How to Start an Overseas Business in Sri Lanka | Business Impact of Foreign Exchange and Tax Regulations on Business Expansion from Sri Lanka to Overseas Markets

This article delves into the foreign exchange regulations and tax policies that affect the expansion efforts of Overseas Businesses in Sri Lanka. in overseas markets. It focuses on resident investors and does not cover investments made by entities other than private limited companies or alternative forms of foreign exchange transactions.

Foreign Exchange Regulations

Under the Foreign Exchange Act, eligible resident investors are permitted to establish and maintain overseas offices, branches, or projects (referred to as overseas offices) in foreign countries.

Limits on Outward Investments

Capital transactions for outward remittances must be conducted through an Outward Investment Account (OIA), which is opened and maintained by the eligible resident investor through an authorized dealer or a restricted dealer. These transactions are subject to limits specified in issued directions and the provisions of the Foreign Exchange Act.

For companies or partnerships investing in overseas offices/branches, the limit is set at USD 300,000 per calendar year or an equivalent amount in other designated foreign currencies. However, the usage of outward investment accounts for payments has been suspended since June 2022, following a gazette notification by the finance minister at that time.

Additionally, the gazette order imposes a maximum limit of USD 20,000 or its equivalent in other designated foreign currencies for outward remittances on capital transactions made through Business Foreign Currency Accounts or Personal Foreign Currency Accounts held by resident individuals in Sri Lanka, during the effective period of the notification.

Repatriation of Income and Liquidation Proceeds

Any income and capital proceeds from investments must be brought back to Sri Lanka through the same outward investment account used for the initial investment, within three months from the date of receipt.

Incentives for Resident Investors

Eligible resident investors are allowed to utilize funds up to fifty per cent (50%) of the value of capital gains from previous outward investments credited to their outward investment account, without being subjected to the permitted limits. However, this incentive has also been restricted by the aforementioned gazette notification since June 2022.

Other Terms, Conditions, and Reporting Requirements for Foreign Investments

1. Prior to each outward remittance, the investor must obtain a clearance letter from the Head of the Department of Foreign Exchange through an authorized dealer or a restricted dealer. Investors planning subsequent foreign investments must provide a certificate obtained from a Fellow member of the Institute of Chartered Accountants of Sri Lanka or a Charter holder of the Chartered Financial Analyst (CFA) Institute, outlining the progress and status of their previous investments, along with supporting documents. The Head of the Department of Foreign Exchange will issue the clearance letter upon being satisfied with the progress of the previous investments.
2. The Board of Directors of an investment company that has invested in an unlisted company outside Sri Lanka must evaluate the progress of such investment annually and submit a report to the Head of the Department of Foreign Exchange, including details on the investee's profit or loss, dividends declared by the investee, or dividends received by the investor. This report must be submitted on or before March 31 of the following year or as specified by the Head of the Department of Foreign Exchange for a particular investment.
3. In order to be eligible for permitted investments under foreign exchange regulations, investors must maintain a sound financial position and performance. They must also provide a recommendation from a Fellow member of the Institute of Chartered Accountants or a Charter holder of the Chartered Financial Analyst Institute, in line with the directions issued by the Central Bank. Additionally, the feasibility of the proposed investment must be demonstrated to the Head of the Department of Foreign Exchange.

Tax Regulations

Determining Applicable Taxes for Foreign Subsidiaries/Branches

To ascertain the applicable taxes for foreign investments, companies must submit relevant agreements, business details, business process details, and organizational charts in writing to the tax policy unit of the Inland Revenue Department. Subsequently, the tax policy unit will consult with the interpretation committee and provide details regarding the taxes applicable to the specific foreign investment.

Tax Clearance Requirements for Outward Remittances in Foreign Currency

For foreign currency remittances, a tax clearance must be obtained from the Inland Revenue Department (IRD), except in cases mentioned in the negative list under the Inland Revenue Act. The tax clearance certificate issued by the IRD must then be submitted to the bank to initiate the remittance process.

Due to the Withholding Tax (WHT) imposed on payments received by non-residents, the company must submit a tax clearance certificate issued by the IRD to the bank in order to process outward remittances. The WHT rate will be determined based on the provisions of the Inland Revenue Act but will be subject to the provisions of double tax avoidance agreements.

Payments to resident individuals will be subject to the Advance Personal Income Tax (PAYE/WHT) as per the provisions of the Inland Revenue Act. Invoices and related agreements must be submitted to both the IRD and the bank in all the aforementioned circumstances.

Note: The above information is based on the current regulations and should be verified with the relevant authorities for any updates or changes.

Tips to Choose an Insurance Plan

 

Tips to Choose a Health Insurance Plan

Most people with health insurance get it through their employer. If you’re one of those people, you won’t need to use the government insurance exchanges or marketplaces. Essentially, your company is your marketplace.

If your employer provides health insurance and you want to look for a different plan in the exchanges, you can. But plans in the marketplace are likely to cost a lot more. This is because most employers pay a portion of workers’ insurance premiums and because the plans have lower total premiums on average.

Undeniably, health insurance is one of the most essential insurance policies to have considering the spike in the occurrence of health problems at an early age in the current climate. Further, the astronomical medical treatment costs place clear stress on the necessity of having a health insurance policy.

 

Look for the right coverage

Choose a health plan that secures you against a wide range of medical problems and provides benefits including pre and post-hospitalization, daycare expenses, transportation, illnesses that you may be at risk of due to your family's medical history, etc. If you are buying health insurance for your family, check whether the policy meets the needs of each member of your family. Consider your requirements, compare plans on benefits and costs, and apply a little due diligence to choose a plan that caters to your needs.

Compare the types of health insurance plans

You’ll encounter some alphabet soup while shopping; the most common types of health insurance policies are HMOs, PPOs, EPOs, and POS plans. The kind you choose will help determine your out-of-pocket costs and which doctors you can see.

While comparing plans, look for a summary of benefits. Online marketplaces usually provide a link to the summary and show the cost near the plan’s title. A provider directory, which lists the doctors and clinics that participate in the plan’s network, should also be available. If you’re going through an employer, ask your workplace benefits administrator for a summary of benefits.

When comparing different plans, put your family’s medical needs under the microscope. Look at the amount and type of treatment you’ve received in the past. Though it’s impossible to predict every medical expense, being aware of trends can help you make an informed decision.

If you choose an HMO or POS plan, which requires referrals, you typically have to see a primary care physician before scheduling a procedure or visiting a specialist. Because of this requirement, many people prefer other plans. Due to the restrictions, however, HMOs tend to be the cheapest type of health plan overall.

POS and HMO plans may be better if you don’t mind your primary doctor choosing specialists for you. One benefit is that there’s less work on your end since your doctor’s staff coordinates visits and handles medical records. If you do choose a POS plan and go out of network, make sure to get the referral from your doctor ahead of time to reduce out-of-pocket costs.

If you would rather choose your specialists, you might be happier with a PPO or an EPO. An EPO may help keep costs low as long as you find providers in the network; this is more likely to be the case in a larger metro area. A PPO might be better if you live in a remote or rural area with limited access to doctors and care, as you may be forced to go out of the network.

Compare benefits

By now, you likely have your options narrowed to just a few. To further narrow it down, go back to that summary of benefits to see if any of the plans cover a wider scope of services. Some may have better coverage for things like physical therapy, fertility treatments, or mental health care, while others might have better emergency coverage.

If you skip this quick but important step, you could miss out on a plan that’s much better suited to you and your family.

Once you’re down to a couple of options, it’s time to address any lingering questions. In some cases, only speaking with a person will do, so it may be time to call the plans’ customer service lines. Write your questions down ahead of time, and have a pen or computer handy to record the answers.

Here are some examples of what you could ask:

• I take a certain medication. How is that covered under this plan?
• Which drugs for my condition are covered under this plan?
• What maternity services are covered?
• What happens if I get sick while travelling abroad?
• How do I get started signing up and what documents will I need?

A final tip: don’t forget to discontinue your old plan, if you have one before the new one starts.

 

Keep it affordable

While it is important to buy a health plan that meets your needs, it is equally important that it suits your pocket as well. A budget is a hugely important aspect when buying health insurance. But, you should consider the plan benefits before you consider the price of the plan. It is a wise decision to buy reasonably priced health insurance at the start to ensure you are covered properly and the premiums are also affordable. With time, you can review your plan and increase coverage appropriately with the rise in income, family size, and requirements.

Prefer family health plans over individual health plans

Individual plans are good for individuals who do not have a family to support. However, if you are buying health insurance with your family in mind, purchase a family health plan to enjoy maximum benefits at a more affordable price.

Choose a plan with lifetime renewability

When you buy a health plan, make sure to check how many years the plan will cover you or whether it offers limited renewability or not. Why? Because you will require a health plan the most during your later years of age, So, choose health plans that offer lifetime renewability.

Compare quotes online

You can compare health insurance policies online to ensure that you buy a health plan that caters to your needs. You can even request a quote online, which means you can enter your details on the website and get an estimated premium for your policy. Collect the best quotes and then compare them to arrive at a decision.

Hospital coverage through the network

Once you have selected a list of health plans, check whether or not your preferred hospitals and doctors are included in their hospital network. Always prefer an insurance provider that has a wide network of hospitals across the world. With IFFCO-Tokio, you can choose from 5,000+ network hospitals where you can avail of quick, convenient, and cashless claims settlement!

High claim settlement ratio

The claim settlement ratio is the number of claims settled by the insurance provider over the total number of claims received. Always choose an insurer that has a high claim settlement ratio. We at IFFCO-Tokio have settled a total of 8.61 lakh claims in FY2019 and have a claim settlement ratio of 92.65%. With us, you are in safe hands!

Use these tips to maximize your benefits when you shop for health insurance. It is an investment that you are making to safeguard yourself from the financial burden of high healthcare costs—make sure you make the most of it.

 

You can also use a health insurance calculator online

Yes, that’s right! You can use our health insurance calculator to get a better idea of the coverage we offer and the premium for your plan. All you have to do is visit our health insurance page and enter your name and mobile number. After this, just follow the four simple steps given below:

 

Other important covers to look for

Not all health insurance plans offer the same amount of coverage. Some insurance companies omit certain things to keep the cost of the plan on the lower side. However, this could end up hurting you in the long run. Therefore, when choosing a medical insurance policy, you must look out for these important features as well:

Ambulance charges: 

Getting emergency transportation to the hospital is extremely important. However, it can also be quite costly! Keeping this in mind, the best health insurance in some countries will always cover ambulance charges. This ensures that, in a critical situation, you can get prompt help without worrying about the charges.

Day Care Procedures: 
Medical emergencies do not always require overnight hospitalization. Several healthcare procedures are costly but require less than 24 hours of hospitalization. The best health insurance in some countries will cover a higher number of such procedures. In this regard, our plans cover 160+ day procedures. 
 
Vaccination & health check-up charges: 
It is important to look for health insurance in some countries that cover these costs. Not only do our plans cover vaccination costs, but they also cover health check-up charges!
Daily allowance: 
Hospitalisation can lead to the loss of income, in this case, miscellaneous expenses can start to pile up! Keeping this in mind, the best health insurance plans in some countries will offer a daily allowance for the number of days you are hospitalized. 

 

 

Sri Lankan Economy and Public Debt Management

 

Economic Growth

Amongst the unprecedented challenges deriving from the COVID-19 pandemic domestically and globally, the Sri Lankan economy recorded a negative growth of -3.6%  in 2020 compared to the 2.3 % in 2019 whereas 3.3% growth was recorded in 2018. Consistent with the swift fiscal and monetary policy measures implemented by the government to mitigate the impact of the pandemic and the recent developments of the high-frequency economic indicators, it is expected that the economy would return to the growth path in 2021.

External Trade

The external sector acquired a mixed performance in 2020 under the COVID 19 situation. The exports dropped from UDS 11,940 mn to 10,047 mn by 1,893 mn (16%) in 2020 whilst the imports dropped from USD 19,937 mn to 16,055 mn by 3,882 mn (19%) resulting in trade deficit narrowing to USD -6,008 mn by -1,989 mn (25%) significantly to its lowest level since 2010. The restrictions imposed on imports and the comparatively low global oil prices helped this remarkable performance.

In 2020 import expenditure on consumer goods, which contributed to 21.2% of the total imports, declined by 14%, mainly due to the restriction imposed on vehicle imports (USD 816 mn to 283 mn (65%)). Import expenditure on intermediate goods, which constitutes 56.5% of total imports, was contracted by 20%, mainly due to the global fuel price reduction and demand for fuel dropped due to travel restrictions imposed during the covid period (USD 3,892 mn to 2,543 mn by (35%)). Expenditure on investment goods also declined by 22.6%, driven by the drop in imports of machinery and equipment, building material, and transport equipment.

The export income was reduced in 2020 mainly due to the subdued demand in key export destinations combined with the supply side interruptions with the covid pandemic.

Official Reserves

Foreign reserves are assets or claims that a country holds in a foreign soil. The gross official reserves decreased from USD 7,642 mn to 5,664 mn by 1,978 mn (-26%) in the year 2020 resulting in the reserve adequacy decreasing from 4.6 months of import cover to 4.2 months by -8%.

Foreign Direct Investments (FDI)

In the year 2020 foreign direct investments dropped from USD 743 mn to 434 mn by 309 mn (-42%). The covid pandemic in Sri Lanka and the impact of covid 19 on the global financial markets were affected by this receded investment inflow.

Government Revenue & Expenditure

The government revenue decreased from Rs. 1,891 bn to 1,368 bn by 523 bn(28%) in the year 2020. Out of the total revenue, the tax revenue dramatically decreased from Rs. 1735 bn to 1217 bn by 518 bn (30%) at the same time as Non-tax revenue decreased from Rs.156 bn to 151 bn by Rs. 5 bn (3%). However, this did not occur merely due to the impact of the COVID-19 pandemic and Tax concessions granted to battle against COVID-19, The policy reforms to the tax system such as removal of certain taxes like NBT, Economic Service Charge (ESC), and reduction of VAT rates from 15% to 8%, and the comprehensive tax policy package introduced with the Budget 2021 directly affected to the government revenue reduction in 2020.

Government expenditure and net lending in 2020 were reduced from Rs. 3,338 bn to 3,041 bn by 297bn (-9%) ,The recurrent expenditure incurred in 2020, has increased from Rs 2,425 bn to 2,548 bn by 123 bn (5%). The increase in recurrent expenditure in 2020 was mainly due to the rise in expenditure on subsidies and transfers, salaries, and wages. Capital expenditure and net lending declined from Rs. 913 bn to 493 bn by 420 bn (-46%). This decline reflects the impact of the limited fiscal space due to the notable decline in government revenue and the rise in recurrent expenditure of 2020.

The budget deficit has increased from Rs 1,447 bn to 1,673 bn by 226 bn (16%) in 2020. When it is calculated as a percentage to GDP it increased from 10% to 11% by 1% of GDP at the end of 2020. To financed the budget deficit government has focused more on domestic sources rather than going for foreign financing. 

Public Debt

The total outstanding central government debt increased from Rs. 13,031 bn to 15,117 by 2,086 bn (16%) in the year 2020. The depreciation of the exchange rate primarily led to this increase with an increase of the rupee value of foreign debt (by Rs. 355.7 bn at the end of 2020). The debt stock increased up to 101%  of GDP at the end of 2020, compared to 87%  at the end of 2019.

The foreign debt declined from Rs 6,201 bn to 6,052 bn by 149 bn (-2%) at the end of 2020, whereas domestic debt increased from Rs 6,830 bn to 9,065 bn by 2,235 bn (33%) at the end of 2020. This marks an increase in the share of domestic debt in the total debt stock 60% from 52%, at the end of 2020, along with the decrease of the share of foreign debt to 40% of the total debt stock at the end of 2020 from 48% at the end of 2019.

At the end of 2020, the debt to GDP ratio was recorded above 100% for the first time in Sri Lanka as 101% of GDP. Domestic debt was 61% of GDP compared to 46% at the end of 2019. In contrast, foreign debt as a percentage of GDP declined to 40% at the end of 2020, compared to 41% at the end of 2019. The decline of the portion of the foreign debt was a result of the Government’s preference for domestic debt over foreign debt as well as net repayments of foreign debt owing to limited access to foreign financing due to current debt statistics of Sri Lanka.

 

Debt Service Payments

The total debt service payments decreased from Rs 2,007 bn to 1,925 bn by 82 bn (-4%). Total domestic debt repayments declined from Rs. 1,208 bn to 1,158bn by 49 bn (-4%). Repayment on foreign debt declined from Rs 800 bn to 767 bn by 33 bn (-4%) in the year 2020.

Total interest payment has increased from Rs. 878 bn to 957 bn by 79 bn (9%) while Interest payments on foreign debt increased from Rs. 210 bn to 243 bn by 33 bn (15%)  and Interest payments on domestic debt

Increased from Rs. 667 bn to 714 bn by 46 bn (7%).

As a percentage of GDP the total debt service payments increased to 13% in 2020 from 13.5%  in 2019. Total debt service payments as a percentage of government revenue increased to 141% from 106% in 2019 whilst the total debt service as a percentage of export earnings increased to 103% from 94% in 2019.

The cost of debt remaining at 13% of GDP, whereas increased to 70% from 46% when considering as a percentage of government revenue.

Annexure