Draft laws to ban foreign ownership of land
View(s):New legislation is being drafted to strictly enforce rules pertaining to the 2013 ban on foreigners owning land, which is now being enforced through administrative circulars.
Top government sources said that proposed laws are to be promulgated to tighten loopholes in the administrative process of enforcement .
In the 2013 budget (presented in November 2012), the President proclaimed that foreign nationals and companies would be completely prohibited from owning freehold land in Sri Lanka. Until that time, foreigners were able to purchase land upon the payment of a 100 per cent transfer tax, which many were circumventing through ingenious methods of purchasing the land through a majority Sri Lankan nominee owned companies and later purchasing 100 per cent of the shares, the sources said.
Several months after announcing a ban on foreign ownership in the absence of laws to give legal effect to the ban, the Government began enforcing the ban through administrative means via circulars but there were no penalties for any violations.
According to these administrative circulars, the transfer of land – state or privately owned – to a foreign national, a foreign company, a company incorporated in Sri Lanka of which 50 per cent or more of its shareholding is held by a foreign national or a foreign company is completely prohibited. Soon this will be made into law with an amendment to the relevant statutes, the sources said.
It is reliably understood that though the prohibition on purchasing land will not apply to foreign-owned companies of more than 10 years, this time period is likely to be extended. Also to avoid foreigners circumventing the rules by purchasing land through local nominees holding 51 per cent of shares in a company, the new law is expected to strictly enforce that there will be no change in the 51 per cent local ownership for a period of 10 years or more if the land purchase is to remain valid, the sources said.
They said that it is expected that any exceptions to the above ban on foreign ownership of land will only be possible through Cabinet approval.
What this means is that foreigners who already own land will only be able to lease their land to other foreigners, though subject to payment of the recently imposed tax of 15 per cent on the value of the lease.
Land market analysts said that what is uncertain however is whether land already owned by foreigners or foreign companies will be subject to further scrutiny by authorities when they are leased or sold, especially if these lands were purchased in the past via circuitous methods without the payment of the 100 per cent transfer tax or if Sri Lankan nominees who held 51 per cent of a land owning company have subsequently transferred these shares to the 49 per cent foreign owner.
“The Government’s objective through this exercise seems to be to discourage foreigners speculating and hoarding land and making sure that lands are developed through bon fide investors. However, the issue would be whether the proposed legislation will help or hinder foreign investment if the process of securing land is made cumbersome and the regulatory environment hazy,” one analyst said.