A Legal and Practical Guide to Purchasing Property in Sri Lanka!

A thrilling endeavour can be buying property abroad, and Sri Lanka’s varied landscapes and rich cultural past make it a desirable location for real estate investment. However, handling the legal and practical facets of buying real estate calls for considerable thought and familiarity with the local laws. With the help of this thorough guide, both domestic and international purchasers will be able to purchase property in Sri Lanka easily.

Understanding Legal Regulations and Property Ownership Rights

1. Ownership Restrictions for Foreigners

Foreigners are allowed to purchase property in Sri Lanka, but there are certain restrictions to be aware of. Non-resident foreigners can buy apartments or condominium units, but they cannot own land outright. However, resident foreigners can acquire both land and property under certain conditions. It’s important to note that leasehold agreements are a common way for foreigners to secure land for extended periods.

2. Land Ownership by Companies and Trusts

Foreign individuals are often advised to establish a locally registered company to hold property, as these companies can own land. Additionally, trusts can also be used for property ownership by non-residents, subject to approval from the authorities.

Navigating the Property Buying Process

1. Due Diligence

Before purchasing any property, it’s crucial to conduct thorough due diligence. This includes verifying the title, confirming ownership, and checking for any encumbrances or disputes related to the property.

2. Agreement of Sale

Once a suitable property is found, an Agreement of Sale is drawn up, outlining the terms and conditions of the purchase. This agreement is typically accompanied by a deposit, which is usually around 10% of the purchase price.

3. Title Clearance and Transfer

During this stage, a comprehensive title search is conducted to ensure that the property’s title is clear and free from any encumbrances. Once the title is confirmed, the property can be transferred to the buyer’s name.

4. Stamp Duty and Registration

Buyers are required to pay stamp duty, which is a tax on the property transaction. The property’s transfer is then registered at the Land Registry, finalizing the ownership transfer.

5. Notarization of Deed

The Deed of Transfer is notarized, and the seller’s ownership is legally transferred to the buyer. This step requires both parties to be present before a notary public.

Tax Considerations

1. Transfer Tax

Transfer tax is applicable to the property’s sale price and is borne by the seller. However, it’s important to clarify the tax responsibilities between the buyer and seller in the Agreement of Sale.

2. Capital Gains Tax

Capital gains tax is applicable when selling a property within five years of purchase. This tax is calculated on a sliding scale based on the holding period.

Purchasing property in Sri Lanka involves a combination of legal knowledge, due diligence, and understanding the tax implications. The process may seem complex, especially for foreign buyers, but with the right guidance and thorough research, it can be navigated smoothly. Consulting legal professionals experienced in Sri Lankan property law is highly recommended to ensure compliance and mitigate any risks. As the country continues to grow and develop, investing in Sri Lankan real estate can offer both local and foreign buyers rewarding opportunities for long-term growth and enjoyment of this beautiful island nation.

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