CA Sri Lanka calls for urgent reforms to boost FDIs

• Technical White Paper highlights critical reforms needed to attract foreign investment, protect tax revenues, and strengthen investor confidence

The Institute of Chartered Accountants of Sri Lanka (CA Sri Lanka) has released a comprehensive policy white paper outlining a series of urgent reforms aimed at transforming Sri Lanka into a more competitive and investor-friendly destination in an increasingly complex global tax landscape.

Issued through its Faculty of Taxation and the recently established Foreign Direct Investment (FDI) Task Force, the white paper, titled “Enhancing Foreign Direct Investment (FDI) through Tax and Investment Policy Reform in Sri Lanka” comes at a pivotal time as countries around the world adapt to the OECD’s Global Minimum Tax (GMT) framework, a fundamental shift that is reshaping how nations compete for investment.

A turning point for Sri Lanka’s investment strategy

According to the report, Sri Lanka’s traditional approach of attracting foreign investors through tax holidays and concessionary tax rates is rapidly losing effectiveness under the OECD’s Global Minimum Tax regime.

The paper warns that unless Sri Lanka modernises its tax and investment framework, tax revenues that would otherwise accrue to Sri Lanka may instead be collected by foreign jurisdictions, while traditional investment incentives become increasingly ineffective.

“Global investment competition has fundamentally changed. Sri Lanka must move beyond legacy tax incentives and adopt modern, internationally compliant policies that attract genuine investment, create jobs, and protect national revenue,” the report states.

Six strategic reform areas identified

The FDI Task Force has identified six key areas requiring immediate policy attention.

1. Modernising Sri Lanka’s tax incentive framework

The report recommends a strategic shift towards OECD-compliant investment incentives, including:

•  Introducing a Qualified Domestic Minimum Top-Up Tax (QDMTT) to retain tax revenues within Sri Lanka

•  Replacing outdated tax holidays with modern incentive mechanisms such as Qualified Refundable Tax Credits (QRTCs)

•  Developing targeted incentives linked to real economic activity, including employment creation, research and development, technology transfer, and capital investment

•  Adopting a differentiated investment strategy tailored separately for large multinational enterprises and smaller growth-oriented investors

The paper notes that many countries, including Ireland, Singapore, and Thailand, have already begun redesigning their investment frameworks to remain competitive under the new international tax environment.

2. Focusing incentives on high-impact industries

Drawing lessons from Singapore’s recently introduced Refundable Investment Credit (RIC) framework, the white paper advocates a transition from ad hoc tax concessions to structured, spend-based incentives that reward substantive investments.

Priority sectors identified include:

•  Technology and digital services

•  Renewable energy

•  Export-oriented manufacturing

•  Research and innovation

•  Global and regional headquarters operations

•  Decarbonisation and green economy initiatives

The report calls for multi-year policy certainty to strengthen investor confidence and improve the predictability of Sri Lanka’s investment environment.

3. Strengthening investor confidence and ease of doing business

The Task Force highlights significant administrative barriers faced by foreign investors, particularly in relation to visa and work permit processes.

The report observes that investor and employment visa approvals often require multiple layers of approval across agencies, resulting in delays that can negatively impact investment decisions.

Among the recommendations are:

• Streamlining visa approval processes

• Issuing clearer guidance for investor visa holders

• Establishing transparent procedures for amendments and secondary investments

• Providing greater regulatory clarity through investor-specific guidelines

4. Reforming tax administration and compliance

The report identifies tax administration reform as a critical pillar in improving Sri Lanka’s investment attractiveness.

Key recommendations include:

• Introducing risk-based audit frameworks

• Reducing arbitrary audit selection and excessive documentation requirements

• Enhancing digital tax administration systems

• Improving consistency in the interpretation and application of tax laws

• Publishing public rulings and industry-specific guidance

• Strengthening the independence and efficiency of tax dispute resolution mechanisms

A key proposal is the establishment of an Independent Tax Ombudsman, which would provide foreign investors and taxpayers with a trusted avenue for addressing procedural grievances and administrative challenges.

5. Addressing legal and regulatory gaps

The report also identifies important deficiencies in Sri Lanka’s Beneficial Ownership framework.

The Task Force notes that certain offshore structures, including some companies operating within the Colombo Port City framework, may fall outside the scope of the recently established Beneficial Ownership Register due to legislative inconsistencies.

The paper recommends urgent legislative review to ensure alignment with international transparency standards and to strengthen Sri Lanka’s reputation for regulatory integrity.

6. Modernising Sri Lanka’s Advance Pricing Agreement (APA) program

Recognising the importance of tax certainty for multinational enterprises, the white paper calls for substantial reforms to Sri Lanka’s APA framework.

Recommendations include:

•  Broadening the scope of APA coverage

•  Improving procedural efficiency

•  Introducing clear rollback provisions

•  Simplifying compliance requirements

•  Aligning timelines with international standards

•  Adopting a transparent and predictable fee structure

The report notes that a modern and efficient APA regime can significantly enhance Sri Lanka’s attractiveness as a regional investment hub by reducing transfer pricing disputes and providing certainty to investors.

Building institutional capacity for the future

The Task Force emphasises that successful implementation of these reforms will require strong institutional capacity, investment in digital infrastructure, and collaboration between government agencies, policymakers, regulators, and the private sector.

The report recommends the establishment of a national GMT implementation task force comprising representatives from the Finance Ministry, Inland Revenue Department, Board of Investment, Central Bank, and private sector experts to drive reform and ensure readiness for the evolving global tax environment.

Call for action

CA Sri Lanka believes that Foreign Direct Investment remains one of the most important drivers of economic growth, employment generation, technology transfer, and long-term national prosperity.

Through this white paper, the Institute seeks to contribute constructively to national policy discussions and support evidence-based reforms that will enhance Sri Lanka’s competitiveness, strengthen investor confidence, and secure sustainable economic growth.