EY says new Port City incentive significant with sharper focus on scale, timing

• Up to 15-year tax holidays for large anchor projects; 5–12 years for smaller developments
• Secondary businesses offered 7.5% income tax rate for four years
• Customs and levy exemptions granted during project implementation phases
• Applicability depends on stage of licencing and designation as “business of strategic importance”
• Investors urged to map project timelines carefully to avoid misalignment with new framework

EY Sri Lanka has said the new Colombo Port City tax regulations shift incentives firmly toward investment scale and execution certainty, offering up to 15-year income tax holidays for large projects while requiring investors to align closely with licencing and designation stages to secure benefits. 

The firm noted that although the incentive framework remains attractive, it is now more tightly linked to project size, job creation and application status, underscoring Port City’s ambition to attract major anchor investors while providing a defined pathway for secondary businesses.

The new regulation, signed on 20 September, replaces rules issued in August 2023 that expired in August this year. It applies to businesses identified as “strategic” within the zone on or after the effective date. 

Projects already in the pipeline may fall under either the old or new regime depending on whether they have been gazetted as a Business of Strategic Importance (BSI) or remain at an earlier stage. For example, applicants holding only an Authorised Person licence will now be covered by the new regulation, while those already gazetted may continue under the previous framework.

For primary BSIs, defined as Authorised Persons investing in land leasing and development, the tax incentives are tiered by capital commitment and job creation. Investments of at least $ 100 million and 300 jobs qualify for a 10-year income tax exemption, rising to 12 years for $ 500 million and 15 years for $ 1 billion. 

Smaller marina and social infrastructure projects with a minimum $ 25 million investment and 100 jobs are eligible for a five-year holiday. During project implementation, Customs Duty, Ports and Airports Development Levy and Cess are waived. 

Once gazetted, these projects are also exempt from the Betting and Gaming Levy, Entertainment Tax, Foreign Exchange Act provisions and termination of employment laws.

Secondary BSIs, businesses operating in the Port City that do not involve primary land development, are eligible for a reduced income tax rate of 7.5% for four years. 

These companies also receive exemptions from Customs Duties and levies until the commencement of commercial operations, and once gazetted, exemptions from entertainment taxes, foreign exchange rules and termination of employment provisions.

EY advised that investors must carefully assess the stage of their applications to determine which incentive package applies. 

The firm said the closer alignment of benefits with capital intensity and job creation signals Colombo Port City’s intent to position itself alongside global financial centres that prioritise large, internationally competitive projects.

For prospective investors, the alert is a reminder that while Port City offers some of the longest tax holidays in the region, certainty will depend on timing, designation and compliance with employment thresholds. 

EY said this makes it critical for businesses to integrate regulatory planning into their investment strategy at an early stage.