What Are the Key Regulations for Foreign Investors in Sri Lanka’s Real Estate Market? | In the previous article, we discussed how tourism-related real estate projects attract international visitors through high-quality facilities and draw investors with rental income potential and capital growth. Many such developments involve foreign capital, particularly in mixed-use and condominium segments. This naturally leads to questions about the regulatory framework governing foreign participation in Sri Lanka’s real estate market. As the sector continues to recover and expand in early 2026, understanding these rules is essential for prospective investors.
Sri Lanka maintains a balanced approach: encouraging foreign investment in strategic areas like tourism and urban development while protecting national interests through restrictions on certain asset types. Key laws include the Land (Restrictions on Alienation) Act, the Apartment Ownership Law, and regulations under the Board of Investment (BOI) and special economic zones. All transactions require compliance with foreign exchange rules, typically through an Inward Investment Account. This article outlines the main regulations, pathways, and considerations based on current provisions.
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Restrictions on Direct Land Ownership
One of the cornerstone regulations is the restriction on freehold land ownership by foreign nationals and entities.
Foreign individuals, foreign companies, and Sri Lankan companies with 50% or more foreign shareholding are generally prohibited from acquiring freehold title to land. This applies to residential, commercial, and agricultural properties. The rule stems from the Land (Restrictions on Alienation) Act, which effectively prevent outright purchases to safeguard local land resources.
Exemptions are limited, such as for diplomatic purposes or pre-existing approvals. Attempts to circumvent through indirect means can render transfers void, with requirements to divest excess foreign shareholding within specified periods. Additionally, land acquired or leased often cannot be mortgaged for an initial five-year period.
These restrictions direct foreign interest away from standalone land or houses toward other segments, ensuring that large-scale land holdings remain primarily domestic while allowing alternative investment routes.
Opportunities in Condominium Ownership
The condominium segment provides the most straightforward pathway for foreign buyers, aligning well with tourism-related investments.
Under the Apartment Ownership Law, foreigners can purchase registered condominium units outright on a freehold basis. The full purchase price must be remitted inward through an approved banking channel before executing the transfer deed. This ensures transparency and compliance with foreign exchange regulations. There are no caps on the number of units a foreigner can own, making it attractive for portfolio diversification or personal use.
This provision has facilitated foreign participation in urban and coastal developments, including serviced apartments and mixed-use towers popular among tourists and expatriates. Sales proceeds, including capital gains, can be repatriated freely upon resale, subject to applicable taxes.
Long-Term Leases and Company-Based Structures
For investors seeking access to land, long-term leases and corporate vehicles offer viable alternatives.
Foreigners can lease land for up to 99 years, a common approach for commercial or development projects. Since 2016, no specific lease tax applies to such arrangements for foreign investors or companies with majority foreign ownership. Standard stamp duty and valuation requirements apply, with leases often used in tourism hospitality ventures.
Another option is establishing a Sri Lankan company. Companies with less than 50% foreign shareholding can purchase land freely. Publicly listed companies face fewer hurdles even with higher foreign ownership. For BOI-approved projects particularly in tourism, infrastructure, or large-scale developments enhanced incentives apply, including tax concessions and facilitated land leases without additional taxes.
These structures enable foreign involvement in bigger initiatives while adhering to ownership limits.
Special Economic Zones and Strategic Incentives
Special zones provide exceptions that significantly ease foreign investment, particularly relevant for ambitious tourism-linked projects.
In the Colombo Port City Special Economic Zone, a distinct regulatory framework allows greater flexibility. End users, such as buyers of residential units, can receive freehold titles, while developers operate on 99-year leaseholds. Businesses enjoy 100% foreign ownership, tax incentives, and streamlined processes under the Colombo Port City Economic Commission.
Similar benefits apply to BOI strategic investments, which may qualify for tax holidays up to 25 years, duty exemptions, and dedicated support. These are targeted at high-impact projects contributing to economic growth, often in mixed-use or hospitality sectors.
Investor visa programs further encourage participation: Investments of USD 100,000 or more in eligible properties can qualify for five- to ten-year residency visas, renewable and extendable to family members.
Tax Implications and Compliance Considerations
Foreign investors must navigate several fiscal and procedural requirements for smooth transactions.
Key taxes include stamp duty (typically 3-4% on transfers), Value Added Tax (18% on primary apartment sales, plus surcharges), and a 10% capital gains tax on profits. All funds must flow through an Inward Investment Account, enabling full repatriation of proceeds.
Compliance involves title verification, notary execution, and registration. Engaging local legal experts is recommended to ensure clear titles and adherence to rules. While the framework supports investment, delays in approvals or documentation can occur, particularly for leases or company setups.
Overall, these regulations create a structured environment: restricting direct land access to promote local control while opening doors to condominiums, leases, and zoned projects that align with tourism and development goals. This balance has supported the market’s recovery, channeling foreign capital into high-growth segments like urban residences and integrated developments.
For those evaluating opportunities in 2026, the rules favor condominium and strategic investments, offering clear pathways with repatriation rights. However, thorough due diligence and professional advice remain critical to navigate nuances effectively.
Disclaimer: This article is based on various public sources, including Central Bank of Sri Lanka reports, Sri Lanka Tourism Development Authority statistics, and market analyses, for educational purposes only. Data reflects trends up to early 2026 and may change. For direct investment decisions or specific market inquiries, please visit official government sites such as cbsl.gov.lk or sltda.gov.lk to verify and consult relevant sections.
For personalized advice, consult a local lawyer or the Board of Investment (BOI), as rules can have project-specific nuances.
