Guidance

Doing business in Sri Lanka: Sri Lanka trade and export guide

Updated 13 August 2015

Managing risk

Find out how UK companies can control risks when doing business in Sri Lanka.

Export opportunities and advice

Find more export advice and explore opportunities overseas on great.gov.uk.

1. Sri Lanka export overview

Sri Lanka is a trading and a trans-shipment hub for south Asia.

Contact a Department for Business and Trade (DBT) Sri Lanka export adviser for a free consultation if you’re interested in exporting to Sri Lanka.

Contact UK Export Finance (UKEF) about trade finance and insurance cover for UK companies. You can also check the current UKEF cover position for Sri Lanka.

Sri Lanka’s Gross Domestic Product (GDP) grew by 7.4% during 2014, up slightly from 7.2% in 2013. It is classed by the World Bank as a lower middle income country with a GDP per capita of $3,558 (2014 World Bank estimate). The government aims to increase this to $4,000 per capita by 2016.

Sri Lanka is a market of 21 million people. With its geographical location in south Asia it can reach a market of over 1.6 billion.

Sri Lanka has an established and growing middle class. Much of the middle class has a direct link with the UK through work, study or though family members in the UK. UK products are therefore familiar.

Sri Lanka is already home to some of the big UK companies. They include Marks and Spencer Clothing, HSBC, De La Rue Currency, GlaxoSmithKline, Standard Chartered Bank and Rolls Royce. There are over 100 companies in Sri Lanka with UK affiliation across a wide range of sectors.

Benefits for UK businesses exporting to Sri Lanka include:

• English widely spoken
• strong historical and trading links with the UK
• commercial law based on English law
• highest rated in south Asia in World Bank’s Ease of Doing Business ranking
• gateway country to Indian market via a Free Trade Agreement

Strengths of the Sri Lankan market include:

• high performing economy
• highly skilled and educated workforce
• logistical hub for south Asian region

2. Challenges

Bureaucracy, nepotism and a lack of transparency are all prominent in the Sri Lankan business environment.

Sri Lanka was ranked 85th in Transparency International’s Corruption Perceptions Index for 2014.

Read the Foreign and Commonwealth Office’s (FCO) Overseas Business Risk guide for Sri Lanka.

You should ensure you take the necessary steps to comply with the requirements of the UK Bribery Act.

3. Growth potential

3.1 Economic Growth

Sri Lanka’s economy is one of the fastest growing in the region with 7.4% growth in 2014. The economy is expected to grow by 6.9% in 2015.

However, government debt has been increasing and debt reduction is proving difficult to achieve due to low revenue. In 2014 the deficit stood at 6% of GDP. Sri Lanka’s short term debt is equivalent to over half of its foreign reserves.

3.2 Free trade agreements

Sri Lanka has Free Trade Agreements (FTA) with India, Bangladesh and Pakistan which can reduce import tariffs into those countries. It does not apply to all goods and services.

Sri Lanka is also expected to finalise a FTA with China.

4. UK and Sri Lanka trade

Links between both countries have always been strong and Britain is a top 10 investor in Sri Lanka.

UK exports to Sri Lanka were valued at £165 million in 2014. This is a decline of 1% compared to 2013.

The UK’s top exports are:

• education
• infrastructure services
• Information and Communications Technology (ICT)
• financial services

The UK is:

• the leading business partner for higher education and professional training
• the preferred option for latest technology partnerships
• strong in sectors where Sri Lanka requires expertise and specialist equipment

5. Opportunities for UK businesses in Sri Lanka

DBT provides free international export sales leads from its worldwide network. Search for export opportunities.

5.1 Education and training

Government policy aims to create more knowledge based jobs by:

• attracting foreign universities to set up branch campuses
• attracting foreign students to the country
• improving Information Technology (IT) literacy and internet access

British qualifications are the most desired. There are already 28 UK universities present in the market, working with local providers on undergraduate and postgraduate qualifications.

There are opportunities in vocational and further education, including skills training for the tourism sector. UK colleges are currently exploring the market.

Sri Lanka has the largest membership outside the UK of the:

• Chartered Institute of Management Accountants (CIMA)
• Chartered Institute of Marketing (CIM)

There are opportunities to:

• supply study materials/tools and classroom aides
• set up educational publishing/printing/software development offices

Contact Trade Adviser asanthi.fernando@fco.gov.uk for more information on opportunities in the education and training sector.

5.2 Infrastructure

Much of Sri Lanka’s infrastructure needs to be modernised following destruction in the civil war as well as to drive further economic growth.

Government policy is to increase tourism related earnings to reach over $3 billion by 2016.

Opportunities include:

• roads and bridges
• water distribution and wastewater management
• port and airport development
• tourism infrastructure, including hotel expansion

Contact Trade Adviser nadeesha.epasinghe@fco.gov.uk for more information on opportunities in the infrastructure sector.

5.3 Energy

The Sri Lankan government aims to develop:

• oil exploration and production
• oil trade related ancillary services including gas
• renewable energy sources

Sri Lanka has little experience in renewable energy. This creates opportunities related to the maintenance and running of renewable energy plants. These include:

• consultancy
• analytical services

Contact Trade Adviser nadeesha.epasinghe@fco.gov.uk for more information on opportunities in the energy sector.

5.4 Other sectors with opportunities

There is also potential for UK companies in:

• food and drink where there is interest and demand for British products, but hardly any available in the market
• Information and Communications Technology (ICT)
• manufacturing
• Business Process Outsourcing (BPO)
• commercial services

British companies have found Sri Lanka to be a useful base for their new development operations by:

• buying into well performing Sri Lankan ICT companies
• setting up branch offices

The government is keen to establish Sri Lanka as a centre for the provision of:

• commercial services
• international banking
• international investment

This objective and the expected growth in port services and tourism provides opportunities for UK businesses in these sectors.

Contact the Trade Team in Colombo for more information on opportunities in these sectors.

6. Start up considerations

Routes to market include:

• setting up a company, branch or franchise
• establishing a partnership
• appointment of agents/distributors

The Central Bank of Sri Lanka’s has a Step-by-step Guide to Doing Business in Sri Lanka for information on setting up a company in Sri Lanka.

The Department of the Registrar of Companies is responsible for incorporating companies.

Tax and legal obligations differ depending on which business structure you choose. DBT Sri Lanka can provide lists of lawyers and accountants on request.

The Board of Investment of Sri Lanka (BOI) can assist in establishing a company. Depending on the level of investment the BOI is able to offer tax incentives and holidays.

There are no special laws governing the contractual appointments of Sri Lankan agents by foreign principals.

7. Legal considerations

The laws and the court system in Sri Lanka are based on English Law.

Roman Dutch Law or local laws such as Kandyan Law or Thesavalamai Law can apply for property and inheritance.

Contact the DBT team in Sri Lanka to help find tax and legal advisers before entering into agreements.

7.1 Standards and technical regulations

The Sri Lanka Standards Institution (SLSI) is the national standards body of Sri Lanka. It is a member of the International Organization for Standardisation (ISO)

Consumer goods exported to Sri Lanka must indicate the Maximum Retail Price (MRP).

Food items must be labelled in English, Sinhala and Tamil.

Prior approval for labelling and packaging should be obtained from the Cosmetics, Devices and Drugs Authority and SLSI.

7.2 Intellectual property (IP)

Sri Lanka IP law recognises the following forms of intellectual property:

• industrial design
• patents
• trade marks
• copyright
• layout designs of integrated circuits

It is recommended that companies register IP with the National Intellectual Property Office to protect against infringement.

8. Tax and customs considerations

Sri Lanka’s tax structure for businesses can be complex so accountancy advice is essential.

Once you’ve completed a company registration contact the Department of Inland Revenue for:

• a Value Added Tax (VAT) number
• a Tax Identification Number (TIN)
• information on other taxes and rates

The BOI can grant exemptions from laws such as inland revenue, exchange control and customs if a project meets certain investment thresholds.

8.1 Value Added Tax (VAT)

The VAT rate is 12%.

You can find more information on VAT in the Central Bank of Sri Lanka’s Step-by-step Guide to Doing Business in Sri Lanka.

8.2 Corporate and income tax

You can find details of corporate taxation in the Central Bank of Sri Lanka’s Step-by-step Guide to Doing Business in Sri Lanka.

Employee related taxes include:

• Pay As You Earn (PAYE)
• Employees Provident Fund (EPF)
• Employees’ Trust Fund (ETF).

8.3 Customs

The Sri Lanka Customs authority provides details of customs regulations and procedures.

You can find more about import tariffs in the Market Access Database.

9. Business behaviour

Sri Lankan business people generally speak English.

Occasionally women or men may prefer not to shake hands with the opposite sex. You should wait and see if a hand is offered.

10. Entry requirements

All visitors must have a valid passport and visa.

You can apply for a 30 day tourist visa online. All other visas should be obtained at the Sri Lankan High Commission.

10.1 Travel advice

If you’re travelling to Sri Lanka for business, check the FCO travel advice beforehand.

11. Contacts

Contact the DBT team in Sri Lanka for more information and advice on opportunities for doing business in Sri Lanka.