Amidst mounting pressure from opposition parties, the government will be going ahead with new legislation making way for majority foreign owned companies listed on the Colombo Stock Exchange (CSE) to buy and build on freehold land in Sri Lanka.
The previous barrier imposed on land acquisitions by foreign entities before April 01, 2018 will be removed by introducing an amendment bill to the Land (Restrictions on Alienation) Act No. 38 of 2014 previously amended in 2018.
The Cabinet of Ministers approved the proposal presented by Finance Minister Mangala Samaraweera to revise the 2018 amended Act which removed the previous restriction of prohibiting the transfer of freehold land done after April 2018 with a foreign company exceeding the maximum foreign shareholding of 49 percent.
With the enactment of new legislation in parliament majority foreign owned companies listed companies will be free from any legal barriers to buy and own freehold in Sri Lanka immaterial of its date of transaction.
Finance Ministry expressed the confidence that the amendment will spur foreign investment to play a more active role in CSE than a flaccid one and help boost market capitalisation.
A senior ministry official noted that as many listed entities own freehold land, the previous legislation was a barrier for active foreign investors planning to purchase majority stakes in Sri Lankan listed companies.
Previously under the original legislation, Land (Restrictions on Alienation) Act No. 38 of 2014, enacted during Rajapaksa regime, the transfer of title of any land situated in Sri Lanka was prohibited if such transfer is (a) to a foreigner; or (b) to a company incorporated in Sri Lanka under the Companies Act, where any foreign shareholding in such company, either direct or indirect, is 50% or above; or (c) to a foreign company.
However this Act was amended by enacting the Land (Restrictions on Alienation) (Amendment) Act No. 21 of 2018 enabling foreign entities to purchase freehold land in Sri Lanka if the entity is listed on the CSE.
Therefore, the restriction of 49 percent foreign shareholding on listed companies if the listed companies hold freehold land has been removed. The new Act comes into effect retrospectively from 1 April 2018.
Under the new amendment Act of 2018 outright purchase has been prohibited for foreigners and they can only lease land up to even 99 years by paying a lease tax of 15 percent on the total rent payable for the entire duration of the lease whether it is 1 year, 33 years or, 99 years.
This clause will remain in the proposed amendments as well, a senior official of the Finance Ministry said, adding that if the foreign company shareholding is increased to 50 percent or over, the ownership of the land will not become null and void under the new piece of legislation.
Earlier the removal of restriction was applicable only for land transaction done after April 01 2018 and the new legislation will provide provisions with respect to the Land acquisitions done before April 01, 2018 as well.