Port City Colombo – 269 Ha of reclaimed land in administrative area of the city of Colombo is established as a Special Economic Zone to facilitate investments and doing business in Sri Lanka with an emphasis on the service economy.
Business operations are more straightforward with the application of the Port City Economic Commission Act of 2021 with exemptions from a number of other regulations, including the Foreign Exchange Act of 2017 and the Termination of Employment of Workmen (Special Provisions) Act of 1971 are also provided under the Act.
The Colombo Port City Economic Commission, a unique organisation that will serve as a single window investor facilitator that would facilitate and get all licences and permits needed for the firm, making it easier to start operations within the zone.
With specialised infrastructure to support important economic activities, including international trade, shipping logistic operations, offshore banking and financial services, corporate operations at the corporate headquarters, regional distribution operations, information technology and business process outsourcing and travel and amusement, the goal for this zone is to be a global commercial and service centre.
Investments into the zone have the benefit of enjoying tax holidays and exemptions from a plethora of direct and indirect taxes. In terms of a person other than an authorised person, it shall not be permitted to engage in commercial activities under this Act from the Area of Authority in Sri Lanka’s Port City.
The zone’s main goal is to draw foreign direct investments; hence having funds from outside the country is a requirement for doing business there. While there are some chances for investors with local finance, the requirement of having a foreign direct investment remains the fundamental qualifying factor.
The Commission will also sign an agreement that is legally binding with every person conducting business within the Port City outlining the terms, conditions, the total amount of foreign direct investment committed to be made, and the concessions and exemptions afforded for the project. A licence must be obtained from the Commission in order to conduct business within the Port City.
Any lease of land for a project must be arranged with the Commission as the land within the Port City belongs to the Commission.
As an investor protection mechanism the law specifically states that, notwithstanding anything in any other written law, no licence, permit, or other approval granted under the Port City law, or any deed of transfer or lease executed by the Commission, may be terminated or amended in any way that is harmful to the interests of the respective investor which is done to provide investor protection.
A dedicated International Commercial Dispute Resolution Centre will be established to deal with issues falling within the jurisdiction of Port City Colombo.
Priority will also be given in Sri Lankan courts to legal actions brought over any business conducted in the Port City’s civil and commercial affairs, and such cases are to be heard expeditiously on a daily basis.
Accordingly, any form of lawful business including a business of providing financial or non-financial services and offshore businesses can be carried out within the Port City.
However, only authorized persons are permitted to engage in business within the Port City. An authorized person can be a natural person, a company, a partnership or a foundation.
It is necessary to submit an application and get a licence from the Commission in order to be an authorised person. In the event of a company, a certificate of registration as an offshore company under the Companies Act, No. 7 of 2007, is also required in addition to such a licence. The Commission must receive an application form and the required supporting paperwork. Additionally, a processing charge that is non-refundable must be paid when submitting the application.
However, the Commission has the discretion to issue a licence. All investments made to conduct business in and out of the Port City must, however, be raised outside of Sri Lanka. It is assumed that a licence will not be issued if this requirement is not met. As a result, local investors who seek to conduct business in the Port City will be prohibited unless they have finances generated from sources outside of Sri Lanka.
The law states that the following foreign funds cannot be used; Funds in a foreign currency account maintained or operated in Sri Lanka and, foreign currency loans obtained from a licensed commercial bank or a licensed specialized bank within the meaning of the Banking Act. Therefore, it is presumed that any foreign funds lying with foreign banks or through loans raised outside Sri Lanka (including that of Banks outside Sri Lanka) can be utilized.
It is worthy to note that a local investor will receive the chance to invest in a company in the Port City, even if they haven’t raised any foreign capital outside. According to the Port City Law, a local investor who has leased land from the Port City may apply to enter into a commercial partnership with another investor or group of investors who have access to international capital. It is assumed that the local investor’s participation to the project will be restricted to the cost of the leased land and that the Commission will approve the investor’s request to sublease the property to the Project Company.
In the case of an off shore company requesting to operate its business it is mandatory to have an offshore company registration. The Commission shall suggest to the Registrar of Companies of Sri Lanka that the mentioned company be registered as an offshore company when an application is made with other required papers.
A company therefore will be considered a “offshore company” for the purposes of the Companies Act No. 7 of 2007 as a result of this process. Accordingly, it is anticipated that a current Sri Lankan corporation will need to form a new entity as an offshore corporation in order to conduct business in the Port City (subject to fulfilling other requirements, such as having foreign-raised funds).
Sri Lankans are free to purchase residential property anywhere in the Port City. The law expressly allows an authorised person to receive Sri Lankan rupees in exchange for any goods or services they render to a resident or citizen of Sri Lanka within the Port City. Therefore, locals are allowed to use Sri Lankan rupees to purchase residential real estate in the Port City under the terms of this clause.
A company that is authorised to conduct banking operations in Sri Lanka pursuant to the Banking Act or a company that is authorised to conduct banking operations pursuant to the laws of any other nation may submit an application to the Commission to conduct offshore banking operations in the Port City.
If such application is accepted by the Commission a recommendation will be made to the Minister of Finance to proceed to grant a license under the Banking Act to engage in offshore banking business in the Port City. However, the Port City law also requires a company intending to carry out offshore banking business to be registered as an offshore company under the Companies Act, No 7 of 2007. As such, it is assumed that an existing local Bank will have to register a new company under the Companies Act (with offshore status) in order to carry on offshore banking business within the Port City.
However the requirement of the investment having to be financed from funds raised overseas applies to local banks as well.
