Friday, November 11, 2016

Sri Lanka Budget 2017 - some highlights for Foreign Investors, Expats and Visitors

Sri Lanka's Budget 2017 was presented in Parliament yesterday with the key theme of accelerating growth and social inclusion. The Finance Minister, Ravi Karunanayake made a comment in his Budget speech that, “No Finance Minister wants to impose taxes and burden the people. Every Finance Minister wants to give concessions to the people improving their lives.” Unfortunately, tax hikes have been imposed to lower the deficit.
Karunanayake also sounded emotional when he revealed: “No Finance Minister wants to impose taxes and burden the people. Every Finance Minister wants to give concessions to the people improving their lives.”  - See more at: http://www.ft.lk/article/579721/Ravi-K-presents-Budget-to-win--economic-war-#sthash.SUHCRrXF.dpuf


The full Budget Speech can be downloaded from the official website of the Ministry of Finance.

There were a few proposals pertinent to visitors, foreign investors and expats:
  • Foreign students who wish to study in Sri Lankan universities from 2017 will be offered five-year multiple entry visas
  • Overstaying tourists will be fined 
  • Increases to visa fees (new rates have not been specified)
  • Spouse residence visas will be issued for five-years instead of two-years
  • In addition to the existing pre-approved electronic visa, Sri Lanka will also issue one-month visas-on-arrival
  • Minimum room rate of a hotel to be abolished to ensure competitiveness


The main message for foreign investors is a welcome for business. This can be seen with the following proposals:
  • Foreign investors will be offered five-year multiple entry visas
  • Remove freehold right restrictions from the ground floor when foreigners wish to purchase condominiums. In addition, allow foreigners to raise 40 percent of the cost from a domestic bank, though debt servicing should be in foreign currency
  • Private companies with majority foreign holdings to be allowed to lease land on a long-term basis, providing they have invested at least Rs.250 million (excluding the value of land); have given employment to at least 150 people; and have maintained this for at least three years
  • To encourage more foreign exchange inflows, the government will increase the limit an individual can bring into the country from USD 15,000 to USD 45,000 without declaring the source
  • Major international companies who are willing to relocate their headquarters to Sri Lanka will be exempt from corporate tax


The other key highlights of the 2017 Budget include:
  • Personal Income Tax will be applied to earnings in excess of the tax free threshold according to a progressive rate structure which will be from 4% up to 24% 
  • PAYE Tax will be exempted for incomes up to Rs.100,000 per month
  • Income Tax on funds, dividends, treasury bills and bonds will be increased from 10% to 14%
  • With Holding Tax on interest income will be increased from the present level to 5%
  • Interest income of senior citizens up to Rs.1.5 million p.a., which is Rs. 125,000 per month will be exempted from income tax
  • Capital Gain Tax will be introduced with effect from 1st April 2017 at a rate of 10%
  • Corporate Income Tax is to be revised to create a three tier structure of 14%, 28% and 40%, with some provisions
  • Financial Transactions Levy is a proposed new levy for social development of Rs.5 per Rs.10,000 on total cash transactions including easy cash by banks and other financial institutions
  • Telecommunication Levy on internet services will be increased to 25% on par with other telecommunication services
  • SIM Activation Levy of Rs.200 will be imposed for a SIM
  • Carbon Tax will be introduced for all carbon fuel run motor vehicles. The emission test fee will be included in the Carbon Tax. 
  • Tourism Development Levy of 0.5% will be imposed on businesses with revenues of less than Rs.12 million p.a.
  • Embarkation Levy imposed on every departing passenger from Sri Lanka who has stayed over 24 hours will be increased to USD 50 per passenger
  • Excise Duty on electric cars with motor power less than 100 kilowatts will be reduced
  • Minimum fine for a traffic offense will be increased from Rs.500 to Rs.2,500
  • Three-wheelers and school vans are to regulated 
  • Owners of school vans will be given loans with up to 75% concessions to change their vans to 32-seaters
  • Toll Fee on the Expressways will be reduced by Rs.50 between 9.00pm and 5.00am
  • Prices of several essential items reduced, including dhal, potatoes, sprats, green beans, white sugar, LP Gas, kerosene
  • CESS tax on 100 imported items will be removed with immediate effect
  • Customs duty waivers for surfing sports in the tourism sector
  • Encouraging solar energy for households with an electricity bill of more than Rs.2,000
  • Will introduce regulation of private education institutions
  • Special emphasis on development businesses in the provinces (North, Uva and East)

Some further reading:
FT LK: Ravi K presents Budget to win “economic war”
Economy Next: Sri Lanka hikes taxes, targets lower deficit in 2017
News.lk: Budget - 2017 will rectify all anomalies, beneficial to all - Finance Minister
The Island: Special emphasis on business development in the provinces
Ceylon Today: 2017 Budget highlights
Daily News: Budget 2017: benefits for all sectors

Daily Mirror: Budget 2017
Economy Next: Sri Lanka budget 2017: main tax hikes 
Economy Next: Sri Lanka to slam half a million fine on overstaying tourists
Ada Derana LK: Telecommunication Levy on internet services increased 
Ecpnomy Next: Sri Lanka to remove 100 items from CESS tax: Budget2017
Sri Lanka Mirror: Minimum traffic fine to go up to Rs.2,500 
Newsfirst.lk: What the Budget 2017 holds for Sri Lankans 
Sri Lanka property restrictions on foreigners relaxed: Budget


4 comments:

paradise said...

Hi Eva

You mentioned something, foreigners can buy property in Sri Lanka...so no tax?

Eva Stone said...

Hi paradise, I have to admit it's not clear about the tax situation, although the Budget 2017 proposal is to "remove freehold right restrictions from the ground floor and also allow foreigners who will be purchasing condominiums to raise 40 percent of the cost from a domestic bank". I think the current tax will still be imposed on foreigners purchasing property, but we will have to wait for the details to confirm whether or not this is the case.
Best,
Eva

Kip said...

Hi Eva,
I once spent 2 years living in Kandy and have lost track of how many times I've visited Sri Lanka in the last 27 years. In those days when I was in SL I never earned enough to have to pay US income tax so I had no tax issues. Now I am planning on retiring to SL, and am burdened by a large inheritance. It is a good burden to have but now I must deal with these issues because I have unearned income that requires I file. I see that after 183 days in country in SL I am liable for its taxes wherever they are earned.I looked at the US-Sri Lankan Tax Treaty and of course can't make heads or tails of it. Do you know what resources retired expats in my situation turn to? Thanks for your help.

Eva Stone said...

Hi Kip, thanks for the comment.
First off, I'm no tax expert, and definitely not a US tax expert. However, after reading your comment a few questions came to mind. Firstly, is the income US income? i.e. foreign earnings or inheritance. You'll need to confirm with a tax accountant, but I expect you won't be taxed in Sri Lanka on those earnings if they are all foreign earnings. If so, simply follow the US tax requirements rather than embark on the Sri Lankan tax system. However, if you plan to retire in Sri Lanka and bring those funds over then be sure to look into things like Special Foreign Investment Deposit Accounts (SFIDA) or similar that are available. Any interest earned in not currently subject to tax and the funds can be repatriated if needed.
If the inheritance funds originated in Sri Lanka, then as far as I know (but please check with a local tax expert) there is no taxation currently levied. I have heard that if the estate is worth over a particularly amount then an administrative charge may be enforced, but no taxes per se.
Additionally, one of my American expat friends recommended a book by Olivier Wagner titled "U.S. Taxes for Worldly Americans: The Traveling Expat's Guide to Living, Working, and Staying Tax Compliant Abroad". I haven't read it as it doesn't apply to my situation, but it may be of help to you.
In any case, consult you tax accountant to get the proper advice.
Best of luck with your taxes and plans to retire in Sri Lanka
Eva

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