setting up a business in sri lanka as a foreigner

If you are thinking of starting a business in Sri Lanka, it would be wise to arrive with a plan and some capital. The World Bank ranks the country in 109th out of 189 countries in its "Ease of doing business" index. However, Sri Lanka has seen the emergence of more new companies in the last decade. The government has made efforts to promote trade and entrepreneurship.

Although the creation of a company involves minor administrative obstacles, the process is quick and direct. Registration is best done in person, not online. Here are some important tips for the potential entrepreneur in Sri Lanka.

What are my company's options?

There are several types of commercial structures in Sri Lanka. These are:

• Single owner
• Camaraderie
• Limited Liability Company
• Public limited company
• Company abroad
• Offshore company

Single owner

The structure of a sole proprietorship is similar in most countries. When you register as a sole trader, a personal income rate is applied. You are responsible for all obligations of the company. This is the easiest and fastest business to set up. As a sole trader, you can still employ other people.

Camaraderie

A registered company is similar to a sole proprietorship, but ownership is shared. From a legal and fiscal perspective, all partners share the company's obligations. Associations are not subject to taxes as separate legal entities, so members are subject to personal income rates.

Limited Liability Company

The limited liability company is the most common type of business in Sri Lanka. Requires a director and two shareholders. No minimum share capital is required. The company secretary must be a person residing in Sri Lanka.

Public limited company

A corporation does not require minimum share capital either. This type of business is required to have two shareholders and two directors. Directors must submit annual statements, along with audited accounts and financial statements. The shares can be issued on the stock exchange.

Foreign company

A foreign company can be foreign owned and can serve as a branch. The parent company defines this type of company operations. The company must register with the Treasury and is subject to a 10% branch tax on profits.

Offshore company

An offshore company can conduct business outside of Sri Lanka. However, you cannot do business within the country, but you will still be registered there

How do I register my company?

The process of registering a company in Sri Lanka is simple. On average, the whole process takes about ten days from beginning to end. Here are the steps:

1. Through the Register of companies online, you must search and reserve the name of your company. This reservation will remain valid for three months. It costs Rs 1,000 from Sri Lanka (LKR), or the equivalent of about € 6. Your registration will be confirmed within two da

2. Then, the secretary and the director of the company must sign a consent form. This is done in person and only takes one day. If you do not have a secretary in mind, local organizations will serve to provide a company secretary for a small monthly fee (between 30,000 LKR and 45,000 LKR). Send the following forms through the Company Registry: Form 1 (Company Registry), Form 18 (Consent and Director Certificate), Form 19 (Consent and Secretary Certificate) and two copies of your Bylaws. This process is usually completed in 3 days. The cost is a flat rate of 15,000 LKR for Form 1, plus a flat rate of 1,000 LKR plus 11% VAT for each of the other forms.

3. Give public notice of the incorporation of your company in the Daily Newspapers and the Government Publications Office. You must deliver this notice within 60 days after incorporation, and the newspaper will publish your notice within two weeks. It will cost LKR 7,000.

4. Obtain a Tax Identification Number (TIN) from the Taxpayer Services Unit of the Internal Revenue Department. There is no charge and it takes a day. This must be done in person.

5. If applicable, register for the Value Added Tax (VAT) at the VAT Registration Branch of the Internal Revenue Department. It takes a day and has no cost. If you deliver more than 3,750,000 LKR per quarter, you can obtain permanent VAT registration.

6. Obtain a number (EFP) from the Department of Labor. Companies register here to pay tips to employees over five years old through the Central Bank of Sri Lanka. This takes a day and has no cost.

As this is all best done in person, and you’ll need to pay your fees on the way, it’ll help to get a bank account set up in Sri Lanka. And if you need to send money to your new Sri Lankan account, you’ll get the best deal with transfer Wise.

With Transfer Wise, you’ll get the exchange rate you see on Google, and a transparent, up-front fee for you transfer so you know exactly how many Rupees you’ll be getting.

What are my legal obligations and responsibilities?

The Sri Lankan Department of Inland Revenue lays out the tax structure required for individuals, partnerships, and companies. Depending on your situation, you may be entitled to tax-free allowance in Sri Lanka, provided that your income is under a certain amount.

The Institute of Chartered Accountants in Sri Lanka created a code of corporate governance with respect to all company financial procedures. Within the code, they suggested that companies should develop a transparent policy on executive and director compensation. Corporate governance standards are now mandatory for all listed companies and they must cover training, compliance reporting and board structure.

According to Sri Lankan labor law, an employee is entitled to 14 days of paid annual leave after serving 12 months continuously at the company. Workers are entitled to one and a half days off per week, as well as pay on all public and religious holidays. They are also entitled to half a month’s salary for each completed year of service after five or more years in the event of a termination. Maternity leave is 12 weeks in Sri Lanka.

There’s no pension scheme for private-sector employees in Sri Lanka. However, companies must pay gratuities to employees after five years in companies of 15 people or more.

What if I need more help setting up my business?

There are many public bureaus, private companies and documentation available to assist entrepreneurs in Sri Lanka. There’s also a robust entrepreneur community within the country. Here are some of your options:

The Sri Lankan Central Bank has created a guide for entrepreneurs. They walk you step-by-step through the process of setting up a business in the country. You can also explore their website for general articles about transacting business within Sri Lanka.

The Sri Lankan Government Information Centre will guide you through the registration process for each type of company if you get stuck.

The Sri Lankan Department of Labour can educate you on labour legislation, statistical information, important forms, current events and news.

The Institute of Chartered Accountants in Sri Lanka provides documentation on business structures.

If you’re willing to pay a little bit, many private consultancies will work with you to sort out your needs, provide you with a company secretary and answer any questions you may have.

Now you’re at a great starting  your SriLankan business is a roaring success.