Buying land or apartment as a foreigner in Sri Lanka

Foreigners intending to invest in real estate in Sri Lanka should be aware of the specific legal framework governing the purchase of land or apartments. The regulations differ for land and apartments, with certain restrictions and conditions for foreign ownership.

1. Purchase of Land

Foreign nationals face significant restrictions when purchasing land in Sri Lanka:

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• Outright Ownership: Foreigners are generally not permitted to own land outright under the Land (Restrictions on Alienation) Act, No. 38 of 2014.
• Leasehold Rights: Foreigners can lease land for a maximum of 99 years, subject to payment of lease duties and registration fees.
• Corporate Ownership: A company incorporated in Sri Lanka with at least 50% local ownership can purchase land. Fully foreign-owned companies are restricted but may lease land for commercial purposes.

Exceptions:

• Certain exemptions exist for specific projects approved by the Board of Investment (BOI).
• Foreigners married to Sri Lankan nationals may purchase land in the name of their spouse.

2. Purchase of Apartments

The law is more favorable for foreigners when it comes to apartments:

• Ownership of Apartments: Foreigners can purchase apartments provided they are located above the fourth floor of a building. This restriction is aimed at preserving land ownership within the country.
• No Restrictions:  There are no prohibitions on the percentage of the apartment a foreigner can own.
• Payment in Foreign Currency:  The purchase must be made using funds remitted to Sri Lanka through an inward remittance, ensuring compliance with the Central Bank’s foreign exchange regulations.

3. Legal Process for Purchase

The law is more favorable for foreigners when it comes to apartments:

• Title Search: Engaging an attorney to perform a comprehensive title search to ensure the property is free from disputes or encumbrances.
• Sales Agreement: A preliminary sales agreement is signed, detailing the terms of the purchase.
• Deed of Transfer:Land: For leases, a lease agreement is executed before a notary. Apartments: A deed of transfer is executed for outright ownership of an apartment.
• Registration: The deed or lease agreement must be registered with the relevant Land Registry to establish legal ownership or lease rights.

3. Legal Process for Purchase

The process for purchasing land or apartments as a foreigner includes:

• Title Search: Engaging an attorney to perform a comprehensive title search to ensure the property is free from disputes or encumbrances.
• Sales Agreement: A preliminary sales agreement is signed, detailing the terms of the purchase.
• Deed of Transfer:
  • Land: For leases, a lease agreement is executed before a notary. 
  • Apartments: A deed of transfer is executed for outright ownership of an apartment.
• Registration: The deed or lease agreement must be registered with the relevant Land Registry to establish legal ownership or lease rights.

4. Tax and Fees

Foreigners are subject to specific taxes and fees when purchasing property:

• Stamp Duty:
  • Land: 4%
  • Apartments: 4% to 6%, depending on the property value.
• VAT: Apartments purchased from developers may attract VAT.
• Lease Tax: Leases by foreigners are subject to an additional 15% tax, as per the Land (Restrictions on Alienation) Act.

5. Restrictions on Agricultural Land

Foreigners are prohibited from acquiring agricultural land, either outright or on lease.

6. Repatriation of Funds

Foreigners selling property in Sri Lanka can repatriate funds provided they comply with exchange control regulations. Proof of the original inward remittance is required for repatriation.