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Things to know - Real Estate in Sri Lanka

New VAT on Apartments

The 15 per cent value added tax (VAT) on sales of apartments from projects after April 1 won’t be effective from today, as planned earlier, since the amending legislation to enable this process hasn’t been presented to parliament as yet, officials sources said.

Many people had rushed to buy apartments to beat this deadline with one developer saying he sold 25 units in February and expected to sell another 30 in March. According to The Business Times there is rethinking on this budget proposal which is likely to be differed for the time being. Meanwhile the new Inland Revenue Act has also raised doubts about the legality of the 44 double tax treaties as the new law doesn’t have the required transitional provisions to ensure the old treaties are valid.

Source - Sunday Times (View More)

Office Space

The existing stock of office space in the grade ‘A’ sector in Colombo is just over 1.5 million square feet. When considered in the context of anticipated total demand for Grade ‘A’ in 2018, at around 5 million square feet, it is very apparent that there is a shortage of about 200 percent in supply. Absorption of most Grade ‘B’ spaces have also seen an uptick, as occupiers run out of Grade A options and are forced to compromise with alternatives. While an uptick in demand is expected for spaces in Colombo from IT and related sectors stemming from 2018 budget provisions for the sector, it would be prudent to note that IT companies typically prefer out of town locations and lower cost options to fit with their business model. The newly signed Free Trade Agreements with India and Singapore are also positives for the economy and the maintenance of robust demand for commercial office space. Infrastructure development focused on connectivity between Colombo and Kandy could potentially increase tourism activity, further infrastructure developments, logistics activity, and generate more general business, which will bring in more demand for office space in both cities. Prospects for the retail sector look encouraging over 2018/19, but beyond this lies potential excess supply issues. While the ongoing mall developments will experience the ‘first-mover’ advantage, those that follow may experience demand related issues due to a lack of brands to occupy space.

Source - Lanka Business Online (View Source)

CGT - Capital Gains Tax

The new Inland Revenue Act, taking effect on 1st April 2018, introduces capital gains tax (CGT) on the ‘realization’ of investment assets.

CGT will be charged on the gain arising from realization of an investment asset at the rate of 10%. CGT will only arise if the net cost of the asset accrues a gain to the owner of the asset. The gain is calculated as the consideration received for the asset or liability exceeding the cost of the asset or liability at the time of realisation. In the case of any asset that was owned, gifted and/or acquired prior to 1st April 2018, the cost of the asset will include its value as at 30th September 2017.

The following assets are subject to CGT:

  • land or buildings
  • a membership interest in a company, partnership or trust
  • a security or other financial asset
  • an option, right, or other interest in an asset referred to above

It appears that CGT will be applicable to residents and non-residents alike.

Cost Calculation

The cost of the investment asset as at 30th Sept 2017. i.e. if you bought a land in 2000, then the cost would be the value of that land as at 30th Sept 2017. If you acquired the asset after that date, then it’ll be the cost of acquiring the asset.

Limits and Exemptions
  • Gains made by a resident individual which is less than LKR 50,000 will not be subject to CGT.
  • Trading stock and depreciable assets are specifically excluded from CGT.
  • The principal place of residence of an individual, provided it has been owned by the individual continuously for three years before disposal and lived in for at least two of those three years, is not subject to CGT.
  • The sale of shares of companies listed on the Colombo Stock Exchange will not be subject to CGT.

Source - De Saram Attorneys Website (View Source)

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