LANDED PROPERTIES – Tax Implications (Sri Lanka )

Purchase of land & buildings other than by non-citizens

(Date: 15.10.2007)

All such purchases should be registered with the Registrar of Lands by submitting an instrument called the 'Deed of Transfer' attested by a Notary Public. Such instruments should be properly stamped as provided in the 'Stamp Duty Law'. The stamp duty is payable by the purchaser on the market value of the property @ the following rates :

• First Rs. 100,000 – Every Rs.100 or part thereof – Rs.3.00
• Balance - Every Rs. 100 or part thereof – Rs.4.00

The stamp duty is payable to the relevant Provincial Council which exercises the authority over the area in which the relevant instrument is executed. Usually, the relevant Notary Public may attend to these formalities as a part of his professional service.

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

Purchase of land & buildings by non-citizens

(Date: 15.10.2007)

Individuals who are non – Citizens or Companies having more than twenty-five percentum of issued capital owned by non-citizens.

• Normal stamp duty – as mentioned above
• Additional duty - @ 100% of market value. (the lowest value of the property may be specified by the Minister of Finance)
• Exemptions on additional duty :
  • Any property transferred to a licensed bank at an auction conducted by such bank in the discharge of a mortgage of such property.
  • Any property transferred to a Registered Finance Leasing Institution upon a purchase made by such institution where the property has been mortgage to such institution as a security for lease, or in order to execute a lease and an agreement to sell or a loan and an agreement to sell.
  • Any property transferred to a licensed bank or a Registered Finance Leasing Institution pursuant to an order of court in an action for recovery of a debt.
  • Any property transferred to a licensed bank or a Registered Finance Leasing Institution to carry on their business of banking or finance leasing in such property.
  • Any land transferred to an enterprise authorized by the Board of Investment of Sri Lanka (BOI) to setup on such land –
    • a project to construct not less than one hundred residential housing units on a piece of land not exceeding ten perches for each such unit or a registered condominium property not less than one hundred units of residential or non-residential accommodation, if the value of such land is met by inward remittance of foreign currency
    • A project for a construction and operation of a hospital or a hotel where the investment is not less than ten million US Dollars and the purchase consideration of the land is met by inward remittance of foreign currency.
    • A project relating to infrastructure development or any other development approved by the Minister of Finance and where the investment is not less than fifty million US Dollars and the purchase consideration of the land is met by inward remittance of foreign currency.
    • A project solely for the manufacture of non-traditional goods for export, for the establishment of its manufacturing plant, office, storage facilities, dormitories for workers where the investment is not less than one million US Dollars and the purchase consideration of the land is met by inward remittance of foreign currency.
  • Any Condominium unit situated on or above the fourth floor of any approved condominium, if the value of such unit is met by inward remittance of foreign currency.
  • Any property acquired prior to October 5, 2004 by a company and transferred to another company on the dissolution of such transferor company consequent to a merger of the transferee company with the transferor company.

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

Mortgages of land & building

(Date: 15.10.2007)

All mortgages of land & buildings should also be registered with the Registrar of Lands. The stamp duty on such mortgages was not payable during the period May 01, 2002 to April 03, 2006. With effect from April 04, 2006 the stamp duty has been re-introduced on mortgages @ the rate of Rs.1.00 for each Rs.1000/- or part thereof of the value of the mortgage.

This stamp duty is payable to the Department of Inland Revenue. However, the mortgages executed for any housing loan not exceeding LKR Three million have been exempted. The stamp duty on mortgages will be the same irrespective of whether the parties are citizens or non-citizens.

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

Income from rent / lease of land & buildings

(Date: 15.10.2007)

Stamp Duty

• In these transactions also it's advisable to enter in to an agreement and register it with the Registrar of Lands. The stamp duty is payable on such agreements to the Department of Inland Revenue @ Rs. 10.00 for each Rs. 1000/- or part thereof of the value of such agreement including any premium (key-money) recovered, with effect from April 04, 2006.

Income Tax

• Rent income on land & buildings calculated as per the Inland Revenue Act is liable to income tax and the rate may be between 5% to 35% depending on the total taxable income.
• If this income has been accrued to a Company (Corporate body) then such income will be treated as business income. - If the rent / lease rent paid by a tenant for one premises is not less than Rs. Fifty Thousand per month or Rs. Five Hundred Thousand per year and if the premises is used for non-residential purposes a with holding tax @ 10% is deductible by the tenant on each such payment when the rent is paid. This tax can be claimed as tax credit by the land lord (the owner) of such premises.

Value Added Tax (VAT)

• The VAT is payable @ 15% (currently) if the rent / lease rent is accrued to a VAT Registered person other than on residential premises. Further, the sale of land & buildings other than residential premises will also be liable to VAT at 15% on the value of supply calculated as provided in the VAT Law.

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

Key Money

(Date: 15.10.2007)

In certain situations the land lord (owner) charges key money (non-refundable lump-sum) in addition to the rent / lease rent. This key money is liable to income tax as a premium income in the year of receipt. Further the key money will be liable to VAT as well @ 15%, if received by a VAT registered person.

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

Sale of Lands & Buildings

(Date: 15.10.2007)

The profit on sale of lands & buildings is not liable to income tax unless the activity is a trade or business including adventure in the nature of trade.

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

Payment of Rates

(Date: 15.10.2007)

In many cases land & buildings are subject to the payment of rates charged by the respective local authorities on an estimated value (not the market value) of the property. The percentage of rates may depend on the area. The maximum currently is 30%, which is applicable to the properties situated in Colombo Municipal area. These rates are annual charges normally paid in quarterly installments.

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

Construction Industry Guarantee Fund Levy

(Date: 15.10.2007)

This is an annual levy payable by any construction contractor who has enforced such contract in Sri Lanka . This levy is administered by the Institute for Construction Training and Development (ICTAD) on behalf of the Government of Sri Lanka. However, from April, 2007 the Commissioner General of Inland Revenue will administer this levy.

• If the total contract value is less than Rs. Fifteen million, no levy is payable
• The value between Rs. 15M to Rs. 50M @ 0.25%
• The value above Rs. 50M to Rs. 150M @ 0.5%
• The value more than Rs. 150M @ 1.0%

The levy is payable on the total value of contract including all sub-contracts covered by such contract at the following rates, at the time of receipt of payment for such contract.

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

Service Charge on Development Permits

(Date: 15.10.2007)

The following service charge will be imposed on certain "non-low cost" residential development permits issued by the Urban Development Authority :

Note : This document contains the general information based on the current legal provisions. Professional advice may be obtained before acting on such Information.

For consultations please contact:

P. Guruge - B.A. (Hons), I.T.P. (Harvard – USA ) FTII (Sri Lanka)

Tax and Investment Consultant
Director – ComTax Law (Pvt) Ltd.
Former Fiscal Policy Advisor to the Ministry of Finance, Sri Lanka.
Retired Deputy Commissioner of Department of Inland Revenue, Sri Lanka.

Residence : 565/21, Mihindu Mw, Malabe, Sri Lanka
Tel : + 94 11 2744757, + 94 77 7478352
E mail : mailtoguruge@gmail.com