Business Times

100% land sale tax for foreigners to be scrapped

By Bandula Sirimanna

Sri Lanka will scrap the 100% tax on foreigners buying land, to promote foreign investment and tourism. The Government instead plans to introduce a special land tax in the 2012 budget removing existing barriers in the sale of land to foreigners and foreign companies to develop land in any part of the country. This will bring more revenue to government coffers, Finance Ministry sources said.

The new land tax, the amount of which is yet to be finalised, is aimed at preventing the sale of land at inflated prices to foreign buyers, making huge profits completely tax free and thereby cheating the government of revenue while also breaking immigration laws. Whenever there’s a prohibitive tax in place, foreign investors find a way around it and Sri Lanka is no exception, a senior official of the Finance Ministry, said

Several incidents of evading 100% tax in the sale of land to foreigners have been reported in the recent past. Under present rules, a foreigner or a foreign company is entitled to buy tax-free land only if their investment for the whole project is over US$10 million.

The Government in 2004 reintroduced the 100 % tax on property bought by foreigners. This tax was brought in as a political measure to appease leftwing parties who were blaming the property boom on an influx of foreign investment. The high tax rate makes it expensive for a foreigner to consider buying a property in Sri Lanka, the official said. However, there are legal exceptions to the rule. For instance, the tax-free concession doesn’t apply if a foreigner purchases a property above the fourth floor of any building.

The official said that there have been occasions where foreigners buy a company but are only interested in the land and thus doesn’t pay the property tax. “They circumvent the rule and avoid the 100% tax through this process,” he said.

In order to buy shares in a company in Sri Lanka it is necessary for a foreigner to open a SIERA Share Investment External Rupee Account. All monies bought into Sri Lanka should go through the SIERA account and used for investment in shares. When the shares are sold the foreign investor is entitled to repatriate all the initial investment and profits. Foreign investors are not liable to tax on any profits made on the sale of shares.

When the time comes to sell property, if selling to a local, there is no issue. If a foreign buyer is found and the property is held in a company, the foreign buyer can simply sell the shares of the company, place the funds in the SIERA account, and repatriate the monies, he revealed.

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