Investing in Sri Lanka
How to Get Started

Financial Environment

• The Central Bank of Sri Lanka (CBSL) sets its foreign exchange and monetary policies through a monetary board.
• The CBSL intervenes in the market via direct sales and purchases, through open-market operations and at times through moral suasion.
• In January 2001, the CBSL allowed the LKR to float freely, in an attempt to stabilize interest rates and protect foreign currency reserves. This ended the managed-float regime that had been in place since 1980.
• LKR is partly convertible with only the current account being fully opened. Capital account is partially opened to the extent of permitting stock market investments and limited government securities ownership by non-residents.

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Banking

The performance of LCBs improved further in 2006 in terms of growth of assents, expansion in delivery channels, improvement in risk management risk absorption capacity and use of information technology. The LCBs, numbering 23, operated through a network of 1,530 branches, and 1,986 other service outlets. Supporting this network there were 1,127 automated teller machines (ATMs) and 8,753 electronic fund transfer facilities at the point of sale (EFTPOS) machines, which contributed towards greater accessibility of banking services. There were 16 banks providing fully fledged Internet banking facilities with many banks utilizing the developments in information and communication technologies to offer innovative service delivery mechanisms such as postal network and mobile phones to deliver financial and payment related services were witnessed during the year.

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Colombo Stock Exchange

Share trading in Sri Lanka dates back to 1896 under the Colombo Share Brokers Association. Developments keeping in line with changing global trends resulted in the establishment of the Colombo Stock Exchange(CSE) in 1985. The capital markets regulator of the country, the Securities and Exchange Commission, formally recognized the role of the CSE and issued a license in 1987. The subsequent establishment of a Central Depository System and the implementation of an Automated Trading System has resulted in the CSE being recognized as one of the most developed and technologically advanced exchanges in the region. The CSE has 237 listed companies and a market capitalization of LKR 869 billion as at March'07. Equity is the main instrument traded in the CSE accounting for over 96% of its turnover. The subsequent launch of the Debt Securities Trading System facilitates trading in corporate and government debt, giving investors further investment opportunity. The CSE has witnessed sound performance over the last few years with annual market turnover crossing the LKR 100 billion in both 2005 and 2006. Net foreign investment also witnessed the highest figures ever with LKR 6.1 billion in 2005 and LKR 5.4 billion in 2006.

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TAX

Non Residents are taxed on 100% of the value of the Asset (Land/House). In case of rent/lease no additional tax will be charged.

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How we can help you

Global Wealth Management

At HSBC we provide you with a comprehensive range of wealth management products to cover most of your investment needs, with access to myriad of local and global market information to keep you abreast of the latest financial market news and development.

Investment services

Optimise your wealth potential and build a balanced investment portfolio with HSBC's wide range of investment services.

Investment Opportunities and Services for Non-Residents

• Government Securities denominated in rupees and foreign currency with all earnings and principal being fully repatriable.
• Share investments with earnings from capital gains and dividends being fully repatriable.
• Trade services such as import cover, pre/post export financing.
• Authorised investors with the BOI are eligible for tax breaks and FCBU accounts, which are free from exchange control regulations.

Hedging exchange rate movements: access to the spot market, forward market and LKR options.

Fixed Income Instruments for Non-Residents

Treasury Bonds

The Government has decided to permit foreign investors to purchase and hold rupee denominated treasury bonds not exceeding 5% of the total value of treasury bonds outstanding at any given point of time. Therefore, the below categories of foreign investors are eligible to purchase, hold and transfer treasury bonds with any maturity period through both primary and secondary markets utilizing the existing public debt system. Foreign investors are permitted to enter into Repo/Reverse Repo transactions in Sri Lanka using Treasury bonds purchased under this scheme as collateral.

Who is eligible?

a.Foreign country funds, mutual funds or regional funds approved by the Securities and Exchange Commission of Sri Lanka.

b.Corporate bodies incorporated outside Sri Lanka.

c.Citizens of foreign states.

Repatriation

All proceeds received by sale or transfer or maturing of treasury bonds and interest income of treasury bonds shall be fully repatriable. However, such repatriation should be routed through the custodian bank that maintains the TIERA.

Sri Lanka Development Bonds

All proceeds received by sale or transfer or maturing of treasury bonds and interest income of treasury bonds shall be fully repatriable. However, such repatriation should be routed through the custodian bank that maintains the TIERA.

Who is eligible?

a. Citizens of foreign states whether resident in Sri Lanka or outside Sri Lanka.

b. Citizens of Sri Lanka who have made their permanent abode outside Sri Lanka.

c. Citizens of Sri Lanka who have proceeded outside Sri Lanka to take up employment or to set up in business or in a profession.

d. Citizens of Sri Lanka who have dual citizenship provided that those citizens substantiate that their permanent place of abode is outside Sri Lanka.

e. Bodies corporate or unincorporated established under the laws of a country other than Sri Lanka.

f. Companies who have entered into agreements in terms of Section 17 of the Board of Investment of Sri Lanka Law No. 4 of 1978 with full exemption from the provisions of the Exchange Control Act provided that all purchases of SLDB's are made against debits to foreign currency accounts maintained only for the purpose of crediting earnings from exports of such companies.

The SLDB's are not sold in the USA or to persons residing in the USA.

Sri Lanka Nation Building Bonds

The Sri Lanka Nation Building Bond (SLNBB) is a debt instrument with tenure of 5 years denominated in either US dollars (USD), British pounds (GBP) or Euros (EUR). Issued in scripless form the records of investors/investments are maintained by the custodian bank, Deutche Bank, Colombo.

Minimum investment

Currency      Amount

USD             500

GBP             250

EUR             500

Investors in SLNBB's are entitled to import a vehicle to Sri Lanka at concessionary rates of duty and taxes based on guidelines issued by the Treasury.

Who is eligible?

a. Sri Lankans who have their permanent residence overseas (non residents).

b. Citizens of Sri Lanka who have taken up overseas employment or set up business in abroad.

c. Citizens of Sri Lanka with dual citizenship.

d. Sri Lankan professionals living in Sri Lanka or abroad who earn income in foreign currency.

e. Banks acting in fiduciary capacity on behalf of the above categories.

Both the principal and interest on SLNBB's are fully repatriable.

Other Investment Instruments

Both the principal and interest on SLNBB's are fully repatriable.

a. Investments in the Colombo Stock Exchange do not require approval provided the transactions are routed through a SIERA.

b. All share-related transfers routed through SIERA may be conducted without Exchange Control approval.

c. Forwards are allowed for hedging against stock market-related transactions up to four days from the date of purchase of shares, settlements that must be routed through a SIERA.

d. Foreign investors and corporations have access to the spot market.

e. Import cover can be extended to two years (720 days).

f. Local subsidiaries are allowed to cover foreign exchange up to two years forward, backed by trade documents at the point of taking delivery.

g. Overdraft facilities: local subsidiaries of foreign corporations are allowed to overdraw local currency, and not foreign currency, in onshore operations.

h. Investors registered with the Export Development Board (EDB) can open Business Foreign Currency Accounts (BFCA) and maintain their export proceeds in foreign currency.

i. Companies who have entered into agreements in terms of Section 17 of the Board of Investment of Sri Lanka are permitted to open Foreign Currency Banking Unit (FCBU) accounts.

j. Foreign Currency Banking Unit (FCBU) accounts can be overdrawn in foreign currency but not local currency and are free from exchange control regulations.

k. Pre/post shipment financing is available in foreign currency for exporters.

a. Commercial banks are permitted to open and maintain the following rupee accounts for non–residents

b. Temporary rupee accounts

c. Non-Resident Rupee Accounts (NRRA)

d. Share Investment External Rupee Accounts (SIERA)

e. Rupee Accounts for Non Resident Sri Lankan Investment (RANSI)

f. Treasury Bond Investment External Rupee Accounts (TIERA)

Non-Resident Rupee Accounts (NRRA)

• Non-resident rupee accounts may be opened for foreign nationals resident outside Sri Lanka, companies and firms registered outside Sri Lanka, Sri Lankan nationals resident outside Sri Lanka (other than emigrants), foreign banks, which do not carry on banking activities in Sri Lanka.
• Permitted credits and debits to Non Resident Rupee Accounts (NRRA) held by foreign nationals resident outside Sri Lanka and companies and firms registered outside Sri Lanka are the following:
  
  Credits:proceeds of inward remittances received in favour of the account holder and permitted local credits other than funds derived from capital transactions.
  debits:outward remittances in respect of current account transactions and local disbursements.
• Permitted credits and debits to NRRA held by Sri Lankan Nationals resident outside Sri Lanka are the following:
  
  Credits:proceeds of inward remittances in favour of the account holder and local credits.
  debits:outward remittances in respect of current account transactions.
• NRRA's in respect of foreign banks may be operated without any restriction.

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Ways to Bank

Access to your account in Sri Lanka is easy, wherever you may be. With HSBC Internet Banking and our telephone banking service, you can manage your finances anywhere, 24 hours a day, 7 days a week. Furthermore, with our new security token to access HSBC Internet Banking, you can be assured that your information is being protected by one of the most sophisticated online security systems in Sri Lanka.

Disclaimer

• Account opening and investment overseas is subject to Sri Lankan Exchange Control regulations.
• This section is intended as a general guide for reference only.
• The information contained in this section should not be relied upon as a substitute for professional advise in individual cases. Future changes in legislation, tax levels and practice could affect the information on this site.
• The information shown is based on date or information obtained from sources believed to be reliable but HSBC makes no representation and accepts no responsibility as to its accuracy or completeness, and will not be held liable for damages arising out of any person's reliance upon this information.
• Investment involves risks. You should carefully consider whether any investment products and services are appropriate for you in view of your investment experience, objectives, financial resources, and relevant circumstances. Investors should refer to the individual product explanatory notes or offering document for further details and risks involved.

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