SEC’s legislative move to enhance Sri Lanka’s start-up ecosystem
The Securities and Exchange Commission (SEC) is formulating the required legislation to remove the cascading taxation for venture capital (VC) funds, in a bid to bring in foreign capital into the Sri Lankan start-up ecosystem and retain the intellectual property (IP) talent in the country.
Explaining the challenges in the start-up ecosystem and the way forward, Dr Hans Wijesuriya, Chief Adviser to the President on Digital Economy, said that many Sri Lankan start-ups, when they reach a certain stage, shift their headquarters outside the country, due to capital availability and capital mobility in those countries.
“In Sri Lanka, only a few categories of tech can build scale from the Sri Lankan domestic market. This is why a majority of the capital and effort has to be quickly scaled out of Sri Lanka. This is the dream – to enable Sri Lankan headquartered companies, Sri Lankan IP, to become Multinationals etc. This is when the digital ecosystem will start flourishing in the country where venture capital funds will come in and help these Sri Lankan companies and IP to go overseas,” he said, addressing the SEC-organised Forum for start-ups on Seed to Capital recently.
To enable this, Sri Lanka has to allow for capital mobility, he said, noting that some good news in this regard where there will be special facilities for foreign direct investment flowing into Sri Lankan start-ups to be capital mobile, meaning this capital can be used to expand and invest overseas provided that their IP and headquarters remain in the country.
He also noted that the cascading taxation on venture capital is not there in Singapore and India, and the propensity for local start-ups to set up in Sri Lanka is less due to this. “To bring foreign capital into the ecosystem, we need to solve the cascading taxation which the SEC is formulating and making the required legislation,” he said.
SEC Chairman Snr. Prof. D. B. P. H. Dissabandara noted that the regulator firmly believes in not merely regulating but helping create the market and thereafter maintaining and regulating it. The objective is to build an inclusive and dynamic capital market ecosystem that enables innovation, encourages entrepreneurship, and supports sustainable economic growth, he said.
“Start-ups and technology-driven companies are central to this vision. Many of these companies possess immense growth potential and the capacity to become future market leaders, generating employment, export earnings, and innovation-led value creation. We see capital formation not simply as a financing mechanism, but as a strategic pathway for these enterprises to scale, professionalise, and integrate into the formal market system. Yet we must also acknowledge that innovation-driven businesses do not always fit neatly into traditional frameworks. Intangible assets, rapid scaling, evolving business models, and founder-led structures present real challenges. Addressing these realities thoughtfully is essential if we are to create pathways that are both market-friendly and investor-safe.”
He added that the regulator is committed to a regulatory approach that is progressive, proportionate, and responsive to change, while upholding the standards that sustain investor trust.
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