6. Exchange Control 6.1 Issue and Transfer of Shares to Non-residents in Companies - -

1. In terms of the Exchange Control Act, no shares can be issued or transferred to a non-resident without the permission of the Controller of Exchange.

2. General permission has now been granted by the Controller of Exchange for the issue or transfer of shares in a Company up to 100% of the issued capital of such company to non-residents, subject to certain exclusions and limitations

3. (a) The payment for shares in any issue or transaction so permitted should be made out of or into a Share Investment External Rupee Account (SIERA) opened in a Commercial Bank in accordance with the directions given by the Controller of Exchange

(b) All transfers, remittances of dividends and sale proceeds of securities should be through the SIERA accounts and could be permitted by an Authorised Dealer subject to the production of the following -

(I) A certificate of balance in the SIERA account at the date of application

(II) Contract notes in proof of sale price and number of shares sold

(III) Income tax clearance covering the amount to be repatriated.

4. The general permission so given - (a) does not apply to shares in Companies carrying on or proposing to carry on,

(I) money lending,

(II) pawn brokering,

III) retail trade with a capital of less than U.S. $ 1 million,

(iv) personal services other than for export, or tourism sectors, and

(v) coastal fishing.

(b) applies only up to 40% of the issued capital or up to such higher percentage of foreign investment as approved by the BOI of a Company carrying on or proposing to carry on,

(i) Production of goods where Sri Lanka's exports are subject to Internationally determined quota restrictions,

(ii) Growing and primary processing of Tea, Rubber, Coconut, Cocoa, Rice, Sugar and Spices,

(iii) Mining and primary processing of non-renewable national resources,

(iv) Timber based industries using local timber,

(v) Fishing (deep sea fishing),

(vi) Construction of residential buildings

(vii) Supply of water

(viii) Mass Transportation

(ix) Telecommunications

(x) Mass communication

(xi) Education

(xii) Professional services,

(xiii) Freight forwarding,

(xiv) Travel agencies and

(xv) Shipping agencies

(c)apply in respect of the shares of a company carrying on or proposing to carry on any of thebusiness set out in column 1 of the table belong only upto the percentage of the issues capital of the company setout in corresponding entery in columns 12.

(d) applies only up to such percentage of the issued capital as approved by the Government or other lawful authority of a company carrying on or proposing to carry on -

(i) Air transportation,

(ii) coastal shipping,

(iii) Industrial undertaking in the second schedule of the Industrial Promotion Act No. 46 of 1990 namely - any industry manufacturing arms, ammunitions, explosives, military vehicles and equipment aircraft and other military hardware, any industry manufacturing poisons, narcotics, alcohols, dangerous drugs and toxic, hazardous, or carcinogenic materials, any industry producing currency, coins or security documents,

(iv) Large Scale mechanized mining of gems,

(v) Branch of liaison office of companies incorporated outside Sri Lanka and

(vi) Lotteries.

5. For the purpose of the Exchange Control Act the following are considered non-residents: -

(i) All persons whose permanent place of abode is outside Sri Lanka including citizens of Sri Lanka who have made their permanent abode outside Sri Lanka.

(ii) Citizens of Sri Lanka who have emigrated from Sri Lanka or who have proceeded outside Sri Lanka for taking up employment or setting up in business or profession.

(iii) (a) The Diplomatic Representative, Consul or Trade Commissioner in Sri Lanka (by whatever name or title designated) of the Government of any foreign country.

(b) Any member of the staff of any person referred to in sub-paragraph (a) who is a citizen of the Country represented by such Diplomatic Representative, Consul or Trade Commissioner, and is not a person who carries on or exercises in Sri Lanka any other employment, trade, business, profession or vocation.

(c) Any expert, adviser,. technician or official whose salary or principal emolument is not payable by the Government of Sri Lanka and who is brought to Sri Lanka through any specialised Agency of the United Nations Organisation or any Organisation approved by the Minister.

d) Any official of the United Nations Organisation, I.M.F., World Bank, I.B.R.D., A.D.B., or other similar Organisation, who is in Sri Lanka, excluding citizens of Sri Lanka who have been recruited locally.

(e)Any member of the family of any person treated as being resident outside Sri Lanka under sub-paragraphs (a), (b), (c) or (d) or paragraph (ii).

(f) Any trainee from abroad who is sent to Sri Lanka under any of the Technical Co-operation Programmes of the United Nations Organisation and its Specialised Agencies or of the Colombo Plan Organisation or of any other Organisation approved by the Minister.

(g) Personal Representatives, including Attorneys, Administrators, when acting solely in that capacity for a deceased person, who at the date of death was resident, for Exchange Control purposes, in a country outside Sri Lanka.

(h) Sri Lanka Trustees of will trusts or inter-vivos settlements when acting solely in that capacity where the deceased at the time of death, or the settlor at the time the settlement was made, was resident, for Exchange Control purposes, outside Sri Lanka.

6.2 NRFC and RFC Accounts

6.2.1 NRFC may be opened for – (a) a citizen of Sri Lanka who is or has been employed outside Sri Lanka ;

(b) a national of a foreign country who prior to the acquisition of such nationality was a citizen of Sri Lanka ;

(c) with the prior written approval of the Controller of Exchange, a foreign employment agency licensed by the Sri Lanka Bureau of Foreign Employment.

6.2.2 A NRFC may be opened for a person referred to in clauses (a) and (b) of paragraph 2 while such person is resident outside Sri Lanka or within ninety days after the return of such person to Sri Lanka .

6.2.3 Funds in a NRFC may be utilized for –

a) making any payment in foreign currency to or for the credit of a person resident outside Sri Lanka ;

b) transfer of funds from one NRFC to another NRFC;

c) making any payment in Sri Lankan rupees converted at the prevailing rate of exchange;

d) issue of travelers cheques and, subject to subparagraph (2), of foreign currency notes for travel outside Sri Lanka to –

i) the account holder where such holder is a person referred to in clauses (a) and (b) of paragraph 6.2.1 above.



ii)A proprietor, partner or a director of the account holder where such holder is a foreign employment agency, on production of an unutilized travel ticket.

e) an investment in a BOI Enterprise;

f) subject to such restrictions as may be imposed under the Banking Act No.30 of 1988, as security for the grant of rupee loan facilities for third parties.

6.2.4 A RFC may be opened for

(a) an individual resident in Sri Lanka, whether a citizen of Sri Lanka or not, who could satisfy the authorized dealer that the individual owns or holds foreign exchange of an amount not less than five hundred United States Dollars or its equivalent in other foreign currency on inward remittances in favour of the individual or brought to Sri Lanka on arrival therein by the individual;

(b) A citizen of Sri Lanka resident in Sri Lanka who owns or holds foreign exchange of an amount not less than five hundred United States Dollars or its equivalent in other foreign currency.

6.2.5 Funds in a RFC may be utilized for –

(a) making any payment in foreign currency to or for the credit of a person resident outside Sri Lanka ;

(b) transfer of funds from one RFC to another RFC:

(c) making any payment in Sri Lanka in Sri Lankan rupees converted at the prevailing rate of exchange

and any documents for making any of the above payments shall be endorsed as being issued in Sri Lanka against the funds in the RFC.

6.2.5 “1. The following shall be treated as “resident in Ceylon ”:-

(i) Citizens of Ceylon or citizens of foreign countries married to citizens of Ceylon , if the permanent place of abode of such person is Ceylon .

(ii) Citizens of Ceylon referred to in paragraph 1(i) above, who have proceeded outside Ceylon temporarily on holiday, business or medical treatment, or for any other similar reason.

(iii) (a) The Diplomatic Representative, Consul or Trade Commissioner of the Government of Ceylon resident outside Ceylon (by whatever name or title designated);

(b) Any person who is a citizen of Ceylon, if he is a member of the staff of any person referred to in sub-paragraph (a) above, or a member of the staff of a Government Corporation, Institution or a Statutory Board incorporated in Ceylon , serving abroad, except those recruited abroad;

(c) Any member of the family of any person treated as being resident in Ceylon under sub-paragraph (a) or (b) of paragraph 1(iii)

(iv) Citizens of foreign countries who are in Ceylon , except passengers in transit to other countries or visitors touring the country for pleasure or business;

(v) Offices and Branches in Ceylon of Companies, Firms, Banks or any other Organisations whether owned by citizens of Ceylon or foreigners.

6.3 Buying and Selling of Gold in Sri Lanka

Subject to paragraph 4 below general permission has been granted in terms of a notification published in the Extraordinary Gazette No. 1263/10 of November 22, 2002 for the purpose of -

(i) Buying gold in Sri Lanka ;

(ii) Selling gold in Sri Lanka by any person who is resident in Sri Lanka .

(iii) Importing into Sri Lanka or exporting from Sri Lanka of gold by any person subject to the conditions specified in the paragraphs (2) and 3 thereto.

However gold shall not be imported into Sri Lanka on consignment account basis by any person other than -

(a) a licensed commercial bank; or

(b) a limited liability company approved by the Controller of Exchange;

(i) which is primarily engaged in trading of gold or manufacturing gold jewellery or other gold products for exports;

(ii) which has a paid up capital of not less than Rs.10 million;

(iii) which has a good financial track record for not less than three years; and

(iv) which has experience in gold trading for not less than three years.

Please see the said gazette notification for details.

6.4 Others

The Exchange Control Act has certain restrictions in respect of dealings in gold, foreign currency and other properties which dealings are allowed only with the required permission of the Controller of Exchange. No person in or resident in Sri Lanka can open bank accounts abroad or acquire any foreign assets. Likewise no payments in or outside Sri Lanka to a person outside Sri Lanka or to his credit can be made without the permission of the Controller of Exchange. The Exchange Control Act contains provisions in respect of securities, import and export, duty to collect debts, tourist services, Shipping agencies, airline agencies, other agencies, blocked accounts etc. Needless to say that when transactions, payments and receipts involving non-residents and foreign currencies take place one should satisfy oneself that there is compliance with the Exchange Control Act. NRFC and RFC Accounts can also be opened and operated as permitted by the regulations of the Controller of Exchange. Although Exchange Control is expected to be completely lifted in the near future, the laws in respect of Exchange Control as at date need strict compliance.