Guide to buying property in Sri Lanka for foreigners and expats
What are the rules and regulations for expats and foreigners buying and renting property in Sri Lanka?
Foreigners still cannot purchase land and property from ground level to 4th floor, although it has been proposed in the 2018 budget to remove restrictions for buying property from ground-up (the proposals haven’t still been implemented). This would allow foreigners to also buy Houses, Villas and Bungalows. Currently land can only be leased up to 99 years (which is not expected change due to the proposed changes) and apartments purchased from 4th floor and above only.
Private companies with majority foreign holdings will be allowed to lease land on a long-term basis. However, such companies should have invested at least 250 million rupees excluding the value of land providing employment to at least 150 people, and have maintained this for at least three years.
Public companies with over 50% foreign ownership will be permitted to buy immovable property.
Buying land
Sale of land to foreigners has been prohibited from the 2013 budget. Land can only be leased out for a max of 99 years. Foreigners or companies (with more than 50% foreign ownership) no longer need to pay the 15% land tax from 1st Jan 2016 (LAND (RESTRICTIONS ON ALIENATION) (AMENDMENT) – issued 2nd Sept 2016)
Taxes for Property
There will be a 15% VAT Tax on anyone buying an Apartment after 1st of April 2018 (possibly for apartments launched after this date). This applies to both locals and foreigners. There is a 1% Stamp Duty for leasing land up to 99 years.
If buying a property, there will be a 3% Stamp Duty on first 100,000 and 4% thereafter. A lawyer will typically charge 2-3% for preparing the documents.
Taxes for landlords
Anyone leasing out a property to a foreigner or local will need to pay a 1% stamp duty when the rent is collected.
VAT is payable at 15% if the lease is to a VAT Registered person, other than on residential premises. Further, the sale of land & buildings other than residential premises will also be liable to VAT at 15% on the value.
Capital Gains Tax (CGT)
The Capital Gains Tax of 10% on the gains (profits), will become effective from 1st April 2018. It will be a flat 10% rate irrespective of the period of ownership. It’s still unclear as to the exact implementation of the tax. The tax will be applicable to both foreigners and locals. For any assets owned/bought prior to April 1st 2018, then the value of that asset will be calculated as at 30th September 2017. There has been suggestion that any gains of less than Rs. 50,000 will not be subjected to CGT and if the property being sold has been your principle place of residence for 2 of the last 3 years, then CGT will not be applicable. These will become clear when the act is gazetted in March.
Read more about Capital gains tax here.
Moving money in and out of the country
If a foreign resident wants to purchase a property, then the money will need to be channelled in to the country via a special SIA (Securities Investment Account), held at a local bank. Once the property has been sold, the money can be taken out (plus any gains) via the same account in the currency that the money was deposited in. If you currently own a property where the money hasn’t been brought via a SIA account (eg. inherited, bought while a citizen of Sri Lanka), then there’s an annual limit of $20,000 when taking the money out of the country. You could still take the money out at once, if the source of the money can be proven to the bank and Central Bank (this whole process will take a few months to complete).
The government will allow $45,000 to be brought in to the country without declaring the source (Budget 2017)
The budgets of 2017 & 2018 has proposed that foreigners be allowed to borrow money from local banks for the purchase of condominiums (up to 40%).
Updates
Update 09/12/2017 – 3rd reading of the 2018 Budget (Committee Stage) passed in Parliament
Update 09/11/2017 – Budget 2018 proposes the implementation of the proposals from the 2017 Budget
Update 07/09/2017 – Inland Revenue Bill Passed
Update 10/11/2016 – Budget 2017 proposes Capital Gains Tax, removing restrictions of foreigners buying property (freehold right restrictions) and ability for foreigners to get loans/mortgages from domestic banks for property purchases.
Update 02/09/2016 – The 15% tax on land lease for foreigners was removed from 1st Jan 2016 via the LAND (RESTRICTIONS ON ALIENATION) (AMENDMENT) gazette
Update 31/10/2014 – Land (Restrictions and Alienation) Act published. Read it from here
Update 03/08/2014 – New legislation is being drafted to strictly enforce rules pertaining to the 2013 ban on foreigners owning land. There will be a tax of 15 per cent on the value of the lease. With new laws you are also not allowed to circumvent this ban by purchasing the land through a majority Sri Lankan nominee owned company. It’s assumed that this law will not apply to foreign-owned companies of more than 10 years (TBC).
Update 03/11/13 – the Investment Promotion Ministry is to submit a cabinet paper to reduce the land transfer tax to below 10 per cent to facilitate foreigners seeking to lease land.
Update 17/02/13 – Sri Lankan expats holding foreign citizenship can now buy land in Sri Lanka.