Attracting foreign direct investment has long been a stated goal of successive Sri Lankan administrations. As a developing economy with strategic location advantages and a capable and educated workforce, Sri Lanka holds significant potential. Yet, the ease of doing business has been hindered by regulatory bottlenecks, administrative complexity, and the absence of a consistent investor-friendly legal framework.
Historically, Sri Lanka ranked 99 out of 190 countries in the World Bank’s Doing Business Index 2020, a significant drop from its previous positions. While the index itself has since been discontinued, it remains a useful benchmark of how foreign investors have perceived our jurisdiction — bureaucratic, slow-moving, and legally unpredictable. In the World Bank’s Doing Business Index, Sri Lanka’s performance in areas like starting a business, property registration, contract enforcement, and tax administration has lagged behind regional competitors.
The Colombo Port City Economic Commission Act, No. 11 of 2021 represents a transformative shift, establishing the Port City Colombo Special Economic Zone (SEZ) with investor-friendly policies designed to enhance ease of doing business in Sri Lanka. This bold legislative framework seeks to remedy core investor concerns, offering a distinct, liberalised legal and regulatory environment within the SEZ. It is not merely another government initiative — but a significant step towards creating a high-standard, international investment destination similar to mature business hubs including Dubai and Singapore.
Regulatory clarity and procedural simplicity
Lengthy approval processes and administrative inefficiencies hinder swift market entry. Lengthy court proceedings reduce investor confidence in legal protections. To attract international businesses and encourage foreign direct investment (FDI), Sri Lanka must establish a regulatory environment that prioritises efficiency, investor protections, and seamless administrative processes—objectives that the Colombo Port City SEZ aims to fulfill.
At the heart of this initiative is the Colombo Port City Economic Commission (CPCEC), the regulatory authority with exclusive jurisdiction over all regulatory and administrative matters within the SEZ. The Commission operates as a single-window investment facilitator for regulatory, licensing, and compliance matters, significantly streamlining business setup and operations. This consolidation is critical—foreign investors require clarity, consistency, and speed in decision-making.
Key features of the framework include:
* Port City Colombo allows full foreign ownership of enterprises, with no local equity requirement.
* Exemptions under Sri Lanka’s Foreign Exchange Act of 2017, enabling unrestricted movement of capital into and out of the SEZ.
* Investment protectionthrough legally binding contracts and recognition of international dispute settlement mechanisms.
* The SEZ includes a dedicated international arbitration and mediation centre operating under UNCITRAL principles, reducing reliance on Sri Lanka’s conventional legal system and providing faster dispute resolution.
* A liberal visa regime, offering preferential visas of 5 to 10 years to investors, key professionals, and their immediate family members.
The tax regime is equally competitive. Enterprises designated as Businesses of Strategic Importance will benefit from 0% corporate income tax for 25 plus years, with concessionary rates thereafter, no Input VAT, no withholding tax, and no customs duties within the SEZ. Employeeswill be paid in foreign currency and benefit from full exemption on personal income tax, when employed under a commercial entity operational within the SEZ. These provisions, by design, mirror best-in-class SEZ incentives globally.
Streamlined business registration and operations
A company may apply for registration as an Authorised Person (AP) with a one-time application fee of USD 5,000 (or USD 10,000 for Businesses of Strategic Importance). When approved, the business receives a renewable licence and can commence operations either from within the SEZ or at designated locations until infrastructure is ready.The Commission reviews the business model, strategic importance, and global revenue to determine eligibility. The process, detailed in the official Doing Business Guide, is transparent and time-bound.
The CPCEC has issued guidelines covering permitted business areas, ranging from offshore finance, shipping and logistics, regional headquarters, and IT services, to innovation-driven entrepreneurship, tourism, and sustainable development. This range reflects Sri Lanka’s broader economic priorities.
Benchmarking against regional SEZs
When viewed against successful regional SEZs such as the Dubai International Financial Centre (DIFC) or the GIFT City in India, Port City Colombo presents an emerging but credible alternative. TheDIFC’s autonomous legal system, tax holidays, and financial regulatory independence have made it a magnet for international financial institutions. Similarly, Singapore’s ease of doing business is underpinned by its world-class infrastructure, transparent legal regime, and strategic location. Port City Colombo, while newer, is following a similar path, with a bespoke legal framework, international commercial courts, and robust investor protections.
Industry focus: sectors poised to benefit
Several sectors stand to gain significantly from operating within the Port City SEZ.
Financial services firms can benefit from the regulatory freedom and capital mobility provided by the Foreign Exchange Act exemptions. IT and business process outsourcing companies will find access to skilled local talent, high-speed digital infrastructure, and zero taxation compelling. Real estate developers and tourism operators will appreciate the liberal land use policies and access to global clientele.
Way forward
For Sri Lanka to fully capitalise on SEZ’s potential, a clear roadmap for regulatory stability and investor confidence is essential. This includes policy continuity and government commitment to ensure that future regulatory changes do not deter investors by maintaining consistency in the SEZ’s legal and tax framework. Infrastructure development should expand world-class office spaces, financial services, and digital infrastructure to support multinational corporations.
Integration with national economic policies should leverage Port City Colombo’s success to inspire broader economic reforms, making Sri Lanka an attractive investment destination beyond the SEZ. Ongoing dialogue with investors should establish platforms for continuous engagement with foreign investors, ensuring their concerns and recommendations shape future regulatory enhancements.
Strengthening trade ties with key markets such as India, China, the APAC region, and the Middle East can position Port City Colombo as a gateway for international business.To unlock the full potential of Port City Colombo, Sri Lanka must take a page from global leaders like Dubai and Singapore, where early-stage government support and policy stewardship have been instrumental in nurturing these countries in to the thriving financial and business hubs they are today.
Conclusion
For Sri Lanka, the path to economic recovery lies not only in fiscal reforms or debt restructuring but also in creating a compelling, modern investment climate. Port City Colombo provides a scalable and replicable model—if successful, it will serve as the blueprint for regulatory reform beyond the boundaries of the SEZ, incubating progressive policies for Sri Lanka’s future. Its long-term success depends on policy consistency, infrastructure development, and broader economic integration.
– Port City Desk, D.L. & F. De Saram (Law firm)
