Sri Lanka: Overview

RENTAL YIELDS

High yields of 10% on the West coast of Sri Lanka

Beachfront property along the West coast has the highest yields, averaging 10%; some properties yield more than 11%. Rents are predominantly seasonal, but this figure reflects long-term rental rates. Yields around the capital Colombo are much lower, at about 3.5%.

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TAXES AND COSTS

High progressive income tax rates in Sri Lanka

Effective Tax Rate on Rental Income
Monthly Income	US$1,500	US$6,000	US$12,000
Tax Rate	6.6%	19.6%	22.9%
Click here to see a worked example
Source: Disclaimer

Rental Income: Net rental income is taxed at progressive rates, from 5% to 35%.

Capital Gains: Capital Gains Tax was abolished in April 2002.

Inheritance: There is no inheritance or estate tax.

Residents: Residents are taxed on their worldwide income at the standard progressive tax rates.

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BUYING GUIDE

Sri Lanka impose 100% land lax when foreigners buy

Total roundtrip transaction costs, i.e., the cost of buying and selling a property, are prohibitive at around 110% of the property's value, inclusive of the 100% Land Tax, 3 to 4% for legal fees and another 3% for the real estate broker.

It takes an average 63 days to complete the eight procedures needed to register property, according to the World Bank.

It is inadvisable to buy in the Tamil Tiger-controlled North and Northeast, where warfare rages. The Southwest coast is relatively safe and peaceful. Foreigners are generally shielded from violence.

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LANDLORD AND TENANT

Sri Lankan law is pro-landlord

Sri Lanka’s laws are, formally speaking, pro-landlord for properties not covered by the Rent Act, which generally covers properties constructed and/or rented out before 1980.

Rent: The landlord and tenant can freely agree on the rent, and the security deposit.

Tenant Security: The landlord and tenant can freely agree the length (term) of the contract, in the case of a lease.The court system is extremely slow. Obtaining an eviction decree can take one and a half years or more, and up to ten years or more if there is an appeal. There is a tremendous backlog of cases before the Appeal Courts.

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ECONOMIC GROWTH

Fragile peace and economic growth

Hailed by the Italian explorer Marco Polo as the “most beautiful island of its size,” Sri Lanka is a hilly island in the Indian Ocean. Popular attractions are ancient ruins in the centre forming the Cultural Triangle, the highlands tea plantations, the East coast surfing, and the excellent beaches on the West and South coasts.

The majority of the 19.6 million population is Sinhalese (mostly Buddhist). Tamils (mostly Hindu) comprise the largest minority group.

The rebel Tamil Tigers have been waging a secessionist war for decades. The temporary peace facilitated remarkable economic growth, which reached 5.3% in 2005, after 5.4% growth in 2004. GDP per capita is around US$1,308.

However the situation is still unstable. The Tigers launched new attacks in 2006. But they face internal factionalism, the Eastern Command having broken away from the Northern Command in the Jaffna peninsula, to participate in local politics.