What are the objectives of the Port City Act?
To establish a special Economic Zone (“SEZ”) named “the Colombo Port City Special Economic Zone” which will be an international business and services hub with specialized infrastructure and other facilities. The Port City Act pays special attention to enhancing the ease of doing business in the SEZ.
The activities proposed to be carried out in the SEZ includes:
The Port City SEZ is expected to:
To achieve this, the Port City Act:
Is Port City a part of Sri Lanka
The object of the Port City Act is to establish a SEZ and it sets out the boundaries of this zone.
The SEZ contains in extent 446.6153 hectares of reclaimed land situated in Colombo, in the Western Province of Sri Lanka.
The boundaries of the Colombo Administrative District were altered accordingly in the year 2019 in accordance with Administrative Districts Act No. 22 of 1955 by the inclusion of the reclaimed area of land known as “Port City Colombo” and by annexing the said area of land to the Divisional Secretary’s Division of Colombo.
The Supreme Court of Sri Lanka also upheld in its Determination on the Colombo Port City Economic Commission Bill that the Constitution of Sri Lanka that Port City is part of Colombo Administrative District and as such, it forms part of the territory of Sri Lanka in terms of the law.
As such, the Port City SEZ is a part of Sri Lanka.
What are the applicable laws to business in the Port City?
The general laws of Sri Lanka that apply to commerce will apply to business in Port City, subject to certain exceptions and modifications set out in the Port City Act and the regulations to be issued thereunder.
Here is a snapshot of the laws applicable to various aspects of business
Regulation of foreign exchange transactions
Protection of Assets/Investment
Dealings with consumers
E commerce
Employment
Money Laundering
Tax (subject to such exemptions or incentives given under the Port City Act)
Who has regulatory oversight?
What Concessions and Exemptions from Laws will be granted to businesses in Port City?
Concessions and exemptions that are identified in the Port City Act are given only to an Authorized Person who carries on a “Business of Strategic Importance”
A “Business of Strategic Importance” is any business identified by the Port City Commission as having national interest or is in the interest of the advancement of the national economy.
The tax concessions granted by the Port City Commission will not be extended to any permitted business activities carried outside the Port City.
But in general, since Authorized Persons register as offshore companies, it becomes exempted the Companies Act No. 7 of 2007 as to the general administration of a company/
The Port City Act provides that exemptions from the following laws may be given to Businesses of Strategic Importance for a maximum of forty (40) years:
Who can engage in business in the Port City
Only Authorized Persons are permitted to engage in business within the Port City.
An Authorized Person can be either a natural person, a company, a partnership or a foundation which has been validly established under the laws of Sri Lanka or in any other jurisdiction.
An Authorized Person can also apply to the Port City Commission for authorization to engage in business outside of the Port City. The approval will be given based on the interest of the national economy and subject to conditions. Tax concessions will not be extended to such business activities carried outside the Port City.
To become an “Authorized Person”-
A Natural Person intending to carry on business in Port City | Company intending to carry on business in Port City | Company intending to carry on business of offshore banking in Port City |
must apply to the Port City Commission and obtain a License to do business in Port City | must apply to the Port City Commission and obtain a License to do business in Port City | must apply to the Port City Commission and obtain a License to do business in Port City |
is also required to have a certificate of registration as an offshore company under the Companies Act No. 7 of 2007 | is also required to have a certificate of registration as an offshore company under the Companies Act No. 7 of 2007 | |
is also required to have a licence issued under the Banking Act No. 30 of 1988 |
Port City Act Development Control Regulations which are yet to be issued may further define or limit the types of business activities that could be carried out in the Port City.
Can local companies invest in the Port City?
Both locally incorporated companies and foreign companies can be registered as offshore companies.
General rule:
All investments made to carry on business in and from the Port City must be raised outside Sri Lanka. Therefore, a local company cannot, by itself, do business in Port City unless it brings in investment raised outside Sri Lanka.
What cannot be passed off as funds raised outside Sri Lanka?
There is one exception.
If a local investor who is not restricted by the Land (Restrictions on Alienation) Act No. 38 of 2014 has leased land from the Port City Commission, such local investor can apply to engage in business along with another investor or a consortium of investors who have foreign funding.
The value of the lease, in LKR, will form part of the investment of the company that will be granted licence as an Authorized Person.
How does one fall within the exception?
The lease rental of the above land is eligible to form part of the investment made to carry on business in and from the Port City
What is the dispute resolution mechanism for disputes arising in Port City Zone?
The Port City provides for the establishment of an International Commercial Dispute Resolution Centre (“ICDRC”) within Port City.
Disputes arising within the Port City between the Port City Commission and authorized Persons or Port City residents will be resolved by way of arbitration conducted by the ICDRC.
Disputes (other than with the Port City Commission) may be resolved by mediation, arbitration or through the courts of Sri Lanka.
Sri Lanka is a party to the New York Convention on arbitration the provisions of which has been given legal effect to by the Arbitration Act.
Further, in order to ensure ease of doing business and efficient enforcement of contracts, where the dispute has been escalated to litigation, the courts are required to give priority to civil and commercial matters where the cause of action has arisen within or in relation to any business carried in or from the Port City.
Pavithra Navaratne
Devrangee Weerasinghe