Sri Lanka does not have a sovereign wealth fund (SWF). Currently, the government manages and controls large pension funds of private sector employees, using these funds for budgetary purposes and stock market investments. The government and the Central Bank are accused of misusing the Employees Provident Fund (EPF), a large retirement fund of private sector workers managed by the Central Bank, for unwise stock market investments and to help governing party supporters. Contacts argue the fund must be segregated from politics and professionalized. SOEs and government-managed pension funds must meet Sri Lanka accounting standards.
The government has halted SOE privatization, and SOEs are active in transport (bus and railways, ports and airport management, airline operations); utilities such as electricity; petroleum imports, and water supply; retail; banking and telecommunications; TV and radio broadcasting; newspaper publishing; banking; and insurance. Since the end of the war, Sri Lankan armed forces have begun operating air services, tourist resorts, and farms for civilian purposes, crowding out some private investment. Directors of SOEs are appointed by the Cabinet or a line Ministry. The government allocates board seats to both senior government officials and politically-affiliated individuals. There is concern that the public banks are required to take on increasing debt from inefficient SOEs, forcing them to carry a greater share of non-performing loans
The U.S. Embassy, the United States Patent and Trademarks Office (USPTO), and the American Chamber of Commerce of Sri Lanka are working to pursue more aggressive enforcement and enhance public awareness, including sponsoring IPR workshops for police, judges, and senior government officials.
Since the passage of the 2003 IPR law, Sri Lanka has slowly begun enforcing its provisions. In 2010, a separate Anti-Piracy Unit was created in the Criminal Investigations Division of the Sri Lanka Police. Sri Lanka Customs also created a trademark database and a separate Intellectual Property Unit within the Social Protection Division, although neither the database nor the Unit is fully functional yet. The police have conducted some raids to seize counterfeit goods, but it is rare for the police to act without a formal complaint and assistance from an aggrieved party. Several offenders have been charged or convicted by courts. However, the minimal damages and suspended sentences imposed suggest that the court system still fails to recognize the significance of intellectual property rights.
With the end of the war and rebounding economic activities, opportunities to raise capital through the capital market have expanded, although the market is still underdeveloped, especially in relation to corporate debt. Contrary to market expectations, the stock market was not used extensively to raise new capital. The government permitted foreign investments in corporate debentures in December 2011. Retained profits finance about 70% of private investment in Sri Lanka, with short-term borrowing financing a further 20%. Local companies are allowed to borrow from foreign sources. Foreign direct investment finances about 6% of overall investment. Foreign investors are allowed to access credit on the local market and are free to raise foreign currency loans.
There is an active and competent accounting profession, based on the British model. The source of accounting standards is the Institute of Chartered Accountants of Sri Lanka (ICASL), and standards are constantly updated to reflect current international accounting and audit standards adopted by the International Accounting Standards Board (IASB). Sri Lanka adopted IASB’s Financial Reporting Standards (IFRS) for financial reporting purposes from January 1, 2012. The ICASL has revised Sri Lanka’s Accounting Standards in line with IFRS. However, problems with the quality and reliability of financial statements still exist due to the lack of an adequate enforcement mechanism.
IPR enforcement has improved in Sri Lanka, although counterfeit goods continue to be widely available. Local agents of well-known U.S. and other international companies representing recording, software, movie, clothing, and consumer product industries continue to complain that lack of IPR protection is damaging their businesses. Piracy of sound recordings and software is widespread, making it difficult for the legitimate industries to protect their market and realize their potential in Sri Lanka. There has been an improvement in the use of legal software in the corporate and public sectors. Both proprietary software and open source software are permitted in government departments.
Private entities are free to establish, acquire, and dispose of interests in business enterprises. Private enterprises enjoy benefits similar to those granted to public enterprises, and there are no known limitations to access to markets, credit, or licenses. Foreign ownership is allowed in most sectors, although the new land ownership law prohibits foreigners from owning land according, with some exceptions. (See “above) Most investors say acquiring land is often the biggest challenge for any new business in Sri Lanka. Private land ownership is limited to fifty acres per person. The government owns approximately 80% of the land in Sri Lanka, including the land housing most tea, rubber, and coconut plantations, leased to the private sector on 50-year terms. Although state land for industrial use is usually allotted on a 50-year lease, the government may approve 99-year leases on a case-by-case basis, depending on the nature of the project. As noted above, many land title records were lost during the war, and significant disputes remain over property ownership in the North and East.
Sri Lanka lost duty-free privileges for exports to the European Union (EU) enjoyed under the "EU GSP-Plus" incentive agreement in 2010 because the EU found that Sri Lanka had not fully complied with three human rights conventions (the International Covenant on Civil and Political Rights, the Convention against Torture, and the Convention on the Rights of the Child), and that the government is not committed to resolving human rights complaints. Previously, under this program, 7,200 Sri Lankan products meeting rules-of-origin criteria had entered the EU duty-free.
The Indo-Lanka Free Trade Agreement (ILFTA) () between Sri Lanka and India has been in effect since 2000. Under this agreement, most products manufactured in Sri Lanka with at least 35% domestic value addition (if raw materials are imported from India, domestic value addition required is only 25%) qualify for duty-free entry to the Indian market. Tariff concessions for Sri Lankan products include zero tariffs on 4,235 items; 50 to 100% reduction for tea and garments under quota; 25% reduction for 553 textile items; and no reduction for 431 items on India's "negative list." Discussions are underway to reduce the negative lists of both countries. The American Chamber of Commerce in Sri Lanka, in a 2006 study on the ILFTA, identified agro-processing, food preparation, tea, rubber products, coconut products, spices, furniture, ceramic, and confectionary as having growth potential in India. The study also found vehicles and vehicle parts, aircraft parts, and motorcycles to be possible attractive sectors for U.S. manufacturers under the Indo-Lanka Agreement. Current exporters to India claim to face a variety of non-tariff barriers that have reduced the FTA’s effectiveness.
Foreign investors who remit at least US$250,000 can qualify for a one-year resident visa, which can be renewed. Employment of foreign personnel is permitted when there is a demonstrated shortage of qualified local labor. Technical and managerial personnel are in short supply, and this shortage is likely to continue in the near future. Foreign employees in the commercial sector do not experience significant problems in obtaining work or residence permits. Sri Lanka has ceased issuing dual citizenship status to Sri Lankans who have obtained foreign citizenship, and the dual citizenship provisions have recently been tightened. Tourist and business visas are granted for one month, with possible extensions.