Can Foreigners Buy Property in Sri Lanka? A Comprehensive Guide

Situated in the Indian Ocean, Sri Lanka shines with its breathtaking landscapes and profound cultural heritage, drawing attention from Canadian and European investors seeking lucrative real estate opportunities. However, the country’s intricate property acquisition laws necessitate a thorough understanding and strategic planning. This comprehensive guide delves into the nuances of how foreign investors from Canada and Europe can navigate these laws to successfully purchase property in Sri Lanka, highlighting the legal frameworks, available options, associated costs, and key strategies to optimize your investment.

Legal Restrictions for Foreign Buyers:

Buying Freehold Land in Sri Lanka

Under Act 38, direct acquisition of freehold land by foreigners is strictly prohibited. This law applies equally to foreign companies holding a majority of foreign ownership, emphasizing the need for alternative investment strategies.

Condominium Exception

Foreign investors have the privilege of owning condominium units situated on or above the fourth floor, as permitted by the Apartment Ownership Law, providing a straightforward path to property ownership in Sri Lanka.

Buying Land on a Long-Term Lease

A practical alternative to freehold ownership is leasing land. With the ability to secure leases for up to 99 years, this option offers longevity and stability for foreign investments in real estate.

Establishing a Corporate Structure

By forming a Sri Lankan company with a local trustee owning at least 51% of shares, foreign investors can partake in indirect property ownership, circumventing restrictions on direct purchases.

Options for Foreign Buyers

Leasehold Agreements

Leasehold agreements provide a long-term investment opportunity, especially appealing to those unable to purchase land directly due to regulatory constraints.

Corporate Ownership

Creating a locally registered company allows Canadians and Europeans to hold up to 49% of the shares, offering a method to engage in the Sri Lankan property market while adhering to local laws.

Costs and Taxes Involved

Investors must account for various fees and taxes:

• Land Tax: Up to 100% of the property value for direct condominium purchases; 7% for corporate-owned properties.
• Stamp Duty: Between 3% and 4% of the property value.
• Property Survey Fee: Generally around 0.10% of the property's value.
• Legal Costs: Typically range from 1% to 3% of the property value.
• Realtor's Fee: Usually between 3% to 5%, often shared with the seller.

Detailed Breakdown of Property Acquisition

Step-by-Step Guide for Foreign Buyers

• Initial Research and Consultation: Gain insights into the market dynamics and consult with property law experts.
• Forming a Local Company: Register a company in Sri Lanka, ensuring compliance with local regulations.
• Leasing Property: Select and secure a long-term lease on the desired property.
• Purchasing a Condominium: Choose a suitable condominium unit on the designated floors.

Legal and Financial Considerations

• Due Diligence: Confirm the legal status and validate the property's ownership.
• Financial Planning: Prepare for all costs and arrange necessary funding, considering local and international financial options.

Conclusion

For Canadian and European investors, the path to owning property in Sri Lanka involves navigating specific legal barriers and leveraging structured investment vehicles like leasehold agreements and corporate ownership. By engaging in thorough market research and consulting with experts, investors can make informed decisions that align with both their financial goals and legal mandates, thereby maximizing their potential returns in Sri Lanka’s promising real estate market.

Need more Information?

Investing in Sri Lanka's real estate market can be a rewarding venture with the right preparation and guidance. Have more doubts? Enquire with us today to navigate smoothly and make a profitable investment in one of the world's most beautiful and promising markets.

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