Foreign nationals and companies with 50 per cent or more foreign shareholding cannot take freehold title to land in Sri Lanka. They can buy condominium units outright, lease land for up to 99 years, or hold land through a majority Sri Lankan company.
Interest from overseas buyers is steady, from members of the diaspora returning home to hospitality investors. The first legal point they run into is that freehold ownership of land is not open to them. The routes that remain each carry conditions written into the statute, and a purchase that ignores them is void.
The freehold restriction
The governing statute is the Land (Restrictions on Alienation) Act No. 38 of 2014, as amended by Act No. 3 of 2017 and Act No. 21 of 2018. Section 2(1) prohibits the transfer of title to any land in Sri Lanka to a foreigner, to a foreign company, or to a company incorporated in Sri Lanka whose foreign shareholding, direct or indirect, is 50 per cent or above. Section 25 defines a foreigner as a person who is not a citizen of Sri Lanka, and land as including any interest in land and any building on it. The Act is deemed to have come into operation on 1 January 2013 (section 1(2)).
Two provisions give the prohibition teeth. Section 18 declares any alienation made in contravention of the Act void and of no effect in law, and section 4(1) directs the Registrar of Lands not to register a deed of transfer unless satisfied that it complies with the Act. A deed drawn to give a foreigner freehold title gives them nothing.
The exemptions in section 3
Section 3 lists the transfers to which the prohibition does not apply. Those that matter to a private buyer are set out below; section 3 also carries closed-window exemptions, such as section 3(1)(h) for land transferred between 1 January 2013 and the Act's certification to a company then in active operation in Sri Lanka for at least ten consecutive years.
| Exemption | Condition | Provision |
|---|---|---|
| Diplomatic missions and recognised international organisations | Transferee falls within the Diplomatic Privileges Act No. 9 of 1996 | s. 3(1)(a) |
| Condominium parcels | Entire value paid upfront by inward foreign remittance before the deed is executed | s. 3(1)(b) |
| Foreign investments approved before 2013 | Cabinet decision before 1 January 2013 involving direct foreign currency investment | s. 3(1)(c) |
| Inheritance and gifts | Intestacy, gift or will to a next of kin who is a foreigner, under Sri Lankan succession law | s. 3(1)(d) |
| Dual citizens | Transferee is a dual citizen under the Citizenship Act | s. 3(1)(e) |
| Foreign-majority licensed banks and finance leasing institutions | Land taken at a mortgage auction, in execution of a decree, or as leasing security | s. 3(1)(f), (g) |
| Sri Lankan-incorporated companies listed on the Colombo Stock Exchange | Transfer on or after 1 April 2018, whatever their level of foreign shareholding. Listing does not cure foreign incorporation: a company incorporated abroad stays within the prohibition | s. 3(1)(i) |
| Strategic development projects and regional headquarters | Ministerial Order in the Gazette with Cabinet approval | s. 3(2), (3) |
An exemption does not free the land for good. Section 3(4) applies the Act to every later transfer of land acquired under one, so a foreign heir may keep or sell an inherited house, but not to another foreigner outside the exemptions. The Registrar registers an inheritance transfer where the attesting notary certifies that the transferee is the owner's next of kin (section 4(2)).
Buying a condominium
Condominium units carry most foreign residential money in Colombo. Section 3(1)(b) exempts a condominium parcel specified under the Apartment Ownership Law No. 11 of 1973, provided the entire value is paid upfront through an inward foreign remittance before the deed of transfer is executed. Act No. 21 of 2018 replaced the section 3 exemptions with the current list. The lease tax provisions in sections 6 and 7 still distinguish parcels on or above the fourth floor, but that distinction plays no part in the section 3(1)(b) exemption, which turns only on the remittance, whatever the floor.
The unit itself must be a registered condominium parcel. Under the Apartment Ownership Law the building owner registers a Condominium Plan, and on registration each parcel owner is deemed the owner of the parcel and of a share in the common elements (section 7A). A deed affecting a parcel confers no interest until it is registered in the condominium register (section 10). Off-plan buyers should note section 9A: where only a Provisional Condominium Plan is registered, the developer cannot sell or lease the underlying land until the building is partly complete and registered as a Semi Condominium, and any sale in breach is null and void.
One further restriction applies to any land transferred or leased to a foreigner. Section 11 bars mortgaging it to a licensed bank for five years from the execution of the deed, and a mortgage granted in that period is void.
Leasing land for up to 99 years
What the Act does allow is the long lease. Section 5(1) provides that a lease of land to a foreigner, a foreign company or a foreign-majority company is to be effected subject to payment of the Land Lease Tax imposed by section 6, and its proviso caps the tenure at 99 years. For a home or a hotel, that comes close to the security of ownership over any realistic investment period. The 15 per cent Land Lease Tax imposed by section 6 no longer bites: section 5A, inserted by Act No. 3 of 2017, exempts every lease executed on or after 1 January 2016.
A lease is still not ownership. State land re-vests in the State free of encumbrances when the lease ends (section 5(2)) and cannot be sublet without the written approval of the Minister in charge of lands (section 5(3)). Stamp duty on the lease remains payable, and the five-year bar on bank mortgages in section 11 applies to leases as it does to transfers. Because 'alienation' in section 25 covers a lease, a lease drafted to transfer ownership in substance risks being void under section 18.
The company route and its limits
A third route is corporate. A Sri Lankan company whose foreign shareholding is below 50 per cent can hold freehold land, so foreign investors sometimes take part through a company in which Sri Lankan shareholders hold the majority. Section 2(2)(a) requires the foreign shareholding to stay below 50 per cent for twenty consecutive years from the transfer. If it reaches 50 per cent, by share sale or inheritance, the land transfer becomes void from that date (section 2(2)(b)) unless the company restores a local majority within six months, or twelve months for a listed company. The company secretary must confirm the shareholding to the Registrar of Lands every six months (section 4(4)).
The threshold counts indirect as well as direct foreign shareholding, so interposing a local holding company does not change the arithmetic. Nominee arrangements built to disguise foreign control carry real risk: the alienation is void under section 18, and the structure can unwind on the death of a single nominee. A genuine joint venture with a local majority partner is a different matter.
Two further doors exist for larger projects. Section 3(2) lets the Minister exempt, by Order in the Gazette, a foreign entity carrying out a Strategic Development Project under the Strategic Development Projects Act No. 14 of 2008, and section 3(3) does the same for a foreign company buying land for its global or regional headquarters. Within Port City Colombo, the Colombo Port City Economic Commission Act No. 11 of 2021 lets the Commission lease marketable land, and lease or transfer condominium parcels on a freehold basis, for payment in a designated foreign currency (section 38), expressly subject to the Land (Restrictions on Alienation) Act. Port City changes the currency and the counterparty, not the restriction on land.
Due diligence before signing
Underneath all of this sits the ordinary conveyancing diligence any Sri Lankan purchase needs. A title search at the Land Registry under the Registration of Documents Ordinance traces the chain of deeds and shows registered mortgages, leases and pending actions. The extent and boundaries on the deed must match the surveyor's plan. Where the land is held in undivided shares, the buyer is buying a share rather than a plot unless a partition decree has been entered. In areas brought under the Registration of Title Act No. 21 of 1998, ownership is recorded in a Title Register, and the register is the starting point.
For a condominium, the diligence adds the registered Condominium Plan and the management corporation's position on service charges. For a company purchase, section 4(3) makes the Registrar check the shareholding before registering, so the share register and filings must be in order. The ceiling on the extent of land one person may own under the Land Reform Law No. 1 of 1972 continues to apply to exempt transfers and leases (section 12).
Execution, stamp duty and tax
Section 2 of the Prevention of Frauds Ordinance requires every sale, transfer or mortgage of land, and every lease for more than one month, to be in writing, signed by every executant and attested by a notary public before two witnesses present at the same time, failing which it has no force in law. The notary's attestation is also where the next of kin certification under section 4(2) is recorded, and the notary needs the bank's remittance evidence in hand before a condominium deed is executed. Stamp duty on the deed is charged under the Stamp Duty (Special Provisions) Act No. 12 of 2006; the stamp duty calculator sets out the current bands for transfers, gifts and leases.
On disposal, the Inland Revenue Act No. 24 of 2017 treats land and buildings held as an investment, including a lease of land, as an investment asset. The gain is the consideration received less the cost of the asset (section 36(1)). It is taxed at 10 per cent for an individual (First Schedule, paragraph 2(2)) and at 30 per cent for a company on realisations from 1 October 2022 (paragraph 4(4)). A capital gains tax return is due within thirty days after the end of the month of sale (section 93(3)). A resident individual's principal place of residence is exempt where it was owned for three years and lived in for two of them (Third Schedule, paragraph (g)); a non-resident owner does not get that exemption.
The process, step by step
- Settle the route first: a condominium parcel, a lease of up to 99 years, or a company with a local majority.
- Instruct a notary and obtain a title report, the survey plan and, for a condominium, the registered Condominium Plan.
- Sign a notarially executed agreement to sell recording the price, the completion date and the conditions.
- For a condominium, remit the full price through a bank before the deed is executed and keep the remittance confirmation for the attestation.
- Execute the deed or indenture of lease before the notary and two witnesses, pay stamp duty, and present it for registration.
- For a company purchase, have the company secretary produce the shareholding proof required under section 4(3), and diarise the six-monthly confirmations under section 4(4).
- Do not mortgage the property to a licensed bank within five years (section 11), and keep the capital gains position in view on any later sale.
The alienation rules decide what structure is available. Conveyancing diligence decides whether the property is safe to buy.
