Investor Incentives

➦ Loans and Additional Loans

Special Credit Support Scheme to eligible Small and Medium Enterprise (SME) - 01.01.2020 to 31.12.2020

Special Credit Support Scheme introduced to eligible Small and Medium Enterprises (SMEs) engaged in business of manufacturing, services, agriculture (including processing) and construction. (SMEs shall mean borrowers with an annual turnover between Rs. 16 mn to Rs. 750 mn for the year ended 31.12.2019). Credit facilities to be supported under the scheme shall be business related to term loans, leasing facilities, overdrafts and trade finance facilities denominated in Rupees. Licensed banks may grant an additional loan or a new loan facility not exceeding Rs. 300mn per bank per borrower provided that the borrower submits a credible business plan.

Rescheduling of loans and advances

Interest shall be deferred depend on amount of capital repaid. The balance capital and interest shall be rescheduled. The deferred interest shall be waived by the licensed banks, after the borrower settles the rescheduled loan. The rescheduled loans shall be repaid over a period not exceeding twice the remaining number of instalments of the original loan. A one-year grace period shall be granted for capital repayment of loans and borrowers will be required to service interest in a timely manner.

Reporting to the Credit Information Bureau (CRIB)

Licensed banks are expected to have a mechanism not to decline loan applications solely based on an adverse CRIB record. Licensed banks, in consultation with CRIB, shall develop a reporting modality in respect of the capital deferment granted under the scheme to performing borrowers, so that participation in the Scheme will not have an impact on the credit score of borrowers or be negatively reflected in future CRIB reports.

➦ Tax Concessions and Incentives
  • Value Added Tax (VAT) rate reduced from 15% to 8% with effect from 1st December, 2019 and VAT registration limit increased to Rs. 300 Million per annum from 12 Million.

  • Nation Building Tax (NBT) abolished with effect from 1st December 2019 and NBT charged at a rate of 2% on turnover on or before 30th November 2019.

  • Economic Service Charge (ESC) abolished from 1st January, 2020 and ESC charged on turnover exceeds Rs. 12.5 Million per quarter at a rate of 0.05%.

  • Withholding Tax on Interest shall be charged on amount of interest in excess of Rs. 250,000.00 per month and with effect from 1st April, 2020 such WHT on interest shall be abolished.

  • Withholding tax on Services fee abolished from 1st January, 2020 which was subject to 5% WHT from individual service providers on any payment in excess of Rs. 50,000.00 per month.

  • Withholding tax on Rent, Dividends, Royalty, and Annuity shall be abolished from 1st April, 2020.

  • Withholding tax on Rent, Dividends, Royalty, and Annuity shall be abolished from 1st April, 2020.

  • Withholding Tax (PAYE) on employment income shall be abolished from 1st April, 2020.
➦ Income Tax Exemptions

Income tax shall be exempted from profit and income of agriculture, livestock and fishing with effect from 1st April, 2019.
Income tax shall be exempted from profit and income of Information Technology and services provided to outside Sri Lanka from 1st January, 2020.

➦ Corporate Income Tax Rates – (2020/2021)
  • Export, Tourism, Education, Health Services, Construction and Agri. Processing - 14%
  • Manufacturing - 18%
  • Liquor, Tobacco and Betting & Gaming - 28%
  • Others - 24%
➦ Personal Income Tax

Individual Income Tax free allowance has been increased to Rs. 3 Million per year of assessment with effect from 1st April, 2019. 6% and 12% of income tax rates applicable for each slab of taxable income of Rs. 250,000.00 and balance shall be taxed at 18%.

Investment Incentives under Inland Revenue Act of Sri Lanka

➦ Enhanced Capital Allowances

A Capital Allowance of 100% of the expenses incurred by a person on depreciable assets, other than intangible assets during a year of assessment shall be granted to that person for that year if the total expenses incurred by that person during that year on depreciable assets (other than intangible assets) that are used in a part of Sri Lanka other than the Northern Province exceeds USD 3 million but does not exceed USD 100 million.

A Capital Allowance of 150% of the expenses incurred by a person on depreciable assets other than intangible assets during a year of assessment shall be granted to that person for that year if the total expenses incurred by that person during that year on depreciable assets (other than intangible assets) that are used in a part of Sri Lanka other than the Northern Province exceeds USD 100 million.

AA Capital Allowance of 200% of the expenses incurred by a person on depreciable assets other than intangible assets during a year of assessment shall be granted to that person for that year where the total expenses incurred by that person during that year on depreciable assets (other than intangible assets) that are used in the Northern Province exceeds USD 3 million..

A Capital Allowance of 150% of the expenses incurred by a person on assets or shares of a state owned company during a year of assessment shall be granted to that state owned company for that year if the total expenses incurred by that person during that year on assets of a state owned company that are used in a part of Sri Lanka exceeds USD 250 million.

➦ Exemption of Certain Dividends from Withholding Tax

The Rate of tax to be withheld from a dividend paid by a Company to a non-resident member shall be zero, if the company paying the dividend has incurred more than USD 1,000 million on depreciable assets (other than intangible assets) in Sri Lanka or entitled to an enhanced capital allowance under above (4), and that dividend is paid out of profits sheltered by enhanced Capital allowances.

➦ Exemption of Employment Income from Withholding Tax

The Rate of tax to be withheld from a payment made by an employer to an expatriate employee shall be zero, if the company paying the dividend has incurred more than USD 1,000 million on depreciable assets (other than intangible assets in Sri Lanka or entitled to an enhanced capital allowance under above (4), where the number of expatriate employees is not exceeding twenty.

Investment Incentives – Budget Proposal 2019

➦ Large Scale Projects (Investment above $100 Million)

TA person that invests a total sum of US$ 100 mn or more in depreciable assets, excluding intangible assets, in a project approved by the Board of Investment of Sri Lanka established under Board of Investment Law No. 4 of 1978 shall be eligible for a deduction of 150% of such actual expenditure incurred in each of such years on such assets for a period of 10 years from commercial operations.

➦ Investments over US$ 1 billion

For investments over US$ 1 billion, in addition to the benefits outlined above, the period for deduction of unrelieved losses shall be 25 years.
The rate of dividend tax paid by the company to a non-resident shall be zero during the period that such dividends are paid out of profits sheltered by enhanced capital allowances.
Expatriate employees in a company investing more than US$ 1 billion shall be exempt from withholding tax on employment income during the period that profits are sheltered by enhanced capital allowances.

➦ Mid-size Investments over US$ 50 million

For investments over US$ 50 million but less than US$ 100 million, the additional deduction would be 100% on actual expenditure under the same conditions, whereby upfront taxes will be exempt for such investments during the period of construction, prior to commencement of commercial operations.