The Government has announced wide-ranging tax exemptions for the Colombo International Financial Center (CIFC) Mixed Development Project within the upcoming Colombo Port City.
Industrial Export and Investment Promotion Minister Prasanna Ranatunga has issued the relevant Gazette, granting the concessions under the Strategic Development Project to set up the CIFC Project, which will consist of five iconic vertical towers at the Port City premises in Colombo.
CIFC will be located in an approximately 17 acres (6.8 Ha) of land, to be subleased from CHEC Port City Colombo Ltd. with a total investment of $ 1,001 million.
The project will be implemented in two phases with Phase I consisting of one international Grade A high-rise office tower, two high-end residential towers, and a retail podium with an investment of $ 440 million in a total allocated site area of approximately seven acres.
Phase two will consist of two international Grade A high-rise office towers, and a retail podium with an investment of $ 561 million in a total allocated site area of approximately 10 acres.
The Gazette notification, issued under Section 3(2) of the Strategic Development Projects Act No. 14 of 2008, said as the CIFC, being an iconic, smart and sophisticated financial and business hub, will bring significant economic and social benefit to the country, that it would cater to the potential investors who wish to set up their business in Colombo Port City.
“Being the first landmark vertical development project in the Colombo Port City, CIFC would transform the landscape of the city of Colombo, keeping the momentum for Port City development and promoting FDI inflows to the country.”
The CIFC mixed-use development project will build and bring international standard Grade A commercial offices, premium retail shops, and luxury residential dwelling units to meet business needs, which will help Colombo City emerge as a competitive business hub.
“This project with an envisaged investment of $ 1001 million will be a catalyst to promote and attract global giant firms in the legal, corporate finance, investment banking, tourism, logistics and ICT sectors, which will help to increase the foreign exchange reserves of the country, while transferring technical know-how and building the capacity of local knowledge,” it said.
The CIFC will generate approximately 2500 employment opportunities during the construction period, and over 15,000 direct and indirect employment opportunities once the project commences on operation.
The Project Implementation Period will be eight years from the date of the Project Agreement signed between the Board of Investment of Sri Lanka and the project company, which is to be incorporated prior to signing the Agreement.
The project implementation/construction shall commence within one year of the signing of the agreement, while commercial operation shall commence within the eighth year of the Project Implementation Period.
The Gazette notification announced several tax exemptions for the project company, including Corporate Income Tax, with the exemption period to be determined by the BOI under the provisions of the Inland Revenue Act No. 24 of 2017.
In the case of Dividend Tax, dividends distributed to the shareholders out of the exempted profit will be exempted from the income tax during the said Tax Exemption Period of fifteen years and one year thereafter.
The project company shall be exempted from the payment of Withholding Tax on management fees and royalty payments provided however that total of such charges shall not exceed 3% of the gross operating revenue; on marketing fees, will not exceed 1.5% of the gross operating revenue; on incentive management fees, provided however the total of such fees will not exceed 10% of the gross operating profit; on interest on foreign loan and debt taken for capital expenditure; and on technical fee.
During the Project Implementation Period, up to a maximum number of thirty expatriate staff at any given time will be exempted from the payment of Pay As You Earn Tax (PAYE) / Personal Income Tax Applicable.
The project company is required to gradually replace expatriate staff with local employees on a best effort basis.
The following employee-related commitments are also agreed to be employed by the project company:
Unskilled labour requirement to be sourced 75% locally
Skilled labour requirement to be sourced 65% locally
White collar workers to be sourced 75% locally, and to be paid in foreign currency, if the project company is permitted to do so
All imports of project related goods and services, and local purchases of project related goods or services required for the implementation of the Project as approved by the BOI, will be fully exempted from the payment of Value Added Tax (VAT) under Value Added Tax Act No. 14 of 2002 as amended, for a period of eight years.
The VAT exemption shall be applicable not only for direct supplies to the Company/project, but also supplies made by a sub-contractor to a contractor for supplies to the Company/project, as prescribed and permitted in the VAT Act.
The company will be liable for the payment of VAT on value of supply as defined in the Value Added Tax Act No. 14 of 2002 on the commencement of commercial operations.
All imports of construction-related items will be exempted from the customs duty, as well as payment and charge of Ports and Airports Development Levy (PAL), as approved by the BOI during the project implementation period of eight years.
The items in the Negative List attached will also not be allowed to be imported duty-free, unless such items are either not wholly produced in Sri Lanka, or are unavailable in sufficient quality, quantity, and within timelines required for project completion.
As such, in general, construction-related goods could be imported through a contractor or sub-contractor in respect of the project only, if the project company is named as the consignee of such goods.
Import of project-related items (as approved by the BOI or the commission once the new law is passed) shall be exempted from the payment of CESS during the project implementation period.
The tax exemptions have been announced in consultation with the Minister of Finance.
(FT)