Burma

Executive Summary

Burma’s economic reforms since 2011 have created opportunities for investment throughout the country.  With a rich natural resource base, a young labor force, and prime geographic location, Burma has tremendous economic potential.  Recent reforms, such as opening up retail and wholesale trade to FDI, liberalizing the insurance sector, and streamlining business registrations are designed to increase foreign direct investment.

Many challenges remain, however, with Myanmar ranking 165 out of 190 countries on the World Bank’s index for the ease of doing business. Electricity shortages, limited infrastructure, and weak institutions continue to hinder foreign investment.  A continuing area of concern for foreigners involves investment in large-scale land projects. Property rights for large plots of land for investment commonly are disputed because ownership is not well established, particularly following a half-century of military expropriations. It is not uncommon for foreign firms to face complaints from local communities about inadequate consultation and compensation regarding land.

While still facing implementation challenges, Aung San Suu Kyi’s National League for Democracy (NLD)-led government has taken steps to counter government corruption and has called for greater transparency and foreign investment. In its 2019 Corruption Perceptions Index, Transparency International rated Burma 130 out of 175 countries. Investors might encounter corruption when seeking investment permits, during the taxation process, when applying for import and export licenses, or when negotiating land and real estate leases.

In January 2020, the Ministry of Investment and Foreign Economic Relations (MIFER) announced tax exemptions for investments made in five priority sectors in all 14 states and regions in Burma as well as the capital territory. The tax exemption period is three, five, or seven years depending on the location. For a list of priority sectors by state and regions, please see MIFER’s website at: http://www.mifer.gov.mm/region

In November 2019, the Central Bank of Myanmar (CBM) announced that foreign banks will be allowed to apply for licenses to operate subsidiaries or branches. Under new directives, any foreign bank applying for a subsidiary license would be allowed to provide wholesale banking services at the start of operation. From January 2021, foreign banks with a subsidiary license will be allowed to offer retail banking services. The CBM will allow existing foreign bank branches to convert to subsidiaries starting from June 2020. In January 2020, the CBM announced foreign banks would be permitted to hold more than 35 percent of the capital in joint ventures with domestic banks.

In July 2019, the Securities and Exchange Commission announced that foreign individuals and entities are permitted to hold up to 35 percent of the equity in Burmese companies listed on the Yangon Stock Exchange. As of March 2020, six companies are listed on the exchange.

In February 2020, the government passed a new Insolvency Law, which adopts the United Nations Commission on International Trade Law (UNCITRAL) Model Law on cross-border insolvency, providing greater legal certainty on transnational insolvency issues.

While Burma’s Parliament passed four intellectual property laws in 2019 – the Trademark Law, Industrial Design Law, Patent Law, and Copyright Law – these laws have not yet entered into force at the time of this writing. The Burmese government is in the process of drafting implementing regulations and setting up an IP Office to administer the laws. Once in effect, the laws will likely improve intellectual property protection, and enforcement measures against intellectual property rights infringement. In March 2020, the government formed an IP Central Committee, chaired by a Vice-President, to oversee the IP Department. Establishing the committee is widely viewed as an important step in further developing Burma’s IPR protection regime.

The 2020 national elections will be important for potential investors to watch as will continued work by the government to mitigate the economic impact of COVID-19.

Table 1: Key Metrics and Rankings
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 130 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2020 165 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 N/A https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, stock positions) 2019 98.34 https://www.dica.gov.mm/sites/dica.gov.mm/
files/document-files/yearly_country_4.pdf
World Bank GNI per capita 2018 USD 1,310 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Toward Foreign Direct Investment

Burma recognizes the value of investment to boost economic growth and development, and it is open to foreign investors in some sectors. That said, implementation of liberal investment laws and policies are often slowed and sometimes blocked by local rent-seeking economic actors who benefit from the status quo. In 2016, Burma passed the Myanmar Investment Law (MIL) to attract more investment from both foreign and domestic businesses. The MIL simplified the rules and regulations for investment to bring Burma more in line with international standards. The MIL includes a “negative list” of prohibited, restricted, and special sectors. Burma also has three Special Economic Zones (SEZs) in Thilawa, Dawei, and Kyauk Phyu with preferential policies for businesses that locate there, including “one-stop-shop” service. Of the three SEZs, Thilawa is the only SEZ currently in operation.

The new Companies Law went into effect on August 1, 2018. Under the law, foreign investment of up to 35 percent is allowed in domestic companies— which also opens the stock exchange to limited foreign participation.  It also updated and streamlined business regulations. The Companies Law makes it easier to start and operate small businesses and provides the government with tools to enforce corporate governance rules and regulations.

The Directorate for Investment and Company Administration (DICA), which is part of the Ministry of Investment and Foreign Economic Relations (MIFER) serves as Burma’s investment promotion agency. DICA encourages and facilitates foreign investment by providing information, fostering networks between investors. DICA has its head office in Yangon and has 14 branches throughout the country, including in Nay Pyi Taw, Mandalay, Taunggyi, Mawlamyine, Pathein, Monywa, Dawei, Hpa-an, Bago, Magway, Loikaw, Myitkyina, Sittwe, and Hakha. DICA uses seminars, workshops, investment fairs and other events to promote investment, as well as its website: http://www.dica.gov.mm/en .

The government maintains active dialogue with chambers of commerce (including the American Chamber of Commerce) and foreign companies on investment.

Limits on Foreign Control and Right to Private Ownership and Establishment

Generally, foreign and domestic private entities have the right to establish and own business enterprises and engage in remunerative activity with some sectoral exceptions. Under Article 42 of the Myanmar Investment Law, the Burmese government restricts investment in certain sectors. Some sectors are only open to government or domestic investors. Other sectors require foreign investors to set up a joint-venture with a citizen of Burma or citizen-owned entity or obtain a recommendation from the relevant ministries.

The State-Owned Economic Enterprises Law, enacted in March 1989, stipulates that SOEs have the sole right to carry out a range of economic activities in certain sectors, including teak extraction, oil and gas, banking and insurance, and electricity generation. However, in practice many of these areas are now open to private sector investment. For instance, the 2016 Rail Transportation Enterprise Law allows foreign and local businesses to make certain investments in railways, including in the form of public-private partnerships.

More broadly, the Myanmar Investment Commission (MIC), “in the interest of the State,” can make exceptions to the State-Owned Enterprises Law. The MIC has routinely granted exceptions, including through joint ventures or special licenses in the areas of insurance, banking (for domestic investors only), mining, petroleum and natural gas extraction, telecommunications, radio and television broadcasting, and air transport services.

As one of their key functions, the Directorate of Investment and Company Administration (DICA) and the MIC are responsible for screening inbound foreign investment to ensure it does not pose a risk to national security, as well asto make a determination that such investment sufficiently furthers Burma’s growth and development.

Other Investment Policy Reviews

The World Bank’s Doing Business 2020 report includes an analysis of Burma’s investment sectors and business environment, and can be found at: https://www.doingbusiness.org/en/data/exploreeconomies/myanmar/

Business Facilitation

The government through the Directorate of Investment and Company Administration (DICA) provides limited business facilitation services.

The government instituted online company registration through “MyCo” (https://www.myco.dica.gov.mm ). Investors are able to submit forms, pay registration fees, and check availability of a company name through a searchable company registry on the “MyCo” website.

The Myanmar Investment Commission (MIC) is responsible for verifying and approving certain investment proposals and regularly issues notifications about sector-specific developments. The MIC is comprised of representatives and experts from government ministries, departments and governmental and non-governmental bodies. Companies can use the DICA website to retrieve information on requirements for MIC permit applications and submit a proposal to the MIC. If the proposal meets the criteria, it will be accepted within 15 days. If accepted, the MIC will review the proposal and reach a decision within 90 days. The MIC issued a March 2016 statement granting authority to state and regional investment committees to approve any investment with capital of under USD 5 million.

Outward Investment

The Burmese government does not directly promote or incentivize outward investment. However, the Burmese business community has responded positively to U.S. investment messaging under SelectUSA promotional efforts.  The Burmese delegations to the SelectUSA U.S. Investment Summits in Washington, D.C. numbered 15 delegates in 2018 and 36 delegates in 2019, highlighting growing interest.  Tourism/hospitality, oil & gas, ICT, and food processing investment opportunities were of the most interest to the Burmese investors. Burma does not restrict domestic investors from investing abroad.

3. Legal Regime

Transparency of the Regulatory System

Regulatory and legal transparency continue to pose significant challenges for foreign investors in Burma. Most regulations relevant to foreign businesses are developed at the national level by the following ministries: Commerce; Planning, Finance, and Industry; Investment and Foreign Economic Relations; and Agriculture, Livestock, and Irrigation.

In the past, all regulations were subject to change with no advance or written notice, and without opportunity for public comment. Ministries are not legally obligated to share regulatory development plans with the public or conduct public consultations, though some ministries now hold limited public consultation before finalizing bills for parliamentary consideration or issuing new regulations. For instance, the government solicited public comments on the 2016 Investment Law, including the drafting of the rules and regulations, which went through three rounds of public consultations. In another example, the government conducted public consultations on the Gemstone Policy.

The Burmese government does publish new regulations and laws in government-run newspapers and “The State Gazette.” The Burmese government also publishes information online and has established websites through which businesses can access trade information and also sometimes posts new regulations on government ministry’s official Facebook page.

Foreign investors can appeal adverse regulatory decisions. The relevant ministry drafting the regulation has the mandate to appoint a regulatory body to manage a grievance system to resolve legal disputes and/or establish enforcement mechanisms. For instance, under the Myanmar Investment Law, the Myanmar Investment Commission (MIC) serves as the regulatory body and has the authority to impose penalties on any investor who violates or fails to comply with the law. Investors have the right to appeal any decision made by the MIC to the government within 60 days from the date of decision.

Public finance and debt obligations, exclusive of contingent liabilities are public and transparent. Budget reports are published on the Ministry of Planning, Finance, and Industry (MOPFI) website (https://www.mopfi.gov.mm/en/content/budget-news ). Burma has issued the annual Citizen Budget in the Burmese language since FY 2015-16. The Ministry of Planning, Finance, and Industry has published quarterly budget execution reports, six-month-overview-of-budget-execution reports, and annual budget execution reports on its website since FY 2015-16. However, details regarding the budget allocations for defense expenditures are not transparent. The Burmese government also publishes its debt obligation report on the Treasury Department’s Facebook page. (See: https://www.facebook.com/pages/biz/Treasury-Department-of-Myanmar-777018172438019/ ).

For more information on Burma’s regulatory transparency see: http://rulemaking.worldbank.org/en/data/explorecountries/myanmar 

International Regulatory Considerations

Burma has been a member of the Association of South East Asian Nations (ASEAN) since July 1997. As an ASEAN member state, Burma’s regulatory systems are expected to conform to harmonization principles established in the ASEAN Trade in Goods Agreement (ATIGA) to support regional economic integration. Such principles include the removal of unnecessary technical barriers to trade; addressing relevant non-tariff measures among ASEAN member states; facilitation of trade; and upgrading of regulation to ensure safety, consumer health, environmental protection, consumer protection and meeting other social objectives. In an example of ASEAN regulatory harmonization, Burma officially joined the ASEAN Single Window in March 2020 with the launch of the National Single Window Routing Platform, which streamlines the import process by adopting the ASEAN Certificate of Origin Form D.

The Ministry of Commerce’s National Trade Portal and Repository contains all of Burma’s laws, processes, forms, and points of contact for trade.  This portal increases transparency in Burma and also meets Burma’s requirements under Articles 12 and 13 of the ATIGA. The Trade Portal can be found at: http://www.myanmartradeportal.gov.mm/index.php  .

While Burma is not currently in compliance with WTO notification requirements, the government has developed a WTO notification strategy that could increase the number and quality of notifications.

Legal System and Judicial Independence

Burma’s legal system is a unique combination of customary law, English common law, statutes introduced through the pre-independence India Code, and post-independence Burmese legislation. Where there is no statute regulating a particular matter, courts are to apply Burma’s general law, which is based on English common law as adopted and modified by Burmese case law.  Every state and region has a High Court, with lower courts in each district and township. High Court judges are appointed by the President while district and township judges are appointed by the Chief Justice through the Office of the Supreme Court of the Union. The Union Attorney General’s Office law officers (prosecutors) operate sub-national offices in each state, region, district, and township.

The Attorney General enforces standards of due process in the criminal justice system and provides the government’s law officers with a mandate to act as an independent check in the criminal justice system. The Ministry of Home Affairs, led by a minister appointed by the Commander-in-Chief but reporting to the President, retains oversight of the Myanmar Police Force, which files cases directly with the courts. While foreign companies have the right to bring cases to and defend themselves in local courts, there are general concerns about the impartiality and lack of independence of the courts.

In order to address the concerns of foreign investors regarding dispute settlement, the government acceded in 2013 to the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (“New York Convention”). In 2016, Burma’s parliament enacted the much-anticipated Arbitration Law, putting the New York Convention into effect and replacing arbitration legislation that was more than 70 years old. Since April 2016, foreign companies can pursue arbitration in a third country. However, the Arbitration Law does not eliminate all risks. There is still a limited track record of enforcing foreign awards in Burma and inherent jurisdictional risks remain in any recourse to the local legal system. The Arbitration Law, however, brings Burma’s legislation more in line with internationally accepted standards in arbitration.

Certain regulatory actions are appealable and are adjudicated with the respective ministry. For instance, according to the Myanmar Investment Law, investment disputes that cannot be settled amicably are “settled in the competent court or the arbitral tribunal in accord with the applicable laws.” An investor dissatisfied with any enforcement action made by the regulatory body has the right to appeal to the government within 60 days from the date of administrative decision. The government may amend, revoke, or approve any decision made by the regulatory body. This decision is considered final and conclusive.

Laws and Regulations on Foreign Direct Investment

The Myanmar Investment Commission (MIC) plays a leading role in the regulation of foreign investment and approves all investment projects receiving incentives outside of the special economic zones, which are handled by the SEZ’s Central Working Body. Regulation of joint ventures between foreign investors and SOEs is the responsibility of the relevant line ministries.

The Myanmar Investment Law outlines the procedures the Myanmar Investment Commission must take when considering foreign investments. The MIC evaluates foreign investment proposals and stipulates the terms and conditions of investment permits. The MIC does not record foreign investments that do not require MIC approval. Many smaller investments may go unrecorded. Foreign companies may register locally without an MIC license, in which case they are not entitled to receive the benefits and incentives provided for in the Myanmar Investment Law. More information on the MIC can be found at: http://www.dica.gov.mm/en/apply-mic-permit .

There is no “one-stop-shop” for investors with the exemption of Special Economic Zones which can provide “one-stop-shop” service. However, in 2015 the General Administration Department established One Stop Shops (OSS) to facilitate tax payments and assist in obtaining other required permits. As of April 2019, the government has opened 316 One Stop Shops in 72 townships across the nation.

Competition and Anti-Trust Laws

A Competition Law was passed on February 24, 2015, and went into effect on February 24, 2017. The objective of the law is to protect public interest from monopolistic acts, limit unfair competition, and prevent abuse of dominant market position and economic concentration that weakens competition.

The Myanmar Competition Commission serves as the regulatory body to enforce the Competition Law and its rules. The Commission is chaired by the Minister of Commerce, with the Director General of the Department of Trade serving as Secretary. Members also include a mixture of representatives from relevant line ministries and professional bodies, such as lawyers and economists.

The law classifies four types of behavior as punishable violations: acts restricting competition (applicable to all persons); acts leading to monopolies (applicable only to entrepreneurs); unfair competitive acts (applicable only to entrepreneurs); and business combinations such as mergers. The law also restricts the production of goods, market penetration, technological development, and investment, although the government may exempt restrictive agreements “if they are aimed at reducing production costs and benefit consumers,” such as reshaping the organizational structure and business model of a business so as to improve its efficiency; enhancing technology and technological advances for the improvement of the quality of goods and service; and promoting competitiveness of small- and medium-sized enterprises.

Burma is not party to any bilateral or regional agreement on anti-trust cooperation.

Expropriation and Compensation

The 2016 Myanmar Investment Law prohibits nationalization and states that foreign investments approved by the MIC will not be nationalized during the term of their investment. In addition, the law stipulates that the Burmese government will not terminate an enterprise without reasonable cause, and upon expiration of the contract, the Burmese government guarantees an investor the withdrawal of foreign capital in the foreign currency in which the investment was made. Finally, the law states that “the Union government guarantees that it shall not terminate an investment enterprise operating under a Permit of the Commission before the expiry of the permitted term without any sufficient reason.”

Dispute Settlement

ICSID Convention and New York Convention

Burma is not a party to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States (ICSID). In 2016, the Burmese parliament enacted the Arbitration Law, putting the 1958 New York Convention into effect (see international arbitration below).

Investor-State Dispute Settlement

To date, Burma has not been party to any investment dispute or dispute settlement proceeding at the WTO.

Under the 2016 Arbitration Law, local courts must recognize and enforce foreign arbitral awards against the government unless a valid ground for refusal to enforce exists. Valid grounds for refusal include: one or more parties’ inability to conclude an arbitration agreement; the invalidity of the arbitration agreement, lack of due process, the award falls outside the scope of the arbitration agreement; the arbitration was not in compliance with the applicable laws; or the award is not in force or has been set aside.

International Commercial Arbitration and Foreign Courts

The 2016 Arbitration Law is based on the UNCITRAL Model Law (Model Law), addressing arbitration in Burma as well as the enforcement of a foreign award in Burma. For example, the provisions relating to the definition of an arbitration agreement, the procedure of appointing arbitrator(s) and the grounds for setting aside an award are mirrored in the Arbitration Law and the Model Law; however there are some differences between these two laws. For instance, while parties are free to decide on the substantive law in an international commercial arbitration, the Arbitration Law provides that arbitrations seated in Burma must adopt Burmese law as the substantive law. According to the Arbitration Law, foreign arbitral awards can be enforced if they are the result of a commercial dispute and were made at a place covered by international conventions connected to Burma and as notified in the State Gazette by the President. If the Burmese court is satisfied with the award, it has to enforce it as if it were a decree of a Burmese court. While observers note that there are still issues to be resolved, the Arbitration Law brings Burma’s legislation much closer to international arbitration standards and legislation.

Bankruptcy Regulations

In February 2020, the government of Burma passed the new Insolvency Law, which replaces the Insolvency Act of 1910 and the Insolvency Act of 1920. The new law adopts the United Nations Commission on International Trade Law (UNCITRAL) Model Law on cross-border insolvency, providing greater legal certainty on transnational insolvency issues.

The legislation establishes an effective insolvency regime that addresses both corporate and personal insolvency, with a focus on protecting micro, small and medium-sized enterprises (MSMEs). With regards to personal insolvency, the new law encourages debtors to enter into a voluntary legally binding arrangement with their creditors. This agreement allows part or all of the debt to be written off over a fixed period of time. The law also provides equitable treatment for creditors by enabling an efficient liquidation process to ensure creditors receive maximum financial recovery from the property value of a non-viable business.

The new law establishes the Myanmar Insolvency Practitioners’ Regulatory Council to act as an independent regulatory body and assigns DICA the role of Registrar with the authority to fine individuals contravening the law. In addition, the court with legal jurisdiction can order an individual to make good on the default within a specified time.

4. Industrial Policies

Investment Incentives

In January 2020, the Ministry of Investment and Foreign Economic Relations (MIFER) announced tax exemptions for investments made in five priority sectors in all 14 states and regions in Burma as well as the capital territory. The tax exemption period is three, five, or seven years depending on the location. For a list of priority sectors by state and regions, please see MIFER’s website at: http://www.mifer.gov.mm/region 

Myanmar Investment Commission permit and endorsement holders are entitled to tax incentives and the right to use land. With a MIC permit, foreign companies can lease regional government-approved land for periods of up to 50 years with the possibility of two consecutive ten-year extensions.

The government has no established mechanism to provide joint-financing or any other type of fiscal support for infrastructure development.

Foreign Trade Zones/Free Ports/Trade Facilitation

Under the Myanmar Special Economic Zones Law, investors located in an SEZ may apply for income tax exemption for the first five years from the date of commencement of commercial operations, followed by a reduction of the income tax rate by 50 percent for the succeeding five-year period. Under the law, if profits during the third five-year period are re‐invested within one year, investors can apply for a 50 percent reduction of the income tax rate for profits derived from such re‐investment. In August 2015, the government issued new rules governing the SEZs, including the establishment of on-site One-Stop Service centers to ease the approval and permitting of investments in SEZs, incorporate companies, issue entry visas, issue the relevant certificates of origin, collect taxes and duties, and approve employment permits and/or permissions for factory construction and other investments.

Performance and Data Localization Requirements

Foreign investors must recruit at least 25 percent of their skilled employees from the local labor force in the first two years of their investment. The local employment ratio increases to 50 percent for the third and fourth years, and 75 percent for the fifth and sixth years. The investors are also required to submit a report to MIC with details of the practices and training methods that have been adopted to improve the skills of Burmese nationals.

Foreign investors may appoint expatriate senior management, technical experts, and consultants, but are required to submit a copy of the expatriate’s passport, proof of ability, and profile to the MIC for approval. Foreign investors have not cited onerous visa, residence, work permit, or similar requirements asa barrier to their mobility or that of their employees.

Foreign investors are not required to use domestic content in goods or technology. Burma is currently developing laws, rules and regulations on information technology (IT) and data protection standards, but does not currently have requirements for foreign IT providers to turn over source code and/or provide access to surveillance. Burma has no data localization laws.

5. Protection of Property Rights

Real Property

The Myanmar Investment Law provides that any foreign investor may enter into long-term leases with private landlords or – in the case of state-owned land – the relevant government departments or government organizations, if the investor has obtained a permit or endorsement issued by the Myanmar Investment Commission (MIC). Upon issuance of a permit or an endorsement, a foreign investor may enter into leases with an initial term of up to 50 years (with the possibility to extend for two additional terms of ten years each). The MIC may allow longer periods of land utilization or land leases to promote the development of difficult-to-access regions with lower development.

In September 2018, the Burmese government amended the Vacant, Fallow, and Virgin Lands Management Law and required occupants of these landsto register at the nearest land records office within a six-month period. The six-month deadline was intended to offer clear title to lands for investment and infrastructure construction. However, controversy exists over which lands have been designated as vacant, fallow or virgin, and whether the notification or registration period was sufficient.

A continuing area of concern for foreigners involves investment in large-scale land projects. Property rights for large plots of land for investment commonly are disputed because ownership is not well established, particularly following a half-century of military expropriations. It is not uncommon for foreign firms to face complaints from local communities about inadequate consultation and compensation regarding land.

Burma passed the Condominium Law in 2016, which allows for up to 40 percent of condominium units of “saleable floor area” to be sold to foreign buyers.  Condominium owners shall also have the shared ownership of both the land and apartment.  In 2017 the Ministry of Construction passed the Condominium Rules, implementing and clarifying provisions of the Condominium Law. One clarification per the rules is that state-owned land may be registered as condominium land (Rules 20 and 21).

In accordance with the Transfer of Immovable Property Restriction Law of 1987, mortgages of immovable property are prohibited if the mortgage holder is a foreigner, foreign company or foreign bank.

Intellectual Property Rights

Burma is a member of the World Trade Organization (WTO) and is obligated to provide intellectual property protection and enforcement consistent with the “Trade-Related Aspects of Intellectual Property (IPs) Agreement.” The WTO, however, has delayed required implementation of TRIPS for Least Developed Nations – including Burma – until 2021.

Burma’s current intellectual property (IP) protection and enforcement system does not meet international standards. While Burma’s Parliament passed four intellectual property laws in 2019 – the Trademark Law, Industrial Design Law, Patent Law, and Copyright Law – these laws have not yet entered into force at the time of this writing. The Burmese government is in the process of drafting implementing regulations and setting up an IP Office to administer the laws. Once in effect, the laws will likely improve intellectual property protection, and enforcement measures against intellectual property rights infringement. In March 2020, the government formed an IP Central Committee, chaired by a Vice-President, to oversee the IP Department. Establishing the committee is widely viewed as an important step in further developing Burma’s IPR protection regime.

The new Trademark Law introduces a “first-to-file” system from the previous “first-to-use” system. Trademark holders who previously used or registered their trademarks under the old system will need to re-register their trademarks under the new law. The new law also includes protections for “well-known” trademarks. Geographical indicators will also be protected through registration under the new law. The new IP Office anticipates receiving thousands of trademark applications from owners of existing trademarks during a six-month soft-opening period. With the anticipated workload and other issues, implementation of the other three IP laws will likely be delayed.

The Myanmar Police Force’s Criminal Investigative Department (CID) investigates and seizes counterfeit goods, including brands, documents, gold, products, and money, but not medicines. The CID provides evidence before presenting the case to the courts. The CID currently does not record the value of the amount seized. Industry has also identified Bangladesh, Myanmar, and Sri Lanka as emerging sources of counterfeit oncology drugs.

Burma is not listed in the USTR’s Special 301 report or the notorious market report.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Resources for Rights Holders

For Intellectual Property Rights issues in Burma, please contact:

Kitisri Sukhapinda, Regional IP Attaché
U.S. Patent and Trademark Office
American Embassy Bangkok, Thailand
Tel: (662) 205-5913
Email: kitisri.sukhapinda@trade.gov

6. Financial Sector

Capital Markets and Portfolio Investment

The Burmese government has gradually opened up to foreign portfolio investment but both the stock and bond markets are small and lack sufficient liquidity to enter and exit sizeable positions. In July 2019, the Securities and Exchange Commission announced that foreign individuals and entities are permitted to hold up to 35 percent of the equity in Burmese companies listed on the Yangon Stock Exchange. As of March 2020, six companies are listed on the exchange. The Securities Exchange Law came into effect in 2013, establishing a securities and exchange commission and helping clarify licensing for securities businesses (such as dealing, brokerage, underwriting, investment advisory and company representation).

Burma has a very small publicly-traded debt market. Banks have been the primary buyers of government bonds issued by Burma’s Central Bank, which has established a nascent bond market auction system. The Central Bank issues government treasury bonds with maturities of two, three, and five years.

Burma enacted the Foreign Exchange Management Law in 2012 in order to improve foreign exchange management and to broaden international economic relations and cooperation. Domestic businesses and investors are able to obtain loans from local and foreign banks. According to the Myanmar Investment Law and Foreign Exchange Management Law, foreign investors need the approval of the Central Bank of Myanmar (CBM) to take a bank loan. The Central Bank allows loans with a maximum maturity of three years. The CBM also allows overdraft lending. Instead of using traditional loans, borrowers can take out overdrafts with collateral which can be rolled over every year without a maturity date. As per CBM regulations, banks are required to clear overdraft facilities within three years; otherwise such overdrafts will be classified as non-performing loans (NPLs).

Money and Banking System

There is limited penetration of banking services in the country but the usage of mobile payment systems is growing rapidly. An estimated 25 percent of the population has access to a savings account through a traditional bank. As of April 2020, Burma’s banking sector consisted of four state-owned banks, 27 domestic private banks, 17 foreign bank branches, and three foreign bank subsidiaries. The banking system is fragile with a high volume of non-performing loans. Financial analysts estimate that NPLs at some local banks account for 40 to 50 percent of outstanding credit.

The 2013 Central Bank of Myanmar Law made the Central Bank an independent institution headed by a Minister-level governor. The Central Bank of Myanmar (CBM) is responsible for the country’s monetary and exchange rate policies as well as regulating and supervising the banking sector.

The government has gradually opened the banking sector to foreign investors. The government began awarding limited banking licenses to foreign banks in October 2014. In November 2018, the CBM published new guidelines that permit foreign banks with local licenses to offer “any financing services and other banking services” to local corporations. Previously, foreign banks were only allowed to offer export financing and related banking services to foreign corporations.

In November 2019, the CBM announced that foreign banks will be allowed to apply for licenses to operate subsidiaries or branches. Under new directives, any foreign bank applying for a subsidiary license would be allowed to provide wholesale banking services at the start of operation. From January 2021, foreign banks with a subsidiary license will be allowed to offer retail banking services. The CBM will allow existing foreign bank branches to convert to subsidiaries starting from June 2020. In January 2020, the CBM announced foreign banks would be permitted to hold more than 35 percent of the capital in joint ventures with domestic banks.

No U.S. banks have correspondent relationships with Burmese banks.

Foreigners are allowed to open a bank account in Burma in either U.S. dollars or Burmese kyat. To open a bank account, foreigners must provide proof of a valid visa along with proof of income or a letter from their employer.

Foreign Exchange and Remittances

Foreign Exchange

According to Chapter 15 of the Myanmar Investment Law, foreign investors are able to convert, transfer, and repatriate profits, dividends, royalties, patent fees, license fees, technical assistance and management fees, shares and other current income resulting from any investment made under this law. Nevertheless, in practice, the transfer of money in or out of Burma has been difficult, as many international banks have internal prohibitions on conducting business in Burma given the long history of sanctions and significant money-laundering risks. The majority of foreign currency transactions are conducted through banks in Singapore.

Under the Foreign Exchange Management Law, transfer of funds can be made only through licensed foreign exchange dealers, using freely usable currencies. The Central Bank of Myanmar (CBM) grants final approval on any new loans or loan transfers by foreign investors. According to a new regulation in the Foreign Exchange Management Law, foreign investors applying for an offshore loan must get approval from the CBM. Applications are submitted through the Myanmar Investment Commission by providing a company profile, audited financial statements, draft loan agreement, and a recent bank credit statement.

Since February 5, 2019, the Central Bank calculates a market-based reference exchange rate from the volume-weighted average exchange rate of interbank and bank-customer deals during the day.

Remittance Policies

According to the Myanmar Investment Law, foreign investors can remit foreign currency through authorized banks. Nevertheless, in practice, the transfer of money in or out of Burma has been difficult, as many international banks have internal prohibitions on conducting business in Burma given the long history of sanctions and significant money-laundering risks. The majority of foreign currency transactions are conducted through banks in Singapore.

The difficulties presented by the formal banking system are reflected in the continued use of informal remittance services (such as the “hundi system”) by both the public and businesses. In November 15, 2019, the Central Bank of Myanmar adopted the Remittance Business Regulation in order to bring these informal networks into the official financial system. The regulations require remittance business licenses to conduct inward and outward remittance businesses from the Central Bank of Myanmar.

Sovereign Wealth Funds

Burma does not have a sovereign wealth fund.

7. State-Owned Enterprises

State-owned enterprises (SOEs) in Burma are active in various sectors, including natural resource extraction, print news, energy production and distribution, banking, mobile telecommunications, and transportation. SOEs employ approximately 145,000 people, according to a 2018 report by the Natural Resource Governance Institute. The 1989 State-Owned Economic Enterprises Law does not establish a system of monitoring enterprise operations, hence detailed information on Burmese SOEs are difficult to obtain. However, according to commercial statements, the total net income of all SOEs during fiscal year 2018-19 was approximately USD 1.1 billion. The top profit-making SOEs are found in the natural resource sector, namely the Myanma Oil and Gas Enterprise, Myanma Gems Enterprise, and Myanma Timber Enterprise. Within Burma, there are 32 SOEs that are managed directly by six ministries without independent boards.

State-Owned Enterprises enjoy several advantages including serving in some cases as the market regulator, preferential land access, and access to low-interest credit. According to the State-Owned Economic Enterprises Law, SOEs wield regulatory powers that provide SOEs a significant market advantage, including through an ability to recommend specific tax exemptions to the Myanmar Investment Commission on behalf of private sector joint-venture partners and to monitor private sector companies’ compliance with contracts. In addition, the law stipulates that SOE managers have sole discretion in awarding contracts and licenses to private sector partners with limited oversight. SOEs can secure loans at low interest rates from state-owned banks, with approval from the cabinet. Private enterprises, unlike SOEs, are forced to provide land or other real estate as collateral in order to be considered for a loan. SOEs have historically had an advantage over private entities in land access because under the Constitution the State owns all the land.

Privatization Program

In May 2016, the government formed a privatization committee on SOEs, which is headed by a Vice-President, to examine measures such as public-private partnerships (PPP) to develop and operate infrastructure as well as to sell-off inefficient state-owned factories. The Minister for Planning, Finance, and Industry serves as secretary of the commission. Privatization can take the form of system-sharing, public-private partnership, private-private partnership, franchise, joint-venture, and sales of assets in line with international standards. In October 2017, the government sought to privatize state-owned factories in the ceramic, garment, plastic, and stainless-steel sectors, according to state media. According to government data and media reports, 55 state-owned factories have been restructured under various PPPs as of November 2019. The privatization committee does not have a website describing its current activities but general information in the Burmese language about the committee can be found at: https://www.mopfi.gov.mm/my/page/planning/committee/638 .

8. Responsible Business Conduct

There is growing awareness of standards for responsible business conduct in Burma. Responsible business principles are cited in the Myanmar Investment Law and the Myanmar Sustainable Development Plan. Many privately-owned companies, particularly those seeking foreign investment, are increasing transparency and are striving to meet international standards of responsible business conduct. There remains, however, significant variance among companies and sectors. The Myanmar Centre for Responsible Business advises foreign investors to closely engage local partners to ensure they (as well as their contractors and supply chains) meet international standards for responsible business conduct.

Companies operating in Burma’s conflict zones or partnering with military-owned firms face significant reputational risk. Both foreign and domestic companies have been cited by international organizations and NGOs for supporting or enabling human rights abuses in Burma, including in reports by the United Nations Fact-Finding Mission on Myanmar.

Burma became a candidate country in the Extractive Industries Transparency Initiative in 2014.

9. Corruption

The Burmese government has continued to prioritize fighting corruption, and resources have been allocated to facilitate the growth of the Anti-Corruption Commission (ACC) into an institution vested with the authority to lead that fight. In 2018, the government amended its anti-corruption law to give the ACC authority to scrutinize government procurements. The ACC has used that authority to initiate criminal cases even in the absence of victim complaints, leading to cases against several high-ranking and some mid-ranking officials for financial impropriety and abuse of office. Family members of politicians can also be prosecuted under the anti-corruption law, though office holders face higher penalties. The ACC opened branch offices in Yangon and Mandalay in 2019, as it continues to increase its investigative capacity.

Some companies are legally required to have compliance programs to detect and prevent bribery of government officials. Under Burma’s Anti-Money Laundering Law, law firms, banks, and companies operating in the insurance and gemstone sectors are required to appoint compliance officers and conduct heightened due diligence on certain customers.

There have also been non-legislative actions to counter corruption. Burma does not have laws to counter conflicts-of-interest in awarding contracts or government procurement. However, the President’s office has issued orders to prevent conflicts-of-interest for construction contracts and several ministries have put in place internal rules to avoid conflicts-of-interest in awarding tenders. In the private sector, some of Burma’s largest companies have developed anti-corruption policies, which they have published on-line.

Enforcement of Burma’s anti-corruption laws remains a challenge. While there have been efforts to reduce some opportunities for higher-level corruption, the lack of transparency regarding military budgets and expenditures remains a substantial impediment to reforms. In addition, a large swath of the economy is engaged in illegal activities beyond the control of the government. These include the production, transportation and distribution of narcotics, and the smuggling of jade, gemstones, timber, wildlife, and wildlife products. NGOs are working with the government to assist in fighting corruption in these areas, but lack any formal role in conducting investigations. There are efforts to promote accountability for government officials, but the lack of resources for key government functions, including law enforcement and civil service salaries, remains a driver for low-level corruption. In its 2019 Corruption Perceptions Index, Transparency International rated Burma 130 out of 175 countries. Investors might encounter corruption when seeking investment permits, during the taxation process, when applying for import and export licenses, and when negotiating land and real estate leases.

Burma signed the UN Anticorruption Convention in 2005, and ratified it on December 20, 2012.

Burma is not party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions.

Resources to Report Corruption

Anti Corruption Commission
Cluster (1), Sports’ Village, Wunna Theikdi Ward,*
Nay Pyi Taw
Phone: + 95 67 810 334 7
Email: myanmaracc2014@gmail.com
http://www.accm.gov.mm/acc/index.php?route=common/home 

* A new Anti Corruption Commission head office is currently under construction. However, the above address is still used for all official communications until the new office becomes operational.

10. Political and Security Environment

The government is sensitive to the threat of terrorism and is engaged with international partners on this issue. There is no evidence to suggest that international terrorist organizations have operational capacity in Burma or are actively targeting Western interests. Additionally, crime in Burma is low compared to other countries within the region. While violence or demonstrations rarely target U.S. or other Western interests in Burma, several ethnic armed groups are engaged in ongoing civil conflict with the Burmese government, which occurs almost exclusively in the ethnic states.  On October 15, 2015, the Burmese government and eight ethnic armed groups (EAGs) signed a Nationwide Ceasefire Agreement (NCA). Two additional armed ethnic groups joined the NCA in February 2018. However, several ethnic armed groups, including the most powerful ones, have not signed the NCA and some signatories continue to fight with the military and other EAGs.

While most of the major cities are considered safe, several areas of the country, particularly within some of the ethnic states, routinely see conflict between the government and EAGs, as well as inter-ethnic violence between EAGs. Combatants use landmines, improvised explosive devices, small arms, and other weapons. These incidents generally target government security forces, but there have been collateral casualties among the civilian population. The continued use of landmines by the Burmese military and EAGs in the north, northeast, and southeast continue to routinely result in civilian casualties. Civilians have also been killed as a result of clashes between the military and the EAGs, as well as inter-ethnic conflicts.

On August 25, 2017, a Rohingya insurgent group attacked about 30 security outposts in northern Rakhine State. The government characterized this event as a terrorist attack, and Burmese security forces launched clearance operations throughout northern Rakhine State. Hundreds of Rohingya villages were burned, and there were widespread, credible allegations of abuses by security forces. An estimated 730,000 Rohingya fled to Bangladesh, and tens of thousands of non-Rohingya are displaced inside Rakhine State. In November 2017, the U.S. Secretary of State determined that the situation constituted ethnic cleansing. Violence has not spread to other areas of Burma as a result of the crisis in Rakhine State although, as noted above, certain states in Burma continue to experience ethnic or religious violence. Burma has a minority Muslim population, and violence between Buddhists and Muslims did occur in other parts of the country in 2013 and 2014 following intercommunal violence in Rakhine State in 2012. Since late 2018, there has been a marked increase in violence as a result of the ongoing conflict between the Burmese security forces and fighters from the Arakan Army (AA), an ethnic Rakhine, largely Buddhist, EAG. A number of townships in northern Rakhine and southern Chin States are currently off limits for U.S. government travel due to the violence from this conflict.

Burma plans to hold national elections in late 2020. Following decades of military rule, Burma elections were considered to be generally free and fair in November 2015, which the Aung San Suu Kyi-led National League for Democracy won. The military still retains considerable political power under provisions of the 2008 constitution, including 25 percent of all seats in parliament at both the national and region/state level.

11. Labor Policies and Practices

Burma’s labor costs are low, even when compared to most of its Southeast Asian neighbors. Skilled labor and managerial staff are in high demand and short supply, leading to high turnover. According to the government, 70 percent of Burma’s population is employed in agriculture. The military’s nationalization of schools in 1964, its discouragement of English language classes in favor of Burmese, the lack of investment in education by the previous governments of Burma, and the repeated closing of Burmese universities from 1988 to the mid-2000’s have taken a toll on the country’s work force. Most people in the 15- to 39-year-old demographic lack technical skills and English proficiency. In order to address this gap, Burma’s Employment and Skill Development Law went into effect in December 2013 and is being revised. The law provides for compulsory contributions on the part of employers to a “skill development fund,” although this provision has not been implemented.

The military’s nationalization of schools in 1964, its discouragement of English language classes in favor of Burmese, the lack of investment in education by the previous governments of Burma, and the repeated closing of Burmese universities from 1988 to the mid-2000’s have taken a toll on the country’s work force. Most people in the 15- to 39-year-old demographic lack technical skills and English proficiency. In order to address this gap, Burma’s Employment and Skill Development Law went into effect in December 2013 and is being revised. The law provides for compulsory contributions on the part of employers to a “skill development fund,” although this provision has not been implemented.

From the World Bank’s 2014 “Ending Poverty and Boosting Prosperity in a Time of Transition” report on Burma, 73 percent of the total labor force in Burma was employed in the informal sector in 2010, or 57 percent if one excludes agricultural workers. Casual laborers represented another 18 percent, mainly from the rural areas. Unpaid family workers represent another 15 percent.

In October 2011, the Burmese government passed the Labor Organization Law, which legalized the formation of trade unions and allows workers to strike. As of April 2019, roughly 2,900 enterprise-level unions have been formed in a variety of industries ranging from garments and textiles to agriculture to heavy industry. The passage of the Labor Organization Law engendered a labor movement in Burma, and there is a low, yet increasing, level of awareness of labor issues among workers, employers, and even government officials. Still, at present, the use of collective bargaining remains limited. Strikes are increasingly common, though they are not currently a significant deterrent to foreign investment.

The Burmese government continues to bring the legal system into compliance with international labor standards. In recent years, the government has passed a number of labor reforms and amended a range of labor-related laws, such as the Shops and Establishment Law, the Payment of Wages Law, and the Occupational Safety and Health Law. In 2019, Parliament also passed the Settlement of Labor Disputes Law. Under this law, parties to labor disputes can seek mediation through arbitration councils. All stakeholders have a say in the selection of arbitration mediators. If arbitration fails, disputes enter the court system. Parliament approved Burma’s ratification of an international treaty to abolish child labor in the country (Minimum Age Convention 138) in December 2019. The ratification process is ongoing. A mechanism to submit forced labor complaints became operational in February 2020.

In November 2014, the governments of the United States, Burma, Japan, Denmark, and the International Labor Organization (ILO) formally launched the Initiative to Promote Fundamental Labor Rights and Practices in Myanmar (Initiative) and held the fourth Stakeholder’s Forum in February 2020. The overarching goal of the Initiative is to promote a culture of compliance with fundamental labor rights. The Initiative is intended to cultivate relationships between business, labor, and civil society stakeholders and the Burmese government.

In November 2016, the U.S. government reinstated Burma’s Generalized System of Preferences (GSP) trade benefit in recognition of the progress that the government had made in protecting workers’ rights. The U.S. government reauthorized the GSP program globally in March 2018 through December 31, 2020.

Employers may face some restrictions in firing or laying off workers. Under Burmese law, certain employers must provide notice to the Ministry of Labor, Immigration, and Population when laying off workers. Employers also must provide warnings before firing a worker for breach of an employment contract. Fired or laid-off workers can collect unemployment insurance if they and their employer made contributions before termination.

Burma does not waive labor laws to attract foreign investment, though there is some ambiguity as to which labor laws apply in Special Economic Zones. This issue has yet to be definitively adjudicated.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

There is high potential in Burma for additional DFC investment particularly in the ICT, retail, and agricultural sectors. The DFC’s predecessor organization, OPIC (Overseas Private Investment Corporation), focused its portfolio investments in Burma on the telecommunication and microfinance sectors. In May 2013, OPIC signed an Investment Incentive Agreement with Burma.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
Host Country Statistical source* USG or international statistical source USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 N/A 2019 65,994 https://www.imf.org/external/pubs/ft/weo/
2019/02/weodata/weorept.aspx?pr.x=56&pr.y=9&sy=2017&ey=2024&scsm=
1&ssd=1&sort=country&ds=.&br=1&c=
518&s=NGDPD&grp=0&a=
 
Foreign Direct Investment Host Country Statistical source USG or international statistical source USG or international Source of data:
BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 98.34* N/A N/A
Host country’s FDI in the United States ($M USD, stock positions)** N/A N/A N/A N/A
Total inbound stock of FDI as % host GDP N/A N/A 2018 45.7 https://unctad.org/sections/dite_dir/docs/
wir2019/wir19_fs_mm_en.pdf
 

* https://www.dica.gov.mm/sites/dica.gov.mm/files/document-files/yearly_country_4.pdf 

** Accurate statistical data is limited in Burma, although this capacity is also being developed.

Table 3: Sources and Destination of FDI
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment (2018)* Outward Direct Investment
Total Inward 27325 100% N/A
Singapore 7590 27.8%
China 6929 25.3%
Thailand 3393 12.4%
Japan 2686 9.8%
United Kingdom 1078 3.9%
“0” reflects amounts rounded to +/- USD 500,000.

* According to http://data.imf.org/CDIS 

Table 4: Sources of Portfolio Investment
Data not available.

14. Contact for More Information

Geoffrey D. Chin, Economics Professional Associate
U.S. Embassy/110 University Avenue/Kamayut Township 11041/Rangoon, Burma
Telephone: 95 (0)1 7536 509
Email Address: chingd@state.gov

Sri Lanka

Executive Summary

Sri Lanka is a lower middle-income country with a Gross Domestic Product (GDP) per capita of $3,853 and a population of approximately 22 million.  The island’s strategic location off the southern coast of India along the main east-west Indian Ocean shipping lanes gives Sri Lanka a regional logistical advantage.

After 30 years of civil war, Sri Lanka is transitioning from a predominantly rural-based economy to a more urbanized economy focused on manufacturing and services.  Sri Lanka’s export economy is dominated by apparel and cash-crop exports, mainly tea, but technology services exports are a significant growth sector.  Prior to the April 21, 2019 Easter Sunday attacks, the tourism industry was rapidly expanding, with Lonely Planet naming Sri Lanka its top travel destination in 2019.  However, the attacks led to a significant decline in tourism that continued into 2020 due to COVID-19 and the government’s related decision to close the airport for commercial passenger arrivals in March 2020.  The global impact of COVID-19 on tourism and apparel exports is resulting in severe contractions to both sectors in Sri Lanka, with potential follow-on impacts in related sectors including services, construction, and agriculture.  Migrant labor remittances, another significant source of foreign exchange, were approximately $6.7 billion in 2019.

President Gotabaya Rajapaksa, who came to power in December 2019, has largely promoted pro-business positions, including announcing tax benefits for new investments to attract foreign direct investment (FDI).  The new government’s economic goals, outlined in an election  manifesto, include positioning Sri Lanka as an export-oriented economic hub at the center of the Indian Ocean (with government control of strategic assets such as Sri Lankan Airlines), improving trade logistics, attracting export-oriented FDI, and boosting firms’ abilities to compete in global markets.  FDI in Sri Lanka has largely been concentrated in tourism, real estate, mixed development projects, ports, and telecommunications in recent years.  With a growing middle class, investors also see opportunities in franchising, retail, information technology services, and light manufacturing for the domestic market.

The Board of Investment (BOI) is the primary government authority responsible for investment, particularly foreign investment, aiming to provide “one-stop” services for foreign investors.  The BOI is committed to facilitating FDI and can offer project incentives, arrange utility services, assist in obtaining resident visas for expatriate personnel, and facilitate import and export clearances.  However, Sri Lanka’s import regime is one of the most complex and protectionist in the world.  Sri Lanka ranks very poorly on the World Bank’s Doing Business Indicators in a number of areas, including contract enforcement (164 out of 190); paying taxes (142/190); registering property (138/190) and obtaining credit (132/190).  Sri Lanka ranks well in protecting minority investors, coming in at 28/190.

GDP fell to $84 billion in 2019.  The Easter Sunday attacks, together with external shocks and political uncertainty, led to a growth of only 2.3 percent in 2019 with inflation hitting 6.2 percent.  FDI, including loans, into Sri Lanka fell to approximately $1.2 billion in 2019, significantly less than the $2.3 billion in 2018, and 2020 is expected to see even lower levels of investment due to concern over Sri Lanka’s worsening financial situation and increased reliance on the People’s Republic of China (PRC).

Table 1: Key Metrics and Rankings  
Measure Year Index/Rank Website Address
TI Corruption Perceptions Index 2019 93 of 175 http://www.transparency.org/
research/cpi/overview
World Bank’s Doing Business Report 2019 99 of 190 http://www.doingbusiness.org/en/rankings
Global Innovation Index 2019 89 of 129 https://www.globalinnovationindex.org/
analysis-indicator
U.S. FDI in partner country ($M USD, historical stock positions) 2017 $168.0 million http://apps.bea.gov/international/factsheet/
World Bank GNI per capita 2019 $ 4,020 http://data.worldbank.org/
indicator/NY.GNP.PCAP.CD

1. Openness To, and Restrictions Upon, Foreign Investment

Policies Towards Foreign Direct Investment

Sri Lanka is a constitutional multiparty republic.  In 1978, Sri Lanka began moving away from socialist, protectionist policies and opening up to foreign investment, although changes in government are often accompanied by swings in economic policy.  President Gotabaya Rajapaksa, who came to power in December 2019, has largely promoted pro-business positions, including announcing tax benefits for new investments to attract FDI.

The new government’s economic goals, outlined in an election  manifesto, include positioning Sri Lanka as an export-oriented economic hub at the center of the Indian Ocean (with government control of strategic assets such as Sri Lankan Airlines), improving trade logistics, attracting export-oriented FDI, and boosting firms’ abilities to compete in global markets.

The BOI (www.investsrilanka.com ), an autonomous statutory agency, is the primary government authority responsible for investment, particularly foreign investment, with BOI aiming to provide “one-stop” services for foreign investors.  BOI’s Single Window Investment Facilitation Taskforce (SWIFT) helps facilitate the investment approvals process and works with other agencies in order to expedite the process.  BOI can grant project incentives, arrange utility services, assist in obtaining resident visas for expatriate personnel, and facilitate import and export clearances.  There are plans to establish new regulatory authorities, including a separate investment authority.

Importers to Sri Lanka face high barriers.  According to a World Bank study, Sri Lanka’s import regime is one of the most complex and protectionist in the world.  U.S. stakeholders have raised concerns that the government does not adequately consult with the private sector prior to implementing new taxes or regulations – citing the severe import restrictions imposed as a reaction to the COVID-19 as an example.  These restrictions, quickly imposed without consulting the private sector, further complicated Sri Lanka’s import regime.  Similarly, stakeholders have raised concerns that the government does not allow adequate time to implement new regulations.  Additionally, importation of a number of “non-essential” items have been temporarily suspended to curtail foreign exchange outflow as the Sri Lankan Rupee (LKR) depreciated around 10 percent during 2020 and is expected to be under further pressure in the medium term.

Sri Lanka is a challenging place to do business, with high transaction costs aggravated by an unpredictable economic policy environment, inefficient delivery of government services, and opaque government procurement practices.  Investors noted concerns over the potential for contract repudiation, cronyism, and de facto or de jure expropriation.  Public sector corruption is a significant challenge for U.S. firms operating in Sri Lanka and a constraint on foreign investment.  While the country generally has adequate laws and regulations to combat corruption, enforcement is weak, inconsistent, and selective.  U.S. stakeholders and potential investors expressed particular concern about corruption in large infrastructure projects and in government procurement.  The government pledged to address these issues, but the COVID-19 response remains its primary concern.  Historically, the main political parties do not pursue corruption cases against each other after gaining or losing political positions.

While Sri Lanka is a challenging place for businesses to operate, investors report that starting a business in Sri Lanka is relatively simple and quick, especially when compared to other lower middle-income markets.  However, scalability is a problem due to the lack of skilled labor, a relatively small talent pool and constraints on land ownership and use. Investors note that employee retention is generally good in Sri Lanka, but numerous public holidays, a reluctance of employees to work at night, a lack of labor mobility, and difficulty recruiting women decrease efficiency and increase start-up times.  A leading international consulting firm claims the primary issue affecting investment is lack of policy consistency.

Limits on Foreign Control and Private Ownership 

Foreign ownership is allowed in most sectors, although foreigners are prohibited from owning land with a few limited exceptions.  Foreigners can invest in company shares, debt securities, government securities, and unit trusts.  Many investors point to land acquisition as the biggest challenge for starting a new business.  Generally, Sri Lanka prohibits the sale of public and private land to foreigners and to enterprises with foreign equity exceeding 50 percent.  However, on July 30, 2018, Sri Lanka amended the Land (Restriction of Alienation) Act of 2014 to allow foreign companies listed on the Colombo Stock Exchange (CSE) to acquire land.  Foreign companies not listed on the CSE—but engaged in banking, financial, insurance, maritime, aviation, advanced technology, or infrastructure development projects identified and approved as strategic development projects—may also be exempted from restrictions imposed by the Land Act of 2014 on a case-by-case basis.

The government owns approximately 80 percent of the land in Sri Lanka, including the land housing most tea, rubber, and coconut plantations, which are leased out, typically on 50-year terms.  Private land ownership is limited to fifty acres per person.  Although state land for industrial use is usually allotted on a 50-year lease, the government may approve 99-year leases on a case-by-case basis depending on the project.  Many land title records were lost or destroyed during the civil war, and significant disputes remain over land ownership, particularly in the North and East. The government has started a program to return property taken by the government during the war to residents in the North and East.

The government allows up to 100 percent foreign investment in any commercial, trading, or industrial activity except for the following heavily regulated sectors: air transportation; coastal shipping; large scale mechanized mining of gems; lotteries; manufacture of military hardware, military vehicles, and aircraft; alcohol; toxic, hazardous, or carcinogenic materials; currency; and security documents.  However, select strategic sectors, such as railway freight transportation and electricity transmission and distribution, are closed to any foreign capital participation.   Foreign investment is also not permitted in the following businesses: pawn brokering; retail trade with a capital investment of less than $5 million; and coastal fishing.

Foreign investments in the following areas are restricted to 40 percent ownership: a) production for export of goods subject to international quotas; b) growing and primary processing of tea, rubber, and coconut, c) cocoa, rice, sugar, and spices; d) mining and primary processing of non-renewable national resources, e) timber based industries using local timber, f) deep-sea fishing, g) mass communications, h) education, i) freight forwarding, j) travel services, k) businesses providing shipping services.  Foreign ownership in excess of 40 percent can be preapproved on a case-by-case basis by the BOI.

In areas where foreign investments are permitted, Sri Lanka treats foreign investors the same as domestic investors.  However, corruption reportedly may make it difficult for U.S. firms to compete against foreign bidders not subject to the U.S. Foreign Corrupt Practices Act when competing for public tenders.

Business Facilitation

The Department of Registrar of Companies (www.drc.gov.lk ) is responsible for business registration.  Online registration (http://eroc.drc.gov.lk/ ) was recently introduced and registration averages four to five days.  In addition to the Registrar of Companies, businesses must register with the Inland Revenue Department to obtain a taxpayer identification number (TIN) for payment of taxes and with the Department of Labor for social security payments.

Outward Investment

The government supports outward investment, and the Export Development Board offers subsidies for companies seeking to establish overseas operations, including branch offices related to exports.  New outward investment regulations came into effect November 20, 2017.  Sri Lankan companies, partnerships, and individuals are permitted to invest in shares, units, debt securities, and sovereign bonds overseas subject to limits specified by the new Foreign Exchange Regulations.  Sri Lankan companies are also permitted to establish overseas companies.  Investments over the specified limit require the Central Bank Monetary Board’s approval.  All investments must be made through outward investment accounts (OIA).  All income from investments overseas must be routed through the same OIA within three months of payment.  Note: OIA transactions were suspended until January 21 in an attempt to ease pressure on the Sri Lankan rupee.

2. Bilateral Investment Agreements and Taxation Treaties

Sri Lanka has signed investment protection agreements with 26 countries, including the United States (which came into force in May 1993).  Pursuant to the Constitution, investment protection agreements enjoy the force of law and legislative, executive, or administrative actions cannot contravene them.

  • Sri Lanka has signed free trade agreements (FTAs) with India, Pakistan, and Singapore, and is negotiating an FTA with China.
  • The FTAs with India and Pakistan only cover trade in goods. They provide for duty-free entry and duty preferences for manufactured and agricultural goods.  A domestic value addition of 35 percent is required to qualify for concessions granted pursuant to the FTAs.
  • The Singapore-Sri Lanka FTA came into force on May 1, 2018, and covers: investment, goods, services, trade facilitation, government procurement, telecommunications, e-commerce, and dispute settlement.  Sri Lanka eliminated customs duties on 50 percent of tariff lines, which will progressively increase to 80 percent over 14 years.  Sri Lanka will not reduce or eliminate duties on the remaining 20 percent of tariff lines.
  • Sri Lanka is a member of the South Asian Free Trade Area (SAFTA) and the Asia-Pacific Trade Agreement (APTA).

Sri Lanka signed a bilateral taxation treaty with the United States in 1985, which was amended in 2002.  Information about the treaty can be found at: http://www.irs.gov/Businesses/International-Businesses/Sri-Lanka—Tax-Treaty-Documents 

The United States-Sri Lanka Trade and Investment Framework Agreement (TIFA) is the primary forum for bilateral trade and investment discussions, including the protection of worker rights.

Sri Lanka has signed bilateral agreements with an additional 43 countries.

Sri Lanka passed an Inland Revenue Act in 2017.  The law, which came into force on April 1, 2018, provides a tax framework to provide increased certainty to investors and taxpayers; modernize rules related to cross-border transactions to address tax avoidance; broaden the tax base; and expand income tax sources.  A three-tier corporate tax structure was also introduced with a 40 percent rate for businesses in the liquor, tobacco, and betting and gaming industries.  The law also introduced capital gains tax and fines and/or imprisonment for tax evasion and personal liability for company directors.

3. Legal Regime

Transparency of the Regulatory System

Many foreign and domestic investors view the regulatory system as unpredictable with outdated regulations, rigid administrative procedures, and excessive leeway for bureaucratic discretion.  BOI is responsible for informing potential investors about laws and regulations affecting operations in Sri Lanka, including new regulations and policies that are frequently developed to protect specific sectors or stakeholders.  Effective enforcement mechanisms are sometimes lacking, and investors cite coordination problems between BOI and relevant line agencies.  Lack of sufficient technical capacity within the government to review financial proposals for private infrastructure projects also creates problems during the tender process.

Corporate financial reporting requirements in Sri Lanka are covered in a number of laws, and the Institute of Chartered Accountants of Sri Lanka (ICASL) is responsible for setting and updating accounting standards to comply with current accounting and audit standards adopted by the International Accounting Standards Board (IASB) and the International Auditing and Assurance Standards Board (IAASB).  Sri Lanka follows International Financial Reporting Standards (IFRS) for financial reporting purposes set by the IASB.  Sri Lankan accounting standards are applicable for all banks, companies listed on the stock exchange, and all other large and medium-sized companies in Sri Lanka.  Accounts must be audited by professionally qualified auditors holding ICASL membership.  ICASL also has published accounting standards for small companies.  The Accounting Standards Monitoring Board (ASMB) is responsible for monitoring compliance with Sri Lankan accounting and auditing standards.

While law making authority lies with Parliament, line ministries draft bills and, together with regulatory authorities, are responsible for crafting draft regulations, which may require approval from the National Economic Council, the Cabinet, and/or Parliament.  Bills are published in the government gazette http://documents.gov.lk/en/home.php  at least seven days before being placed on the Order Paper of the Parliament (the first occasion the public is officially informed of proposed laws) with drafts being treated as confidential prior to this.  Any member of the public can challenge a bill in the Supreme Court if they do so within one week of its placement on the Order Paper of the Parliament.  If the Supreme Court orders amendments to a bill, such amendments must be incorporated before the bill can be debated and passed.  Regulations are made by administrative agencies and are published in a government gazette, similar to a U.S. Federal Notice.  In addition to regulations, some rules are made through internal circulars, which may be difficult to locate.

International Regulatory Considerations

Sri Lanka is a member of the World Trade Organization (WTO) and has made WTO notifications on customs valuation, agriculture, import licensing, sanitary and phytosanitary measures, the Agreement on Technical Barriers to Trade, the Agreement on Trade-Related Investment Measures, and the Agreement on Trade-Related Aspects of Intellectual Property Rights.  Sri Lanka ratified the WTO Trade Facilitation Agreement (TFA) in 2016 and a National Trade Facilitation Committee was tasked with undertaking reforms needed to operationalize the TFA.  The WTO conducted a review of the TFA in June 2019 in which Sri Lankan officials noted challenges related to accessing technical assistance and capacity building support for implementation of TFA recommendations.

Legal System and Judicial Independence

Sri Lanka’s legal system reflects diverse cultural influences.  Criminal law is fundamentally British-based while civil law is Roman-Dutch.  Laws on marriage, divorce, inheritance, and other issues can also vary based on religious affiliation.  Sri Lankan commercial law is almost entirely statutory, reflecting British colonial law, although amendments have largely kept pace with subsequent legal changes in the United Kingdom.  Several important legislative enactments regulate commercial issues: the BOI Law; the Intellectual Property Act; the Companies Act; the Securities and Exchange Commission Act; the Banking Act; the Inland Revenue Act; the Industrial Promotion Act; and the Consumer Affairs Authority Act.

Sri Lanka’s court system consists of the Supreme Court, the Court of Appeal, provincial High Courts, and the Courts of First Instance (district courts with general civil jurisdiction) and Magistrate Courts (with criminal jurisdiction).  Provincial High Courts have original, appellate, and reversionary criminal jurisdiction.  The Court of Appeal is an intermediate appellate court with a limited right of appeal to the Supreme Court.  The Supreme Court exercises final appellate jurisdiction for all criminal and civil cases.  Citizens may apply directly to the Supreme Court for protection if they believe any government or administrative action has violated their fundamental human rights.

Laws and Regulations on Foreign Direct Investment

The principal law governing foreign investment is Law No. 4 (known as the BOI Act), created in 1978 and amended in 1980, 1983, 1992, 2002, 2009 and 2012.  The BOI Act and implementing regulations provide for two types of investment approvals, one for concessions and one without concessions.  Under Section 17 of the Act, the BOI is empowered to approve companies satisfying minimum investment criteria with such companies eligible for duty-free import concessions.  Investment approval under Section 16 of the BOI Act permits companies to operate under the “normal” laws and applies to investments that do not satisfy eligibility incentive criteria.  From April 1, 2017, Inland Revenue Act No. 24 of 2017 created an investment incentive regime granting a concessionary tax rate (for specific sectors) and capital allowances (depreciation) based on capital investments.  Commercial Hub Regulation No 1 of 2013 applies to transshipment trade, offshore businesses, and logistic services.  The Strategic Development Project Act of 2008 (SDPA) provides tax incentives for large projects that the Cabinet identifies as “strategic development projects.”

Competition and Anti-Trust Laws

Sri Lanka does not have a specific competition law.  Instead, the BOI or respective regulatory authorities may review transactions for competition-related concerns.  In March of 2017, Parliament approved the “Anti-Dumping and Countervailing” and “Safeguard Measures” Acts.  These laws provide a framework against unfair trade practices and import surges and allow government trade agencies to initiate investigations relating to unfair business practices to impose additional and/or countervailing duties.

Expropriation and Compensation

Since economic liberalization policies began in 1978, the government has not expropriated a foreign investment with the last expropriation dispute resolved in 1998.  The land acquisition law (Land Acquisition Act of 1950) empowers the government to take private land for public purposes with compensation based on a government valuation.  Still, there have been reported cases of the military taking over businesses in the North and East part of the country, by claiming they were on government land, with little or no compensation.

Dispute Settlement

ICSID Convention and New York Convention

Sri Lanka is a member state to the International Centre for the Settlement of Investment Disputes (ICSID convention) and a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention) without reservations.

Investor-State Dispute Settlement

Sri Lanka signed a Bilateral Investment Treaty (BIT) with the United States in 1991.  Over the past ten years, according to the United Nations, two investment disputes in Sri Lanka have involved foreign investors: 1) a dispute between Deutsche Bank and Ceylon Petroleum Corporation regarding an oil hedging agreement, concluded with the proceeding being decided in favor of Deutsche Bank; and 2) an  arbitration involving British and local investors (with the Attorney General as respondent) regarding a tourism development project that concluded in 2020 with the ICSID tribunal dismissing the $20 million claim for failure to prove the claim.

International Commercial Arbitration and Foreign Courts

Sri Lanka ranks very poorly on contract enforcement (164 out of 190) on the World Bank’s Doing Business Indicators.  As a result, many investors prefer arbitration over litigation.  Sri Lanka has a community mediation system, which primarily handles non-commercial mediations and commercial disputes where the amount in controversy is less than $3,333.00.  There is no-mediation system for commercial disputes over that threshold amount. The Institute for the Development of Commercial Law and Practice (ICLP) (www.iclparbitrationcentre.com ) and the Sri Lanka National Arbitration Centre (www.slnarbcentre.com ) also help settle private commercial disputes through arbitration.

Bankruptcy Regulations

The Companies Act and the Insolvency Ordinance provide for dissolution of insolvent companies, but there is no mechanism to facilitate the reorganization of financially troubled companies.  Other laws make it difficult to keep a struggling company solvent.  The Termination of Employment of Workmen Special Provisions Act (TEWA), for example, makes it difficult to fire or lay off workers who have been employed for more than six months for any reason other than serious, well-documented disciplinary problems.  In the absence of comprehensive bankruptcy laws, extra-judicial powers granted by law to financial institutions protect the rights of creditors.  A creditor may petition the court to dissolve the company if the company cannot make payments on debts in excess of LKR 50,000 ($320.00).   Lenders are also empowered to foreclose on collateral without court intervention.  However, loans below LKR 5 million ($32,000) are exempt, and lenders cannot foreclose on collateral provided by guarantors to a loan.

Sri Lanka ranked 94 out of 190 countries in resolving insolvency index in the World Bank’s Doing Business Report 2020.  Resolving insolvency takes, on average, 1.7 years at a cost equivalent to 10 percent of the estate’s value.

4. Industrial Policies

Investment Incentives

The Inland Revenue Act of 2017, implemented April 1, 2018, includes concessionary corporate tax rates for investments in certain sectors and increased capital allowances (depreciation) on capital investments.

Corporate Taxation:

The standard rate of corporate tax is 28 percent.  A concessionary rate of 14 percent applies for: a) small and medium companies (with an annual income of less than LKR 500 million, $3.2 million); b) companies exporting goods and services; and c) companies engaged in agricultural business; education services; promotion of tourism; and information technology services.  A 40 percent corporate tax rate applies to companies engaged in gaming, liquor, and tobacco related businesses.

For further information on investment incentives and other investment-related issues, potential investors should contact BOI directly (www.investsrilanka.com  or info@Board of Investment.lk.) and refer the Inland Revenue Act 24 of 2017 http://www.ird.gov.lk/en/sitepages/default.aspx 

Foreign Trade Zones/Free Ports/Trade Facilitation

Sri Lanka has 12 free trade zones, also called “export processing zones,” which are administered by the BOI.  Foreign investors have the same investment opportunities as local entities in these zones.  Export-oriented companies located within and outside the zones are eligible to import project-related material and inputs free of customs import duties although such imports may be subject to other taxes.

In the past, firms preferred to locate their factories near the Colombo harbor or airport to reduce transportation time and cost.  However, excessive concentration of industries around Colombo has caused heavy traffic, higher real estate prices, environmental pollution, and a scarcity of labor.  The BOI and the government now encourage export-oriented factories to locate in industrial zones farther from Colombo, although Sri Lanka’s limited road network create other challenges for outlying zones.

Performance and Data Localization Requirements

Employment of foreign personnel is permitted when there is a demonstrated shortage of qualified local labor.  Technical and managerial personnel are in short supply, and this shortage is likely to continue in the near future.  Foreign laborers do not experience significant problems in obtaining work or residence permits.  Sri Lanka has seen a rise in foreign laborers, mainly in construction sites, with some reportedly working without proper work visas.  Foreign investors who remit at least $250,000 can qualify for a five-year resident visa under the Resident Guest Scheme Visa Program: (http://www.immigration.gov.lk/web/index.php?option=com_content&view=article&id=154&Itemid=200&lang=en ).  Sri Lanka offers dual citizenship status to Sri Lankans who have obtained foreign citizenship in seven designated countries, including the United States.  Tourist and business visas are granted for one month with possible extensions.

Sri Lanka has no specific requirements for foreign information technology providers to turn over source code or provide access to surveillance.  Provisions relating to interception of communications for cybercrime issues are subject to court supervision under the Computer Crimes Act (CCA) of 2007.  Sri Lanka became a party to the Budapest Cybercrime Convention in 2015.  As a result, safeguards based on this convention are in force.  Although there is no comprehensive legislative protection of electronic data, the CCA has a provision to protect data and information.  The government is currently working to formulate data protection legislation. There is no ban on the sale of electronic data for marketing purposes.

5. Protection of Property Rights

Real Property

Secured interests in real property in Sri Lanka are generally recognized and enforced, but many investors claim protection can be flimsy.  A reliable registration system exists for recording private property including land, buildings, and mortgages, although problems reportedly exist due to fraud and forged documents.  In the World Bank’s 2020 “Doing Business Index,” Sri Lanka ranked 138 out of 190 countries for registering a property.  Property registration required, on average, completion of eight procedures lasting 39 days.  Sri Lanka prohibits the sale of land to foreign nationals and to enterprises with foreign equity exceeding 50 percent.

Intellectual Property Rights

While IPR enforcement is improving, counterfeit goods, particularly imports, are still widely available, and music and software piracy are reportedly widespread.  Foreign and U.S. companies in the recording, software, movie, clothing, and consumer product industries claim that inadequate IPR protection and enforcement weaken their businesses in Sri Lanka.

Sri Lanka has a comprehensive IPR law, and several offenders have been charged or convicted.  The government points to the new information technology (IT) policy that requires government agencies to use licensed or open source software as proof of IPR improvements (although the government has yet to put systems in place to monitor compliance with the policy) and some sectors – including apparel, software, tobacco, and electronics v have reported success in combating trademark counterfeiting through the courts.  Still, judicial redress remains time-consuming and challenging.  Better coordination among enforcement authorities and government institutions – such as the National Intellectual Property Office (NIPO), Sri Lanka Customs, and Sri Lanka Police as well as more trained staff and resources – is needed to strengthen Sri Lanka’s IPR regime.  Although infringement of intellectual property rights is a punishable offense under the IP law with criminal and civil penalties, Sri Lanka does not track and report on seizures of counterfeit goods.

Sri Lanka is a party to major intellectual property agreements.  Sri Lanka adopted an intellectual property law in 2003 intended to meet U.S.-Sri Lanka bilateral IPR agreements and trade-related aspects of intellectual property rights (TRIPS) obligations.  The law governs copyrights and related rights; industrial designs; patents, trademarks, and service marks; trade names; layout designs of integrated circuits; geographical indications; unfair competition; databases; computer programs; and undisclosed information (e.g., trade secrets).  All trademarks, designs, industrial designs, and patents must be registered with the Director General of Intellectual Property.  No legal provisions exist for registration of copyrights and trade secrets.

For additional information about national laws and points of contact at local IP offices, please see WIPO’s country profiles at http://www.wipo.int/directory/en/ .

Resources for Rights Holders

Contact at U.S. Embassy Colombo:

John Cabeca, U.S. Intellectual Property Attaché for South Asia, American Center
+91 11 2347 2000
Email: john.cabeca@trade.gov
Local lawyers list: https://lk.usembassy.gov/u-s-citizen-services/local-resources-of-u-s-citizens/attorneys-2/

Country/Economy Resources:

American Chamber of Commerce in Sri Lanka: www.amcham.lk 
National Intellectual Property Office of Sri Lanka: www.nipo.gov.lk 

6. Financial Sector

Capital Markets and Portfolio Investment

The Securities and Exchange Commission (SEC) governs the CSE, unit trusts, stockbrokers, listed public companies, margin traders, underwriters, investment managers, credit rating agencies, and securities depositories.  Foreign portfolio investment is encouraged.  Foreign investors can purchase up to 100 percent of equity in Sri Lankan companies in permitted sectors.  Investors may open an Inward Investment Account (IIA) with any commercial bank in Sri Lanka to bring in investments.  As of August 30, 2020, 289 companies representing 20 business sectors are listed on the CSE.  As stock market liquidity is limited, investors need to manage exit strategies carefully.

In accordance with its IMF Article VIII obligations, the government and the Central Bank of Sri Lanka (CBSL) generally refrain from restrictions on current international transfers.  When the government experiences balance of payments difficulties, it tends to impose controls on foreign exchange transactions.  Due to pressures on the balance of payments caused by the COVID-19 economic crisis, Sri Lanka took several measures to restrict imports.  In March 2020, CBSL suspended importation of a wide list of non-essential goods and motor vehicles.  The import control department also imposed further regulations restricting certain imported food items and instituted a 3-month credit term for importation of certain essential imports.  The import restrictions are currently in effect until January 1, 2021.

The state consumes over 50 percent of the country’s domestic financial resources and has a virtual monopoly on the management and use of long-term savings.  This inhibits the free flow of financial resources to product and factor markets.  High budget deficits have caused interest rates to rise and resulted in higher inflation.  On a year-to-year basis, inflation was approximately 5.2 percent in April of 2020, and the average prime lending rate was 9.49 percent.  Retained profits finance a significant portion of private investment in Sri Lanka with commercial banks as the principal source of bank finance and bank loans as the most widely used credit instrument for the private sector.  Large companies also raise funds through corporate debentures.  Credit ratings are mandatory for all deposit-taking institutions and all varieties of debt instruments.  Local companies are allowed to borrow from foreign sources.  FDI finances about 6 percent of overall investment.  Foreign investors are allowed to access credit on the local market and are free to raise foreign currency loans.

Money and Banking System

Sri Lanka has a diversified banking system.  There are 25 commercial banks: 13 local and 12 foreign.  In addition, there are seven specialized local banks.  Citibank N.A. is the only U.S. bank operating in Sri Lanka.  Several domestic private commercial banks have substantial government equity acquired through investment agencies controlled by the government.  Banking has expanded to rural areas, and by 2019 there were over 2,900 commercial banking outlets and over 5,100 Automated Teller Machines throughout the country.  Both resident and non-resident foreign nationals can open foreign currency banking accounts.  However, non-resident foreign nationals are not eligible to open Sri Lankan Rupee accounts.

CBSL is responsible for supervision of all banking institutions and has driven improvements in banking regulations, provisioning, and public disclosure of banking sector performance.  Credit ratings are mandatory for all banks.  CBSL introduced accounting standards corresponding to International Financial Reporting Standards for banks on January 1, 2018, and the application of the standards substantially increased impairment provisions on loans.  The migration to the Basel III capital standards began in July of 2017 on a staggered basis, with full implementation was kicking in on January 1, 2019 and some banks having had to boost capital to meet full implementation of Basel III requirements.  In addition, banks must increase capital to meet CBSL’s new minimum capital requirements deadline, which is set for December 31, 2022 although a staggered application of capital provisions for smaller banks unable to meet capital requirements immediately will likely be allowed

Total assets of commercial banks stood at LKR 10,944 billion ($59 billion) as of December 31, 2019.  The two fully state-owned commercial banks – Bank of Ceylon and People’s Bank – are significant players, accounting for about 33 percent of all banking assets.  The Bank of Ceylon currently holds a non-performing loan (NPL) ratio of 5.35 percent (up from 4.79 percent in 2019).  The People’s Bank currently holds a NPL ratio of 4.79 percent (up from 3.68 percent in 2019).  Both banks have significant exposure to SOEs but, these banks are implicitly guaranteed by the state.

In October 2019 Sri Lanka was removed from the Financial Action Task Force (FATF) gray list after making significant changes to its Anti-Money Laundering/Countering the Finance of Terrorism (AML/CFT) laws.  CBSL is exploring the adoption of blockchain technologies in its financial transactions and appointed two committees to look into the possible adoption of blockchain and cryptocurrencies.

Sri Lanka has as rapidly growing alternative financial services industry which includes finance companies, leasing companies, and microfinance institutes.  In response, CBSL has established an enforcement unit to strengthen the regulatory and supervisory framework of non-banking financial institutions.  Credit ratings are mandatory for finance companies as of October 1, 2018.   The government also directed banks to register with the U.S. Internal Revenue Service (IRS) to comply with the U.S. Foreign Accounts Tax Compliance Act (FATCA).  Almost all commercial banks have registered with the IRS.

Foreign Exchange and Remittances

Foreign Exchange

Sri Lanka generally has investor-friendly conversion and transfer policies.  Companies say they can repatriate funds relatively easily.  In accordance with its Article VIII obligations as a member of the IMF, Sri Lanka liberalized exchange controls on current account transactions in 1994 and, in 2010-2012, the government relaxed exchange controls on several categories of capital account transactions.  A new Foreign Exchange Act, No. 12 of 2017, came into operation on November 20, 2017 and further liberalized capital account transactions to simplify current account transactions.  Foreign investors are required to open Inward Investment Accounts (IIA) to transfer funds required for capital investments but there are no restrictions or limitations placed on foreign investors in converting, transferring, or repatriating funds associated with an investment through an IIA in any foreign currency designated by CBSL.

Remittance Policies

No barriers exist, legal or otherwise, to remittance of corporate profits and dividends for foreign enterprises since 2017 when Sri Lanka relaxed investment remittance policies with the new Foreign Exchange Act.  Remittances are done through IIAs.  There are no waiting periods for remitting investment returns, interest, and principal on private foreign debt, lease payments, royalties, and management fees provided there is sufficient evidence to prove the originally invested funds were remitted into the country through legal channels.  Exporters must repatriate export proceeds within 120 days.

Sovereign Wealth Funds

Sri Lanka does not have a sovereign wealth fund.  The government manages and controls large retirement funds from private sector employees and uses these funds for budgetary purposes (through investments in government securities), stock market investments, and corporate debenture investments.

7. State-Owned Enterprises

SOEs are active in transport (buses and railways, ports and airport management, airline operations); utilities such as electricity; petroleum imports and refining; water supply; retail; banking; telecommunications; television and radio broadcasting; newspaper publishing; and insurance.  Following the end of the civil war in 2009, Sri Lankan armed forces began operating domestic air services, tourist resorts, and farms crowding out some private investment.  In total, there are over 400 SOEs of which 55 have been identified by the Sri Lanka Treasury as strategically important, and 345 have been identified as non-commercial.

Privatization Program

The government is currently selling non-strategic SOEs.  Several attempts to sell the government’s stake in the heavily indebted national carrier, Sri Lankan Airlines, were not successful.  The government is also seeking to improve the efficiency of SOEs through private sector management practices and is looking to list SOEs on the Colombo Stock Exchange and partially privatize non-strategic SOEs.  However, the government does not always follow an open bidding process when selling outside the stock exchange.  For instance, in the case of the sale of the Hambantota Port in 2017, the government allowed a PRC company to secure the deal without an open bidding process.  SOE labor unions and opposition political parties often oppose privatization and are particularly averse to foreign ownership.  Privatization through the sale of shares in the stock market is likely to be less problematic.

8. Responsible Business Conduct

The concept of Corporate Social Responsibility (CSR) is more widely recognized among Sri Lankan companies than Responsible Business Conduct (RBC).  Leading companies in Sri Lanka actively promote CSR, and some SMEs have also started to promote CSR.  CSR Sri Lanka is an apex body initiated by 40 leading companies to foster CSR.  The Ceylon Chamber of Commerce actively promotes CSR among its membership.  The SEC, together with the Institute of Chartered Accountants of Sri Lanka, published a Code of Best Practices on Corporate Governance in order to establish good corporate governance practices in Sri Lankan capital markets.  Separate government agencies are tasked with protecting individuals from adverse business impacts in relation to labor rights, consumer protection, and environmental protections, although the effectiveness of these agencies is questioned by some.  The government has not launched an initiative to promote RBC principles, such as the OECD Guidelines for Multinational Enterprises and the United Nations Guiding Principles on Business and Human Rights.  The government also does not participate in the Extractive Industries Transparency Initiative (EITI) although Sri Lanka has mineral resources including graphite, mineral sands, and gemstones.

9. Corruption

While Sri Lanka has adequate laws and regulations to combat corruption, enforcement is reportedly often weak and inconsistent.  U.S. firms identify corruption as a major constraint on foreign investment, but generally not a major threat to operating in Sri Lanka once contracts have been established.  The business community claims that corruption has the greatest effect on investors in large projects and on those pursuing government procurement contracts.  Projects geared toward exports face fewer problems.  A Right to Information Act came into effect in February of 2017 which increased government transparency.

The Commission to Investigate Allegations of Bribery or Corruption (CIABOC or Bribery Commission) is the main body responsible for investigating bribery allegations, but it is widely considered ineffective and has reportedly made little progress pursuing cases of national significance.  The law states that a public official’s offer or acceptance of a bribe constitutes a criminal offense and carries a maximum sentence of seven years imprisonment and fine.  Bribery laws extend to family members of public officials, but political parties are not covered.  A bribe by a local company to a foreign official is also not covered by the Bribery Act and the government does not require private companies to establish internal codes of conduct that prohibit bribery of public officials.  Thus far, the Bribery Commission has focused on minor cases such as bribes taken by traffic police, wildlife officers, and school principals.  These cases reportedly follow a pattern of targeting low-level offenses with prosecutions years after the offense followed by the imposition of sentences disproportionate to the conduct (i.e. overly strict or overly lenient).

Government procurement regulations contain provisions on conflicts-of-interest in awarding contracts or government procurement.  While financial crime investigators have developed a number of cases involving the misappropriation of government funds, these cases have often not moved forward due to lack of political will, political interference, and lack of investigative capacity.

Sri Lanka signed and ratified the UN Convention against Corruption in March of 2004.  Sri Lanka signed and ratified the UN Convention against Transnational Organized Crime in 2006.  Sri Lanka is a signatory to the OECD-ADB Anti-Corruption Regional Plan but has not joined the OECD Anti-Bribery Convention.

Resources to Report Corruption 

Contact at government agency responsible for combating corruption:

Commission to Investigate Allegations of Bribery or Corruption
No 36, Malalasekara Mawatha, Colombo 7
T+94 112 596360 / 2595039
M+94 767011954
Email: ciaboc@eureka.lk or dgbribery@gmail.com

Contact at “watchdog” organization:

Transparency International, Sri Lanka
5/1 Elibank Road Colombo 5
Phone: 94-11- 4369783
Email: tisl@tisrilanka.org

10. Political and Security Environment

The government’s military campaign against the Liberation Tigers of Tamil Eelam (LTTE) ended in May 2009 with the defeat of the LTTE.  During the civil war, the LTTE had a history of attacks against civilians, although none of the attacks were directed against U.S. citizens.  On April 21, 2019, terrorist attacks targeted several churches and hotels throughout Colombo and in the eastern city of Batticaloa, killing more than 250 people, including over 40 foreigners.  In the aftermath of the attacks, the government imposed nationwide curfews and a temporary ban on some social media outlets.

Following his election in November 2019, President Gotabaya Rajapaksa announced major tax cuts as part of a pro-growth strategy.  The outbreak of COVID-19 shortly after the dissolution of Parliament in March delayed Parliamentary elections until August of 2020.  During the August elections, President Rajapaksa’s party secured a commanding two thirds majority in parliament.

Demonstrations occasionally take place in response to world events or local developments.  Demonstrations near Western embassies are not uncommon but have been well-contained with support from the Sri Lankan police and military.

Business-related Violence

Business related violence is not common and has little impact on the investment environment.

11. Labor Policies and Practices

Both local and international businesses have cited labor shortages as a major problem in Sri Lanka.  In 2019, 8.5 million Sri Lankans were employed:  47 percent in services, 27 percent in industry and 25 percent in agriculture.  Approximately 60 percent of the employed are in the informal sector.  The government sector also employs over 1.4 million people.

Sri Lanka’s labor laws afford many employee protections.  Many investors consider this legal framework somewhat rigid, making it difficult for companies to reduce their workforce even when market conditions warrant doing so.  The cost of dismissing an employee in Sri Lanka is calculated based upon a percentage of wages averaged over 54 salary weeks, one of the highest in the world.  There is no unemployment insurance or social safety net for laid off workers.

Labor is available at relatively low cost, though higher than in other South Asian countries.  Sri Lanka’s labor force is largely literate (particularly in local languages), although weak in certain technical skills and English.  The average worker has eight years of schooling, and two-thirds of the labor force is male.  The government has initiated educational reforms to better prepare students for the labor market, including revamping technical and vocational education and training.  While the number of students pursuing computer, accounting, business skills, and English language training programs is increasing, the demand for these skills still outpaces supply with many top graduates seeking employment outside of the country.

Youth are increasingly uninterested in labor-intensive manual jobs, and the construction, plantation, apparel, and other manufacturing industries report a severe shortage of workers.  The garment industry reports up to a 40 percent staff turnover rate.  Lack of labor mobility in the North and East is also a problem, with workers reluctant to leave their families and villages for employment elsewhere.

A significant proportion of the unemployed seek “white collar” employment, often preferring stable government jobs.  Most sectors seeking employees offer manual or semi-skilled jobs or require technical or professional skills such as management, marketing, information technology, accountancy and finance, and English language proficiency.  Investors often struggle to find employees with the requisite skills, a situation particularly noticeable as the tourism industry opens new hotels.

Many service sector companies rely on Sri Lankan engineers, researchers, technicians, and analysts to deliver high-quality, high-precision products and retention is fairly good in the information technology sector.  Foreign and local companies report a strong worker commitment to excellence in Sri Lanka, with rapid adaptation to quality standards.

Migrant Workers Abroad

There were an estimated 1.8 million Sri Lankan workers abroad in 2009/10, the last year the government published the figure.  Remittances from migrant workers, averaged about $6.7 billion in 2019, making up Sri Lanka’s largest source of foreign exchange. The majority of this labor force is unskilled (i.e., housemaids and factory laborers) and located primarily in the Middle East.  Sri Lanka is also losing many of its skilled workers to more lucrative jobs abroad.  Approximately 6,000 Sri Lankans work in Bangladeshi garment factories.

Foreign Workers in Sri Lanka

Sri Lanka has seen a gradual rise in foreign workers.  The majority of foreign workers are from India, Bangladesh, and the PRC, many reportedly without proper work visas.

Trade Unions

Approximately 9.5 percent of the workforce is unionized, and union membership is declining.  There are more than 2,000 registered trade unions (many of which have 50 or fewer members), and several federations.  About 18 percent of labor in the industry and service sector is unionized.  Most of the major trade unions are affiliated with political parties, creating a highly politicized labor environment.  This is not the case for private companies, which typically only have one union or workers’ council to represent employees.  There are also some independent unions.  All workers, other than police, armed forces, prison service, and those in essential services, have the right to strike.  The President can designate any industry an essential service. Workers may lodge complaints to protect their rights with the Commissioner of Labor, a labor tribunal, or the Supreme Court.

Unions represent workers in many large private firms, but workers in small-scale agriculture and small businesses typically do not belong to unions.  The tea industry, however, is highly unionized, and public sector employees are unionized at high rates.  Labor in the export processing zone (EPZ) enterprises tend to be represented by non-union worker councils, although unions also exist within the EPZs.  The International Labor Organization’s (ILO) Freedom of Association Committee observed that Sri Lankan trade unions and worker councils can co-exist but advises that there should not be any discrimination against those employees choosing to join a union.  The right of worker councils to engage in collective bargaining has been recognized by the ILO.

Collective bargaining exists but is not universal.  The Employers’ Federation of Ceylon, the main employers’ association in Sri Lanka, assists member companies in negotiating with unions and signing collective bargaining agreements.  While about a quarter of the 660 members of the Employers’ Federation of Ceylon are unionized, approximately 90 of these companies (including a number of foreign-owned firms) are bound by collective agreements.  Several other companies have signed memorandums of understanding with trade unions.  However, there are only a few collective bargaining agreements signed with companies located in EPZs.

All forms of forced and compulsory labor are prohibited.  In March of 2016, the government introduced a national minimum wage set at LKR 10,000 ($54) per month or LKR 400 ($2.16) per day.   Forty-four “wage boards” established by the Ministry of Labor set minimum wages and working conditions by sector and industry in consultation with unions and employers.  The minimum wages established by these sector-specific wage boards tend to be higher than the minimum wage.

Sri Lankan law does not require equal pay for equal work for women.  The law prohibits most full-time workers from regularly working more than 45 hours per week without receiving overtime (premium pay).  In addition, the law stipulates a rest period of one hour per day.  Regulations limit the maximum overtime hours to 15 per week.  The law provides for paid annual holidays, sick leave, and maternity leave.  Occupational health and safety regulations do not fully meet international standards.

Child labor is prohibited and virtually nonexistent in the organized sectors, although child labor occurs in informal sectors.  The minimum legal age for employment is set at 14, although the government is seeking to raise the legal minimum age to 16.  The minimum age for employment in hazardous work is 18 years.

Sri Lanka is a member of the ILO and has ratified 31 international labor conventions, including all eight of the ILO’s core labor conventions.  The ILO and the Employers’ Federation of Ceylon are working to improve awareness of core labor standards and the ILO also promotes its “Decent Work Agenda” program in Sri Lanka.

12. U.S. International Development Finance Corporation (DFC) and Other Investment Insurance Programs

Sri Lanka and the Overseas Private Investment Corporation (OPIC) signed an agreement in 1966 and subsequently renewed in 1993.  The U.S. International Development Finance Corporation (DFC) succeeded OPIC in 2019 and is now party to the agreement.  Sri Lanka is a founding member of the Multilateral Investment Guarantee Agency (MIGA) of the World Bank, which offers insurance against non-commercial risks.

Several countries provide bilateral project loans to the government, which assist firms from their countries to win projects.  China has provided extensive loans, enabling Chinese companies to engage in numerous projects in Sri Lanka ranging from road and port construction to railway equipment supply.

13. Foreign Direct Investment and Foreign Portfolio Investment Statistics

Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy  
Host Country Statistical source* USG or international statistical source USG or International Source of Data:  BEA; IMF; Eurostat; UNCTAD, Other
Economic Data Year Amount Year Amount
Host Country Gross Domestic Product (GDP) ($M USD) 2019 $84 Billion 2019 $84 Billion www.worldbank.org/en/country 
Foreign Direct Investment Host Country Statistical source* USG or international statistical source USG or international Source of data:  BEA; IMF; Eurostat; UNCTAD, Other
U.S. FDI in partner country ($M USD, stock positions) 2019 $262 Million 2019 $169Million BEA data available at
https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data
 
Host country’s FDI in the United States ($M USD, stock positions) 2019 N/A 2018 $66 Million BEA data available at:
https://www.bea.gov/international/
direct-investment-and-multinational-enterprises-comprehensive-data  
 
Total inbound stock of FDI as % host GDP 2019 15.5% 2018 14.5% UNCTAD data available at:

https://unctad.org/en/Pages/DIAE/
World%20Investment%20Report/
Country-Fact-Sheets.aspx
 

* Source for Host Country Data: Central Bank of Sri Lanka

Table 3: Sources and Destination of FDI  
Direct Investment from/in Counterpart Economy Data
From Top Five Sources/To Top Five Destinations (US Dollars, Millions)
Inward Direct Investment Outward Direct Investment
Total Inward Amount 100% Total Outward Amount 100%
China,P.R.: 2,128 16% Singapore 300 20%
Netherlands 1,774 13% India 205 14%
India 1,737 13% Bangladesh 139 9%
Singapore 1,023 8% Malaysia 134 9%
Malaysia 967 7% Maldives 100 7%
“0” reflects amounts rounded to +/- $500,000.

According to CBSL, the United States is the 13th largest foreign investor in Sri Lanka in terms of stock of foreign direct investment (FDI). The United States stock of FDI in 2019 was $262 million.  FDI inflows from the United States were $20 million 2019.  United States FDI in Sri Lanka has remained steady over the past five years.

Table 4: Sources of Portfolio Investment
Data Not Available.

14. Contact for More Information

Jacob Dietrich
Economic Officer
U.S. Embassy Colombo, Sri Lanka
Phone: +94-11-249-8500
Email: commercialcolombo@state.gov

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