Sri Lanka relaxes capital controls for first time in over 3 years

• Restrictions on outward remittances have been in effect since April 2020
• New Order will be valid for six months from June 28, 2023
• Emigrants can now take more money out; biz can make overseas investments 

The government on Monday announced easing of certain restrictions hitherto slapped on outward remittances since April 2020, amid improvements seen in the country’s domestic foreign exchange market.

A statement issued by the Central Bank said the new Order, which will be effective for six months from June 28, 2023, was taken by the Finance Minister, with recommendation of the Monetary Board of the Central Bank and Cabinet of Ministers.

However, earlier last month, the government decided to extend capital controls by further six months citing that more time is required to re-build the country’s foreign exchange reserves to sufficient levels.

At the end of June, the country’s foreign exchange reserve stood at around US$ 3.5 billion.
The restrictions were first introduced during the height of COVID-19 lockdowns to minimise the pressure on the exchange rate and to preserve foreign currency reserves of the country under Section 22 of the Foreign Exchange Act.

The new Order issued under the same Act “has relaxed certain limitations on outward remittances for capital transactions and removed the restrictions on current transfers of emigrants, while continuing the other suspensions/limitations which were imposed under the previous Order,” the Central Bank statement said.

Accordingly, under the new Order, the first-time claim of migration allowance has been increased to a maximum of US$ 50, 000 from US$ 30, 000 under the previous order. Subsequent claims after the initial claim of migration allowance have been increased to US$ 20, 000 from US$ 10, 000.

Repatriation of current income or accumulated current income of emigrants will no longer be subject to any limitations. Earlier, it was subject to a maximum of US$ 30, 000.

Meanwhile, resident investors through Outward Investment Accounts (OIAs) can now make additional investments up to US$ 30, 000 in already established subsidiaries or branch offices registered or incorporated overseas, for the purpose of working capital requirements. Earlier, the limit was US$ 15, 000.

Companies listed on the Colombo Stock Exchange (CSE) are now allowed to invest up to US$ 200, 000 in ordinary shares of a company outside Sri Lanka, for the purpose of expanding their core business activities overseas. The limit for companies not listed on the CSE is up to US$ 100, 000.

Also, to set up overseas offices, local companies are allowed to take out up to US$ 100, 000.
Under the previous Order, such overseas investments remained completely suspended.

Meanwhile, up to a maximum limit of US$ 100,000 or equivalent in any other designated currency can be utilised for the purpose of expanding a company’s core business in overseas through Business Foreign Currency Account. Earlier, the limit in this was regard was US$ 20, 000.

In addition, the suspension on outward remittances by companies incorporated in Sri Lanka, being subsidiaries or branch offices of overseas companies, to make investments in employee share ownership plans or employee share option scheme, has been removed.