payment of Gratuity Act
- Workmen’s Compensation Ordinance
- Factories Ordinance
- Industrial Disputes Act
- Termination of Employment of Workmen (Special Provisions) Act
- Minimum Wages (Indian Labour) Act
- Maternity Benefits Ordinance
Types of Business Structures in Sri Lanka
There are many possible business structures for a Sri Lanka new company incorporation:
The structure of sole proprietors is similar in most countries. If you register as a sole proprietor, you will be subject to personal income tax. You are responsible for the obligations of all companies.
This is the easiest and fastest business to set up a company in Sri Lanka. As a sole proprietor, you can also to hire others.
A registered partnership is similar to a sole proprietorship but with split ownership. All shareholders are subject to the legal and tax obligations of the company. Partners are subject to personal income tax rates as partnerships are not taxed as a separate legal entity.
Limited Liability Company (LLC)
Limited liability companies are the most common form of company incorporation in Sri Lanka. You need a director and two shareholders. No minimum stock capital is required. The company secretary must be an individual residing in Sri Lanka.
Public Limited company (PLC)
Even a joint-stock company does not require a minimum stock capital. This type of company in Sri Lanka requires two shareholders and two directors. Directors are required to submit an annual report and audited accounting and financial statements. Shares may be issued on the stock exchange.
Foreign or Overseas companies
Foreign companies are foreign-affiliated companies and may function as branches. The parent company defines the business of this type of company. The company is subject to a 10% branch tax on profits and must register with the treasury.
Set up an offshore company in Sri Lanka
Offshore companies can operate outside Sri Lanka. However, you cannot do business in Japan, but you will be registered in Japan.
Company Registration Process in Sri Lanka
Learn how to set up a business in Sri Lanka. The process to legally start a business in Sri Lanka and formally operate a company is mentioned below:
Steps to Incorporate a Company in Sri Lanka:
Search for and reserve a name for your company through the Registrar of Companies online. This reservation is valid for 3 months. Equivalent to 1,000 Sri Lankan Rupees (LKR), or about € 6. Registration will be confirmed within 2 days.
Next, the company secretary and directors need to sign the consent form. This is done directly and takes only one day. If you don’t have a secretary in mind, a local organization can offer a company secretary for a small monthly fee (LKR 30,000 to LKR 45,000).
Submit the following forms through the company register to start a business in Sri Lanka:
- Form 1 (corporate registration)
- Form 18 (director consent and proof)
- Form 19 (secretary consent and proof)
- Two copies of the Articles of Incorporation.
This process is usually completed within 3 days. The cost is a flat rate of LKR 15,000 for Form 1 plus a flat rate of LKR 1,000 and 11% VAT for each of the other forms.
Registration of the company
When learning how to start a company in Sri Lanka, you must know about the registration process and include details of the business:
Register the company’s establishment with the daily newspaper and the government publishing office. This notice must be given within 60 days of incorporation, and the newspaper will issue the notice within 2 weeks. The cost is 7,000 LKR.
Obtain a taxpayer number (TIN) from the Taxpayer Service Unit of the Internal Revenue Service. It doesn’t cost anything and takes a day. This must be done directly.
Register for Value Added Tax (VAT), if applicable to your business type, with the VAT Registration Branch of the Inland Revenue Department. This takes a day and is free. You will be eligible for permanent VAT registration if your annual turnover exceeds 3,750,000 LKR each quarter.
Get an (EFP) Number from the Labour Department. Companies register here and pay tips to employees who have been employed for more than 5 years through the Central Bank of Sri Lanka. It is convenient to open a bank account in Sri Lanka as it is best to do all this directly, and you have to pay the membership fee on the go.
- Should be a limited liability company
- Should work in the largest business city in the economy. Data from 11 countries will also be collected for the 2nd largest business city
- Should engage in general industrial or commercial activities such as production or public sale of goods or services. The company should not be engaged in foreign trade activities and should not trade products subject to special taxation. Should not deal in spirits or cigarettes and should not be involved in contamination due to production
- Should not be eligible for investment incentives or special benefits
- Should have five business owners, none of whom is a legal entity. One entrepreneur to own 30% company stock, two owners to own 20% stake, and two owners to own 15% stake
- Should be run by a local director
- After the start of operations, there should be 10 to 50 employees a month, all of whom are domestic citizens
- Should have a start-up capital that is 10 times the income per capita
- Estimated turnover should be at least 100 times the per capita income
- Should rent commercial facilities and offices and not own real estate
- Should have an office space of approximately 929 square meters (10,000 square feet)
- Should have a 10-page company deed
How Much Does it Cost to Incorporate a Company in Sri Lanka?
The cost of incorporating a company in Sri Lanka:
For registration of a Private Limited Company
- Article of Association – Company Profile INR 2000.00 + VAT
- Form 01 – Application of Incorporation INR 4000.00 + VAT
- Form 18 – Consent of Directors INR 2000.00 + VAT X No of Directors
- Form 19 – Consent of Secretary INR 2000.00 + VAT
For registration of a Public Limited Company
- Article of Association – Company Profile INR 2000.00 + VAT (8%)
- Form 01 – Application of Incorporation INR 20000.00 + VAT (8%)
- Form 18 – Consent of Directors INR 2000.00 + VAT (8%) X No of Directors
- Form 19 – Consent of Secretary INR 2000.00 + VAT (8%)
- For registration of an Unlimited company: INR 15,000.00
- For registration of a company limited by Guarantee: INR 30,000.00
- For registration of mortgages, charges, and debentures: INR 7,500.00
- For registration of an annual return: INR 6,000.00
- The registration of any document required or authorized to be registered or required to be delivered, sent, given, or forwarded to filled with, the Registrar-General of Companies, other than the notices and reports required to be delivered to the Registrar-General of Companies by a receiver or manager, an administrator or a liquidator: INR 2,000.00
- For the approval of a name of a company (Name Request): INR 2,000.00
- For inspection of a file kept by the Registrar-General of Companies: INR 1,000.00
- For certification of any document or extract thereof filed with the Registrar-General of Companies: INR 1,000.00
- For inspecting the register of charges: INR 1,000.00
- For registration of individuals as Company Secretaries: INR 5,000.00
- For registration of sole proprietorship/partnership as Company Secretaries: INR 10,000.00
- For registration of Limited Companies as Company Secretaries: INR 10,000.00
- For registration of amount to be credited to a bank to defray the expenses of an offshore company for its office in Sri Lanka: the US $ 100,000.00
- For registration of an offshore company: INR 150,000.00
- For registration of a place of business in Sri Lanka by an Overseas Company: INR 60,000.00
Are Foreigners in Sri Lanka on Certain Passes Allowed to Start a Business in Sri Lanka?
As far as offshore company registration in Sri Lanka by non-residents is concerned, both Sri Lankan citizens and foreigners are eligible. When a person sets up a company, the same person cannot be the secretary, and a foreigner cannot be the company’s secretary.
Upon receiving approval, you must agree to the terms and conditions specified and reply in writing. Organizations hiring expatriate personnel need a Letter of Recommendation from the Appraisal Department. This should be submitted to the Department of Immigration and Emigration to get the necessary visa and work permits.
Government Assistance for Foreign-Owned Businesses
Many government agencies, private companies, and documents can help Sri Lankan entrepreneurs. There is also a strong entrepreneurial community in the country. Here are some of the options:
The Sri Lankan Government Information Centre
The Reserve Bank of Sri Lanka has created a guide for entrepreneurs. They will guide you step by step through the process of setting a company in Sri Lanka. The Sri Lankan Government Information Centre can help you with the registration process for each type of company.
Help with documents
The Ministry of Labor of Sri Lanka can provide labor law, statistics, mandatory forms, current affairs, and news. The Association of Certified Accountants in Sri Lanka provides documents on corporate structure.
Assistance offered by private firms
Many private consulting firms will work together to clarify your needs if you want to pay a small amount. They will provide you with insights into the basic requirements of the company’s work. They will also be available to answer your questions.
How Can Multiplier Help?
Setting a company in Sri Lanka can be time-consuming, costly, and complex. Sri Lanka’s pledge to raise average wage levels has created labor laws with strong worker protection. Passing local and national legislation makes local PEO and EOR like Multiplier invaluable.
Multiplier can assist with dealing with laws and paperwork, contract details, staffing, managing payroll, and more. In addition, contract workers can be converted to employees without forming a legal entity. New companies have the advantage of retaining top talent only with Multiplier.