Port City Companies and Beneficial Ownership Register
Sri Lanka took a major step toward international compliance when Parliament passed the Companies (Amendment) Act, No. 12 of 2025, inserting sections 130A to 130J into the Companies Act No. 7 of 2007.
The new Beneficial Ownership (BO) framework was designed to bring the country in line with Financial Action Task Force (FATF) standards. Yet a careful reading of the legislation reveals a critical drafting oversight: three out of the four recognised categories of offshore companies are entirely exempt from the BO register obligations, specifically escaping the application of S. 130A(10). S.130A(10) of the Companies Act, No. 7 of 2007 (as inserted by the Companies (Amendment) Act, No. 12 of 2025) reads as follows:
Mr. Suresh R.I. Perera
“(10) Notwithstanding the provisions of subsection (2) of section 262, the provisions of sections 130A to 130J shall apply to an offshore company incorporated outside Sri Lanka and registered under this Act and an overseas company registered under this Act.”
This gap was not a deliberate policy choice. It arose from the failure to properly reconcile the new BO provisions with the overriding regime created by the Colombo Port City Economic Commission Act No. 11 of 2021 (Port City Act), particularly S. 41(5), and the narrow wording used in the amendment itself.
Unless corrected immediately, Sri Lanka risks sliding back onto the FATF grey list, a consequence that would damage investor confidence, restrict banking access, and inflict serious economic harm.
Purpose of the Beneficial Ownership Register
The BO register was introduced to combat the very real threats of money laundering, terrorist financing, and illicit fund flows that thrive behind opaque corporate structures. S. 130A(1) now mandates every company incorporated or registered under the Companies Act to identify and disclose natural persons who ultimately own or control at least 10 per cent of the company (S. 130J). Companies must maintain an internal register (S. 130A(4)), notify the Registrar-General of Companies of changes within 14 working days (S. 130A(7)), file BO details annually (S. 130A(8)), and keep records for 10 years (S. 130A(5)).
The Registrar maintains a central database (S. 130A(6)), with controlled access for authorities (S. 130B) and limited public inspection (S. 130D).
Non-compliance triggers swift enforcement: the Registrar can issue directives (S. 130E), and S. 130G creates criminal offences punishable by heavy fines.
Most powerfully, S. 130F provides that unregistered beneficial ownership “may not be claimed or be recognised for any lawful purpose”.
The regime was meant to close loopholes, not create new ones.
Four Pathways for Offshore Companies
Sri Lanka offers four distinct routes to establish an offshore company:
1. Foreign companies incorporated outside Sri Lanka and registered through the Colombo Port City Economic Commission.
2. Companies incorporated under the Companies Act of Sri Lanka specifically to obtain offshore status through the Port City Commission.
3. Locally incorporated companies that apply directly to the Registrar-General of Companies for offshore registration (outside the Port City framework).
4. Foreign companies registered directly under Part XI of the Companies Act as offshore companies, without Port City involvement.
Only the fourth category is caught by the new BO rules, due to the wordings in the S.130A(10). The first three, which represent the overwhelming majority of offshore structures in practice are exempt.
How the Oversight Occurred: The Port City Act’s Overriding Effect
The root of the problem lies in S. 41(5) of the Port City Act. S. 41(5) of the Colombo Port City Economic Commission Act, No. 11 of 2021 (as enacted) reads as follows:
“(5) A Certificate of Registration issued by the Registrar-General of Companies in the name of an applicant to operate as an offshore company in terms of this Part of this Act, shall be deemed to exempt such company to which a Certificate of Registration is issued to engage in business in and from the Area of Authority of the Colombo Port City, from having to comply with the provisions of the such Companies Act.”
This subsection empowers the Commission to grant exemptions and incentives, and the entire Part VII of the Act operates on a “notwithstanding anything to the contrary” basis relative to the Companies Act.
When a foreign company (Type 1) or a locally incorporated company (Type 2) is registered under S. 41(2) of the Port City Act, the Commission issues its’ Certificate of Registration and recommends registration to the Registrar. Because of the overriding language in S. 41(5), these entities fall under the exclusive Port City regime.
The 2025 Companies Amendment attempted to close the foreign-company loophole by inserting S. 130A(10), which reads: “Notwithstanding the provisions of subsection (2) of S. 262, the provisions of sections 130A to 130J shall apply to an offshore company incorporated outside Sri Lanka and registered under this Act and an overseas company registered under this Act.”
The drafters clearly intended to capture foreign entities. However, they failed to address the fact that Port City-registered companies derive their status from the Port City Act, not solely from the Companies Act.
The amendment contains no cross-reference to the Port City Act, no amendment to S. 41(5), and no explicit statement that Port City offshore companies are subject to BO obligations. This is a classic drafting oversight — the two statutes were not harmonised.
Even more surprising is the position of Type 3 companies — those incorporated locally under the Companies Act and then granted offshore status directly by the Registrar.
S. 130A(10) applies only to an “offshore company incorporated outside Sri Lanka”. Locally incorporated entities are therefore outside its scope by the plain wording of the section. Again, no provision in the amendment extends the BO regime to these hybrid structures.
Consequence: A Fast Track Back to the FATF Grey List
FATF Recommendation 24 requires countries to ensure that beneficial ownership information is available for all types of legal persons and arrangements, including those in special economic zones. Sri Lanka was removed from the grey list in 2023 only after demonstrating serious commitment to transparency reforms. A regime that leaves the vast majority of offshore companies, the very vehicles most susceptible to abuse, completely outside the BO net sends the opposite signal.
The consequences of remaining non-compliant are severe and immediate:
Grey-listing triggers enhanced due diligence by international banks, higher compliance costs, and restricted correspondent banking relationships.
Foreign investors and fund managers will hesitate to use Sri Lankan structures.
The Colombo Port City’s ambition to become a world-class financial hub will be undermined at the very moment it is trying to attract high-net-worth clients.
S. 130F, (Beneficial ownership of a company is valid only if disclosed and registered as required) already shows how seriously Parliament viewed the issue for compliant companies. Yet the drafting gap means that for three-quarters of offshore entities the law simply does not apply.
Why This Must Be Fixed Immediately
This is not a minor technicality. It is a structural flaw that could undo years of painstaking reform. The solution is straightforward and urgent:
Parliament should pass a short, targeted amendment to the Companies Act expressly stating that sections 130A to 130J apply to all offshore companies irrespective of the registration pathway, including those registered under the Port City Act & applications being made by companies incorporated under the companies Act of Sri Lanka as well.
A corresponding amendment to S. 41(5) of the Port City Act should confirm that BO obligations are applicable to Port City off shore companies.
The Registrar and the Port City Commission should be given clear, joint guidance on enforcement.
The cost of inaction is far higher than the cost of correction. Sri Lanka cannot afford to signal to the international community that its most attractive offshore vehicles remain opaque.
Conclusion: Time to Close the Gap
The Beneficial Ownership Register introduced in 2025 was a welcome and necessary reform. Unfortunately, an oversight in drafting, the failure to align the new provisions with the Port City Act’s overriding framework and the narrow wording of S. 130A(10) has left three of the four offshore company categories completely outside the regime.
This loophole must be closed as a matter of national priority. The Government, the Registrar-General, and the Colombo Port City Economic Commission should act swiftly to introduce corrective legislation. Only then can Sri Lanka demonstrate genuine commitment to transparency and protect the hard-won gains that removed it from the grey list.
The window for action is narrow. The reputation of the entire jurisdiction and the future of the Port City project now depends on how quickly this drafting oversight is rectified.
(The author is an Attorney-at-Law. He was the Tax Practice Leader of the Year 2024 for the ASPAC region – International Tax Review (ITR) and was amongst the top four for the Tax Litigation and Disputes Practice Leader of the Year (ASPAC region) – International Tax Review (ITR))
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