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Tuesday May 11th, 2021
Economy

Sri Lanka firms allowed to borrow forex abroad

ECONOMYNEXT – Sri Lanka firms have been allowed to borrow abroad and units of foreign companies have been allowed to borrow from parents without specific approval through new directions issued under Sri Lanka’s Foreign Exchange Act.

Companies could also borrow abroad in rupees or foreign currency with repayment term exceeding three years.

Companies with Business Foreign Currency Accounts could also borrow abroad for working capital for less than three years provided repayments can be made with foreign currency borrowings.

The rules coming into effect from March 22 also allows foreign parent companies to give loans to branch or project offices.

The rules also allow foreign firms to buy unlisted Sri Lanka debt securities issued by firms other than banks and finance companies.

Banks and finance companies can borrow abroad subject to regulatory approval.

The central bank has also allowed Sri Lankans who had worked abroad to maintain bank accounts abroad.

A list of some of the inward investment rules effective from March 22

A. Permitted Investments

1. Any person resident outside Sri Lanka, country funds, regional funds, investment funds and mutual funds established outside Sri Lanka (non-resident investors) may engage in the following types of capital transactions in Sri Lanka.

(1) subject to the exclusions and limitations stated in paragraphs 7 and 8, under heading A of this Part of the Schedule, to acquire, hold or divest all classes of shares under an entitlement to shares or conversions to shares issued by Companies incorporated in Sri Lanka under the Companies Act, No. 7 of 2007;

(2) invest in debt securities (excluding listed debt securities) with a tenure of 3 or more years issued by companies incorporated in Sri Lanka under the Companies Act, No. 7 of 2007 (other than licensed commercial banks, licensed specialised banks, licensed finance companies, specialised leasing companies and companies limited by guarantee and overseas companies registered in Sri Lanka) in designated foreign currency or in Sri Lanka Rupees;

(3) invest in debt securities issued with the approval of the relevant regulatory authorities in designated foreign currency or Sri Lanka Rupees, by licensed commercial banks, licensed specialised banks, licensed finance companies or specialised leasing companies ;

(4) grant loans with a tenure of 3 or more years to companies incorporated under the Companies Act, No. 7 of 2007 in Sri Lanka (other than licensed commercial banks, licensed specialised banks, licensed finance companies, specialised leasing companies and companies limited by guarantee and overseas companies) in designated foreign currency or in Sri Lanka Rupees;

(5) grant loans by the parent company incorporated outside Sri Lanka to its branch office or project office registered in Sri Lanka as an overseas company under the Companies Act, No. 7 of 2007, in designated foreign currency or in Sri Lanka Rupees;

(6) grant loans to the Government of Sri Lanka or State Owned Enterprises subject to obtaining any approval required from the relevant line Ministry and any other relevant authority;

(7) grant loans in foreign currency or Sri Lanka Rupees to licensed commercial banks, licensed specialised banks, licensed finance companies and specialised leasing companies, subject to the approval of the relevant regulatory authorities;

(8) subject to the provisions or restrictions in any other written law, investments in-

(a) units in Unit Trusts or Mutual Funds;

(b) Government Securities (treasury bills, treasury bonds and any other securities issued by the Government of Sri Lanka);

(c) securities issued by the Central Bank of Sri Lanka or any state owned enterprise or any other statutory body;

(d) Sri Lanka Development Bonds (SLDBs);

(e) Term deposits in, Sri Lanka Rupee or any designated foreign currency in licensed financial institutions, subject to section 4 of the Act;

(f) immovable properties ; or

(g) listed debt securities;

(9) grant loans with a tenure of less than three years to companies as defined in the Companies Act, No. 7 of 2007 in Sri Lanka which hold Business Foreign Currency Accounts, for the purpose of utilising such proceeds of the loan to meet the working capital requirement of the borrower provided that all repayments of such loans are made out of the foreign exchange earnings of the borrower;

(10) invest in any other investment category approved by the Monetary Board in accordance with such directions as may be issued by the Minister.

2. Non-resident individual may acquire assets referred to in subparagraphs (1), (2), (3) and (8) of paragraph 1 under heading A of this Part of the Schedule, by way of a gift from an immediate family member or by way of an inheritance in terms of the law relating to inheritance and succession or being a settlement under a court Order.

3. An emigrant may acquire any asset in Sri Lanka, by way of a gift from parents, grandparents, siblings or spouse who is a resident person or an emigrant. An emigrant may acquire any asset in Sri Lanka by way of an inheritance in terms of the law relating to inheritance and succession.

4. All capital transactions specified in paragraphs1,2 and 3 under heading A of this Part of the Schedule, shall be subject to the following conditions

(1) Mechanism of channeling funds into or out of Sri Lanka relating to permitted investments-

(a) the consideration payable for permitted investments referred to above shall be routed through an
Inward Investment Account opened and maintained in any designated foreign currency or Sri Lanka
Rupees;

(b) all income and any capital proceeds derived from such investments shall be credited to the Inward
Investment Account through which the investment was made.

(c) the requirements of routing funds through an Inward Investment Account of the non-resident investor, specified in items (a) and (b) above are not mandatory for the investments permitted under subparagraphs (4),(5), (6),(7), (8)(a) and (9) and for any other investments permitted under subparagraph (8)(if so permitted by the Monetary Board) of paragraph 1 under heading A of this Part of the Schedule;

(d) in the event of remittances directly made for the investments permitted under item (a) of subparagraph

(8) of paragraph 1 under heading A of this Part of the Schedule and loans granted to licensed commercial banks, licensed specialised banks, the Government of Sri Lanka and State Owned Enterprises, all income and capital proceeds of such investments may be directly repatriated to the non resident investor by the investee;

(e) the proceeds of a loan referred to in subparagraph (9) of paragraph 1under heading A of this Part of the Schedule shall be credited to a Business Foreign Currency Loan Account opened and maintained by the borrower and all repayments of such loan shall be made through the same Business Foreign Currency
Loan Account, subject to the directions issued by the Central Bank under the provisions of the Act.
Under no circumstances such loan shall be permitted to be settled by way of conversion of rupees.

(2) Any person resident in Sri Lanka other than licensed commercial banks, licensed specialised banks, the Government of Sri Lanka and State owned enterprises,who borrow from a person resident outside Sri Lanka, shall open and maintain an External Commercial Borrowing Account, subject to the directions issued by the Central Bank under the provisions of the Act, to receive the proceeds of such loans and to service and repay the loan.

(3) Reporting on Borrowings made under subparagraphs(6) and (7) of paragraph 1 under heading A of this Part of the Schedule-

(a) in the case of borrowings made by licensed commercial banks and licensed specialised banks, details of such borrowings (including date, the amount of the loan and currency, tenure and profile of the lender) shall be reported to the Head of the Department of Foreign Exchange on or before the fifteenth day of the following month;

(b) in the case of borrowings made by Government of Sri Lanka and State Owned enterprises, details of
such borrowings (including date, the amount of the loan and currency, tenure and profile of the lender)
shall be reported by the Department of External Resources, Department of Public Enterprise and
Department of National Budget (as applicable) of the Ministry of Finance, to the Head of the Department
of Foreign Exchange within one month of the receipt of the loan proceeds;

(4) Loans obtained under subparagraphs(4) and (5) of paragraph 1 under heading A of this Part of the schedule may be repaid by the borrower in full at the end of the term or shall be amortized over the tenure in accordance with the terms of the loan agreement.

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