Doing Business 2020 Sri Lanka Economy Profile Sri Lanka Page 1 Doing Business 2020 Sri Lanka Economy Profile of Sri Lanka Doing Business 2020 Indicators (in order of appearance in the document) Starting a business Procedures, time, cost and paid-in minimum capital to start a limited liability company Dealing with construction permits Procedures, time and cost to complete all formalities to build a warehouse and the quality control and safety mechanisms in the construction permitting system Getting electricity Procedures, time and cost to get connected to the electrical grid, and the reliability of the electricity supply and the transparency of tariffs Registering property Procedures, time and cost to transfer a property and the quality of the land administration system Getting credit Movable collateral laws and credit information systems Protecting minority investors Minority shareholders’ rights in related-party transactions and in corporate governance Paying taxes Payments, time, total tax and contribution rate for a firm to comply with all tax regulations as well as postfiling processes Trading across borders Time and cost to export the product of comparative advantage and import auto parts Enforcing contracts Time and cost to resolve a commercial dispute and the quality of judicial processes Resolving insolvency Time, cost, outcome and recovery rate for a commercial insolvency and the strength of the legal framework for insolvency Employing workers Flexibility in employment regulation and redundancy cost Page 2 Doing Business 2020 Sri Lanka About Doing Business The Doing Business project provides objective measures of business regulations and their enforcement across 190 economies and selected cities at the subnational and regional level. The Doing Business project, launched in 2002, looks at domestic small and medium-size companies and measures the regulations applying to them through their life cycle. Doing Business captures several important dimensions of the regulatory environment as it applies to local firms. It provides quantitative indicators on regulation for starting a business, dealing with construction permits, getting electricity, registering property, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency. Doing Business also measures features of employing workers. Although Doing Business does not present rankings of economies on the employing workers indicators or include the topic in the aggregate ease of doing business score or ranking on the ease of doing business, it does present the data for these indicators. By gathering and analyzing comprehensive quantitative data to compare business regulation environments across economies and over time, Doing Business encourages economies to compete towards more efficient regulation; offers measurable benchmarks for reform; and serves as a resource for academics, journalists, private sector researchers and others interested in the business climate of each economy. In addition, Doing Business offers detailed subnational studies, which exhaustively cover business regulation and reform in different cities and regions within a nation. These studies provide data on the ease of doing business, rank each location, and recommend reforms to improve performance in each of the indicator areas. Selected cities can compare their business regulations with other cities in the economy or region and with the 190 economies that Doing Business has ranked. The first Doing Business study, published in 2003, covered 5 indicator sets and 133 economies. This year’s study covers 11 indicator sets and 190 economies. Most indicator sets refer to a case scenario in the largest business city of each economy, except for 11 economies that have a population of more than 100 million as of 2013 (Bangladesh, Brazil, China, India, Indonesia, Japan, Mexico, Nigeria, Pakistan, the Russian Federation and the United States) where Doing Business also collected data for the second largest business city. The data for these 11 economies are a population-weighted average for the 2 largest business cities. The project has benefited from feedback from governments, academics, practitioners and reviewers. The initial goal remains: to provide an objective basis for understanding and improving the regulatory environment for business around the world. To learn more about Doing Business please visit doingbusiness.org Page 3 Doing Business 2020 Sri Lanka Ease of Doing Business in DB RANK DB SCORE Region South Asia Sri Lanka Income Category Upper middle income Population 21,670,000 99 61.8 City Covered Colombo Rankings on Doing Business topics - Sri Lanka 28 66 85 89 96 94 132 138 142 164 Starting Dealing Getting Registering Getting Protecting Paying Trading Enforcing Resolving a with Electricity Property Credit Minority Taxes across Contracts Insolvency Business Construction Investors Borders Permits Topic Scores 88.2 72.3 74.5 51.9 40.0 72.0 59.8 73.3 41.2 45.0 Starting a Business (rank) 85 Getting Credit (rank) 132 Trading across Borders (rank) 96 Score of starting a business (0-100) 88.2 Score of getting credit (0-100) 40.0 Score of trading across borders (0-100) 73.3 Procedures (number) 7 Strength of legal rights index (0-12) 2 Time to export Time (days) 8 Depth of credit information index (0-8) 6 Documentary compliance (hours) 48 Cost (number) 8.7 Credit registry coverage (% of adults) 0.0 Border compliance (hours) 43 Paid-in min. capital (% of income per capita) 0.0 Credit bureau coverage (% of adults) 48.7 Cost to export Documentary compliance (USD) 58 Dealing with Construction Permits (rank) 66 Protecting Minority Investors (rank) 28 Border compliance (USD) 366 Score of dealing with construction permits (0-100) 72.3 Score of protecting minority investors (0-100) 72.0 Time to export Procedures (number) 13 Extent of disclosure index (0-10) 8.0 Documentary compliance (hours) 48 Time (days) 86 Extent of director liability index (0-10) 5.0 Border compliance (hours) 72 Cost (% of warehouse value) 0.3 Ease of shareholder suits index (0-10) 7.0 Cost to export Building quality control index (0-15) 6.0 Extent of shareholder rights index (0-6) 5.0 Documentary compliance (USD) 283 Extent of ownership and control index (0-7) 6.0 Border compliance (USD) 300 Getting Electricity (rank) 89 Extent of corporate transparency index (0-7) 5.0 Score of getting electricity (0-100) 74.5 Enforcing Contracts (rank) 164 Procedures (number) 5 Paying Taxes (rank) 142 Score of enforcing contracts (0-100) 41.2 Time (days) 100 Score of paying taxes (0-100) 59.8 Time (days) 1,318 Cost (% of income per capita) 663.5 Payments (number per year) 36 Cost (% of claim value) 22.8 Reliability of supply and transparency of tariff index (0-8) 6 Time (hours per year) 129 Quality of judicial processes index (0-18) 8.5 Total tax and contribution rate (% of profit) 55.2 Registering Property (rank) 138 Postfiling index (0-100) 49.3 Resolving Insolvency (rank) 94 Score of registering property (0-100) 51.9 Score of resolving insolvency (0-100) 45.0 Procedures (number) 8 Recovery rate (cents on the dollar) 43.0 Time (days) 39 Time (years) 1.7 Cost (% of property value) 5.1 Cost (% of estate) 10.0 Quality of the land administration index (0-30) 5.5 Outcome (0 as piecemeal sale and 1 as going 0 concern) Strength of insolvency framework index (0-16) 7.0 Page 4 Doing Business 2020 Sri Lanka Starting a Business This topic measures the number of procedures, time, cost and paid-in minimum capital requirement for a small- to medium-sized limited liability company to start up and formally operate in each economy’s largest business city. To make the data comparable across 190 economies, Doing Business uses a standardized business that is 100% domestically owned, has start-up capital equivalent to 10 times the income per capita, engages in general industrial or commercial activities and employs between 10 and 50 people one month after the commencement of operations, all of whom are domestic nationals. Starting a Business considers two types of local limited liability companies that are identical in all aspects, except that one company is owned by 5 married women and the other by 5 married men. The ranking of economies on the ease of starting a business is determined by sorting their scores for starting a business. These scores are the simple average of the scores for each of the component indicators. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to legally start and formally operate a company To make the data comparable across economies, several assumptions about the business and the (number) procedures are used. It is assumed that any required information is readily available and that the entrepreneur will pay no bribes. • Preregistration (for example, name verification or reservation, notarization) The business: • Registration in the economy’s largest business city -Is a limited liability company (or its legal equivalent). If there is more than one type of limited • Postregistration (for example, social security registration, liability company in the economy, the limited liability form most common among domestic firms is company seal) chosen. Information on the most common form is obtained from incorporation lawyers or the statistical office. • Obtaining approval from spouse to start a business or to leave -Operates in the economy’s largest business city. For 11 economies the data are also collected for the home to register the company the second largest business city. • Obtaining any gender specific document for company -Performs general industrial or commercial activities such as the production or sale to the public of registration and operation or national identification card goods or services. The business does not perform foreign trade activities and does not handle products subject to a special tax regime, for example, liquor or tobacco. It is not using heavily Time required to complete each procedure (calendar days) polluting production processes. • Does not include time spent gathering information -Does not qualify for investment incentives or any special benefits. -Is 100% domestically owned. • Each procedure starts on a separate day (2 procedures cannot -Has five business owners, none of whom is a legal entity. One business owner holds 30% of the start on the same day) company shares, two owners have 20% of shares each, and two owners have 15% of shares • Procedures fully completed online are recorded as ½ day each. -Is managed by one local director. • Procedure is considered completed once final document is -Has between 10 and 50 employees one month after the commencement of operations, all of them received domestic nationals. • No prior contact with officials -Has start-up capital of 10 times income per capita. -Has an estimated turnover of at least 100 times income per capita. Cost required to complete each procedure (% of income per -Leases the commercial plant or offices and is not a proprietor of real estate. capita) -Has an annual lease for the office space equivalent to one income per capita. • Official costs only, no bribes -Is in an office space of approximately 929 square meters (10,000 square feet). -Has a company deed that is 10 pages long. • No professional fees unless services required by law or commonly used in practice The owners: Paid-in minimum capital (% of income per capita) -Have reached the legal age of majority and are capable of making decisions as an adult. If there • Funds deposited in a bank or with third party before registration is no legal age of majority, they are assumed to be 30 years old. or up to 3 months after incorporation -Are in good health and have no criminal record. -Are married, the marriage is monogamous and registered with the authorities. -Where the answer differs according to the legal system applicable to the woman or man in question (as may be the case in economies where there is legal plurality), the answer used will be the one that applies to the majority of the population. Page 5 Doing Business 2020 Sri Lanka Starting a Business - Sri Lanka Standardized Company Legal form Private Limited Liability Company Paid-in minimum capital requirement No minimum City Covered Colombo Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Procedure – Men (number) 7 7.1 4.9 1 (2 Economies) Time – Men (days) 8 14.5 9.2 0.5 (New Zealand) Cost – Men (% of income per capita) 8.7 8.3 3.0 0.0 (2 Economies) Procedure – Women (number) 7 7.3 4.9 1 (2 Economies) Time – Women (days) 8 14.6 9.2 0.5 (New Zealand) Cost – Women (% of income per capita) 8.7 8.3 3.0 0.0 (2 Economies) Paid-in min. capital (% of income per capita) 0.0 0.2 7.6 0.0 (120 Economies) Figure – Starting a Business in Sri Lanka – Score 64.7 92.5 95.6 100.0 Procedures Time Cost Paid-in min. capital Figure – Starting a Business in Sri Lanka and comparator economies – Ranking and Score DB 2020 Starting a Business Score 0 100 89.3: Pakistan (Rank: 72) 89.2: Maldives (Rank: 74) 88.2: Sri Lanka (Rank: 85) 86.3: Regional Average (South Asia) 82.4: Bangladesh (Rank: 131) 81.6: India (Rank: 136) Note: The ranking of economies on the ease of starting a business is determined by sorting their scores for starting a business. These scores are the simple average of the scores for each of the component indicators. Page 6 Doing Business 2020 Sri Lanka Figure – Starting a Business in Sri Lanka – Procedure, Time and Cost Time (days) Cost (% of income per capita) 8 7 7 6 Cost (% of income per capita) 6 5 Time (days) 5 4 4 3 3 2 2 1 1 0 0 1 2 3 4 *5 *6 *7 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 7 Doing Business 2020 Sri Lanka Details – Starting a Business in Sri Lanka – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Reserve a unique company name 1 day LKR 2,000 + 15% VAT Agency : Registrar of Companies Reserving the company name is done online through eRoc system (eroc.drc.gov.lk). Reservation fee payment is also done online through the same platform. The fee for name approval and reservation is LKR 2,000 + 15% VAT. Once the online payment is done the name confirmation is provied through an online daskboard and e-mail and sms. The company name reservation is valid for 3 months. 2 The company secretary and director sign a consent 1 day see procedure details Agency : Company Secretary According to Article 221(1) of the Companies Act No. 7 of 2007, every company shall have a director and a secretary. The Company Secretary must be hired before incorporation because one of the requirements to incorporate is a consent form that the Company Secretary must sign saying he/she will be the secretary for the newly formed company -- Form 19: Company Secretary Details. The company director must sign Form 18: Company Director Details. Forms can be obtained online at www.drc.gov.lk. This process has now been automated and can now be accomplished partially online. Every company secretary must register online to have access to online services offered by the Registrar of Companies through its new online platform. After introducing the eROC system, Form 01, Form 18(Director Consent) and Form 19(Secretary Consent) are generated through the system. However, the original signed copies must be submitted to the Department of the Registrar of Companies (ROC) since the ROC does not accept electronic signatures. There is no specific fee schedule. The fees vary from firm to firm, and are generally based on a quarterly retainer. The quarterly charges in the region vary between of USD$ 100 - 150 for private companies but some firms may charge up to USD 1000 annual fee for acting as a Company Secretary. LKR 10,000-15,000 is usually paid per month, so per quarter the amount ranges between LKR 30,000 - 45,000. 3 Register at the Department of the Registrar of Companies 2 days LKR 4,000+15%VAT Agency : Registrar of Companies (registration fee for Form The application for company incorporation is submitted online since April 2018. The company 1) plus LKR must submit the following documents to the Department of the Registrar of Companies: 2,000+15%VAT • Form 1 – Registration of a company (registration fee for each: • Form 18 – Consent and certificate of director • Form 19 – Consent and certificate of secretary Form 18, 19 and the • One copy of Articles of Association Articles of Association) All documents are submitted by scanning the original and uploading it through the e-ROC website and the payments are made online. A company may either adopt the standard set of Articles of Association in Table A of the Companies Act of Sri Lanka or draft its own Articles of Association. Professional charges are higher for drafting new Articles of Association than for adopting the standard text. The Registrar of Companies charges the following registration fees: - LKR 4,000 for Form 1; - LKR 2,000 for Form 18; - LRK 2,000 for Form 19; and - LRK 2,000 for the Articles of Association. All fees are subject to 15% VAT. The registration number is provided by email and SMS. The Certificate of Incorporation issued must be collected from the ROC once incorporation is complete. 4 Publish a notice of incorporation 3 days LKR 7,000 Agency : Daily Newspapers and the Department of Government Printing Press According to Section 9 of Sri Lanka’s Companies Act No. 7 of 2007 and section 3(a) of the Gazette Notice No. 1566/32 dated 12/09.2008 public notice must be given within 30 working days of the incorporation of a company. The notice of incorporation specifying the name of the company, registration number, date of incorporation, and address of the registered office should be published in the Government Gazette and in any daily newspaper in three languages: English, Sinhala and Tamil. The proof of publication should then be filed with the Registrar of Companies. Newspaper and gazette notices must be drafted and sent to the relevant agencies (i.e. Daily Newspapers and the Department of Government Printing Press) in order for the notice to be published. The newspaper publications once handed over with the payment which depends on the size of the Notice, will appear within 3-4 days. The publication in the Gazette will appear within 2 weeks of submitting the request with the payment. The Registrar of Companies accepts a copy of the receipt issued by the Government Printer as proof of publication. Once published, it is necessary to obtain copies of the newspapers to keep record of such publication. The gazette, however, can be accessed online on www.documents.gov.lk Page 8 Doing Business 2020 Sri Lanka 5 Register with the tax authorities and obtain a Tax Identification Number (TIN) from Taxpayer 1 day (simultaneous with no charge Services Unit of Inland Revenue Department previous procedure) Agency : Department of Inland Revenue The requisite incorporation documents (i. e.: Incorporation Certificate, and certified copies of Form 1, Form 18s and Articles of Association, and proof of identity) have to be submitted manually or online in order to obtain the TIN. The applicant or an authorized representative of the applicant must be physically present at the Taxpayer Services Unit of Inland Revenue Department to pick up and complete the application for a Taxpayer Identification Number (TIN) number with supporting documents including a copy of Form 1, Certificate of Incorporation and Articles of Association. TIN registration application can be submitted online through the RAMIS system. However, this method was only recently introduced and is not yet widely used. 6 Register for VAT with the Inland Revenue Department's VAT Registration Branch 1 day (simultaneous with no charge Agency : Department of Inland Revenue previous procedure) If company's taxable supply of goods or services or supply of goods and services is likely to exceed LKR 12,000,000 per year (or LKR 3,000,000 per quarter), then it is required to register for VAT. To obtain permanent VAT registration, the applicant must submit: - TIN certificate, - Form 1, - Article of Association, - List of Directors, - copies of NICs of Directors and particulars of sales, - documents proving turnover of LKR 3,000,000 per quarter or LKR 12,000,000 per year according to the Value Added Tax Act No. 14 of 2002. VAT registration application can be submitted online through the RAMIS system. However, this method was only recently introduced and is not yet widely used. If documents were submitted online, it is required to also submit hard copies thereof. Once registration is complete, it is necessary to obtain the VAT Certificate from the Department of Inland Revenue . 7 Register with the Department of Labor and obtain the Employee Provident Fund (EPF) 1 day (simultaneous with no charge number previous procedure) Agency : Department of Labour and the Central Bank of Sri Lanka Companies must register with the Department of Labor to obtain the Employees Provident Fund (EPF) registration number. Registration with the EPF must be done within 14 days of hiring the first employee. The fund is a government-owned and maintained by the Central Bank. No separate registration is required to register with the Employees Trust Fund (ETF). ETF uses the same EPF number for their monthly contributions. Companies must also pay gratuities to employees that have been employed for more than 5 years. The gratuity provisions do not apply to companies that have fewer than 15 employees. There is no pension scheme for private sector employees. Businesses that engage in activities of a dangerous nature should obtain special Factories Ordinance checkups. Takes place simultaneously with previous procedure. Page 9 Doing Business 2020 Sri Lanka Dealing with Construction Permits This topic tracks the procedures, time and cost to build a warehouse—including obtaining necessary the licenses and permits, submitting all required notifications, requesting and receiving all necessary inspections and obtaining utility connections. In addition, the Dealing with Construction Permits indicator measures the building quality control index, evaluating the quality of building regulations, the strength of quality control and safety mechanisms, liability and insurance regimes, and professional certification requirements. The most recent round of data collection was completed in May 2019. See the methodology for more information What the indicators measure Case study assumptions Procedures to legally build a warehouse (number) To make the data comparable across economies, several assumptions about the construction company, the warehouse project and the utility connections are used. • Submitting all relevant documents and obtaining all necessary clearances, licenses, permits and certificates The construction company (BuildCo): • Submitting all required notifications and receiving all necessary - Is a limited liability company (or its legal equivalent) and operates in the economy’s largest inspections business city. For 11 economies the data are also collected for the second largest business city. • Obtaining utility connections for water and sewerage - Is 100% domestically and privately owned; has five owners, none of whom is a legal entity. Has a licensed architect and a licensed engineer, both registered with the local association of architects • Registering and selling the warehouse after its completion or engineers. BuildCo is not assumed to have any other employees who are technical or licensed Time required to complete each procedure (calendar days) experts, such as geological or topographical experts. - Owns the land on which the warehouse will be built and will sell the warehouse upon its • Does not include time spent gathering information completion. • Each procedure starts on a separate day—though procedures The warehouse: that can be fully completed online are an exception to this rule - Will be used for general storage activities, such as storage of books or stationery. • Procedure is considered completed once final document is received - Will have two stories, both above ground, with a total constructed area of approximately 1,300.6 square meters (14,000 square feet). Each floor will be 3 meters (9 feet, 10 inches) high and will be • No prior contact with officials located on a land plot of approximately 929 square meters (10,000 square feet) that is 100% owned by BuildCo, and the warehouse is valued at 50 times income per capita. Cost required to complete each procedure (% of income per - Will have complete architectural and technical plans prepared by a licensed architect. If capita) preparation of the plans requires such steps as obtaining further documentation or getting prior • Official costs only, no bribes approvals from external agencies, these are counted as procedures. - Will take 30 weeks to construct (excluding all delays due to administrative and regulatory Building quality control index (0-15) requirements). • Quality of building regulations (0-2) The water and sewerage connections: • Quality control before construction (0-1) - Will be 150 meters (492 feet) from the existing water source and sewer tap. If there is no water • Quality control during construction (0-3) delivery infrastructure in the economy, a borehole will be dug. If there is no sewerage infrastructure, a septic tank in the smallest size available will be installed or built. • Quality control after construction (0-3) - Will have an average water use of 662 liters (175 gallons) a day and an average wastewater flow • Liability and insurance regimes (0-2) of 568 liters (150 gallons) a day. Will have a peak water use of 1,325 liters (350 gallons) a day and • Professional certifications (0-4) a peak wastewater flow of 1,136 liters (300 gallons) a day. - Will have a constant level of water demand and wastewater flow throughout the year; will be 1 inch in diameter for the water connection and 4 inches in diameter for the sewerage connection. Page 10 Doing Business 2020 Sri Lanka Dealing with Construction Permits - Sri Lanka Standardized Warehouse Estimated value of warehouse LKR 32,467,550.60 City Covered Colombo Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Procedures (number) 13 14.6 12.7 None in 2018/19 Time (days) 86 149.7 152.3 None in 2018/19 Cost (% of warehouse value) 0.3 12.5 1.5 None in 2018/19 Building quality control index (0-15) 6.0 9.4 11.6 15.0 (6 Economies) Figure – Dealing with Construction Permits in Sri Lanka – Score 68.0 82.7 98.3 40.0 Procedures Time Cost Building quality control index Figure – Dealing with Construction Permits in Sri Lanka and comparator economies – Ranking and Score DB 2020 Dealing with Construction Permits Score 0 100 78.7: India (Rank: 27) 73.0: Maldives (Rank: 63) 72.3: Sri Lanka (Rank: 66) 66.5: Pakistan (Rank: 112) 65.3: Regional Average (South Asia) 61.1: Bangladesh (Rank: 135) Note: The ranking of economies on the ease of dealing with construction permits is determined by sorting their scores for dealing with construction permits. These scores are the simple average of the scores for each of the component indicators. Page 11 Doing Business 2020 Sri Lanka Figure – Dealing with Construction Permits in Sri Lanka – Procedure, Time and Cost Time (days) Cost (% of warehouse value) 0.12 80 0.1 Cost (% of warehouse value) 70 60 0.08 Time (days) 50 0.06 40 30 0.04 20 0.02 10 0 0 1 *2 *3 4 5 6 7 *8 9 10 11 12 13 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 12 Doing Business 2020 Sri Lanka Figure – Dealing with Construction Permits in Sri Lanka and comparator economies – Measure of Quality 16 14.5 14 13.0 12 Index score 10.0 10 9.4 8 7.0 6.0 6 4 2 0 Sri Bangladesh India Maldives Pakistan South Lanka Asia Details – Dealing with Construction Permits in Sri Lanka – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Receive on-site inspection from Fire Service Department and obtain fire safety clearance 14 days no charge for proposed building Agency : Fire Service Department of the CMC The Fire Service Department will carry out the inspection when the relevant department of the Urban Development Authority (UDA) sends the plan. The Fire Officers of the Fire Service Department will carry out a study of the plan and then may conduct a fire inspection and issue fire safety clearance. It takes 10 working days to obtain a fire inspection. 2 Obtain the non-vesting certificate, the certificate of ownership and the building and street 3 days LKR 12,000 line certificate Agency : Single Window Counter of the Colombo Municipal Council It is mandatory to obtain and submit proof of ownership when applying for a building permit. A lawyer acting on behalf of BuildCo obtains a non vesting certificate, a certificate of ownership and a building and street line certificate which together comprise the documentation required to prove ownership. All three certificates can be obtained at the same time through the Single Window Counter (SWC) of the Colombo Municipal Council (CMC). 3 Request and receive water sanction inspection and sewage inspection 1 day LKR 204 Agency : National Water Supply & Drainage Board The following documents must be submitted to obtain a drainage certificate: • The prescribed application form, signed in duplicate • Six copies of the approved building plan • The water and drainage plans • Two copies of the building permit • A copy of the water sanction • A copy of the drainage certificate • Fire clearance certificate All applications for drainage certificates must be submitted by a contractor registered with the local authority, and the drainage connection should be carried out by such contractor. 4 Obtain the water sanction and the drainage certificate from the National Water Supply & 7 days LKR 21,420 Drainage Board Agency : National Water Supply & Drainage Board and Colombo Municipal Council In order to obtain a Water Sanction and a Drainage Certificate, the prescribed application form in duplicate must be signed by the applicant or owner, with two copies attaches of the approved building plan, the drainage proposal, a copy of the building permit application and the copy of the water sanction. The sanction is submitted through a plumber registered with the municipality. 5 Submit building permit application to Urban Development Authority (UDA) 1 day no charge Agency : Urban Development Authority (UDA) Once the proof of ownership has been obtained, BuildCo, can submit the application to obtain a building permit along with all the building plans and other documents. The UDA has made online applications compulsory, and only chartered engineers or architects may register to utilize the system. Applicants use their own equipment or equipment located at the one stop shop to submit their applications through the e-submissions platform www.applications.uda.lk. Processing milestones are communicated through SMS to applicants. 6 Receive on-site inspection from the Urban Development Authority (UDA) 1 day no charge Agency : Urban Development Authority (UDA) The applicant normally provides transportation or is responsible for the cost of a taxi or a trishaw. The cost depends on the location, but does not normally exceed USD 10.00. Page 13 Doing Business 2020 Sri Lanka 7 Obtain building permit from the Urban Development Authority (UDA) 14 days LKR 14,856 Agency : Urban Development Authority (UDA) An application for a building permit must be submitted along with five copies of the building plan. The following documents must be submitted • The water clearance from National Water Supply & Drainage Board • The Drainage Clearance from Water Supply & Drainage Division of relevant Local Authority • The Fire Service Department of the UDA issues the fire report with or without conditions • The Building Department of the Urban Development Authority (UDA) issues the street line certification. An on-site inspection is conducted by an area inspector of the UDA and a report is prepared based on the investigations. • The Area Inspector’s report is assessed by an Officer in Charge, Planning Officer or Building Engineer, and presented to the Planning Committee with comments and recommendations • The Planning Committee may approve the building plan and grant the development permit with or without conditions • The street/building lines must be demarcated on the ground, before the commencement of construction The building permit application form costs LKR 150.00. If the floor area is more than 3,500 square feet, the application should be certified by an architect and a chartered engineer. The following documents are needed: • A certificate from a qualified civil structural engineer regarding the design, supervision, and structural stability of the proposed development in order to ensure that no damage would be caused to adjoining properties • An insurance policy and a letter of indemnity 8 Request and receive on-site inspection by fire inspector of Fire Service Department of CMC 1 day no charge Agency : Fire Service Department of the CMC 9 Request and receive final inspection by Area Inspector of the Planning Department of the 1 day no charge Urban Development Authority (UDA) Agency : Planning Division of the UDA 10 Obtain certificate of conformity from the Urban Development Authority (UDA) 14 days LKR 29,103 Agency : Urban Development Authority (UDA) The application to obtain a certificate of conformity must be signed by the owner(s) and a qualified person. The certificate of conformity (COC) is issued only under the names of the owners. To obtain a certificate of conformity, an application must be submitted with the following documents: • Water sanction • Drainage certificate • Approved building plan: the building plan should be strictly in compliance with the Building Regulations of the Urban Development Authority Act • On-site inspection by a UDA Planning Department inspector to ensure that construction has been completed according to the approved plan • On-site inspection by a fire inspector. The inspector’s report is then assessed by a technical staff assistant and by an Officer in Charge, Planning Officer or Building Engineer, and presented to the Planning Committee • A certificate approving the mechanical ventilation system by private air-conditioning engineers (working for AC suppliers) • Any other certificates mentioned in the building permit It is a mandate to obtain a COC for the constructed building before occupying the new building. The requirements to fulfill in applying for Certificate of Conformity can be found through the on line Application System in the UDA Official web site. 11 Apply for water connection from National Water Supply and Drainage Board 1 day no charge Agency : National Water Supply and Drainage Board To obtain the water connection, BuildCo must submit an application to the National Water Supply and Drainage Board, an assessment notice, the title deed and an ownership certificate. After that, BuildCo receives an on-site inspection, pays the water installation costs, and signs an agreement with the Board. 12 Receive on-site inspection by inspector from National Water Supply and Drainage Board 1 day no charge Agency : National Water Supply and Drainage Board 13 Obtain water connection 32 days LKR 31,000 Agency : National Water Supply and Drainage Board Takes place simultaneously with previous procedure. Page 14 Doing Business 2020 Sri Lanka Details – Dealing with Construction Permits in Sri Lanka – Measure of Quality Answer Score Building quality control index (0-15) 6.0 Quality of building regulations index (0-2) 2.0 How accessible are building laws and regulations in your economy? (0-1) Available online; Free 1.0 of charge; In official gazette. Which requirements for obtaining a building permit are clearly specified in the building regulations or on any List of required 1.0 accessible website, brochure or pamphlet? (0-1) documents; Fees to be paid; Required preapprovals. Quality control before construction index (0-1) 0.0 Which third-party entities are required by law to verify that the building plans are in compliance with existing By law, there is no 0.0 building regulations? (0-1) need to verify plans compliance; Civil servant reviews plans. Quality control during construction index (0-3) 1.0 What types of inspections (if any) are required by law to be carried out during construction? (0-2) Inspections by in- 1.0 house engineer. Do legally mandated inspections occur in practice during construction? (0-1) Mandatory 0.0 inspections are not always done in practice during construction. Quality control after construction index (0-3) 3.0 Is there a final inspection required by law to verify that the building was built in accordance with the approved Yes, final inspection 2.0 plans and regulations? (0-2) is done by government agency. Do legally mandated final inspections occur in practice? (0-1) Final inspection 1.0 always occurs in practice. Liability and insurance regimes index (0-2) 0.0 Which parties (if any) are held liable by law for structural flaws or problems in the building once it is in use No party is held liable 0.0 (Latent Defect Liability or Decennial Liability)? (0-1) under the law. Which parties (if any) are required by law to obtain an insurance policy to cover possible structural flaws or No party is required 0.0 problems in the building once it is in use (Latent Defect Liability Insurance or Decennial Insurance)? (0-1) by law to obtain insurance . Professional certifications index (0-4) 0.0 What are the qualification requirements for the professional responsible for verifying that the architectural plans Being a registered 0.0 or drawings are in compliance with existing building regulations? (0-2) architect or engineer. What are the qualification requirements for the professional who supervises the construction on the ground? (0- Being a registered 0.0 2) architect or engineer. Page 15 Doing Business 2020 Sri Lanka Getting Electricity This topic measures the procedures, time and cost required for a business to obtain a permanent electricity connection for a newly constructed warehouse. Additionally, the reliability of supply and transparency of tariffs index measures reliability of supply, transparency of tariffs and the price of electricity. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to obtain an electricity connection (number) To make the data comparable across economies, several assumptions about the warehouse, the electricity connection and the monthly consumption are used. • Submitting all relevant documents and obtaining all necessary clearances and permits The warehouse: • Completing all required notifications and receiving all necessary - Is owned by a local entrepreneur and is used for storage of goods. inspections - Is located in the economy’s largest business city. For 11 economies the data are also collected for • Obtaining external installation works and possibly purchasing the second largest business city. material for these works - Is located in an area where similar warehouses are typically located and is in an area with no physical constraints. For example, the property is not near a railway. • Concluding any necessary supply contract and obtaining final - Is a new construction and is being connected to electricity for the first time. supply - Has two stories with a total surface area of approximately 1,300.6 square meters (14,000 square Time required to complete each procedure (calendar days) feet). The plot of land on which it is built is 929 square meters (10,000 square feet). • Is at least 1 calendar day The electricity connection: • Each procedure starts on a separate day - Is a permanent one with a three-phase, four-wire Y connection with a subscribed capacity of 140- • Does not include time spent gathering information kilo-volt-ampere (kVA) with a power factor of 1, when 1 kVA = 1 kilowatt (kW). - Has a length of 150 meters. The connection is to either the low- or medium-voltage distribution • Reflects the time spent in practice, with little follow-up and no network and is either overhead or underground, whichever is more common in the area where the prior contact with officials warehouse is located and requires works that involve the crossing of a 10-meter road (such as by excavation or overhead lines) but are all carried out on public land. There is no crossing of other Cost required to complete each procedure (% of income per owners’ private property because the warehouse has access to a road. capita) - Does not require work to install the internal wiring of the warehouse. This has already been • Official costs only, no bribes completed up to and including the customer’s service panel or switchboard and the meter base. • Value added tax excluded The monthly consumption: The reliability of supply and transparency of tariffs index (0-8) - It is assumed that the warehouse operates 30 days a month from 9:00 a.m. to 5:00 p.m. (8 hours • Duration and frequency of power outages (0–3) a day), with equipment utilized at 80% of capacity on average and that there are no electricity cuts (assumed for simplicity reasons) and the monthly energy consumption is 26,880 kilowatt-hours • Tools to monitor power outages (0–1) (kWh); hourly consumption is 112 kWh. • Tools to restore power supply (0–1) - If multiple electricity suppliers exist, the warehouse is served by the cheapest supplier. - Tariffs effective in January of the current year are used for calculation of the price of electricity for • Regulatory monitoring of utilities’ performance (0–1) the warehouse. Although January has 31 days, for calculation purposes only 30 days are used. • Financial deterrents limiting outages (0–1) • Transparency and accessibility of tariffs (0–1) Price of electricity (cents per kilowatt-hour)* • Price based on monthly bill for commercial warehouse in case study *Note: Doing Business measures the price of electricity, but it is not included in the ease of doing business score nor in the ranking on the ease of getting electricity. Page 16 Doing Business 2020 Sri Lanka Getting Electricity - Sri Lanka Standardized Connection Name of utility Ceylon Electricity Board Price of electricity (US cents per kWh) 17.3 City Covered Colombo Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Procedures (number) 5 5.5 4.4 3 (28 Economies) Time (days) 100 86.1 74.8 18 (3 Economies) Cost (% of income per capita) 663.5 952.6 61.0 0.0 (3 Economies) Reliability of supply and transparency of tariff index (0-8) 6 2.7 7.4 8 (26 Economies) Figure – Getting Electricity in Sri Lanka – Score 66.7 64.3 91.8 75.0 Reliability of supply and transparency of Procedures Time Cost tariff index Figure – Getting Electricity in Sri Lanka and comparator economies – Ranking and Score DB 2020 Getting Electricity Score 0 100 89.4: India (Rank: 22) 74.5: Sri Lanka (Rank: 89) 64.0: Pakistan (Rank: 123) 62.6: Regional Average (South Asia) 55.6: Maldives (Rank: 149) 34.9: Bangladesh (Rank: 176) Note: The ranking of economies on the ease of getting electricity is determined by sorting their scores for getting electricity. These scores are the simple average of the scores for all the component indicators except the price of electricity. Figure – Getting Electricity in Sri Lanka – Procedure, Time and Cost Time (days) Cost (% of income per capita) 100 700 600 Cost (% of income per capita) 80 500 Time (days) 60 400 300 40 200 20 100 0 0 1 2 *3 4 5 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures Page 17 Doing Business 2020 Sri Lanka reflected here, see the summary below. Figure – Getting Electricity in Sri Lanka and comparator economies – Measure of Quality 7 6 6 6 5 5 Index score 4 3 2.7 2 1 0 0 0 Sri Bangladesh India Maldives Pakistan South Lanka Asia Page 18 Doing Business 2020 Sri Lanka Details – Getting Electricity in Sri Lanka – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Submit application to Ceylon Electricity Board and await external site inspection 4 calendar days LKR 2,000 Agency : Ceylon Electricity Board An application should be submitted to the City Office of Ceylon Electricity Board, together with the following documents. These documents need not be notarized. (i) A copy of the approved Building Plan; (ii) Documentary evidence to establish the street address/assessment number allotted to the property by the Colombo Municipal Council (e.g. - Certificate of ownership, Statutory Notice of Assessment for the current year, Non-vesting certificate or a letter issued by the CMC); and (iii) a copy of the certificate of incorporation to identify the customer. Once the documents are checked and accepted, the applicant is provided with an appointment for the site visit. 2 Receive site inspection and estimate from Ceylon Electricity Board 25 calendar days LKR 0 Agency : Ceylon Electricity Board CEB officials make site visit to ascertain the possible route/s for the connection cable/s, length/s of possible rout/e, point/s of connection to the medium voltage network of Colombo City; as well as to decide upon the network improvements required to make available the power capacity at the proposed point/s of network of network, to finalize the substation kiosk location and to make measurements and any other details for the kiosk. CEB officials then design the proposal for the connection and the detailed design of the substation kiosk. The quotation provided by CEB includes a) all further costs payable to CEB; b) any other requirements to be fulfilled such as Chartered Engineer’s certificate and the specifications and the drawing of the kiosk is sent out to the applicant by post or handed over if he calls over to collect it. 3 Request and receive installation test certificate from chartered electrical engineer 1 calendar day LKR 15,000 Agency : Chartered Electrical Engineer Applicant has to pay for the Charted Electrical Engineers as follows; > 150kVA - LKR 10,000 - 15,000 < 150kVA - LKR 15,000 - 25,000 This inspection is carried out by a Chartered Electrical Engineer, who is registered with the City Office of CEB. Request for the inspection could be made by phone. 4 Obtain excavation permit 8 calendar days LKR 457,025 Agency : Colombo Municipal Council Ceylon Electricity Board gives the customer an excavation sketch which needs to be provided by the customer to Central Road Maintenance Unit (CRMU) of the Colombo Municipal Council. The CRMU will examine the same and if necessary visit the site and provide an estimated reinstatement cost which will be the cost of the excavation permit. The cost of the excavation permit will depend on the type of paving on the road or foot path that has to be excavated to lay the underground cabling and that must be therefore reinstated. 5 Ceylon Electricity Board carries out laying of cables, installation of switchgears and 63 calendar days LKR 3,834,287.42 equipment and commission of electricity Agency : Ceylon Electricity Board Once the estimate is paid, the utility applies for the road excavation permit from the Colombo Municipal Council/Road Development Authority. Labor costs are charged by the RDA/CMC for reinstatement of excavation. Construction cost is essentially for construction of sub-station. This amount has to be submitted to the CEB. Approved building plan from CMC is sufficient from applicant's side. But CEB has to get approval from following institutes (before cable laying);- Presidential Security Division; Traffic Police; Sri Lanka Police; Colombo Municipal Council. All the material needed for the external connection is provided by the CEB. Meter is installed by the Construction Unit of the CEB and at the same time the connection is provided by the Area Unit of the CEB. Prior to the connection, the applicant should enter into an Agreement with the CEB for supply of electricity. Takes place simultaneously with previous procedure. Page 19 Doing Business 2020 Sri Lanka Details – Getting Electricity in Sri Lanka – Measure of Quality Answer Reliability of supply and transparency of tariff index (0-8) 6 Total duration and frequency of outages per customer a year (0-3) 2 System average interruption duration index (SAIDI) 4.0 System average interruption frequency index (SAIFI) 3.0 What is the minimum outage time (in minutes) that the utility considers for the calculation of SAIDI/SAIFI 2.0 Mechanisms for monitoring outages (0-1) 1 Does the distribution utility use automated tools to monitor outages? Yes Mechanisms for restoring service (0-1) 1 Does the distribution utility use automated tools to restore service? Yes Regulatory monitoring (0-1) 1 Does a regulator—that is, an entity separate from the utility—monitor the utility’s performance on reliability of supply? Yes Financial deterrents aimed at limiting outages (0-1) 0 Does the utility either pay compensation to customers or face fines by the regulator (or both) if outages exceed a certain cap? No Communication of tariffs and tariff changes (0-1) 1 Are effective tariffs available online? Yes Link to the website, if available online http://www.ceb.lk/for-your- business/ Are customers notified of a change in tariff ahead of the billing cycle? Yes Note: If the duration and frequency of outages is 100 or less, the economy is eligible to score on the Reliability of supply and transparency of tariff index. If the duration and frequency of outages is not available, or is over 100, the economy is not eligible to score on the index. If the minimum outage time considered for SAIDI/SAIFI is over 5 minutes, the economy is not eligible to score on the index. Page 20 Doing Business 2020 Sri Lanka Registering Property This topic examines the steps, time and cost involved in registering property, assuming a standardized case of an entrepreneur who wants to purchase land and a building that is already registered and free of title dispute. In addition, the topic also measures the quality of the land administration system in each economy. The quality of land administration index has five dimensions: reliability of infrastructure, transparency of information, geographic coverage, land dispute resolution, and equal access to property rights. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Procedures to legally transfer title on immovable property To make the data comparable across economies, several assumptions about the parties to the (number) transaction, the property and the procedures are used. • Preregistration procedures (for example, checking for liens, The parties (buyer and seller): notarizing sales agreement, paying property transfer taxes) - Are limited liability companies (or the legal equivalent). • Registration procedures in the economy's largest business city. - Are located in the periurban (that is, on the outskirts of the city but still within its official limits) • Postregistration procedures (for example, filling title with area of the economy’s largest business city. For 11 economies the data are also collected for the municipality) second largest business city. - Are 100% domestically and privately owned. Time required to complete each procedure (calendar days) - Perform general commercial activities. • Does not include time spent gathering information The property (fully owned by the seller): • Each procedure starts on a separate day - though procedures - Has a value of 50 times income per capita, which equals the sale price. that can be fully completed online are an exception to this rule - Is fully owned by the seller. • Procedure is considered completed once final document is - Has no mortgages attached and has been under the same ownership for the past 10 years. received - Is registered in the land registry or cadastre, or both, and is free of title disputes. • No prior contact with officials - Is located in a periurban commercial zone (that is, on the outskirts of the city but still within its official limits), and no rezoning is required. Cost required to complete each procedure (% of property - Consists of land and a building. The land area is 557.4 square meters (6,000 square feet). A two- value) story warehouse of 929 square meters (10,000 square feet) is located on the land. The warehouse is 10 years old, is in good condition, has no heating system and complies with all safety standards, • Official costs only (such as administrative fees, duties and building codes and legal requirements. The property, consisting of land and building, will be taxes). transferred in its entirety. • Value Added Tax, Capital Gains Tax and illicit payments are - Will not be subject to renovations or additional construction following the purchase. excluded - Has no trees, natural water sources, natural reserves or historical monuments of any kind. - Will not be used for special purposes, and no special permits, such as for residential use, Quality of land administration index (0-30) industrial plants, waste storage or certain types of agricultural activities, are required. - Has no occupants, and no other party holds a legal interest in it. • Reliability of infrastructure index (0-8) • Transparency of information index (0–6) • Geographic coverage index (0–8) • Land dispute resolution index (0–8) • Equal access to property rights index (-2–0) Page 21 Doing Business 2020 Sri Lanka Registering Property - Sri Lanka Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Procedures (number) 8 6.9 4.7 1 (5 Economies) Time (days) 39 107.8 23.6 1 (2 Economies) Cost (% of property value) 5.1 7.0 4.2 0.0 (Saudi Arabia) Quality of the land administration index (0-30) 5.5 9.1 23.2 None in 2018/19 Figure – Registering Property in Sri Lanka – Score 41.7 81.8 65.7 18.3 Procedures Time Cost Quality of the land administration index Figure – Registering Property in Sri Lanka and comparator economies – Ranking and Score DB 2020 Registering Property Score 0 100 51.9: Sri Lanka (Rank: 138) 48.6: Pakistan (Rank: 151) 47.6: India (Rank: 154) 47.6: Regional Average (South Asia) 40.0: Maldives (Rank: 176) 29.0: Bangladesh (Rank: 184) Note: The ranking of economies on the ease of registering property is determined by sorting their scores for registering property. These scores are the simple average of the scores for each of the component indicators. Page 22 Doing Business 2020 Sri Lanka Figure – Registering Property in Sri Lanka – Procedure, Time and Cost Time (days) Cost (% of property value) 4.5 35 4 Cost (% of property value) 30 3.5 3 25 Time (days) 2.5 20 2 15 1.5 10 1 5 0.5 0 0 1 *2 3 4 5 6 7 8 Procedures (number) * This symbol is shown beside procedure numbers that take place simultaneously with the previous procedure. Note: Online procedures account for 0.5 days in the total time calculation. For economies that have a different procedure list for men and women, the graph shows the time for women. For more information on methodology, see the Doing Business website (http://doingbusiness.org/en/methodology). For details on the procedures reflected here, see the summary below. Page 23 Doing Business 2020 Sri Lanka Figure – Registering Property in Sri Lanka and comparator economies – Measure of Quality 12 10.8 9.8 10 9.1 8.5 Index score 8 6.5 6 5.5 4 2 0 Sri Bangladesh India Maldives Pakistan South Lanka Asia Details – Registering Property in Sri Lanka – Procedure, Time and Cost No. Procedures Time to Complete Associated Costs 1 Obtain an updated survey plan of the property 14 days LKR 32,467.55; (About Agency : Licensed surveyor 0.1% of property value) If the building is 10 years or older, it is advisable to obtain a new updated plan of the land and the building is advisable to ensure that the boundaries on the ground have not changed or if the survey plan is old. This is also needed to obtain the Building and Street Line Certificate. 2 A title search must be carried out at the relevant Land Registry 4 days LKR 500 Agency : Colombo Land Registry On receipt of the last title deed and plan from the seller, a title search must be carried out at the relevant Land Registry. A notary engaged by the purchaser must recommend the title. Good title must be established for the past 35 years. All deeds and plans must be checked. If prior deeds are not available with the seller the notary will have to check duplicates of deeds at the Land Registry. If plans are not available, the relevant surveyors would have to be contacted and obtain duplicates of the plans. Other checks must be carried out as well by the lawyer (notary) at the local authority. As per the section 17(a) of the Notaries Ordinance No 1 of 1907 before any deed or instrument affecting any interest in land or other immovable property is drawn by the Notary, he shall search or cause to be searched the registers in the land registry to ascertain the state of the title regarding such land and whether any prior deed adversely affecting any interest in such land has been registered. On confirmation that the title to the property is clear. If the title is not clear, it is recommended to purchase a title insurance is recommended, and the next step would be to obtain a policy of title Insurance (procedure 1a). If title insurance is recommended in procedure 1 due to a defect in title, then the next step would be to obtain a Buyer's Policy of Title Insurance to cover defects. This step is optional and contingent to the result of step 1. If the policy is needed, the time necessary to obtain this title will depend on the time taken by the title insurance company to evaluate the title, decide to issue or not to issue the title insurance policy and the cost will depend on the premium payable. Usually title insurance is recommended for the following reasons: • Prior deeds and documentation not being available and further if the registers at the land registry cannot be traced for 35 years (if the books are damaged). • If there are any discrepancies in the title deeds and plans. • If the present owner had owned an undivided share of a larger land, and had sub-divided it without the consent of the other parties or without a Deed of Partition or Partition Plan. 3 Obtain the non-vesting certificate, the ownership certificate and the building and street line 3 days LKR 12,000; (Certificate of certificate ownership Rs. 3500.00- Agency : Colombo Municipal Council Commercial + Non Vesting The seller obtains the following certificates at the Single Window Counter at the Colombo Certificate: Rs. 5000.00- Municipal Council Commercial + Building and 1. The Non-vesting Certificate Street Line Certificate Rs. 2. The Ownership Certificate 3. The Building and Street Line Certificates. The Street Line Certificate confirms whether the 3500) property is affected by a proposed road widening or any other reservation. The local authority issues a photocopy of the survey plan indicating the approximate position of the street line which is measured from the center of the Road. Necessary documents to obtain Street Line Certificate 1.Copies of Survey Plan with correct assessment 2.Owner's consent letter 3.Applicant's NIC photocopy 4.If the assessment number given in the survey plan does not tally with the current assessment number municipal assessor's letter clarifying the assessment number. The buyer must also obtain from the seller the Certificate of Conformity already in his possession, which confirms that the building constructed is an approved construction. Page 24 Doing Business 2020 Sri Lanka 4 Transfer deed is signed in favor of the buyer 2 days LKR 325,175.51; (1% of Agency : Notary purchase price (Lawyer’s The Notary Public should check the following documents of both the Companies (Seller and fees) + LKR 500 additional Buyer) cost) 1. Articles of Association 2. Certificate of Incorporation 3. Latest Form 20 filed at the Registry of Companies - to obtain the details of the Directors 4. Latest Form 13 filed at the Registry of Companies, if any - to ascertain the present registered office address 5. Both companies should pass a resolution to sell/purchase the property and a shareholder resolution if the sell/purchase amounts to a major transaction. As per the Section 2 of Prevention of Frauds Ordinance, Deed of Transfer must be signed by the seller company in the presence of two witnesses and Notary Public. Section 12 of the Notaries Ordinance No 1 of 1907 states that Notary shall not authenticate or attest any deed or instrument unless the person executing the same and the witnesses shall have signed the same, in his presence and in the presence of one another, and unless he shall have signed the same in the presence of the executant and of the attesting witnesses. 5 Obtain the market value from the Provincial Department of Revenue 1 day LKR 250 Agency : Provincial Department of Revenue, Western Province Before or after the payment of stamp duty the instrument of transfer is forwarded to the office of the Provincial Department of Revenue of the Western Province to obtain the market value of the property. This measure was introduced beginning March 1, 2013 with the purpose of ensuring that stamp duties are paid based on the correct market value. The appropriate value will be provided at the discretion of the department's valuer. If the instrument is submitted after the stamp duties have already been paid and after the examination the department determines that the amount paid is inadequate, then the balance must be settled. The department will provide the certification of "instrument with duly paid stamp duties." By ensuring that the stamp duty was paid based on the value provided by the Provincial Department of Revenue the instrument will not be recalled later on for examination of its value and will not be refused registration. According to Provisions of Financial Statute of The Western Province No.06 of 1990, Stamp duty should be paid on the Market Value of immovable properties in transferring such properties Documents required to obtain a valuation of the property; 1. Copy of the previous deed 2. A draft Deed of Transfer executed by the seller company 3. Survey Plan 4. Building Plan 5. Route plan 6. Rates Assessment Notice, Valuation report (if any) 7. Photocopy of Buyer’s N.I.C. The following details must be furnished to obtain a valuation of the property from the Department of Revenue of the Western Province. 1. Details of the Buyer and Seller 2. Details of the Notary 3. Nature of the Deed 4. Details of the Land 5. Details of the Building 6. Decided purchase value 7. Relevant date of the market value 6 Payment of stamp duty at a nominated bank 1 day LKR 1,297,702.02; (Stamp Agency : State Bank duty payable as follows After execution of the deed of transfer stamp duty will have to be paid within 7 days to a 3% on the First Rs. 100 nominated state bank in favor of the Revenue Commissioner of the relevent Provincial Council in 000 which the land is situated. 4% on the Balance) 7 Deed is sent for registration to the relevant land registry 15 days LKR 100 Agency : Colombo Land Registry After payment of stamp duty, the deed duly attested by the notary, will have to be sent for registration to the relevant Land Registry. The deed is registered and returned to the notary from the Land Registry within 3 days after receiving the Day Book. Notaries are involved with searching, preparing title report and attestation, as well as paying stamp duty. The details of the registered deeds are published in the Land Registry website (www.Rgd.gov.lk) and notice boards are available at the Land Registry office. Computerized system and greater number of staff are ensuring faster registration of deeds. 8 Name of the buyer must be registered at the Municipality and the certificate of ownership is 3 days LKR 3,500; (for obtained commercial properties) Agency : Colombo Municipal Council The name of the new company will have to be registered as the new owner at the Colombo Municipal Council. An abstract of title form should be duly filled by a Notary Public and should be submitted to the relevant Local Authority together with a Pedigree, a certificate, a copy of the rate receipt, a certified copy of the latest plan and deed of transfer and a covering letter prepared by the Notary. Thereafter the name of the new owner will be registered in the Assessment registers and the Certificate of Ownership will be issued giving the present owner's name. Page 25 Doing Business 2020 Sri Lanka Takes place simultaneously with previous procedure. Page 26 Doing Business 2020 Sri Lanka Details – Registering Property in Sri Lanka – Measure of Quality Answer Score Quality of the land administration index (0-30) 5.5 Reliability of infrastructure index (0-8) 3.0 Type of land registration system in the economy: Dual system (Title & Deed) What is the institution in charge of immovable property registration? Registrar General Department In what format are past and newly issued land records kept at the immovable property registry of the largest Paper 0.0 business city of the economy —in a paper format or in a computerized format (scanned or fully digital)? Is there a comprehensive and functional electronic database for checking for encumbrances (liens, mortgages, No 0.0 restrictions and the like)? Institution in charge of the plans showing legal boundaries in the largest business city: Sri Lanka Survey Department (SLSD) In what format are past and newly issued cadastral plans kept at the mapping agency of the largest business Computer/Fully digital 2.0 city of the economy—in a paper format or in a computerized format (scanned or fully digital)? Is there an electronic database for recording boundaries, checking plans and providing cadastral information Yes 1.0 (geographic information system)? Is the information recorded by the immovable property registration agency and the cadastral or mapping agency Separate databases 0.0 kept in a single database, in different but linked databases or in separate databases? Do the immovable property registration agency and cadastral or mapping agency use the same identification No 0.0 number for properties? Transparency of information index (0–6) 1.5 Who is able to obtain information on land ownership at the agency in charge of immovable property registration Only intermediaries 0.0 in the largest business city? and interested parties Is the list of documents that are required to complete any type of property transaction made publicly available– Yes, online 0.5 and if so, how? Link for online access: http://www.rgd.gov.lk/ web/index.php? option=com_content& view=article&id=13&It emid=138&lang=en#r egistration-of- movable-and- immovable-properties Is the applicable fee schedule for any type of property transaction at the agency in charge of immovable Yes, online 0.5 property registration in the largest business city made publicly available–and if so, how? Link for online access: http://www.rgd.gov.lk/ web/index.php? option=com_content& view=article&id=13&It emid=138&lang=en#r egistration-of- movable-and- immovable-properties Does the agency in charge of immovable property registration agency formally commit to deliver a legally No 0.0 binding document that proves property ownership within a specific timeframe –and if so, how does it communicate the service standard? Link for online access: Is there a specific and independent mechanism for filing complaints about a problem that occurred at the agency No 0.0 in charge of immovable property registration? Contact information: Are there publicly available official statistics tracking the number of transactions at the immovable property No 0.0 registration agency? Number of property transfers in the largest business city in 2018: Page 27 Doing Business 2020 Sri Lanka Who is able to consult maps of land plots in the largest business city? Anyone who pays the 0.5 official fee Is the applicable fee schedule for accessing maps of land plots made publicly available—and if so, how? No 0.0 Link for online access: Does the cadastral/mapping agency formally specifies the timeframe to deliver an updated cadastral plan—and No 0.0 if so, how does it communicate the service standard? Link for online access: Is there a specific and independent mechanism for filing complaints about a problem that occurred at the No 0.0 cadastral or mapping agency? Contact information: Geographic coverage index (0–8) 0.0 Are all privately held land plots in the largest business city formally registered at the immovable property No 0.0 registry? Are all privately held land plots in the economy formally registered at the immovable property registry? No 0.0 Are all privately held land plots in the largest business city mapped? No 0.0 Are all privately held land plots in the economy mapped? No 0.0 Land dispute resolution index (0–8) 1.0 Does the law require that all property sale transactions be registered at the immovable property registry to make No 0.0 them opposable to third parties? Legal basis: Is the system of immovable property registration subject to a state or private guarantee? No 0.0 Type of guarantee: Legal basis: Is there a is a specific, out-of-court compensation mechanism to cover for losses incurred by parties who No 0.0 engaged in good faith in a property transaction based on erroneous information certified by the immovable property registry? Legal basis: Does the legal system require a control of legality of the documents necessary for a property transaction (e.g., Yes 0.5 checking the compliance of contracts with requirements of the law)? If yes, who is responsible for checking the legality of the documents? Registrar; Does the legal system require verification of the identity of the parties to a property transaction? Yes 0.5 If yes, who is responsible for verifying the identity of the parties? Notary; Is there a national database to verify the accuracy of government issued identity documents? No 0.0 What is the Court of first instance in charge of a case involving a standard land dispute between two local District Court of businesses over tenure rights for a property worth 50 times gross national income (GNI) per capita and located Colombo in the largest business city? How long does it take on average to obtain a decision from the first-instance court for such a case (without More than 3 years 0.0 appeal)? Are there publicly available statistics on the number of land disputes at the economy level in the first instance No 0.0 court? Number of land disputes in the economy in 2018: Equal access to property rights index (-2–0) 0.0 Do unmarried men and unmarried women have equal ownership rights to property? Yes Do married men and married women have equal ownership rights to property? Yes 0.0 Page 28 Doing Business 2020 Sri Lanka Getting Credit This topic explores two sets of issues—the strength of credit reporting systems and the effectiveness of collateral and bankruptcy laws in facilitating lending. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Strength of legal rights index (0–12) Doing Business assesses the sharing of credit information and the legal rights of borrowers and lenders with respect to secured transactions through 2 sets of indicators. The depth of credit • Rights of borrowers and lenders through collateral laws (0-10) information index measures rules and practices affecting the coverage, scope and accessibility of • Protection of secured creditors’ rights through bankruptcy laws credit information available through a credit registry or a credit bureau. The strength of legal rights (0-2) index measures the degree to which collateral and bankruptcy laws protect the rights of borrowers and lenders and thus facilitate lending. For each economy it is first determined whether a unitary Depth of credit information index (0–8) secured transactions system exists. Then two case scenarios, case A and case B, are used to • Scope and accessibility of credit information distributed by determine how a nonpossessory security interest is created, publicized and enforced according to credit bureaus and credit registries (0-8) the law. Special emphasis is given to how the collateral registry operates (if registration of security interests is possible). The case scenarios involve a secured borrower, company ABC, and a Credit bureau coverage (% of adults) secured lender, BizBank. • Number of individuals and firms listed in largest credit bureau In some economies the legal framework for secured transactions will allow only case A or case B as a percentage of adult population (not both) to apply. Both cases examine the same set of legal provisions relating to the use of movable collateral. Credit registry coverage (% of adults) • Number of individuals and firms listed in credit registry as a Several assumptions about the secured borrower (ABC) and lender (BizBank) are used: percentage of adult population - ABC is a domestic limited liability company (or its legal equivalent). - ABC has up to 50 employees. - ABC has its headquarters and only base of operations in the economy’s largest business city. For 11 economies the data are also collected for the second largest business city. - Both ABC and BizBank are 100% domestically owned. The case scenarios also involve assumptions. In case A, as collateral for the loan, ABC grants BizBank a nonpossessory security interest in one category of movable assets, for example, its machinery or its inventory. ABC wants to keep both possession and ownership of the collateral. In economies where the law does not allow nonpossessory security interests in movable property, ABC and BizBank use a fiduciary transfer-of-title arrangement (or a similar substitute for nonpossessory security interests). In case B, ABC grants BizBank a business charge, enterprise charge, floating charge or any charge that gives BizBank a security interest over ABC’s combined movable assets (or as much of ABC’s movable assets as possible). ABC keeps ownership and possession of the assets. Page 29 Doing Business 2020 Sri Lanka Getting Credit - Sri Lanka Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Strength of legal rights index (0-12) 2 5.5 6.1 12 (5 Economies) Depth of credit information index (0-8) 6 5.1 6.8 8 (53 Economies) Credit registry coverage (% of adults) 0.0 5.1 24.4 100.0 (2 Economies) Credit bureau coverage (% of adults) 48.7 21.0 66.7 100.0 (14 Economies) Figure – Getting Credit in Sri Lanka – Score 40.0 Score - Getting Credit Figure – Getting Credit in Sri Lanka and comparator economies – Ranking and Score DB 2020 Getting Credit Score 0 100 80.0: India (Rank: 25) 53.1: Regional Average (South Asia) 45.0: Bangladesh (Rank: 119) 45.0: Pakistan (Rank: 119) 40.0: Sri Lanka (Rank: 132) 35.0: Maldives (Rank: 144) Note: The ranking of economies on the ease of getting credit is determined by sorting their scores for getting credit. These scores are the sum of the scores for the strength of legal rights index and the depth of credit information index. Page 30 Doing Business 2020 Sri Lanka Figure – Legal Rights in Sri Lanka and comparator economies 10 9 9 8 Index Score 7 6 5.5 5 5 4 3 2 2 2 2 1 0 Sri Bangladesh India Maldives Pakistan South Lanka Asia Page 31 Doing Business 2020 Sri Lanka Details – Legal Rights in Sri Lanka Strength of legal rights index (0-12) 2 Does an integrated or unified legal framework for secured transactions that extends to the creation, publicity and enforcement of functional equivalents No to security interests in movable assets exist in the economy? Does the law allow businesses to grant a non possessory security right in a single category of movable assets, without requiring a specific description No of collateral? Does the law allow businesses to grant a non possessory security right in substantially all of its assets, without requiring a specific description of Yes collateral? May a security right extend to future or after-acquired assets, and does it extend automatically to the products, proceeds and replacements of the No original assets? Is a general description of debts and obligations permitted in collateral agreements; can all types of debts and obligations be secured between parties; No and can the collateral agreement include a maximum amount for which the assets are encumbered? Is a collateral registry in operation for both incorporated and non-incorporated entities, that is unified geographically and by asset type, with an No electronic database indexed by debtor's name? Does a notice-based collateral registry exist in which all functional equivalents can be registered? No Does a modern collateral registry exist in which registrations, amendments, cancellations and searches can be performed online by any interested third No party? Are secured creditors paid first (i.e. before tax claims and employee claims) when a debtor defaults outside an insolvency procedure? No Are secured creditors paid first (i.e. before tax claims and employee claims) when a business is liquidated? No Are secured creditors subject to an automatic stay on enforcement when a debtor enters a court-supervised reorganization procedure? Does the law No protect secured creditors’ rights by providing clear grounds for relief from the stay and sets a time limit for it? Does the law allow parties to agree on out of court enforcement at the time a security interest is created? Does the law allow the secured creditor to sell Yes the collateral through public auction or private tender, as well as, for the secured creditor to keep the asset in satisfaction of the debt? Figure – Credit Information in Sri Lanka and comparator economies 8 7 7 7 6 6 Index Score 5 5.1 5 4 4 3 2 1 0 Sri Bangladesh India Maldives Pakistan South Lanka Asia Page 32 Doing Business 2020 Sri Lanka Details – Credit Information in Sri Lanka Depth of credit information index (0-8) Credit bureau Credit registry Score Are data on both firms and individuals distributed? Yes No 1 Are both positive and negative credit data distributed? Yes No 1 Are data from retailers or utility companies - in addition to data from banks and No No 0 financial institutions - distributed? Are at least 2 years of historical data distributed? (Credit bureaus and registries Yes No 1 that distribute more than 10 years of negative data or erase data on defaults as soon as they are repaid obtain a score of 0 for this component.) Are data on loan amounts below 1% of income per capita distributed? Yes No 1 By law, do borrowers have the right to access their data in the credit bureau or Yes No 1 credit registry? Can banks and financial institutions access borrowers’ credit information online Yes No 1 (for example, through an online platform, a system-to-system connection or both)? Are bureau or registry credit scores offered as a value-added service to help No No 0 banks and financial institutions assess the creditworthiness of borrowers? Note: An economy receives a score of 1 if there is a "yes" to either bureau or registry. If the credit bureau or registry is not operational or covers less than 5% of the adult population, the total score on the depth of credit information index is 0. Coverage Credit bureau Credit registry Number of individuals 6,733,070 0 Number of firms 218,303 0 Total 6,951,373 0 Percentage of adult population 48.7 0.0 Page 33 Doing Business 2020 Sri Lanka Protecting Minority Investors This topic measures the strength of minority shareholder protections against misuse of corporate assets by directors for their personal gain as well as shareholder rights, governance safeguards and corporate transparency requirements that reduce the risk of abuse. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions • Extent of disclosure index (0–10): Disclosure, review, and To make the data comparable across economies, a case study uses several assumptions about approval requirements for related-party transactions the business and the transaction. • Extent of director liability index (0–10): Ability of minority shareholders to sue and hold interested directors liable for The business (Buyer): prejudicial related-party transactions; Available legal - Is a publicly traded corporation listed on the economy’s most important stock exchange. remedies (damages, disgorgement of profits, disqualification - Has a board of directors and a chief executive officer (CEO) who may legally act on behalf of from managerial position(s) for one year or more, rescission of Buyer where permitted, even if this is not specifically required by law. the transaction) - Has a supervisory board in economies with a two-tier board system on which Mr. James appointed 60% of the shareholder-elected members. • Ease of shareholder suits index (0–10): Access to internal - Has not adopted bylaws or articles of association that go beyond the minimum requirements. corporate documents; Evidence obtainable during trial and allocation of legal expenses Does not follow codes, principles, recommendations or guidelines that are not mandatory. - Is a manufacturing company with its own distribution network. • Extent of conflict of interest regulation index (0-30): Sum of the extent of disclosure, extent of director liability and ease of The transaction involves the following details: shareholder suits indices - Mr. James owns 60% of Buyer, sits on Buyer’s board of directors and elected two directors to • Extent of shareholder rights index (0-6): Shareholders’ rights Buyer’s five-member board. and role in major corporate decisions - Mr. James also owns 90% of Seller, a company that operates a chain of retail hardware stores. Seller recently closed a large number of its stores. • Extent of ownership and control index (0-7): Governance - Mr. James proposes that Buyer purchase Seller’s unused fleet of trucks to expand Buyer’s safeguards protecting shareholders from undue board control distribution of its food products, a proposal to which Buyer agrees. The price is equal to 10% of and entrenchment Buyer’s assets and is higher than the market value. • Extent of corporate transparency index (0-7): Corporate - The proposed transaction is part of the company’s principal activity and is not outside the transparency on ownership stakes, compensation, audits and authority of the company. financial prospects - Buyer enters into the transaction. All required approvals are obtained, and all required disclosures made—that is, the transaction was not entered into fraudulently. • Extent of shareholder governance index (0–20): Sum of the - The transaction causes damages to Buyer. Shareholders sue Mr. James and the executives and extent of shareholders rights, extent of ownership and control directors that approved the transaction. and extent of corporate transparency indices • Strength of minority investor protection index (0–50): Sum of the extent of conflict of interest regulation and extent of shareholder governance indices Page 34 Doing Business 2020 Sri Lanka Protecting Minority Investors - Sri Lanka Stock exchange information Stock exchange Colombo Stock Exchange Stock exchange URL http://www.cse.lk Listed firms with equity securities 243 City Covered Colombo Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Extent of disclosure index (0-10) 8.0 5.8 6.5 10 (13 Economies) Extent of director liability index (0-10) 5.0 5.0 5.3 10 (3 Economies) Ease of shareholder suits index (0-10) 7.0 7.4 7.3 10 (Djibouti) Extent of shareholder rights index (0-6) 5.0 3.5 4.7 6 (19 Economies) Extent of ownership and control index (0-7) 6.0 3.6 4.5 7 (9 Economies) Extent of corporate transparency index (0-7) 5.0 3.3 5.7 7 (13 Economies) Figure – Protecting Minority in Sri Lanka – Score 72.0 Score - Protecting Minority Investors Figure – Protecting Minority Investors in Sri Lanka and comparator economies – Ranking and Score DB 2020 Protecting Minority Investors Score 0 100 80.0: India (Rank: 13) 72.0: Sri Lanka (Rank: 28) 72.0: Pakistan (Rank: 28) 60.0: Bangladesh (Rank: 72) 57.0: Regional Average (South Asia) 32.0: Maldives (Rank: 147) Note: The ranking of economies on the strength of minority investor protections is determined by sorting their scores for protecting minority investors. These scores are the simple average of the scores for the extent of conflict of interest regulation index and the extent of shareholder governance index. Page 35 Doing Business 2020 Sri Lanka Figure – Protecting Minority Investors in Sri Lanka and comparator economies – Measure of Quality Sri Lanka 5 5 8 6 5 7 Bangladesh 3 7 6 3 4 7 India 6 7 8 6 6 7 Maldives 0 8 0 8 Pakistan 5 7 6 7 5 6 OECD high income 5.6 5.6 6.6 4.3 4.5 7.4 South Asia 3.9 5.9 6.1 4.4 4.1 7.1 0 5 10 15 20 25 30 35 40 45 Sub-Indicator Score Extent of corporate transparency index (0-7) Extent of director liability index (0-10) Extent of disclosure index (0-10) Extent of ownership and control index (0-7) Extent of shareholder rights index (0-6) Ease of shareholder suits index (0-10) Page 36 Doing Business 2020 Sri Lanka Details – Protecting Minority Investors in Sri Lanka – Measure of Quality Answer Score Extent of conflict of interest regulation index (0-30) Extent of disclosure index (0-10) 8.0 Whose decision is sufficient to approve the Buyer-Seller transaction? (0-3) Board of directors 2.0 excluding interested members Must an external body review the terms of the transaction before it takes place? (0-1) Yes 1.0 Must Mr. James disclose his conflict of interest to the board of directors? (0-2) Existence of a conflict 1.0 without any specifics Must Buyer disclose the transaction in periodic filings (e.g. annual reports)? (0-2) Disclosure on the 2.0 transaction and on the conflict of interest Must Buyer immediately disclose the transaction to the public? (0-2) Disclosure on the 2.0 transaction and on the conflict of interest Extent of director liability index (0-10) 5.0 Can shareholders representing 10% of Buyer's share capital sue for the damage the transaction caused to Yes 1.0 Buyer? (0-1) Can shareholders hold Mr. James liable for the damage the transaction caused to Buyer? (0-2) Liable if negligent 1.0 Can shareholders hold the other directors liable for the damage the transaction caused to Buyer? (0-2) Liable if negligent 1.0 Must Mr. James pay damages for the harm caused to Buyer upon a successful claim by shareholders? (0-1) Yes 1.0 Must Mr. James repay profits made from the transaction upon a successful claim by shareholders? (0-1) No 0.0 Is Mr. James disqualified upon a successful claim by shareholders? (0-1) No 0.0 Can a court void the transaction upon a successful claim by shareholders? (0-2) Voidable if negligently 1.0 concluded Ease of shareholder suits index (0-10) 7.0 Before suing, can shareholders representing 10% of Buyer's share capital inspect the transaction documents? No 0.0 (0-1) Can the plaintiff obtain any documents from the defendant and witnesses at trial? (0-3) Any relevant 3.0 document Can the plaintiff request categories of documents from the defendant without identifying specific ones? (0-1) No 0.0 Can the plaintiff directly question the defendant and witnesses at trial? (0-2) Yes 2.0 Is the level of proof required for civil suits lower than that of criminal cases? (0-1) Yes 1.0 Can shareholder plaintiffs recover their legal expenses from the company? (0-2) Yes if successful 1.0 Extent of shareholder governance index (0-20) Extent of shareholder rights index (0-6) 5.0 Does the sale of 51% of Buyer's assets require shareholder approval? Yes 1.0 Can shareholders representing 10% of Buyer's share capital call for a meeting of shareholders? Yes 1.0 Must Buyer obtain its shareholders’ approval every time it issues new shares? Yes 1.0 Do shareholders automatically receive preemption rights every time Buyer issues new shares? No 0.0 Do shareholders elect and dismiss the external auditor? Yes 1.0 Are changes to the rights of a class of shares only possible if the holders of the affected shares approve? Yes 1.0 Extent of ownership and control index (0-7) 6.0 Is it forbidden to appoint the same individual as CEO and chairperson of the board of directors? No 0.0 Page 37 Doing Business 2020 Sri Lanka Must the board of directors include independent and nonexecutive board members? Yes 1.0 Can shareholders remove members of the board of directors without cause before the end of their term? Yes 1.0 Must the board of directors include a separate audit committee exclusively comprising board members? Yes 1.0 Must a potential acquirer make a tender offer to all shareholders upon acquiring 50% of Buyer? Yes 1.0 Must Buyer pay declared dividends within a maximum period set by law? Yes 1.0 Is a subsidiary prohibited from acquiring shares issued by its parent company? Yes 1.0 Extent of corporate transparency index (0-7) 5.0 Must Buyer disclose direct and indirect beneficial ownership stakes representing 5%? Yes 1.0 Must Buyer disclose information about board members’ primary employment and directorships in other Yes 1.0 companies? Must Buyer disclose the compensation of individual managers? No 0.0 Must a detailed notice of general meeting be sent 21 days before the meeting? Yes 1.0 Can shareholders representing 5% of Buyer’s share capital put items on the general meeting agenda? No 0.0 Must Buyer's annual financial statements be audited by an external auditor? Yes 1.0 Must Buyer disclose its audit reports to the public? Yes 1.0 Page 38 Doing Business 2020 Sri Lanka Paying Taxes This topic records the taxes and mandatory contributions that a medium-size company must pay or withhold in a given year, as well as the administrative burden of paying taxes and contributions and complying with postfiling procedures (VAT refund and tax audit). The most recent round of data collection for the project was completed in May 2019 covering for the Paying Taxes indicator calendar year 2018 (January 1, 2018 – December 31, 2018). See the methodology for more information. What the indicators measure Case study assumptions Tax payments for a manufacturing company in 2018 (number Using a case scenario, Doing Business records taxes and mandatory contributions a medium size per year adjusted for electronic and joint filing and payment) company must pay in a year, and measures the administrative burden of paying taxes, contributions and dealing with postfiling processes. Information is also compiled on frequency of • Total number of taxes and contributions paid or withheld, filing and payments, time taken to comply with tax laws, time taken to comply with the including consumption taxes (value added tax, sales tax or requirements of postfiling processes and time waiting. goods and service tax) • Method and frequency of filing and payment To make data comparable across economies, several assumptions are used: - TaxpayerCo is a medium-size business that started operations on January 1, 2017. It produces Time required to comply with 3 major taxes (hours per year) ceramic flowerpots and sells them at retail. All taxes and contributions recorded are paid in the second year of operation (calendar year 2018). Taxes and mandatory contributions are measured • Collecting information, computing tax payable at all levels of government. • Preparing separate tax accounting books, if required • Completing tax return, filing with agencies The VAT refund process: - In June 2018, TaxpayerCo. makes a large capital purchase: the value of the machine is 65 times • Arranging payment or withholding income per capita of the economy. Sales are equally spread per month (1,050 times income per capita divided by 12) and cost of goods sold are equally expensed per month (875 times income Total tax and contribution rate (% of commercial profits) per capita divided by 12). The machinery seller is registered for VAT and excess input VAT incurred • Profit or corporate income tax in June will be fully recovered after four consecutive months if the VAT rate is the same for inputs, sales and the machine and the tax reporting period is every month. Input VAT will exceed Output • Social contributions, labor taxes paid by employer VAT in June 2018. • Property and property transfer taxes The corporate income tax audit process: • Dividend, capital gains, financial transactions taxes - An error in calculation of income tax liability (for example, use of incorrect tax depreciation rates, • Waste collection, vehicle, road and other taxes or incorrectly treating an expense as tax deductible) leads to an incorrect income tax return and a corporate income tax underpayment. TaxpayerCo. discovered the error and voluntarily notified the Postfiling Index tax authority. The value of the underpaid income tax liability is 5% of the corporate income tax • Time to comply with VAT refund (hours) liability due. TaxpayerCo. submits corrected information after the deadline for submitting the annual tax return, but within the tax assessment period. • Time to obtain VAT refund (weeks) • Time to comply with a corporate income tax correction (hours) • Time to complete a corporate income tax correction (weeks) Page 39 Doing Business 2020 Sri Lanka Paying Taxes - Sri Lanka Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Payments (number per year) 36 26.7 10.3 3 (2 Economies) Time (hours per year) 129 273.5 158.8 49 (3 Economies) Total tax and contribution rate (% of profit) 55.2 43.9 39.9 26.1 (33 Economies) Postfiling index (0-100) 49.3 41.2 86.7 None in 2018/19 Figure – Paying Taxes in Sri Lanka – Score 45.0 87.6 57.2 49.3 Payments Time Total tax and contribution rate Postfiling index Figure – Paying Taxes in Sri Lanka and comparator economies – Ranking and Score DB 2020 Paying Taxes Score 0 100 67.6: India (Rank: 115) 66.4: Maldives (Rank: 119) 60.2: Regional Average (South Asia) 59.8: Sri Lanka (Rank: 142) 56.1: Bangladesh (Rank: 151) 52.9: Pakistan (Rank: 161) Note: The ranking of economies on the ease of paying taxes is determined by sorting their scores for paying taxes. These scores are the simple average of the scores for each of the component indicators, with a threshold and a nonlinear transformation applied to one of the component indicators, the total tax and contribution rate. The threshold is defined as the total tax and contribution rate at the 15th percentile of the overall distribution for all years included in the analysis up to and including Doing Business 2015, which is 26.1%. All economies with a total tax and contribution rate below this threshold receive the same score as the economy at the threshold. Page 40 Doing Business 2020 Sri Lanka Figure – Paying Taxes in Sri Lanka and comparator economies – Measure of Quality 60 49.3 49.3 47.5 50 44.4 41.2 Index score 40 30 20 10.5 10 0 Sri Bangladesh India Maldives Pakistan South Lanka Asia Page 41 Doing Business 2020 Sri Lanka Details – Paying Taxes in Sri Lanka Tax or Payments Notes on Time (hours) Statutory tax Tax base Total tax and Notes on TTCR mandatory (number) Payments rate contribution contribution rate (% of profit) Nation Building 12.0 2% turnover 35.35 Tax Employer paid - 1.0 online 11.0 12% gross salaries 13.54 Social security contribution (EPF) Employees Trust 1.0 online 3% gross salaries 3.38 Fund (ETF) Property tax 1.0 35% annual property 1.73 value Corporate 5.0 15.0 14% taxable profit 1.19 income tax Tax on interest 0.0 withheld 5% interest income 0.13 included in other taxes Municipal 1.0 varies from LKR 0.02 business tax 250 to LKR 5,000 Stamp duty 1.0 various rates 0.00 small amount Employee paid - 0.0 online and jointly 8% gross salaries 0.00 withheld Social security contribution (EPF) Fuel tax 1.0 included in the 0.00 small amount price of fuel Value added tax 12.0 103.0 11% /15% value addition 0.00 not included (VAT) Vehicle tax 1.0 LKR 1,000 fixed fee 0.00 depending on vehicle type Totals 36 129 55.2 Page 42 Doing Business 2020 Sri Lanka Details – Paying Taxes in Sri Lanka – Tax by Type Taxes by type Answer Profit tax (% of profit) 1.2 Labor tax and contributions (% of profit) 16.9 Other taxes (% of profit) 37.1 Page 43 Doing Business 2020 Sri Lanka Details – Paying Taxes in Sri Lanka – Measure of Quality Answer Score Postfiling index (0-100) 49.3 VAT refunds Does VAT exist? Yes Does a VAT refund process exist per the case study? No Restrictions on VAT refund process Restricted to international traders and others Percentage of cases exposed to a VAT audit (%) Not applicable Is there a mandatory carry forward period? No Time to comply with VAT refund (hours) No VAT refund per 0.0 case study scenario Time to obtain VAT refund (weeks) No VAT refund per 0.0 case study scenario Corporate income tax audits Does corporate income tax exist? Yes Percentage of cases exposed to a corporate income tax audit (%) 0% - 24% Time to comply with a corporate income tax correction (hours) 3.0 97.2 Time to complete a corporate income tax correction (weeks) No tax audit per case 100 study scenario Notes: Names of taxes have been standardized. For instance income tax, profit tax, tax on company's income are all named corporate income tax in this table. The hours for VAT include all the VAT and sales taxes applicable. The hours for Social Security include all the hours for labor taxes and mandatory contributions in general. The postfiling index is the average of the scores on time to comply with VAT refund, time to obtain a VAT refund, time to comply with a corporate income tax correction and time to complete a corporate income tax correction. N/A = Not applicable. Page 44 Doing Business 2020 Sri Lanka Trading across Borders Doing Business records the time and cost associated with the logistical process of exporting and importing goods. Doing Business measures the time and cost (excluding tariffs) associated with three sets of procedures—documentary compliance, border compliance and domestic transport—within the overall process of exporting or importing a shipment of goods. The most recent round of data collection for the project was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Documentary compliance To make the data comparable across economies, a few assumptions are made about the traded goods and the transactions: • Obtaining, preparing and submitting documents during transport, clearance, inspections and port or border handling in Time: Time is measured in hours, and 1 day is 24 hours (for example, 22 days are recorded as origin economy 22×24=528 hours). If customs clearance takes 7.5 hours, the data are recorded as is. Alternatively, • Obtaining, preparing and submitting documents required by suppose documents are submitted to a customs agency at 8:00a.m., are processed overnight and destination economy and any transit economies can be picked up at 8:00a.m. the next day. The time for customs clearance would be recorded as 24 hours because the actual procedure took 24 hours. • Covers all documents required by law and in practice, including electronic submissions of information Cost: Insurance cost and informal payments for which no receipt is issued are excluded from the Border compliance costs recorded. Costs are reported in U.S. dollars. Contributors are asked to convert local currency into U.S. dollars based on the exchange rate prevailing on the day they answer the questionnaire. • Customs clearance and inspections Contributors are private sector experts in international trade logistics and are informed about exchange rates. • Inspections by other agencies (if applied to more than 20% of shipments) Assumptions of the case study: • Handling and inspections that take place at the economy’s port - For all 190 economies covered by Doing Business, it is assumed a shipment is in a warehouse in or border the largest business city of the exporting economy and travels to a warehouse in the largest business city of the importing economy. Domestic transport - It is assumed each economy imports 15 metric tons of containerized auto parts (HS 8708) from • Loading or unloading of the shipment at the warehouse or its natural import partner—the economy from which it imports the largest value (price times port/border quantity) of auto parts. It is assumed each economy exports the product of its comparative advantage (defined by the largest export value) to its natural export partner—the economy that is • Transport between warehouse and port/border the largest purchaser of this product. Shipment value is assumed to be $50,000. • Traffic delays and road police checks while shipment is en - The mode of transport is the one most widely used for the chosen export or import product and route the trading partner, as is the seaport or land border crossing. - All electronic information submissions requested by any government agency in connection with the shipment are considered to be documents obtained, prepared and submitted during the export or import process. - A port or border is a place (seaport or land border crossing) where merchandise can enter or leave an economy. - Relevant government agencies include customs, port authorities, road police, border guards, standardization agencies, ministries or departments of agriculture or industry, national security agencies and any other government authorities. Page 45 Doing Business 2020 Sri Lanka Trading across Borders - Sri Lanka Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Time to export: Border compliance (hours) 43 53.4 12.7 1 (19 Economies) Cost to export: Border compliance (USD) 366 310.6 136.8 0 (19 Economies) Time to export: Documentary compliance (hours) 48 73.7 2.3 1 (26 Economies) Cost to export: Documentary compliance (USD) 58 157.9 33.4 0 (20 Economies) Time to import: Border compliance (hours) 72 85.7 8.5 1 (25 Economies) Cost to import: Border compliance (USD) 300 472.9 98.1 0 (28 Economies) Time to import: Documentary compliance (hours) 48 93.7 3.4 1 (30 Economies) Cost to import: Documentary compliance (USD) 283 261.7 23.5 0 (30 Economies) Figure – Trading across Borders in Sri Lanka – Score 73.6 65.5 72.2 85.6 74.6 75.0 80.3 59.6 Time Cost Time Cost Time Cost Time Cost to to to to to to to to export: export: export: export: import: import: import: import: Border Border Documentary Documentary Border Border Documentary Documentary compliance compliance compliance compliance compliance compliance compliance compliance Figure – Trading across Borders in Sri Lanka and comparator economies – Ranking and Score DB 2020 Trading Across Borders Score 0 100 82.5: India (Rank: 68) 73.3: Sri Lanka (Rank: 96) 68.8: Pakistan (Rank: 111) 65.3: Regional Average (South Asia) 55.9: Maldives (Rank: 157) 31.8: Bangladesh (Rank: 176) Note: The ranking of economies on the ease of trading across borders is determined by sorting their scores for trading across borders. These scores are the simple average of the scores for the time and cost for documentary compliance and border compliance to export and import. Page 46 Doing Business 2020 Sri Lanka Figure – Trading across Borders in Sri Lanka – Time and Cost Time (hours) Cost (USD) 80 366 72 400 70 350 300 283 Time (hours) 60 300 Cost (USD) 48 48 50 43 250 40 200 30 150 20 100 58 10 50 0 0 Export Export Import Import - - - - Border Documentary Border Documentary Compliance Compliance Compliance Compliance Page 47 Doing Business 2020 Sri Lanka Details – Trading across Borders in Sri Lanka Characteristics Export Import Product HS 61 : Articles of apparel and clothing accessories, HS 8708: Parts and accessories of motor vehicles knitted or crocheted Trade partner United States Japan Border Colombo port Colombo port Distance (km) 5 5 Domestic transport time (hours) 6 6 Domestic transport cost (USD) 110 110 Details – Trading across Borders in Sri Lanka – Components of Border Compliance Time to Complete (hours) Associated Costs (USD) Export: Clearance and inspections required by 24.0 171.7 customs authorities Export: Clearance and inspections required by 0.0 0.0 agencies other than customs Export: Port or border handling 43.0 194.4 Import: Clearance and inspections required by 24.0 72.6 customs authorities Import: Clearance and inspections required by 0.0 0.0 agencies other than customs Import: Port or border handling 72.0 227.1 Page 48 Doing Business 2020 Sri Lanka Details – Trading across Borders in Sri Lanka – Trade Documents Export Import Commercial invoice Bill of lading Packing list Packing list Certificate of origin Commercial invoice Insurance certificate Certificate of origin Export declaration Customs Import Declaration Bill of lading Delivery order SOLAS certificate E-manifest SOLAS certificate Page 49 Doing Business 2020 Sri Lanka Enforcing Contracts The enforcing contracts indicator measures the time and cost for resolving a commercial dispute through a local first-instance court, and the quality of judicial processes index, evaluating whether each economy has adopted a series of good practices that promote quality and efficiency in the court system. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Time required to enforce a contract through the courts The dispute in the case study involves the breach of a sales contract between two domestic (calendar days) businesses. The case study assumes that the court hears an expert on the quality of the goods in dispute. This distinguishes the case from simple debt enforcement. • Time to file and serve the case • Time for trial and to obtain the judgment To make the data on the time and comparable across economies, several assumptions about the case are used: • Time to enforce the judgment - The dispute concerns a lawful transaction between two businesses (Seller and Buyer), both Cost required to enforce a contract through the courts (% of located in the economy’s largest business city. For 11 economies the data are also collected for the claim value) second largest business city. - The Buyer orders custom-made furniture, then fails to pay alleging that the goods are not of • Average attorney fees adequate quality. • Court costs - The value of the dispute is 200% of the income per capita or the equivalent in local currency of USD 5,000, whichever is greater. • Enforcement costs - The Seller sues the Buyer before the court with jurisdiction over commercial cases worth 200% of income per capita or $5,000 whichever is greater. Quality of judicial processes index (0-18) - The Seller requests the pretrial attachment of the defendant’s movable assets to secure the • Court structure and proceedings (-1-5) claim. - The claim is disputed on the merits because of Buyer’s allegation that the quality of the goods • Case management (0-6) was not adequate. • Court automation (0-4) - The judge decides in favor of the seller; there is no appeal. - The Seller enforces the judgment through a public sale of the Buyer’s movable assets. • Alternative dispute resolution (0-3) Page 50 Doing Business 2020 Sri Lanka Enforcing Contracts - Sri Lanka Standardized Case Claim value LKR 1,205,057 Court name Colombo District Court City Covered Colombo Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Time (days) 1318 1,101.6 589.6 120 (Singapore) Cost (% of claim value) 22.8 29.9 21.5 0.1 (Bhutan) Quality of judicial processes index (0-18) 8.5 7.1 11.7 None in 2018/19 Figure – Enforcing Contracts in Sri Lanka – Score 1.8 74.5 47.2 Time Cost Quality of judicial processes index Figure – Enforcing Contracts in Sri Lanka and comparator economies – Ranking and Score DB 2020 Enforcing Contracts Score 0 100 52.5: Maldives (Rank: 124) 43.5: Pakistan (Rank: 156) 43.5: Regional Average (South Asia) 41.2: India (Rank: 163) 41.2: Sri Lanka (Rank: 164) 22.2: Bangladesh (Rank: 189) Note: The ranking of economies on the ease of enforcing contracts is determined by sorting their scores for enforcing contracts. These scores are the simple average of the scores for each of the component indicators. Page 51 Doing Business 2020 Sri Lanka Figure – Enforcing Contracts in Sri Lanka – Time and Cost Time (days) Cost (% of claim value) 1600 80 1442 1445 Cost (% of claim value) 1400 66.8 1318 70 1200 1071 60 Time (days) 1000 50 800 760 40 31.0 589.6 29.9 600 22.8 30 21.5 20.5 18.5 400 20 200 10 0 0 1,101.6 Bangladesh India Maldives OECD Pakistan South Sri high Asia Lanka income Page 52 Doing Business 2020 Sri Lanka Figure – Enforcing Contracts in Sri Lanka and comparator economies – Measure of Quality Sri Lanka 2.5 1 0.5 4.5 Bangladesh 3 1 0.5 3 India 2.5 1.5 2 4.5 Maldives 2 0 1 2.5 Pakistan 2 1.2 0.5 2 OECD high income 2.5 3.2 2.4 3.6 South Asia 2.4 1.2 0.8 3.1 0 2 4 6 8 10 12 14 Sub-Indicator Score Alternative dispute resolution (0-3) Case management (0-6) Court automation (0-4) Court structure and proceedings (-1-5) Details – Enforcing Contracts in Sri Lanka Indicator Time (days) 1318 Filing and service 62 Trial and judgment 1000 Enforcement of judgment 256 Cost (% of claim value) 22.8 Attorney fees 20.2 Court fees 1.1 Enforcement fees 1.5 Quality of judicial processes index (0-18) 8.5 Court structure and proceedings (-1-5) 4.5 Case management (0-6) 1.0 Court automation (0-4) 0.5 Alternative dispute resolution (0-3) 2.5 Page 53 Doing Business 2020 Sri Lanka Details – Enforcing Contracts in Sri Lanka – Measure of Quality Answer Score Quality of judicial processes index (0-18) 8.5 Court structure and proceedings (-1-5) 4.5 1. Is there a court or division of a court dedicated solely to hearing commercial cases? Yes 1.5 2. Small claims court 1.5 2.a. Is there a small claims court or a fast-track procedure for small claims? Yes 2.b. If yes, is self-representation allowed? Yes 3. Is pretrial attachment available? Yes 1.0 4. Are new cases assigned randomly to judges? Yes, but manual 0.5 5. Does a woman's testimony carry the same evidentiary weight in court as a man's? Yes 0.0 Case management (0-6) 1.0 1. Time standards 0.0 1.a. Are there laws setting overall time standards for key court events in a civil case? No 1.b. If yes, are the time standards set for at least three court events? n.a. 1.c. Are these time standards respected in more than 50% of cases? n.a. 2. Adjournments 0.0 2.a. Does the law regulate the maximum number of adjournments that can be granted? No 2.b. Are adjournments limited to unforeseen and exceptional circumstances? No 2.c. If rules on adjournments exist, are they respected in more than 50% of cases? n.a. 3. Can two of the following four reports be generated about the competent court: (i) time to disposition report; (ii) No 0.0 clearance rate report; (iii) age of pending cases report; and (iv) single case progress report? 4. Is a pretrial conference among the case management techniques used before the competent court? Yes 1.0 5. Are there any electronic case management tools in place within the competent court for use by judges? No 0.0 6. Are there any electronic case management tools in place within the competent court for use by lawyers? No 0.0 Court automation (0-4) 0.5 1. Can the initial complaint be filed electronically through a dedicated platform within the competent court? No 0.0 2. Is it possible to carry out service of process electronically for claims filed before the competent court? No 0.0 3. Can court fees be paid electronically within the competent court? No 0.0 4. Publication of judgments 0.5 4.a Are judgments rendered in commercial cases at all levels made available to the general public No through publication in official gazettes, in newspapers or on the internet or court website? 4.b. Are judgments rendered in commercial cases at the appellate and supreme court level made Yes available to the general public through publication in official gazettes, in newspapers or on the internet or court website? Alternative dispute resolution (0-3) 2.5 1. Arbitration 1.5 1.a. Is domestic commercial arbitration governed by a consolidated law or consolidated chapter or Yes section of the applicable code of civil procedure encompassing substantially all its aspects? 1.b. Are there any commercial disputes—aside from those that deal with public order or public policy— No that cannot be submitted to arbitration? 1.c. Are valid arbitration clauses or agreements usually enforced by the courts? Yes Page 54 Doing Business 2020 Sri Lanka 2. Mediation/Conciliation 1.0 2.a. Is voluntary mediation or conciliation available? Yes 2.b. Are mediation, conciliation or both governed by a consolidated law or consolidated chapter or Yes section of the applicable code of civil procedure encompassing substantially all their aspects (for example, definition, aim and scope of application, desig 2.c. Are there financial incentives for parties to attempt mediation or conciliation (i.e., if mediation or No conciliation is successful, a refund of court filing fees, income tax credits or the like)? Page 55 Doing Business 2020 Sri Lanka Resolving Insolvency Doing Business studies the time, cost and outcome of insolvency proceedings involving domestic legal entities. These variables are used to calculate the recovery rate, which is recorded as cents on the dollar recovered by secured creditors through reorganization, liquidation or debt enforcement (foreclosure or receivership) proceedings. To determine the present value of the amount recovered by creditors, Doing Business uses the lending rates from the International Monetary Fund, supplemented with data from central banks and the Economist Intelligence Unit. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Time required to recover debt (years) To make the data on the time, cost and outcome comparable across economies, several assumptions about the business and the case are used: • Measured in calendar years • Appeals and requests for extension are included - A hotel located in the largest city (or cities) has 201 employees and 50 suppliers. The hotel experiences financial difficulties. Cost required to recover debt (% of debtor’s estate) - The value of the hotel is 100% of the income per capita or the equivalent in local currency of USD 200,000, whichever is greater. • Measured as percentage of estate value - The hotel has a loan from a domestic bank, secured by a mortgage over the hotel’s real estate. • Court fees The hotel cannot pay back the loan, but makes enough money to operate otherwise. • Fees of insolvency administrators In addition, Doing Business evaluates the quality of legal framework applicable to judicial • Lawyers’ fees liquidation and reorganization proceedings and the extent to which best insolvency practices have been implemented in each economy covered. • Assessors’ and auctioneers’ fees • Other related fees Outcome • Whether business continues operating as a going concern or business assets are sold piecemeal Recovery rate for creditors • Measures the cents on the dollar recovered by secured creditors • Outcome for the business (survival or not) determines the maximum value that can be recovered • Official costs of the insolvency proceedings are deducted • Depreciation of furniture is taken into account • Present value of debt recovered Strength of insolvency framework index (0- 16) • Sum of the scores of four component indices: • Commencement of proceedings index (0-3) • Management of debtor’s assets index (0-6) • Reorganization proceedings index (0-3) • Creditor participation index (0-4) Page 56 Doing Business 2020 Sri Lanka Resolving Insolvency - Sri Lanka Indicator Sri Lanka South Asia OECD high Best Regulatory income Performance Recovery rate (cents on the dollar) 43.0 38.1 70.2 92.9 (Norway) Time (years) 1.7 2.2 1.7 0.4 (Ireland) Cost (% of estate) 10.0 9.9 9.3 1.0 (Norway) Outcome (0 as piecemeal sale and 1 as going concern) 0 .. .. .. Strength of insolvency framework index (0-16) 7.0 6.5 11.9 None in 2018/19 Figure – Resolving Insolvency in Sri Lanka – Score 46.3 43.8 Recovery rate Strength of insolvency framework index Figure – Resolving Insolvency in Sri Lanka and comparator economies – Ranking and Score DB 2020 Resolving Insolvency Score 0 100 62.0: India (Rank: 52) 59.0: Pakistan (Rank: 58) 45.0: Sri Lanka (Rank: 94) 40.8: Regional Average (South Asia) 33.3: Maldives (Rank: 141) 28.1: Bangladesh (Rank: 154) Note: The ranking of economies on the ease of resolving insolvency is determined by sorting their scores for resolving insolvency. These scores are the simple average of the scores for the recovery rate and the strength of insolvency framework index. Page 57 Doing Business 2020 Sri Lanka Figure – Resolving Insolvency in Sri Lanka – Time and Cost Time (years) Cost (% of estate) 4.5 12 4.0 4 9.9 10.0 9.3 10 Cost (% of estate) 3.5 9.0 8.0 Time (years) 3 2.6 8 2.5 2.2 6 2 1.6 1.7 1.7 1.5 4.0 4.0 1.5 4 1 2 0.5 0 0 Bangladesh India Maldives OECD Pakistan South Sri high Asia Lanka income Page 58 Doing Business 2020 Sri Lanka Figure – Resolving Insolvency in Sri Lanka and comparator economies – Measure of Quality Sri Lanka 3 2.5 1 0.5 Bangladesh 2 2 0 India 4.5 2 1 0 Maldives 0 2 0 Pakistan 5.5 2.5 2 1.5 OECD high income 5.3 2.8 2.1 1.9 South Asia 3.6 2.1 0.9 0.6 0 2 4 6 8 10 12 14 Sub-Indicator Score Management of debtor's assets index (0-6) Commencement of proceedings index (0-3) Creditor participation index (0-4) Reorganization proceedings index (0-3) Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice.” Figure – Resolving Insolvency in Sri Lanka and comparator economies – Recovery Rate Recovery rate(cents on the dollar) 80 71.6 70 60 50.2 50 43.0 42.8 38.1 40 29.1 30 20 10 0 Sri Lanka Bangladesh India Maldives Pakistan South Asia Page 59 Doing Business 2020 Sri Lanka Details – Resolving Insolvency in Sri Lanka Indicator Answer Score Proceeding foreclosure As per provisions of the new Companies Act No. 7 of 2007, secured creditors are totally exempted from an automatic stay. Therefore, after Mirage's default on payment, BizBank would initiate foreclosure trying to recoup the investment as soon as possible by filing the petition at the High Court. Outcome piecemeal sale The hotel will stop operating and Mirage assets will be sold piecemeal by the court-appointed auctioneer after the foreclosure proceeding. Time (in years) 1.7 The foreclosure procedure takes approximate 1.7 years until BizBank is repaid some or all of the money owed to it. BizBank would initiate foreclosure after 60 days since Mirage's default on payment. It takes at least half a year for the High Court to make the initial decision on BizBank's petition. Mirage would be given another 60 days to appeal the decision followed by the Court's final decision (another 2 months). The appeal will take several months. The preparation and execution of the auction sale until BizBank receives the sale proceeds usually takes at least 3 months. Cost (% of estate) 10.0 The costs associated with the case would amount to approximately 10% of the value of the debtor's estate. Cost incurred during the entire insolvency process mainly include court or government agency fees (<1%), attorney fees (5%), costs of notification and publication (<1%), ), fees of accountants, assessors, inspectors and other professionals (1%), and fees of auctioneers (5%), additional cost related to the auction (1%). Recovery rate 43.0 (cents on the dollar) Page 60 Doing Business 2020 Sri Lanka Details – Resolving Insolvency in Sri Lanka – Measure of Quality Answer Score Strength of insolvency framework index (0-16) 7.0 Commencement of proceedings index (0-3) 2.5 What procedures are available to a DEBTOR when commencing insolvency proceedings? (a) Debtor may file for 1.0 both liquidation and reorganization Does the insolvency framework allow a CREDITOR to file for insolvency of the debtor? (b) Yes, but a creditor 0.5 may file for liquidation only What basis for commencement of the insolvency proceedings is allowed under the insolvency framework? (a) (a) Debtor is 1.0 Debtor is generally unable to pay its debts as they mature (b) The value of debtor's liabilities exceeds the value generally unable to of its assets pay its debts as they mature Management of debtor's assets index (0-6) 3.0 Does the insolvency framework allow the continuation of contracts supplying essential goods and services to the No 0.0 debtor? Does the insolvency framework allow the rejection by the debtor of overly burdensome contracts? Yes 1.0 Does the insolvency framework allow avoidance of preferential transactions? Yes 1.0 Does the insolvency framework allow avoidance of undervalued transactions? Yes 1.0 Does the insolvency framework provide for the possibility of the debtor obtaining credit after commencement of No 0.0 insolvency proceedings? Does the insolvency framework assign priority to post-commencement credit? (c) No priority is 0.0 assigned to post- commencement creditors Reorganization proceedings index (0-3) 0.5 Which creditors vote on the proposed reorganization plan? (a) All creditors 0.5 Does the insolvency framework require that dissenting creditors in reorganization receive at least as much as No 0.0 what they would obtain in a liquidation? Are the creditors divided into classes for the purposes of voting on the reorganization plan, does each class vote No 0.0 separately and are creditors in the same class treated equally? Creditor participation index (0-4) 1.0 Does the insolvency framework require approval by the creditors for selection or appointment of the insolvency Yes 1.0 representative? Does the insolvency framework require approval by the creditors for sale of substantial assets of the debtor? No 0.0 Does the insolvency framework provide that a creditor has the right to request information from the insolvency No 0.0 representative? Does the insolvency framework provide that a creditor has the right to object to decisions accepting or rejecting No 0.0 creditors' claims? Note: Even if the economy’s legal framework includes provisions related to insolvency proceedings (liquidation or reorganization), the economy receives 0 points for the strength of insolvency framework index, if time, cost and outcome indicators are recorded as “no practice.” Page 61 Doing Business 2020 Sri Lanka Employing Workers Doing Business presents detailed data for the employing workers indicators on the Doing Business website (http://www.doingbusiness.org). The study does not present rankings of economies on these indicators or include the topic in the aggregate ease of doing business score or ranking on the ease of doing business. The most recent round of data collection was completed in May 2019. See the methodology for more information. What the indicators measure Case study assumptions Hiring To make the data comparable across economies, several assumptions about the worker and the (i) whether fixed-term contracts are prohibited for permanent business are used. tasks; (ii) maximum cumulative duration of fixed-term contracts; (iii) length of the maximum probationary period; (iv) minimum The worker: wage;(v) ratio of minimum wage to the average value added per - Is a cashier in a supermarket or grocery store, age 19, with one year of work experience. worker. - Is a full-time employee. - Is not a member of the labor union, unless membership is mandatory. Working hours (i) maximum number of working days allowed per week; (ii) The business: premiums for work: at night, on a weekly rest day and overtime; - Is a limited liability company (or the equivalent in the economy). (iii) whether there are restrictions on work at night, work on a - Operates a supermarket or grocery store in the economy’s largest business city. For 11 weekly rest day and for overtime work; (iv) length of paid annual economies the data are also collected for the second largest business city. leave. - Has 60 employees. - Is subject to collective bargaining agreements if such agreements cover more than 50% of the Redundancy rules food retail sector and they apply even to firms that are not party to them. (i) whether redundancy can be basis for terminating workers; (ii) - Abides by every law and regulation but does not grant workers more benefits than those whether employer needs to notify and/or get approval from third mandated by law, regulation or (if applicable) collective bargaining agreements. party to terminate 1 redundant worker and a group of 9 redundant workers; (iii) whether the law requires employer to reassign or retrain a worker before making worker redundant; (iv) whether priority rules apply for redundancies and reemployment. Redundancy cost (i) notice period for redundancy dismissal; (ii) severance payments, and (iii) penalties due when terminating a redundant worker. Data on the availability of unemployment protection for a worker with one year of employment is also collected. Page 62 Doing Business 2020 Sri Lanka Employing Workers - Sri Lanka Details – Employing Workers in Sri Lanka Answer Hiring Fixed-term contracts prohibited for permanent tasks? No Maximum length of a single fixed-term contract (months) No limit Maximum length of fixed-term contracts, including renewals (months) No limit Minimum wage applicable to the worker assumed in the case study (US$/month) 84.9 Ratio of minimum wage to value added per worker 0.2 Maximum length of probationary period (months) n.a. Working hours Standard workday 8.0 Maximum number of working days per week 5.5 Premium for night work (% of hourly pay) 0.0 Premium for work on weekly rest day (% of hourly pay) 0.0 Premium for overtime work (% of hourly pay) 50.0 Restrictions on night work? Yes Restrictions on weekly holiday? No Restrictions on overtime work? No Paid annual leave for a worker with 1 year of tenure (working days) 14.0 Paid annual leave for a worker with 5 years of tenure (working days) 14.0 Paid annual leave for a worker with 10 years of tenure (working days) 14.0 Paid annual leave (average for workers with 1, 5 and 10 years of tenure, in working days) 14.0 Redundancy rules Dismissal due to redundancy allowed by law? Yes Third-party notification if one worker is dismissed? Yes Third-party approval if one worker is dismissed? Yes Third-party notification if nine workers are dismissed? Yes Third-party approval if nine workers are dismissed? Yes Retraining or reassignment obligation before redundancy? No Priority rules for redundancies? No Priority rules for reemployment? No Redundancy cost Notice period for redundancy dismissal for a worker with 1 year of tenure (weeks of salary) 4.3 Notice period for redundancy dismissal for a worker with 5 years of tenure (weeks of salary) 4.3 Notice period for redundancy dismissal for a worker with 10 years of tenure (weeks of salary) 4.3 Notice period for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure, in weeks of salary) 4.3 Severance pay for redundancy dismissal for a worker with 1 year of tenure (weeks of salary) 10.8 Severance pay for redundancy dismissal for a worker with 5 years of tenure (weeks of salary) 54.2 Page 63 Doing Business 2020 Sri Lanka Severance pay for redundancy dismissal for a worker with 10 years of tenure (weeks of salary) 97.5 Severance pay for redundancy dismissal (average for workers with 1, 5 and 10 years of tenure, in weeks of salary) 54.2 Unemployment protection after one year of employment? No Page 64 Doing Business 2020 Sri Lanka Business Reforms in Sri Lanka From May 2, 2018 to May 1, 2019, 115 economies implemented 294 business regulatory reforms across the 10 areas measured by Doing Business. Reforms inspired by Doing Business have been implemented by economies in all regions. The following are reforms implemented since Doing Business 2008. =Doing Business reform making it easier to do business. = Change making it more difficult to do business. DB2019 Dealing with Construction Permits: Sri Lanka made dealing with construction permits easier by launching a single window, increasing transparency by providing online access to building regulations and reducing the processing times to issue several building certificates. Registering Property: Sri Lanka made property registration easier by implementing a single window to streamline the process of delivering several certificates and increased transparency by providing online access to cadastral information. Paying Taxes: Sri Lanka made paying taxes easier by introducing online systems for filing corporate income tax, value added tax and employee trust fund contributions Enforcing Contracts: Sri Lanka made enforcing contracts easier by introducing a pre-trial conference as part of the case management techniques used in court. DB2018 Trading across Borders: Sri Lanka made exporting and importing easier by developing a customs single window. DB2017 Starting a Business: Sri Lanka made starting a business easier by removing the stamp duty on newly issued shares. Protecting Minority Investors: Sri Lanka strengthened minority investor protections by requiring board and in some cases shareholder approval of related-party transactions and by requiring that such transactions undergo external review. DB2016 Starting a Business: Sri Lanka made starting a business easier by eliminating the requirement to notify the Registrar of Companies of the payment of stamp duty for the initial issuance of shares. Dealing with Construction Permits: Sri Lanka made dealing with construction permits less time-consuming by streamlining the internal review process for building permit applications. DB2015 Paying Taxes: Sri Lanka made paying taxes more costly for companies by increasing the reduced corporate income tax rate for qualifying small and medium-size enterprises. DB2014 Dealing with Construction Permits: Sri Lanka made dealing with construction permits easier by eliminating the requirement to obtain a tax clearance and by reducing building permit fees. Getting Electricity: Sri Lanka made getting electricity easier by improving the utility’s internal workflow and by reducing the time required to process new applications for connections. Paying Taxes: Sri Lanka made paying taxes easier for companies by introducing an electronic filing system for social security contributions. Trading across Borders: Sri Lanka made trading across borders easier by introducing an electronic payment system for port services. DB2013 Starting a Business: Sri Lanka made starting a business easier by computerizing and expediting the process of obtaining a registration number for the Employees Provident Fund and Employees Trust Fund. Registering Property: Sri Lanka made registering property faster by introducing an electronic system at the Land Registry in Colombo. Getting Credit: Sri Lanka strengthened its secured transactions system by establishing an electronic, searchable collateral registry and issuing regulations for its operation. Trading across Borders: Sri Lanka reduced the time to export by implementing the ASYCUDA World electronic data interchange system. DB2012 Protecting Minority Investors: Sri Lanka strengthened investor protections by requiring greater corporate disclosure in case of transactions between interested parties. Paying Taxes: Sri Lanka made paying taxes less costly for businesses by abolishing the turnover tax and social security contribution and by reducing corporate income Page 65 tax, value added tax and national building tax rates. Doing Business 2020 Sri Lanka DB2011 Paying Taxes: Sri Lanka made paying taxes more difficult by introducing a new tax called the Nation Building Tax (NBT) as of February 1, 2009 at a rate of 1% on the turnover. DB2010 Dealing with Construction Permits: Sri Lanka made dealing with construction permits more difficult by increasing some fees and adding a procedure. Getting Credit: Sri Lanka improved access to credit information through a consolidation of systems at the private credit bureau allowing all shareholder lending institutions to submit credit data, with no minimum threshhold for the loans to be reported to the database. DB2009 Getting Credit: Sri Lanka improved access to credit by strengthening its secured transactions system through its new company act, under which secured creditors’ claims are no longer frozen when the company goes into liquidation and by setting up an online system for banks to share credit information at the private credit bureau, collecting data on all loans from financial institutions and distributing historical credit information covering a longer period. DB2008 Starting a Business: Sri Lanka made starting a business easier by eliminating burdensome requirements for approvals, introducing a flat registration fee and making company seals and the use of notaries optional. Getting Credit: In Sri Lanka the private credit bureau increased the minimum threshold for loans on which negative information is distributed from 100,000 Sri Lanka rupees to 500,000. Trading across Borders: Sri Lanka made trading across borders easier by introducing a new electronic data interchange system that enables electronic submission and processing of customs declarations and cargo manifests and by providing for legal recognition of electronic documents and contracts. Page 66 Doing Business 2020 Sri Lanka Page 67