Overview

Colombo is the hub of Sri Lanka’s international trade, with many imports and exports moving through the Port of Colombo, the country’s primary gateway. The port is also a major transshipment hub in South Asia, connecting cargo between Europe, East Asia, the Persian Gulf, and East Africa.

While many small and medium importers operate in the market, 20 to 30 relatively large firms handle most of the international trade. Only a few importers control distribution networks outside Colombo. Most importers wholesale directly to regional distributors or retailers. The government’s role in trade and distribution has declined in recent years.

Using an Agent to Sell U.S. Products and Services

In most cases, U.S. firms entering the Sri Lankan market require a local partner. Working with an agent or distributor is generally the most effective way to compete successfully, as local firms are familiar with business practices and regulatory procedures. Many foreign firms select local agents based on financial stability, technical capability, and proven access to appropriate national distribution networks.

The largest trading houses often represent multiple, sometimes competing, foreign principals. As a result, medium and smaller firms are becoming more attractive partners. For products requiring stocking, servicing, or nationwide distribution, however, larger firms may be better suited.

Sales commissions paid to agents range from 3 to 15 percent, depending on sales volume and product price. Agency relationships can be terminated for inefficiency, misappropriation, or failure to meet contractual obligations. U.S. firms are strongly encouraged to conduct due diligence when selecting a local agent or distributor.

The U.S. Commercial Service offers several programs to assist companies seeking local partners in Sri Lanka, including the International Partner Search (IPS), International Company Profile (ICP), Single Company Promotion, and Gold Key Services (GKS). These services are available through the U.S. Embassy in Colombo. Interested companies should contact their local U.S. Export Assistance Center (https://www.trade.gov/let-our-experts-help-0).

Establishing an Office

Potential investors should begin discussions with Sri Lanka’s Board of Investment (BOI) before establishing a company or liaison office in Sri Lanka. 100 percent foreign ownership is permitted in most industries, with certain exceptions. A list of regulated areas where foreign ownership is limited or requires approval from statutory agencies is available on the BOI website Investment Opportunities – Board of Investment of Sri Lanka (investsrilanka.com).

Under Section 17 of the BOI Law, the BOI is empowered to approve projects and enter into agreements granting exemptions from laws such as the Customs Ordinance, subject to investment thresholds or other requirements. Section 17 projects with a minimum investment of $3 million qualify for enhanced capital allowances under the Inland Revenue Act No. 24 of 2017. Projects with investments exceeding $50 million are granted additional tax exemptions during the project implementation period. These may be 100 percent foreign-owned or joint venture investments with local partners. All foreign investments must be made through an Inward Investment Account (IIA). 

The Inland Revenue Act of 2017, implemented on April 1, 2018, provides concessionary corporate tax rates for investments in specific sectors and capital allowances for capital investments (http://www.documents.gov.lk/files/egz/2017/11/2045-56_E.pdf).  The Inland Revenue Act of 2017, implemented April 1, 2018, includes concessionary corporate tax rates for investments in specific sectors and depreciation allowances depreciation on capital investments. The BOI Act provides for two types of investment approvals, one with and the other without concessions. 

When starting a business in Sri Lanka, selecting the proper legal structure is critical. Options include Private Limited Company, Public Limited Company (PLC), Sole Proprietorship, and Partnership. Following BOI approval, investors are required to form a limited liability company and register with the Department of the Registrar of Companies.  The proposed company name must be approved by the Registrar, and name searches can be conducted online at http://www.drc.gov.lk/intro/. 

The application for registration must include the Articles of Association, consent forms from initial directors and company secretaries (Form 18 and Form 19), and the prescribed application form (Form 1). Companies approved under Section 17 of the BOI Law must include a BOI-approved primary objective in their Articles of Association. The registration fee is approximately $100. Application forms are available online at http://www.drc.gov.lk/intro/. The Department of the Registrar of Companies also administers several legislative enactments, including the Companies Act No. 7 of 2007, the Societies Ordinance No. 16 of 1891, and the Public Contracts Act No. 3 of 1987.

A foreign company may establish a branch office under the same name. To do so, the company must submit a certified copy of its charter, statute, or memorandum and articles of association, along with a certified copy of its certificate of incorporation. It must also provide a list of directors and a statement identifying both the registered or principal office abroad, and the principal place of business in Sri Lanka. In addition, the company must appoint a resident in Sri Lanka through a valid power of attorney authorized to act on behalf of the company, and it must submit a certified extract of a shareholder resolution confirming the branch office’s activities.

For more information, contact:
Registrar of Companies
“Samagam Medura”
400 D.R. Wijewardane Mawatha
Colombo 10
Tel: +94 11 268 9212
Fax: +94 11 268 9211
Email: registrar@drc.gov.lk 

The U.S. Department of State’s Investment Climate Statement (ICS) provides country-specific information on the investment and business environment in Sri Lanka, including guidance on establishing and operating an office and hiring employees. 

Franchising

Franchising is less common in Sri Lanka than agency or distributorship arrangements. Franchising in Sri Lanka requires compliance with local laws and regulations. Prospective U.S. franchisors should consult local legal and business expert. U.S. franchises currently operating in the country include Pizza Hut, UPS, FedEx, Kentucky Fried Chicken (KFC), TGI Fridays, Subway, Taco Bell, Coffee Bean & Tea Leaf, Burger King, and Baskin Robbins. Popeyes Louisiana Kitchen and Chili’s are the most recent U.S. franchises to enter the market. Local companies continue to show interest in attracting additional U.S. franchises. 

Direct Marketing

Direct marketing in Sri Lanka generally occurs when products are sold on a one-time or irregular basis. Companies with regional branches or representatives have successfully entered the market directly, though in most cases a local agent is still needed to achieve market penetration. Firms using direct marketing may gain a price advantage by avoiding agency commissions.

Joint Ventures/Licensing

Joint ventures have become increasingly common, particularly in export-oriented projects. They are eligible for the same preferences and tax benefits as domestic companies. There are no restrictions on foreign ownership except in certain specified sectors.

Express Delivery

FedEx, UPS, and DHL provide express delivery services to Sri Lanka from the United States and maintain offices in Colombo. Transit times vary depending on the point of origin and pick-up time, but next-day delivery is possible in some cases.
De minimis concessions apply only to samples imported via courier or parcel post (via the mail) for business purposes. Goods valued at not more than $277 are exempt from Customs Import Duty (CID), and goods valued at not more than $55 are exempt from Value Added Tax (VAT).

Due Diligence

Publicly listed companies in Sri Lanka are required to publish audited financial results, which can be reviewed before entering into business agreements. Stockbrokers also publish corporate evaluations for listed firms. Fitch Ratings, Moody’s, and Standard & Poor’s provide ratings for banks, financial institutions, and some large companies and conglomerates.
Under Section 120 of the Companies Act, private companies incorporated in Sri Lanka must keep certain documents available for public inspection at their registered office. Any person may request access to these documents by submitting written notice. U.S. companies working with local firms or distributors are strongly advised to conduct proper due diligence to ensure reliability. The U.S. Embassy can assist in verifying the authenticity of local companies.

The U.S. Commercial Service offers International Partner Search (IPS), International Company Profile (ICP), Single Company Promotion, and Gold Key Services (GKS) through the U.S. Embassy in Colombo. U.S. companies seeking local representatives should contact their nearest U.S. Export Assistance Center (https://www.trade.gov/let-our-experts-help-0).

eCommerce

eCommerce in Sri Lanka has expanded significantly with the growth of internet access and smart device usage. A government gazette notification announced that an 18 percent Value Added Tax (VAT) will be applied to cross-border digital services beginning October 1, 2025, under the Value Added Tax (Amendment) Act No. 04 of 2025. However, implementation was postponed until April 2026. The measure requires non-resident digital service providers, from global software firms to specialized cybersecurity platforms, to register with the Inland Revenue Department and apply VAT if their local turnover exceeds the prescribed threshold. The tax covers a wide range of business-to-business and business-to-consumer services, including cloud computing, software licenses, streaming subscriptions, and online marketplace services.

eCommerce companies provide Sri Lankan consumers with access to millions of global products. The government has expanded the use of online platforms for public services, including tax return filing, payment of taxes, and vehicle revenue license renewal. Most global e-commerce sites, including PayPal, are available for overseas purchases, although limitations remain due to an inadequate refund mechanism and restrictions on inward receipts. A 2.5 percent stamp duty applies to credit card transactions issued by Sri Lankan banks when converted into foreign currency; local-currency transactions are exempt.
The government currently operates an e-service gateway to streamline certain services. The Inland Revenue Department has enabled tax return filing through its web portal (http://www.ird.gov.lk/en/eServices/SitePages/Home.aspx), and vehicle revenue licenses can be renewed online (www.erevenuelicense.motortraffic.wp.gov.lk).

Assessment of Current Buyer Behavior in Market

Domestic business-to-consumer eCommerce sites have grown significantly in recent years. A wide variety of products, including groceries, apparel, and electronics, are available through local platforms, such as Kapruka, Daraz, Takas, and Keells Super. Small and medium enterprises increasingly use social media platforms to advertise, take orders, and accept payments.

Cross-border eCommerce remains limited to purchases from popular overseas sites such as eBay and Amazon, although numerous local companies import goods for resale through domestic e-commerce channels.

Local eCommerce Sales Rules & Regulations

The Electronic Transactions Act No. 19 of 2006 provides the legal framework for electronic contracts, recognition of electronic transactions, and the validity of contracts in the digital environment. Supporting legislation includes the Evidence Act No. 14 of 1995, the Payment and Settlement Systems Act No. 28 of 2005, the Payment Devices Frauds Act No. 30 of 2006, and the Computer Crimes Act No. 24 of 2007. Following Sri Lanka’s ratification of the UN Electronic Communications Convention (UNECC) in 2015, the Electronic Transactions Act was amended in 2017 to strengthen the validity of electronic contracts and align them with international standards.

Sri Lanka does not currently have a local body dedicated to regulating e-commerce businesses. Increased competition from international platforms, such as Booking.com and Airbnb, has prompted the Tourist Hotels Association of Sri Lanka (THASL) to call for regulatory action.

E-consumer rights are protected under existing frameworks in information technology and consumer law. The Computer Crimes Act (CCA) and the Electronic Transactions Act (ETA) provide legal certainty for online transactions and sanctions for cybercrimes. The Consumer Affairs Authority Act (CAAA) was enacted to safeguard consumer rights in trade, though it does not specifically address online commerce.

Intellectual property rights in e-commerce are protected under the Evidence (Special Provisions) Act No. 14 of 1995, the Intellectual Property Act No. 36 of 2003, the Electronic Transactions Act No. 19 of 2006, and the Computer Crimes Act No. 24 of 2007. Infringers who offer counterfeit goods for sale online may be held liable under Sri Lanka’s intellectual property law.

Local eCommerce Business Service Provider Ecosystem

Internet access in Sri Lanka continues to expand. Private telecommunications companies have driven the rollout of 3G and 4G networks and have begun pilot applications of 5G technology. Financial institutions are also developing mobile payment gateways and related financial services to provide reliable online payment systems that support the growth of e-commerce.

At present, Sri Lanka does not host events dedicated specifically to eCommerce.