Thursday Oct 02, 2025
Thursday Oct 02, 2025
Monday, 15 September 2025 02:42 - - {{hitsCtrl.values.hits}}
On 10 September, KPMG Sri Lanka hosted a timely and insightful webinar exploring the evolving regulatory landscape under the Foreign Exchange Act No. 12 of 2017, with a particular focus on the latest amendments introduced via Gazette No. 2441/14, effective from 20 June and valid until 19 December.
Key regulatory update
KPMG Principal – Tax Suresh Perera opened the session with an overview of the new regulations issued under Section 22 of the Act. He emphasised that the new Gazette impacts the Outward Investment Account (OIA), Personal Foreign Currency Account (PFCA), and Business Foreign Currency Account (BFCA).
Perera clarified that while outbound investments via OIA are generally suspended, there are several exceptions that one needs to be mindful of. He further stated that remitting of funds for current transactions is permitted, provided they submit appropriate documentation to Authorised Dealers (ADs) to validate the nature of the remittance. Current account transactions are broadly categorised under foreign trade, loan interest, payments for amortisation of loans, family expenses, and miscellaneous etc.
Associate Director Sasiruba Balasubramaniam elaborated on the specific exceptions to the suspension of outbound investments. Eligible investors may invest in ordinary shares of companies incorporated outside Sri Lanka, subject to defined thresholds:
Additionally, Sri Lankan companies may invest overseas if the investment is entirely financed through:
These investments must be directed toward business expansion, must not constitute portfolio investments, and the investee must not be primarily engaged in investment activities. A Board resolution confirming compliance with these conditions must be submitted to the Authorised Dealer handling the remittance.
Other permitted outbound investments
The regulations also allow:
Investments that exceed the limits specified under the general permission in Regulations No. 1 of 2021 may still be considered by the Central Bank of Sri Lanka on a case-by-case basis, provided they meet specific qualifying criteria.
The broader context
KPMG Principal – Tax Rifka Ziyard reflected on the pivotal shift from the Exchange Control Act to the Foreign Exchange Act in 2017. She noted that the former operated on a restrictive basis — “everything is prohibited unless permitted”— while the current Act adopts a more liberal stance — “everything is permitted unless specifically prohibited.” Ziyard emphasised the critical role of Authorised Dealers, who bear significant responsibility in ensuring compliance, due diligence, and accurate reporting.
Authorised Dealers (ADs) play a critical role in ensuring compliance with foreign exchange regulations. They are required to exercise due diligence, verify the authenticity of clients, and ensure all transactions align with the governing Act and regulations. ADs must obtain and retain documentary evidence for each transaction, execute only permitted transactions, and fulfill timely reporting obligations to the Director of the Department of Foreign Exchange. They are also responsible for maintaining transaction records for six years, managing client accounts, and adhering to tax clearance requirements. Importantly, ADs are held accountable for non-compliance, including failure to monitor or report suspicious transactions.
Participants were also guided through the various account types under the FEA, including: Inward Investment Accounts (IIA), Outward Investment Accounts (OIA), Personal and Business Foreign Currency Accounts (PFCA and BFCA). Each account serves a distinct purpose, from facilitating foreign direct investment to managing remittances and capital transactions.
Practical implications
While capital transactions are generally restricted, individuals may conduct such transactions up to $ 20,000 via PFCA. Perera highlighted concerns around foreign property investments, referencing the Central Bank’s advisory and noting that the PFCA cap translates to approximately Rs. 6 million for capital investments, and whether this needs to be enhanced.
Ziyard described the migration allowance and stated that no changes were noted from the Previous Gazette issued last December 2024. Sri Lankan nationals migrating permanently are entitled to:
A 20% migration tax applies to the foreign exchange released under these allowances.
Further, the rules in relation to remittance of export proceeds and the conversion requirements were detailed out by the speakers.
Penalties for non-compliance
The webinar also shed light on the personal liability and penalty provisions under the Foreign Exchange Act. Under Section 14, if a corporate or unincorporated entity fails to pay any money or penalty imposed by the Central Bank of Sri Lanka (CBSL), its Directors, Members, and Partners may be held personally, jointly, and severally liable, unless they can prove the offence occurred without their knowledge or that they exercised due diligence to prevent it. Additionally, Section 11(5) outlines fines for non-compliance, including up to Rs. 500,000 for failure to assist in investigations, and penalties up to Rs. 1 million, or the value of the transaction or foreign asset involved, plus investigation costs. These provisions underscore the importance of proactive governance and strict adherence to regulatory obligations.
Looking ahead
Ziyard concluded by referencing the IMF’s Extended Fund Facility review, which advocates for phased liberalisation of foreign exchange controls, contingent on macroeconomic indicators. Key reform areas include relaxing investment restrictions, lifting migration caps, enhancing monitoring mechanisms etc.
She emphasised that further amendments are likely and that the Foreign Exchange Act will continue to evolve in response to global trends and domestic economic needs. As reiterated throughout the webinar, compliance, documentation, and strategic planning remain essential for navigating this complex regulatory environment.
