Sri Lanka is a country of extraordinary natural beauty and economic potential from beachfront plots to fertile plantation estates and high-value urban land. But for foreign investors, buying land in Sri Lanka requires navigating a complex legal landscape.
This article explains the rules around foreign land ownership in Sri Lanka and how our company helps you make it happen.
The Legal Framework for Foreign Land Ownership in Sri Lanka
Foreign ownership of land in Sri Lanka is governed primarily by the Land (Restrictions on Alienation) Act No. 38 of 2014, along with its subsequent amendments Act No. 3 of 2017 and the Land (Restrictions on Alienation) (Amendment) Act of 2018. These laws were introduced to regulate the acquisition of land by foreigners, prevent speculative land grabbing, and ensure that control of Sri Lanka’s real estate market remains largely within local hands.
The 2014 Act (Land (Restrictions on Alienation) Act No. 38 of 2014)
Core Prohibition:
- The Act prohibits the transfer of freehold land to foreign individuals, foreign companies, and Sri Lankan companies where 50% or more of the shareholding is foreign-owned.
- This was a significant tightening of rules, as prior to 2014 foreigners could sometimes acquire land directly subject to a heavy 100% land transfer tax.
Immediate Implications:
- Direct freehold ownership by foreigners became illegal.
- Many international investors turned to long-term leases, condominium ownership, or structured local partnerships as alternatives.
The 2017 Amendment (Land (Restrictions on Alienation) (Amendment) Act No. 3 of 2017)
The 2017 amendment was passed to encourage foreign investment while still safeguarding Sri Lanka’s land assets.
- Key Changes:
- Abolition of the Lease Tax:
- Prior to 2017, foreigners leasing land were required to pay a 15% Lease Tax on the total rental value upfront.
- This was considered excessively burdensome and discouraged legitimate foreign investment.
- The 2017 amendment abolished this tax, making long-term leases (up to 99 years) a far more attractive option.
- Stamp Duty Application:
- Although the Lease Tax was abolished, Stamp Duty continued to apply to lease agreements and property transfers.
- Stamp duty is charged at:
- 3% on the first LKR 100,000 of the property value.
- 4% on the balance value.
- Condominium Ownership Clarification:
- Reaffirmed that foreigners may own condominium units in buildings registered under the Condominium Management Authority (CMA).
- However, such ownership is restricted to units located on the 4th floor or above, to prevent foreign domination of land at ground level.
- Abolition of the Lease Tax:
The 2018 Amendment (Land (Restrictions on Alienation) (Amendment) Act of 2018)
The 2018 amendment further refined the framework, particularly for company structures and long-term foreign investments.
- Sri Lankan Companies with Foreign Shareholding:
- A company incorporated in Sri Lanka may acquire freehold land provided at least 51% of the shares are owned by Sri Lankan citizens.
- Foreigners may hold up to 49%.
- Control Mechanisms for Foreign Investors:
- To protect foreign investors, the law recognizes shareholder agreements, trust arrangements, and other contractual mechanisms that allow foreigners to maintain effective control over land-owning companies even when they hold a minority stake.
- The 2018 amendment also introduced provisions for buyout or share transfer mechanisms after 20 years, giving foreign investors a pathway to restructure ownership in the long run.
- Strategic Investments:
- Certain strategic projects approved by the Sri Lankan government (e.g., large-scale tourism, BOI-approved investments, or infrastructure projects) may receive exemptions or preferential treatment.
Taxation & Financial Regulations
Even though foreign ownership is restricted, taxation rules still apply to property transactions involving foreigners.
- Stamp Duty:
- 3% on the first LKR 100,000 and 4% thereafter.
- Capital Gains Tax (CGT):
- Flat 10% on profits when property is sold.
- Value Added Tax (VAT):
- 15% may apply to certain condominium purchases.
- Inward Investment Accounts (IIA) / Securities Investment Accounts (SIA):
- All funds used for property transactions must flow through these accounts to ensure legality and repatriation rights.
Practical Legal Pathways for Foreign Investors
- Condominium Ownership
- Legally permitted, but only in CMA-approved developments.
- Restricted to units above the 4th floor.
- Popular for residential, rental yield, and commercial office investments.
- Long-Term Leases (Up to 99 Years)
- Legally secure and tax-efficient since the lease tax was abolished.
- Common for tourism, hospitality, industrial, and agricultural projects.
- Sri Lankan Company Structures
- A company with at least 51% Sri Lankan ownership can acquire freehold land.
- Foreign investors may hold up to 49%, with shareholder agreements used to safeguard decision-making power.
- Certain sectors (e.g., BOI-approved projects) may provide additional incentives.
Legal Pathways for Foreigners
- Condominium Ownership
- Direct ownership possible if the building is legally registered under the Apartment Ownership Law.
- Often the easiest option for residential or commercial investors.
- 99-Year Lease Agreements
- Provides long-term control over land without freehold.
- Ideal for development projects, tourism ventures, or plantations.
- Stamp duty is typically 1%.
- Sri Lankan Company Structure
- A company incorporated in Sri Lanka can acquire freehold land if at least 51% is locally owned.
- Foreigners may hold up to 49%, with control mechanisms secured through shareholder agreements, trust structures, or buyout options after 20 years (per amendments to Act No. 38).
Financial & Compliance Requirements
For foreign investors, it is not enough to structure ownership legally funds must enter Sri Lanka through approved banking channels, taxes must be correctly paid, and compliance procedures must be strictly followed. This ensures not only that the investment is valid under Sri Lankan law, but also that profits can be legally repatriated overseas without obstacles.
1. Fund Inflows: Using the Correct Bank Accounts
Foreign investors are required to use specialized investment accounts when transferring money into Sri Lanka. This prevents disputes with the Central Bank and guarantees the right to take profits back out.
- Inward Investment Account (IIA):
- The primary account type for foreigners investing in land, property, and companies in Sri Lanka.
- Foreign currency is remitted into the IIA, converted into Sri Lankan Rupees, and then used for property purchases, lease payments, or shareholding in a company.
- When the investor sells the property or exits the investment, capital and profits can be remitted back abroad through the same channel.
- Securities Investment Account (SIA):
- More commonly used for investments in listed securities and financial assets.
- In certain cases (e.g., investments through a company structure), an SIA may be used to route funds.
Risk Warning: If an investor uses informal transfers, nominee accounts, or standard bank accounts, the Central Bank may refuse approval for repatriation, effectively trapping profits in Sri Lanka.
2. Taxes and Duties
All property transactions in Sri Lanka are subject to statutory taxes and levies, regardless of whether the buyer is foreign or local. The key obligations are:
- Stamp Duty:
- Payable on all land transfers and lease agreements.
- Rate: 3% on the first LKR 100,000, and 4% on the balance.
- Example: On a property worth LKR 10 million, stamp duty would be approximately LKR 399,000.
- Capital Gains Tax (CGT):
- Imposed on profits from the disposal (sale or transfer) of land, apartments, or shares in property-owning companies.
- Rate: 10% flat on the gain.
- Example: If you purchased land for LKR 20 million and sold it for LKR 30 million, the gain is LKR 10 million, and CGT would be LKR 1 million.
- Value Added Tax (VAT):
- Applies mainly to newly built condominium units and certain commercial property transactions.
- Rate: 15% of the transaction value.
- Developers usually factor VAT into the price, but buyers should confirm this in writing.
- Other Levies (Case-by-Case):
- Nation Building Tax (NBT) and Stamp Duty Surcharge may occasionally apply depending on the nature of the transaction.
- Annual Property Taxes and municipal rates are also applicable, especially in Colombo and urban council areas.
3. Due Diligence & Legal Compliance
Sri Lankan property law places strong emphasis on title clarity and regulatory approvals. Skipping due diligence is one of the biggest mistakes foreigners make. A proper compliance process typically involves:
- Title Deed Verification:
- Ensures the seller has clear and marketable ownership rights.
- Checks for competing claims, family disputes, or forged documents.
- Land Registry Search:
- Confirms that the property is properly recorded with the Land Registry.
- Identifies whether there are mortgages, liens, or caveats against the land.
- Survey Plan Review:
- Conducted by a licensed surveyor to confirm accurate boundaries and size.
- Prevents disputes with neighbors or encroachment issues.
- Regulatory Approvals:
- Urban Development Authority (UDA): For urban and metropolitan land, planning approval is mandatory.
- Local Council Approvals: Zoning, building permits, and environmental clearance (especially for coastal or agricultural land).
- Board of Investment (BOI): Required if the project is being developed under special investment schemes.
- Environmental & Coastal Zone Compliance:
- For beachfront or plantation properties, clearance from the Coast Conservation Department or Central Environmental Authority may be required.
4. Why Compliance Matters
Failure to comply with financial and legal requirements can have severe consequences:
- Inability to repatriate profits to your home country.
- Risk of property being declared invalidly transferred or subject to legal disputes.
- Exposure to penalties, tax arrears, or even cancellation of ownership rights.
How The Property Planners Group Helps You
Our group structure combining Australian governance with Sri Lankan subsidiaries — allows us to legally and safely bridge the gap for foreign investors:
- End-to-End Service: from acquisition, planning, and approvals to development, plantation management, and resale.
- Regulatory Compliance: we work within the Land (Restrictions on Alienation) Act framework to structure ownership properly.
- Investor Pathways: we offer clear structures, whether through 99-year leases, company setups, or condominium investments.
- Transparency & Repatriation: funds flow through approved banking channels, ensuring you can legally repatriate profits and dividends.
- Sustainable Value: we specialize not just in acquisition but in sustainable agriculture and long-term land value creation.
Why Choose Us?
Foreigners face risks in Sri Lanka when attempting “shortcuts” such as nominee shareholders or unregistered developments. These often lead to disputes, loss of property, or blocked repatriation.
At The Property Planners, we offer a trusted, transparent, and compliant pathway:
- Australian-registered parent company for international credibility.
- Locally registered subsidiaries for full legal operation.
- A proven track record in property, land development, and plantations.
- Commitment to integrity, compliance, and sustainable growth.
FAQs on Foreign Land Ownership in Sri Lanka
Can foreigners buy freehold land in Sri Lanka?
No. Under the Land (Restrictions on Alienation) Act No. 38 of 2014, foreigners (individuals, foreign companies, or Sri Lankan companies with over 50% foreign shareholding) are prohibited from owning freehold land. However, there are legal alternatives such as long-term leases, condominium ownership, or forming a Sri Lankan company with majority local ownership.
Can foreigners buy apartments or condominiums in Sri Lanka?
Yes. Foreigners are allowed to own condominium units in developments registered with the Condominium Management Authority (CMA). Ownership is typically restricted to units on the 4th floor and above, preventing foreign control of ground-level land.
Can foreigners lease land in Sri Lanka?
Yes. Foreigners may lease land for up to 99 years. Lease agreements are legally secure, especially since the 15% Lease Tax was abolished in 2017. This is a popular option for tourism projects, plantations, and long-term development ventures.
Can a foreigner own land through a Sri Lankan company?
Yes, but only under certain conditions. A company incorporated in Sri Lanka can own freehold land if at least 51% of the shares are owned by Sri Lankan citizens. Foreigners may hold up to 49%, with shareholder agreements and other mechanisms available to protect investor control.
What taxes do foreigners pay when buying property in Sri Lanka?
- Foreign investors are subject to the same property-related taxes as locals:
- Stamp Duty: 3% on the first LKR 100,000, 4% thereafter.
- Capital Gains Tax (CGT): 10% on the profit when selling property.
Value Added Tax (VAT): 15% may apply to new condominium purchases.
Additional municipal rates and levies may apply depending on the location.
How can foreign investors send money into Sri Lanka for property purchases?
All funds must be remitted through an Inward Investment Account (IIA) or Securities Investment Account (SIA) at a licensed Sri Lankan bank. This ensures compliance with Central Bank rules and guarantees the right to legally repatriate capital and profits abroad.
How do foreigners repatriate profits from property in Sri Lanka?
If the investment is made through an IIA or SIA, profits, dividends, and capital gains can be legally remitted abroad after taxes are paid. Using informal transfers or standard accounts risks blocking repatriation.
What due diligence is required before purchasing property in Sri Lanka?
- Foreign investors must ensure:
- Title deed verification (clear ownership, no disputes).
- Land registry search (to check mortgages, liens, or caveats).
- Survey plan review (accurate boundaries).
- Regulatory approvals (UDA, BOI, local councils, environmental clearance if required).
Are there exemptions for large or strategic investments?
Yes. Certain strategic investments, such as large-scale tourism projects, Board of Investment (BOI)-approved ventures, or government-prioritized infrastructure, may receive exemptions or preferential treatment under the 2018 amendment.
Is it risky for foreigners to use nominee shareholders to hold land?
Yes, highly risky. Using local “nominees” to bypass restrictions is illegal and often results in disputes, loss of property, or inability to repatriate profits. The only safe pathways are condominiums, leases, or properly structured companies.
Final Thoughts
While Sri Lankan law restricts direct freehold land ownership by foreigners, there are clear, legal pathways to control, develop, and profit from land. The key is structuring investments correctly and transparently.
With our dual-jurisdiction structure and deep local expertise, The Property Planners Group is uniquely positioned to help you acquire and develop land in Sri Lanka from initial planning to long-term management.
Contact us today to discuss your investment goals and discover how we can help you secure sustainable, compliant, and profitable land opportunities in Sri Lanka.
Disclaimer: This article is for informational purposes only and does not constitute legal advice. Investors should consult a qualified Sri Lankan property lawyer directly or though us before finalizing any transaction.
