Sri Lanka, once a civil war-torn country has now experienced a boom in its economy with the emergence of promising new startups starting their operations in this country of 20.97 million people, with a GDP of $237.791 billion.
This country has enjoyed a stable annual growth of 6.4 percent over the last decade, which is better than any other South Asian peers. It has also outperformed other South Asian countries in terms of achieving Millennium Development Goal.
Sri Lanka, now considered as a country with lots of opportunity and potential for rapid economic growth. Recently Sri Lankan government has started focusing on a long term and sustainable development as it aims to become an upper middle-income country.
So, it is self-evident that how much Sri Lankan economy has grown over the years and a great many people have shown keen interest to set up the business of their own.
However, one cannot just simply come to Sri Lanka and opens up a business firm and pondering about their immediate success and what not, but certain legal obligations and rules have to be fulfilled as per Sri Lanka’s law:
Legal Status and Scope of The Company
Legal status and scope of the company have to be defined and clarified under the Sri Lankan law, in what capacity the company will work, the range of service and business it will be involved within Sri Lanka must be clarified.
Register a Company Name That is Unique
Before starting a new business in Sri Lanka or anywhere in the word one must first have a company name that is unique to other companies.
To have a unique name and creating a brand image under the name is very important.
A trustworthy brand name gives people a sense of reliability and confidence. So the first essential step is to register a brand name and slowly work to build that brand.
The cost associated with registering a name for a company is LKR 1000. The name has to be also publicly acknowledged that the company has to give public notice of the company.
The Company Secretary and Director Signs Consent
Before setting up a new company, the secretary must be designated, and consent must be signed between the director and company secretary.
In accordance with Article 221(1) of Companies Act No. 7 of 2007 each and every company new or old must have a director and secretary.
As for the fee, there is no specific number; it depends on the type of company. The range is between $100-150 for private companies. An amount of LKR 10000-15000 is usually paid per month for company secretary.
New Company Registration
After the complication of above-mentioned processes, the company is required to submit the documents as follows to the Department of Registrar of companies:
From 1: Registration of Company
Form 18: Consent and certificate of director
Form 19: Consent and certificate of secretary
Two copies of Article of Association.
Registrar of company’s charges LKR 15000 for Form 1, and including a flat fee of LKR 1,000, moreover, 11% VAT has to be paid for all the other forms. The time required for the completion of the procedure is approximately three days.
Give a public notice of incorporation
After the incorporation of the company, it must give a public notice by the company within 60 days. The notice must state the following things:
- Name of the company
- Registration number
- Date of incorporation
- Address to the registered office
This law is per section 9 of Sri Lanka’s Companies Act Number. 1566/32, dated: 12, September,2008
The information should be published in Government Gazette and any daily newspaper in three languages; English, Sinhala, and Tamil.
The notice must be given with sixty days of incorporation, and it will be published in newspapers within two weeks. It costs around LKR 7000.
Register with the tax authorities and obtain a Tax Identification Number (TIN) from Taxpayer Services Unit of Inland Revenue Department
The company must then register itself with the tax authorities and complete the form along with the necessary documents including Form 1 and acquire a Tax Identification Number (TIN).
Physical presence of the applicant or a representative of the applicant is a must at the time of the registration. This process is usually completed with one day, and generally, there is no cost involved in it.
Register for VAT with the Inland Revenue Department’s VAT Registration Branch
The company will get permanent VAT registration if the revenue of company is equal to or more than LKR 3,750,000 per quarter or LKR 15,000,000 per year.
*On January 1st 2015 the rate of Vat was reduced from a previous 12% to 11%
Register with the Department of Labor and obtain the EPF number
All new companies must register with the department of labor and obtain the Employee Provident Fund (EPF) which is government owned and regulated by the central bank.
For Employee Trust Fund (ETF) there will no registration is required as the same EPF number is used for their monthly contributions.
Companies with employees who have been working for more than 5 years, have to pay gratitude to the employees.
However, this is revoked for companies that have less than 15 employees working for them. No pension is obligatory for private sector businesses and for businesses that operate in hazardous sectors, they are required to obtain special Factory Ordinance Checkups.
AS per the Labor law of Sri Lanka, an employee is entitled to have fourteen days paid leave after complication of one year’s service at the company.
There are some other obligations which have to be fulfilled by companies according to laws of Sri Lanka. Some are as follows:
- Maintain company records
- Inspection of company records
- Company to maintain share register
- Duty to prepare financial statements and accounting report
- Annual audit
All in all, Sri Lanka’s economy offers a great opportunity for foreign investors with a very stable economy and highly educated and skilled workforce.
Do feel free to contact us before starting a business in Sri Lanka. Let us know if you have a query or need any further information regarding doing business in Sri Lanka. Our team of experts is awaiting your contact.
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