PURCHASE AND OWNERSHIP OF PROPERTY BY FOREIGNERS IN SRI LANKA

Foreign ownership of property in Sri Lanka is governed by a framework of laws and regulations designed to balance national interests with the rights of non-residents. While direct ownership of land by foreigners is restricted except in limited circumstances, there are several legal avenues through which foreigners can acquire property or enjoy long-term ownership and access to land and buildings.

LEGAL FRAMEWORK FOR FOREIGN PROPERTY OWNERSHIP

The primary legislation governing foreign ownership of land in Sri Lanka is the Land (Restrictions on Alienation) Act No. 38 of 2014 (as amended). This act prohibits foreign nationals, foreign companies, and companies incorporated in Sri Lanka in which the foreign shareholding exceeds 50%, from owning freehold land in the country.

Exceptions to the above prohibition are set out below:

1. Any land the title of which is transferred to a Diplomatic Mission of another State or to an International, Multilateral or Bilateral Organization;
2. A condominium unit, provided that the same is purchased entirely with monies remitted into Sri Lanka by the purchaser;
3. Any land the title of which is transferred to a foreign investor in consequent to a decision of the Cabinet of Ministers taken prior to January 1, 2013, involving direct investment of foreign currency;
4. Any land transferred by intestacy, gift or testamentary disposition to a next of kin (who is a foreigner);
5. Any land transferred to a dual citizen of Sri Lanka;
6. Any land the title of which is transferred to any bank licensed under the Banking Act, in which any foreign shareholding is fifty per cent or above —
   1. at an auction conducted by such Bank in terms of the Recovery of Loans by Banks;
   2. in execution of a decree of court to enforce the recovery of a loan given by such bank;
7. Any land transferred to any Finance Leasing Institution in which any foreign shareholding is 50% or above (in specific instances);
8. Any land transferred to a company during the period commencing from January 1, 2013 and ending on the date on which the certificate of the Speaker (of Parliament) is endorsed in respect of this Act, provided such company has been in active operation in Sri Lanka for a period of not less than ten (10) consecutive years prior to the date of transfer of such land; and
9. Any land transferred on or after 1^st April 2018 to a company listed on the Colombo Stock Exchange where the foreign shareholding in the company exceeds 50%.

The restrictions on foreign ownership of land shall not apply if the transfer is approved by the Minister in charge of the subject of lands along with written approval of the Cabinet by an order published in a Gazette, in the following instances:

• foreign entity engaged in the banking, financial, insurance, maritime, aviation, advanced technology or infrastructure development project identified as a “Strategic Development Project” as per the Development Projects Act, No. 14 of 2008; and

• foreign company engaged in international commercial operations, where the land is purchased to locate or relocate its global or regional operations or to set up a branch office.

THE AVENUES AVAILABLE TO FOREIGNERS WHO INTEND ON PURCHASING FREEHOLD LAND IN SRI LANKA

Within the legal framework of the country, foreigners and foreign companies whether through a company registered in Sri Lanka, are able to occupy land in the following manner:

1. Leasing Land to Foreigners

One of the most common methods for foreigners to occupy land in Sri Lanka is through long-term leasing arrangements extending up to 99 years. These long-term leases provide substantial security and allow for residential, commercial, or other uses of the land without breaching the restrictions on direct ownership.

For lease agreements to be legally enforceable, they must be registered in the relevant land registry and satisfy the other conditions as stipulated in the relevant laws and regulations governing such agreements. Foreign investors have the option of mortgaging the leasehold rights of a property as security for any funding that they may wish to raise through debt financing.

In the case of long term leases, the party leasing the property is liable to pay stamp duty only for the aggregate rental for the first 20 years of the lease term.

2. Corporate Ownership Structures

Foreign nationals may acquire land in Sri Lanka through a locally incorporated company, provided that the foreign shareholding in the company does not exceed 50% (i.e. foreign ownership should be less than 50%). If the foreign ownership exceeds 50%, the restrictions outlined in the Land (Restrictions on Alienation) Act become applicable, limiting the company’s ability to own land and any transfer of land to such a company will be deemed void and have no effect in law.

To navigate these restrictions, foreign investors often establish joint ventures with Sri Lankan nationals, allowing them to structure property acquisitions in compliance with local regulations while maintaining an interest in the asset.

3. Condominium Ownership

Foreign nationals are permitted to invest in real estate through the purchase of condominium units. Current legislation allows foreigners to acquire condominium units that are specified under the Apartment Ownership Law and located on any floor of a building provided that the entirety of the purchase price is paid upfront through an inward foreign remittance. This offers an unrestricted option for property ownership in multi-story developments by foreigners. This exception provided in the Land (Restrictions on Alienation) Act  has facilitated foreign participation in the booming condominium market, particularly in urban centers such as Colombo.

Sri Lanka continues to appeal to expatriates, retirees, and those drawn to its rich culture, scenic landscapes, and relaxed lifestyle. Despite the restrictions on direct foreign ownership of freehold land, several alternatives within the legal framework — such as long-term leasing, condominium acquisitions, and establishing corporate entities with local parties holding 51% or more of its share capital — present workable options for foreign nationals and foreign entities wishing to reside, work, set up business or invest in the country’s real estate market.