Company Registration in Sri Lanka

Sri Lanka has remained a holy grail of business opportunities for entrepreneurs globally. Its endless natural resources and regional diversity pave the foundation for different business types. The entrepreneurial population has increasingly leveraged this nation owing to its limitless growth potential.

Sri Lanka has been on a remarkable growth trajectory since the departure of the covid-era and the civil crisis. If you are eyeing this nation as your next business venture, you must get accustomed to underlying legalities and regulatory affairs. Let’s take a close look at what they are and unfold every information around Company Registration in Sri Lanka.

Why Choose Sri Lanka as Your Next Business Destination?

The following reasons reflect why this nation has remained at the forefront of unlimited business capabilities.

Strategic Location and Connectivity:

Sri Lanka's strategic location paves the foundation for prominent trade and business activities. The country's access to key markets in Asia and the Middle East ensures seamless access to international trade routes, making it a viable avenue for businesses with global ambition.

Robust Economic Growth:

Sri Lanka has been reaping sustainable revenue for years from manufacturing, tourism, and services. The government’s business-friendly initiatives and policies have underpinned a sustainable ground for entrepreneurs globally seeking tremendous growth.

Skilled Workforce:

Sri Lanka’s remarkable educational sector has been a breeding ground for a qualified and skilled workforce. With a high literacy rate, there is a growing pool of proactive professionals in diverse fields, providing businesses with skillful manpower.

Tourism and Cultural Richness:

Sri Lanka is best known for its rich cultural heritage, verdant landscapes, and diverse wildlife, making it an ideal tourist hotspot. Tourism-related businesses have a great chance to thrive in this vibrant market. Additionally, the tourism sector can bring a load of opportunities for ancillary businesses.

Investment Incentives and Infrastructure Development:

The Sri Lankan government proactively boosts overseas investment through various incentives, including duty-free imports, tax holidays, and a simplified incorporation process. The country has injected significant funding into infrastructure development, amplifying the overall business environment and rendering seamless operations for entrepreneurs.

Business Models for Company Registration in Sri Lanka

There are various business models in Sri Lanka to choose from. Each adheres to distinct legal requirements and compliance thresholds. Therefore, be vigilant with your options before you rush to the incorporation process.

1. Private Limited Company:

A Private Limited Company is arguably one of the best business models in Sri Lanka. It is preferred by individuals seeking liability protection and improved transparency within the management. Standard regulations to constitute this business model include at least two shareholders and one director.

2. Public Limited Company:

Public Limited Companies are preferred by businesses with extended market footprints and significantly large management. Such companies can trade their share publicly, allowing them to be listed on recognized stock exchanges.

3. Partnership

Partnership-based models are suitable for two or more individuals intending to work together. Despite being transparent and flexible, this business model lacks the resilience of a private limited company.

4. Sole Proprietorship:

A Sole Proprietorship is a simple yet effective business model providing 100% ownership. However, it does not grant a separate legal identity to the owner and the company. The owner is liable for addressing the company’s debts and losses.

5. Branch Office:

Foreign companies can open BOs in Sri Lanka after securing registered land and RoC’s approval. Since BO is considered an indispensable part of its parent organization, it lacks a separate legal identity, compelling the parent company to address its obligations.

6. Representative Office:

Representative Offices work on the same concept as the branch offices but are limited in their activities. They are free to perform various business chores except commercial and profit-churning undertakings. RO’s legal standing is similar to that of BOs.

An Overview of Sri Lanka Corporate Tax Structure

The corporate tax rate has undergone some changes last year. The new effective rate is now poised at 30%, which is 6% higher than the erstwhile rate. The 40% rate is for the companies belonging to the tobacco, liquor, and gambling sectors.

Regarding statutory tax, a rate of 30% is imposed on gains obtained from selling assets like shares. However, this rule doesn’t apply to gains from selling land to a listed real estate investment trust (REIT). The current VAT rate is poised at 18%, which is 3 % higher than the older rate.

Mandatory Paperwork for Company Registration in Sri Lanka

• Legitimate identity proof of the directors issued by the regulated authority.
• Copy of valid passport concerning directors
• PAN card of the applicant belonging to the Indian nationality
• Address proof such as electricity bills, water bills, etc.
• Specimen signature concerning directors or officeholders

Company Registration in Sri Lanka: 5 Steps Guide

The step-by-step process below concerns the company registration in Sri Lanka. Each requires a vigilant approach and clear understanding.

Step 1: Name of the Business

Every new entity seeking company registration in Sri Lanka requires a unique and legally viable name. You can visit the RoC portal to perform the name search. It is advised to have 2-3 names in spare before you go searching.  Doing so can help you expedite the process and reserve the name promptly.

It is worth noting to avert names that aren’t already taken or have been trademarked. Once you get the name that you think is suitable, prompt the RoC to reserve it. The selected name shall remain under your legal possession for three months.

Step 2. Select the Business Model

Choosing an apt business model is the second and most critical step. You have a couple of business models to choose from, such as LLP, Private limited company, partnership firm, overseas company, sole proprietorship, offshore company, etc. Analyze each against factors like business goals, compliance threshold, tax appetite, etc., and pick the one that resonates with your requirements.

3. Arrange the required paperwork

The paperwork required for company registration in Sri Lanka includes the ID of Directors/Partners/Authorized Signatories, address proof of the premise, shareholders’ information, details about the required capital, charter documents, etc.

4. Filing of Forms

Once the company’s name gets the required approval, the following applications should be shared with the Department of Registrar of Companies (DRC) by the applicant.

• Form 1- Application for Company Registration
• Form 18 - Consent and Certificate of Director
• Form 19 - Consent and Certificate of Secretary

These forms must go along with the charter document like AoA, which should be altered as per the company’s requirement by considering Table A of the Companies Act (No.7 of 2007).

5. Grant of Incorporation of the Company

In this step, the required paperwork and dossiers undergo the DRC-led inspection for accuracy and factual errors. Upon finding no issues, the authority shall grant the Certificate of Incorporation.

6. Public Notice of Incorporation

After receiving the incorporation certificate, the company must publish the notice in the  Government Gazette that the company has been legalized under the governing legislation.

The notice must entail all the details, such as name, address, and incorporation number. The notification must be published within 30 days from the incorporation date. The notification language should be in a local and an English language. The registrar should have the intimation regarding this course of action.

7. Opening a Bank Account

This step requires opening a bank account in a designated bank. For this purpose, you must submit an application along with the board's consent and other vital documents. The board’s consent is a legal document substantiating the members’ intention to open the bank account.

8. Register with the Inland Revenue Department

This step requires applying for the TIN (Tax Identification Number) from the Inland Revenue Department via Form 1, attached with documents like incorporation certificate and Article of Association.

Post Incorporation compliances for Entities with Company Registration in Sri Lanka

Registering a company in Sri Lanka comes with various obligations, as stated below. One must fulfill the same to stay compliant.

1. Annual Filings

Registered entities in Sri Lanka must file annual returns with the RoC as and when required. This includes furnishing financial statements, shareholders' info, and other vital dossiers.

2. Tax Compliance

Regular tax compliance is mandatory for registered entities in Sri Lanka. This involves the timely payment of corporate income tax, the filing of tax returns, and paying Value Added Tax returns as and when required.

3. Employee Benefits

Companies must contribute toward the Employees' Trust Fund and Provident Fund for eligible workers. This paves the foundation for enhanced credibility and reputation for the organization.

4. Corporate Governance

Companies must comply with corporate governance norms as cited in the Companies Act. This includes conducting board meetings, keeping proper records, and adhering to the rules specified in the AoA. Good corporate governance fosters transparency and accountability within the organization.

5. Statutory Record-Keeping

Statutory records seek proper and continual maintenance. Thus, every registered entity must keep them authentic and up-to-date. Documents like shareholder details, financial transactions, meeting minutes, etc., require apt maintenance. This paperwork can undergo a statutory audit.