Foreign nationals who are interested in investing in property in Sri Lanka, can purchase apartments (or condominium parcels as referred to in the Apartment Ownership Law of Sri Lanka) as per the amendment made to the Land (Restrictions on Alienation) Act No. 38 of 2014 (the “Land Alienation Act”) in 2018 by the Land (Restrictions on Alienation) (Amendment) Act No. 21 of 2018 (the “2018 Amendment Act”).
Background
The law which regulates condominium property in Sri Lanka is the Apartment Ownership Law. This law sets out the legal requirements and processes applicable to the subdivision and amalgamation of a building into condominium parcels with common elements appurtenant thereto, enabling the separate ownership of, disposition of title to and registration of ownership of apartments or condominium parcels in such building and for matters connected therewith.
The use and management of such parcels in a condominium property are also regulated by the said law.
Position prior to 2018
Prior to the amendment in 2018, the Land Alienation Act prohibited foreign citizens from purchasing the freehold title to immovable property in Sri Lanka, unless exempted under the said Land Alienation Act.
This prohibition was set out in Section 2 of the Land Alienation Act which stipulated that, “Notwithstanding any provision to the contrary in any other written law, the transfer of title of any land situated in Sri Lanka, shall be 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 fifty per cent or above; or (c) to a foreign company, unless exempted as provided in section 3”.
Section 3(1)(b) of the Land Alienation Act granted an exemption from the prohibition mentioned above to a foreign national (or a local company with 50% or above direct or indirect foreign shareholding or a foreign company) to purchase “a condominium parcel situated on or above the fourth floor of a building specified under the Apartment Ownership Law, (excluding the ground level floor and floors which accommodates only common element or elements within the meaning of the Apartment Ownership Law) provided that, the entire value shall be paid up front through an inward foreign remittance prior to the execution of the relevant deed of transfer” . Therefore, prior to 2018, the Land Alienation Act restricted a foreign national from purchasing a condominium parcel on a floor of his or her choice.
Change made in 2018
The 2018 Amendment Act further broadened the scope of the exemption contained in Section 3(1)(b) of the Land Alienation Act, by permitting foreign nationals to purchase “a condominium parcel specified under the Apartment Ownership Law, provided that, the entire value shall be paid upfront through an inward foreign remittance prior to the execution of the relevant deed of transfer”.[1]
Consequently, the limitation on foreigners only being permitted to purchase freehold title of condominium parcels on or above the fourth floor has been removed, thereby permitting a foreign national to purchase a condominium parcel on any floor of the building, provided, of course, that the purchase price is paid upfront by way of an inward foreign remittance prior to the execution of the relevant deed of transfer.
Payment of purchase price and repatriation of sales proceeds
Foreign nationals are advised to open an Inward Investment Account (“IIA”) with a licensed commercial bank in Sri Lanka for the purpose of routing the purchase price by an inward remittance in to the country through the said IIA. In the event the foreign national wishes to subsequently sell the condominium parcel, he may repatriate the sales proceeds out of Sri Lanka through the same IIA.
Stamp Duty
Stamp duty is payable as follows on a deed of transfer pertaining to the purchase of a condominium property as on a transfer of any other type of immovable property:
Questions to be considered
as there is no maximum number stipulated, whether one foreigner could purchase all the units of a condominium complex, thereby acquiring the land on which the building is constructed as well, since as per the Apartment Ownership law, a person becomes entitled to an undivided share in such proportion of the land and other common elements defined in the Condominium Plan as the floor area of the unit (which such person owns), bears to the aggregate floor area of all the units comprised in the Plan.
Manjula Ellepola
Partner
Ruwani Dantanarayana
Senior Associate