How to Start a Business in Sri Lanka

If you’re thinking about starting a business in Sri Lanka, you’d be wise to arrive with a plan and a bit of capital. The World Bank ranks the country 109th out of 189 countries on its ‘Ease of Doing Business’ index. However, Sri Lanka has seen the emergence of more startups within the past decade. The government has made efforts to encourage trade and entrepreneurship.

While setting up a company involves minor administrative hurdles, the process is quick and straightforward. Registration is best done in-person, not online. Here are some important tips for the potential entrepreneur in Sri Lanka.

What are my company options?

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

Sole Proprietorship
Partnership
Limited liability company
Public limited company
Overseas company
Offshore company

Sole Proprietorship

The structure of a sole proprietorship is similar in most countries. When you register as a sole trader, you’re taxed at a personal income rate. You’re responsible for all company obligations. This is the easiest and quickest business to set up. As a sole trader, you’ll still be able to employ other individuals.

Partnership

A registered partnership is similar to a sole proprietorship, but the ownership is shared. From a legal and tax perspective, all partners share the obligations of the company. Partnerships aren’t taxed as separate legal entities, so partners are subject to personal income rates.

Limited Liability Company

The limited liability company is the most common type of business in Sri Lanka. It requires one director and two shareholders. Minimum share capital isn’t required. The company secretary must be an individual who resides in Sri Lanka.

Public Limited Company

A public limited company doesn’t require minimum share capital, either. This type of business is required to have two shareholders and two directors. Directors are required to file annual returns, along with audited accounts and financial statements. Shares are allowed to be issued on the stock exchange.

Overseas Company

An overseas company can be foreign-owned and can serve as a branch. This type of company’s operations are defined by the parent company. 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, it cannot conduct business within the country, but will still be registered there.

How do I register my company?

The process of registering a company in Sri Lanka is straightforward. On average, the entire process takes about ten days from start to finish. Here are the steps:

1. Through the Registrar of Companies online, you’ll need to search for and reserve your company name. This reservation will remain valid for three months. It costs 1,000 Sri Lankan rupees (LKR), or the equivalent of about 6€. Your registration will be confirmed within two days.

2. Next, the company secretary and director must sign a consent form. This is done in person and only takes a day. If you don’t 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). Submit the following forms through the Registrar of Companies: Form 1 (Registration of a Company), Form 18 (Consent and Certificate of Director), Form 19 (Consent and Certificate of Secretary) and two copies of your Articles of Association. This process is typically completed within 3 days. The cost is a flat fee of 15,000 LKR for Form 1, plus a flat fee of LKR 1,000 plus 11% VAT for each of the other forms.

3. Give public notice of your company’s incorporation at the Daily Newspapers and Government Publication Bureau. You must give this notice within 60 days of incorporating, 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 Inland Revenue Department. There’s no charge and it takes one day. This must be done in person.

5. If applicable, register for Value Added Tax (VAT) with the VAT Registration Branch of the Inland Revenue Department. It takes one day and there’s no cost. If you turn over more than 3,750,000 LKR per quarter you may obtain permanent VAT registration.

6. Obtain an (EFP) Number from the Department of Labour. Companies register here in order to pay gratuities to employees of more than five years through Sri Lanka’s Central Bank. This takes one day and there’s 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.