Foreign Real Estate Investment & Property Acquisition in Sri Lanka

1. The Primary Restriction: Land (Restrictions on Alienation) Act No. 38 of 2014

Sri Lanka's Southern Province—particularly the coastal resort belt extending through Weligama, Mirissa, Madiha, Matara, Talalla, Dikwella, and Hiriketiya—has become a prime destination for international hospitality investors, boutique resort developers, and expatriates seeking private holiday villas.

However, foreign property transactions in Sri Lanka are strictly governed by the Land (Restrictions on Alienation) Act No. 38 of 2014. Under Section 2 of this statute, the direct transfer or conveyance of freehold title in land to the following categories is strictly prohibited by law:

• Any foreign individual who is not a citizen of Sri Lanka (unless holding dual citizenship).
• Any foreign company incorporated outside Sri Lanka.
• Any domestic Sri Lankan company where 50% or more of the voting shares are held directly or indirectly by foreign nationals.

2. Lawful Acquisition Vehicles for Foreign Investors

Foreign individuals and multinational entities lawfully secure property in Sri Lanka through four legally established statutory frameworks:

A. Long-Term Registered Corporate Leases (Up to 99 Years)

Under the Land (Restrictions on Alienation) Act, foreign nationals and foreign-owned companies are fully entitled to lease land in Sri Lanka for a term of up to 99 years. The 15% Land Lease Tax formerly imposed on foreign leases was officially abolished in 2016, placing foreign lessees on equal stamp duty footing with domestic citizens. A long-term registered lease provides complete security of tenure, mortgageability to commercial lenders, and the right to construct and operate hotels or residential compounds.

B. Board of Investment (BOI) Section 17 Approved Companies

Foreign corporate investors undertaking significant commercial, tourism, or manufacturing infrastructure can incorporate a Sri Lankan enterprise registered with the Board of Investment (BOI) under Section 17 of the BOI Act No. 4 of 1978. Qualifying BOI enterprises that satisfy prescribed minimum foreign investment thresholds are granted statutory exemptions, enabling the holding of designated commercial and industrial real estate for project implementation.

C. Condominium Apartment Ownership

Foreign individuals may purchase freehold condominium apartments under the Apartment Ownership Act and recent legislative amendments. Condominium units situated on or above specified residential tiers can be purchased freehold by foreign nationals, provided that the total purchase consideration is remitted into Sri Lanka from abroad through an authorized foreign exchange banking channel.

D. Dual Citizenship & Expatriate Inheritance

Persons of Sri Lankan origin who have obtained foreign passports but hold a valid Dual Citizenship Certificate under the Sri Lanka Citizenship Act retain the full constitutional rights of a native citizen, including the unrestricted right to purchase, own, and transfer freehold land and execute notarial deeds without foreign ownership restrictions.

3. Mandatory Foreign Exchange Compliance: The Inward Investment Account (IIA)

Foreign investment in Sri Lankan real estate must strictly comply with the Foreign Exchange Act No. 12 of 2017 administered by the Central Bank of Sri Lanka (CBSL). To guarantee that initial capital, lease payments, and eventual capital gains or rental profits can be legally repatriated overseas:

• Inward Investment Account (IIA): The foreign investor must open an IIA with a licensed commercial bank in Sri Lanka.
• Direct Channeling: All funds for deposit, lease purchase consideration, surveyor fees, notarial charges, and stamp duties must originate from abroad and be routed directly through the investor's IIA.
• Repatriation Guarantee: When the property or leasehold interest is subsequently sold or transferred, the full proceeds—including capital appreciation—can be converted back to foreign currency and remitted abroad through the same IIA channel.

4. Coastal Due Diligence Checklist for Southern Province Properties

Prior to executing any lease agreement or acquiring property along the Weligama, Mirissa, or Matara coastlines, legal due diligence must extend beyond the standard 30-year Land Registry search to address specialized regulatory clearances:

• Coast Conservation Department (CCD) Setback Clearances: Verify that proposed building footprints comply with statutory setback zones from the High Water Mark under the Coast Conservation and Coastal Resource Management Act.
• Urban Development Authority (UDA) & Local Council Zoning: Obtain certified Street Line and Building Limit certificates, along with tourist zoning permits from the Pradeshiya Sabha.
• Survey Department Cadastral Alignment: Ensure that physical boundary walls align strictly with approved surveyor plans and do not encroach upon public beach reserves or railway easements.