SRI LANKA Law and Practice Contributed by: Ayanthi Abeyawickrama, Varners
mandatory for continued operation. Investors seeking to benefit from the Port City regime must ensure that their project or enterprise aligns with the permitted activities and is duly structured to fall within the scope of the Special Economic Zone as defined under the Port City Act. Additional Considerations In addition to the foregoing, sector-specific approv - als may be required from relevant regulatory bodies such as: • the Central Bank of Sri Lanka, in respect of regu - lated sectors such as finance and banking; • the Telecommunications Regulatory Commission of Sri Lanka, for ventures involving telecommunica - tions infrastructure and services; • the National Medicines Regulatory Authority, for the manufacture, importation, marketing and dis - tribution of pharmaceuticals, medical devices and borderline products; and • the Central Environmental Authority, for invest - ments involving industrial activity or development projects requiring Environmental Impact Assess - ments (EIAs) or other forms of environmental clear - ance. Compliance With Listing Rules In the event of investments in companies that are listed on the Colombo Stock Exchange, compliance with the Listing Rules of the Colombo Stock Exchange will be required. The prior approval of the Securities and Exchange Commission of Sri Lanka is required for any private placement of shares in a listed company if the proposed share issuance will result in an increase of 20% or more of the company’s post-issuance out - standing shares. 2.2 Procedure to Obtain Approval and Sanctions for Non-Compliance Foreign investors may generally invest in Sri Lanka without the requirement for obtaining any special purpose approvals, provided that the investment in made in compliance with the Foreign Exchange Act, No 12 of 2017, and regulations. Nevertheless, if the proposed investment requires BOI approval or if the foreign investors want to set up their business within the Colombo Port City, they must submit an applica -
tion along with a detailed business proposal, including information about the nature of the project, proposed shareholding, and funding arrangements. Once the application is reviewed and approved, the investor will enter into a formal investment agreement with the BOI or the Port City Commission. If an investor proceeds without obtaining prior approv - al, the investment may be treated as unauthorised. This could lead to restrictions on repatriation of profits and capital, possible penalties or regulatory enforce - ment, and legal complications. Procedural non-com - pliance may arise in various forms, including: • failure to channel foreign investment through an IIA; • undertaking investments in restricted sectors with - out prior approval; • engaging in foreign exchange transactions without the prior approval of the Central Bank of Sri Lanka where such approval is legally required; and • breach of conditions imposed under the BOI or Port City agreements, or violations of sector- specific approvals (eg, operating outside permitted business activities). Where such non-compliance is detected, the relevant regulatory authorities (such as the Director of the Department of Foreign Exchange, the Central Bank of Sri Lanka, the Board of Investment of Sri Lanka, the Securities and Exchange Commission of Sri Lanka, etc) may initiate investigative or enforcement action. In some cases, a compoundable offence may be resolved by payment of a penalty determined by the relevant authority. However, for more serious or wilful breaches, sanctions may include: • monetary fines; • suspension or cancellation of licences or invest - ment approvals; • prohibition on repatriation of profits or capital; • forfeiture of improperly held assets; and • criminal prosecution, in cases of deliberate fraud, misrepresentation or evasion. Furthermore, non-compliance may adversely affect investor credibility and future dealings with regula - tory authorities. In cases involving BOI or Port City registered enterprises, the BOI or the Commission
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