Starting Your Business in Sri Lanka: Everything You Need to Know

Starting a business is a rewarding journey, but it comes with challenges, especially when navigating local regulations and practices. If you’re looking to set up a business in Sri Lanka, this guide covers everything you need to know — from legal requirements and registration processes to tips for finding the right location and funding options.

1. Choosing the Right Business Structure

The first step in starting a business is deciding on the type of legal entity. In Sri Lanka, the common business structures include:

Sole Proprietorship: Ideal for small, single-owner businesses. Easy to set up, but the owner bears unlimited liability.
Partnership: A business owned by two or more people. Profits are shared, and partners have joint liability.
Private Limited Company (Pvt Ltd): The most popular structure for businesses planning to grow. Owners’ liability is limited to their shares, and it’s easier to attract investors.
Public Limited Company (PLC): Suitable for larger businesses looking to raise capital by issuing shares to the public.

Tip: Choose a structure based on your business goals, future expansion plans, and risk tolerance.

2. Registering Your Business Name

Before you can officially register your business, you need to pick a unique name. Here’s how:

Check Availability: Visit the Department of the Registrar of Companies (DROC) website to ensure your desired business name is not already in use.
Reserve the Name: Once you’ve selected a name, reserve it by submitting an application online or in person at DROC.
Approval: If approved, you’ll receive a name reservation certificate, which is valid for three months.

3. Registering Your Business with DROC

The registration process depends on the type of business structure. Here are the basic steps for setting up a Private Limited Company (Pvt Ltd):

Prepare Required Documents
Submit the Application: You can submit the documents online via the DROC e-ROC system or at the physical office.
Pay the Registration Fees: Fees vary depending on the business structure and services selected. Payments can be made online or at the bank.

Note: The incorporation process usually takes around 5-7 working days.

4. Obtaining Necessary Permits and Licenses

Depending on your business activity, you may need additional licenses or permits. Some sectors that typically require specific licenses include:

Food and Beverage
Tourism (Hotels, Travel Agencies)
Import/Export
Healthcare

Tip: Research thoroughly or consult a legal expert to ensure you’re meeting all compliance requirements.

5. Understanding Tax Obligations

Tax regulations can be complex, and the requirements often vary depending on the size and nature of your business. You may need to navigate various taxes, including income tax, VAT, and payroll taxes if you have employees. Misunderstanding or failing to comply with tax laws can lead to significant penalties, so it’s essential to stay informed. Consulting with a qualified tax advisor can help you understand your obligations and plan effectively to minimize your tax burden. They can also assist in setting up efficient systems to ensure smooth compliance from the start.

6. Setting Up a Business Bank Account

To separate personal and business finances, it’s essential to open a business bank account. Most banks in Sri Lanka offer a variety of business accounts with features like online banking, credit facilities, and trade services.

Required Documents:

Business registration certificate
Taxpayer Identification Number (TIN)
Articles of Association
Identity proof of directors and shareholders

Tip: Compare the services and fees of different banks before choosing the right one for your business.

7. Hiring Employees and Understanding Labor Laws

If your business requires employees, you need to be aware of the labor regulations in Sri Lanka. Here are some key points:

Employment Contracts: Provide clear contracts specifying roles, responsibilities, and compensation.
Working Hours: The standard workweek is 45 hours. Overtime pay is required if employees work beyond this limit.
Employee Benefits: Mandatory benefits include the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF).
Work Visas for Foreign Employees: If you plan to hire foreign staff, you’ll need to apply for work visas through the Department of Immigration and Emigration.

Note: Understanding labor laws will help you avoid potential legal issues.

8. Registering with the Employees’ Provident Fund (EPF) and Employees’ Trust Fund (ETF)

All employers in Sri Lanka are legally required to register their business and employees with the EPF and ETF:

EPF: Both employer and employee contribute a percentage of the salary to the fund.
ETF: Only the employer contributes, and this fund is separate from the EPF.

Tip: Regularly file the necessary returns and payments to avoid penalties.

9. Navigating the Import and Export Process

Sri Lanka’s strategic location makes it an attractive hub for import/export businesses. If you plan to engage in international trade, here’s what you need to do:

Register with the Sri Lanka Customs: You must register as an importer/exporter and obtain a Customs Registration Number.
Get the Necessary Permits: Depending on the goods, additional permits may be required (e.g., for food, electronics, pharmaceuticals).
Learn About Duties and Tariffs: Understanding customs duties, tariffs, and taxes is essential for cost planning.

10. Seeking Business Support and Funding

Starting a business can be financially demanding. Fortunately, there are several funding options and business support services available:

Banks and Financial Institutions: Offer business loans, trade finance, and overdraft facilities.
Venture Capital and Angel Investors: Ideal for startups with a solid growth plan.
Government Grants and Incentives: Explore available grants for specific sectors (e.g., technology, agriculture).

Tip: Have a detailed business plan ready when approaching investors or lenders.

11. Final Thoughts: Preparing for Success

Starting a business in Sri Lanka requires careful planning, knowledge of regulations, and a strategic approach. Make sure you’re compliant with all legal requirements, and consider consulting with local experts who can guide you through the process.

With the right preparation, your business can thrive in Sri Lanka’s growing economy. Good luck!

Have any questions or need more guidance? Feel free to leave your comments below.