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  • Service: Tax
  • Type: Business and industry issue
  • Date: 7/23/2014

Sri Lanka – foreign exchange rules relaxed, FATCA update 

The Exchange Control Department (ECD) of the Central Bank of Sri Lanka (CBSL) recently set out measures to relax the country’s foreign exchange controls, demonstrating the ECD’s commitment to enhancing Sri Lanka’s global competitiveness. Additionally, the CBSL has directed Sri Lankan banks to comply with the US Foreign Accounts Tax Compliance Act (FATCA).

Exchange controls eased

In a 28 May 2014 press release, the ECD set out a series of foreign exchange measures with immediate effect. Highlights are as follows.

Widening the base


  • In addition to listed debentures, foreign investors are now permitted to invest in non-listed debentures of companies incorporated in Sri Lanka via the Securities Investment Account (SIA).

The Income Tax Law currently grants exemptions for interest income arising on foreign loans and bonds


  • Eligibility to obtain an Electronic Fund Transfer Card (EFTC) has been extended to holders of Migrant Blocked Accounts, Securities Investment Accounts, Diplomatic Accounts and certain other accounts.
  • Licensed Commercial Banks (LCB) are granted a general permission to issue travel cards to their customers.

Increased facilities to resident foreign exchange earners


  • Foreign Exchange Earners’ Account (FEEA) holders are now permitted to make payments relating to foreign contracts out of the existing funds in the FEEA.
  • LCBs are now allowed to provide loans in foreign currency to FEEA holders.

Restrictions removed


  • The requirement to maintain a minimum balance for Special Foreign Investment Deposit Account (SFIDA) has been eliminated.
  • Where non-residents of Sri Lanka provide credit facilities to Sri Lanka resident importers, the time restriction that previously applied to the supplier’s credit for importers is removed.
  • The prevailing restriction on extending a Letter of Credit (LC) is also eliminated.

Complying with US FATCA rules

The government of Sri Lanka has not entered into an Intergovernmental Agreement with the US government. However, the CBSL has directed banks to comply with US FATCA by entering into foreign financial institution agreements with the US Inland Revenue Service. The list of registrants published on the FATCA website shows that almost all banks in Sri Lanka are registered for FATCA.

 

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