Branch Remittance Tax

S RI L ANKA 1701 Overseas profits, royalties, franchise payments and similar payments may be remitted out of Sri Lanka net of tax through the IIA of the parent company through which the investments were routed. The following capital transactions are permitted through an authorized dealer: • Repatriation of sales proceeds of immovable property held by residents outside Sri Lanka, subject to conditions. • For migrant transfers, an initial migration allowance of

USD200,000 per individual aged 18 years and above, an annual migration allowance of USD30,000 transferable after a lapse of 12 months after utilization of the initial allowance subject to directions issued by the Central Bank of Sri Lanka and an annual allowance of USD30,000 with respect to the proceeds to a foreign national from the sale of inherited property in Sri

Lanka. • Granting of loans and advances in Sri Lanka in foreign currency or in Sri Lanka rupees to residents outside Sri Lanka.

These are permitted to Sri Lankans residents outside Sri Lanka on a permanent residency visa in another country, dual citizens and Sri Lankans employed abroad (other than emigrants), subject to conditions in the regulations. A tax-clearance certificate is required for outward remittances other than for specific remittances, which include, among others, the following: • Remittances of sales proceeds from quoted company shares owned by nonresidents in companies in Sri Lanka • Dividends paid to nonresidents • Foreign investments made by resident companies • Capital repayments of foreign loans obtained by resident companies • Remittances by export companies with respect to registration of trademarks outside Sri Lanka Transfer pricing. Under the Inland Revenue Act, if significant pricing discrepancies are considered “artificial,” the tax authorities may determine a commercially acceptable price for tax purposes. Profits and losses from transactions between associated undertakings are determined taking into account the arm’s-length principle. Currently, transfer-pricing regulations apply to local transactions exceeding LKR50 million and to foreign transactions exceeding LKR100 million. Advance pricing agreements may be entered into with the Department of Inland Revenue with regard to “international transactions.” The arm’s-length price is determined using methods prescribed for this purpose. A permanent establishment in Sri Lanka is recognized as a distinct and separate entity from its head office and related branches in Sri Lanka. The Commissioner General of Sri Lanka can specify safe harbor rules to simplify transfer-pricing compliance and administration.

A specific transfer-pricing penalty regime is introduced for the following: • Failure to maintain required documents: 1% of the aggregate value of transactions with associated enterprises • Not furnishing required documents: an amount not exceeding

LKR250,000 • Nondisclosure of required information relative to transactions with associated persons: not exceeding 2% of the aggregate value of transactions with associated enterprises • Failure to submit documents by due dates: an amount not exceeding LKR100,000 • Concealment of income: 200% of amount of additional tax The basis for charging penalties for the types of noncompliance referred to above are 1% of aggregate transaction value of LKR250,000, 2% of aggregate transaction value of LKR100,000 and 200% of incremental tax on the transfer-pricing adjustments. No tax exemption or benefit is provided on taxable income enhanced as a result of transfer-pricing adjustments. Debt-to-equity rules. For group companies, a debt-to-equity ratio of 3:1 applies to manufacturing companies, and a 4:1 ratio applies to other types of companies. Interest paid on loans in excess of the debt-to-equity ratio is not deductible for tax purposes. Purchase of land by foreigners. The purchase of land by foreign companies and companies incorporated in Sri Lanka with direct or indirect foreign shareholding exceeding 50% is prohibited, except for quoted public companies. It is proposed that the restriction on the ability of foreigners to purchase condominiums below the fourth floor be removed.

F. Treaty withholding tax rates

The following table lists the maximum withholding tax rates under Sri Lanka’s double tax treaties.

Dividends Interest Royalties % % %

Australia 15 10 10 Bahrain 5/7.5/10 10 10 Bangladesh 15 15 15 Belarus 7.5/10 10 10 Belgium 15 10 10 Canada 15 15 10 China Mainland 10 10 10 Denmark 15 10 10 Egypt 15 15 15 Finland 15 10 10 France 10 10 10/15 Germany 15 10 10 India 7.5/15 10 10 Indonesia 15 15 15 Iran 10 10 8 Italy 15 10 10/15 (a) Japan 10 15 0/7.5 (a) Korea (South) 10/15 (b) 10 10 Kuwait 5/10 10 20 Luxembourg 7.5/10 10 10

Dividends Interest Royalties % % %

Malaysia 15 10 10 Mauritius 10/15 (d) 10 10 Nepal 15 10/15 (e) 15 Netherlands 10/15 (b) 10 10 Norway 15 10 10 Pakistan 15 10 20 Palestinian Authority 10 10 10 Philippines 15/25 15 15/25 Poland 10 10 10 Qatar 10 10 10 Romania 12.5 10 10 Russian Federation 10/15 10 10 Seychelles 7.5/10 10 10 Singapore 15 10 15 Sweden 15 10 10 Switzerland 10/15 (b) 10 10 Thailand 15 10/25 (c) 15 United Arab Emirates 10 10 10 United Kingdom 15 10 10 United States 15 10 5/10 (f) Vietnam 10 10 15 Non-treaty jurisdictions (g) 14 5/14 14

(a) The lower rate applies to royalties for copyrights and cinematographic films.

The higher rate applies to other royalties. (b) The 10% rate applies if the recipient holds at least 25% of the payer. The 15% rate applies to other dividends. (c) The 10% rate applies to interest received by a financial institution. The 25% rate applies to other interest. (d) The 10% rate applies if the beneficial owner of the dividends is a company that holds at least 10% of the capital of the payer. The 15% rate applies to other dividends. (e) The 10% rate applies to interest paid to banks. The 15% rate applies to other interest. (f) Rent paid for the use of tangible movable property is taxed at the rate of 5%. (g) See the applicable footnotes in Section A.

Sri Lanka has also entered into agreements covering international air transport with the Hong Kong Special Administrative Region (SAR), Oman, Saudi Arabia and the United Arab Emirates.