A new draft Bill restricting the transfer of land to foreigners says that if a local company sells a majority of its shares to a foreigner within twenty years of purchasing land, that property transaction will be deemed null and void. Lawyers warned that this might have implications for local companies listed on the Colombo Stock Exchange. The draft Land (Restrictions on Alienation) Bill clearly states that the law, once passed, will be effective from January 1, 2013. This could also have ramifications for transactions that took place in the interim between then and when the law is eventually passed.
A senior lawyer said: “Say a local listed company bought land. It cannot sell its shares to foreigners on the stock market because this law obliges it to maintain less than 50 per cent foreign shareholding for twenty years of purchasing the land. If not, the company will lose what it bought.” “Since it has retrospective effect dating back to January 1, 2013, what happens to transactions that have already taken place during the interim when we had no such law?”
The Land (Restrictions on Alienation) Bill was finally published by the Government Printer on August 15, 2014 — more than 18 months after it was first proposed in the 2013 budget to ban the sale of land to foreigners. The law makes provisions to stipulate the restrictions on the alienation of land in Sri Lanka to foreigners, foreign companies and certain institutions with foreign shareholding; to specify the circumstances where the exemptions are granted; and to impose a land lease tax for the leasing of lands to foreigners, foreign companies and certain institutions with foreign shareholdings. It also makes provisions to grant concession to certain development projects.
The Sunday Times obtained a copy of the draft Bill. It prohibits the transfer of land to a foreigner; a company incorporated in Sri Lanka under the Companies Act that has foreign shareholding of 50 per cent or more; and to a foreign company. Land can be transferred to any Lankan company with less than 50 percent foreign shareholding provided it maintains this ratio for a minimum 20 consecutive years from the date of such transfer.
However, if the company increases its foreign shareholding up to 50 per cent or above contrary to the above condition, “the transfer of land referred to therein shall be null and void with effect from the date of increasing of the foreign shareholding,” it says. With regard to the rights of foreigners to inherit property, the Bill says: “… the transfer of title of a land to a next of kin (who is a foreigner) of an owner of such land, shall be registered by the registrar of lands, where the notary public attesting such instrument of transfer certifies in his attestation that the transferee is a next of kin of the owner of the land transferred, as recognised by the applicable laws of succession of Sri Lanka.”
The Bill also codifies the land lease tax that was introduced in the 2013 budget. In the absence of legislation, it is presently being charged from foreigners through instructions contained in administrative circulars. The Bill makes provision for a land lease tax to be payable upfront by the lessee for every lease of land. The rate shall be 15 per cent of the total rental payable for the entire duration of the lease.