Sri Lanka introduces new international residency scheme
The Government is planning to introduce a scheme somewhat akin to the ‘ Malaysia My Second Home’ via introduction of a new law in Sri Lanka. For this purpose a Bill dated May 29, 2017 has been specifically published and is yet to be enacted in to Law.
The preamble reads an “Act to provide for a special deposit account for foreign nationals to remit foreign exchange in to Sri Lanka and for matters connected therewith or incidental thereto.” Once enacted, this statute will be termed ‘Special Deposit Account Act.’ The bill envisages a foreign national who opens and maintains a special deposit account in a commercial bank being eligible to obtain residency visa up to a period of 10 years from the date of opening the Special Deposit Account (SDA) subject to the criteria laid down in the bill. Subject to conditions the spouse and the minor children are also eligible for the residency visas. The Malaysian scheme also grants a 10-year residency visa but could be renewed at the end of the term. The SDA fails to address the issue of renewal on the expiry of the term.
A foreign national in order to obtain the benefit of the residency visa has to deposit a minimum of US$500,000 (approximately Rs. 75 million). Alternatively, an equivalent amount could be deposited in alternative foreign currencies specified in the schedule to the bill; i.e. Australian, Singapore, Canadian dollars, Euro, British pound, Japanese yen or Swiss franc. The Bill has reserved the right of the Minister of Finance by regulation to add any other convertible foreign currency to the above list.
The financial investment criteria in the Malaysian scheme is minimal compared to the requirements in the SDA Bill and is depended upon the age of the participant. While the minimum requirement in Sri Lanka is $800,000 for both main visa holder and spouse, the Malaysian scheme only requires approximately $200,000 and a monthly foreign income of $2500 for a person under 50 years and $75,000 and a monthly foreign pension of $2,500 for a person over 50 years. The spouse and the dependent children below 21 years could also obtain a visa under the Malaysian scheme without any additional investment.
A comparison of the quantum of deposit criteria in the Malaysian scheme reveals that whilst the SDA requires a minimum of $500,000 up front, under the Malaysian scheme an equivalent sum could be spread across 10 years i.e. initial deposit of $200,000 and monthly income of $2,500 during the period of the visa for persons below 50 years. In case of persons over 50 years the Malaysian scheme requires initial deposit of $75,000 and monthly pension income of $2,500 during the period of the visa.
Residency visa issued under this scheme does not permit the account holder to engage in any paid employment unless a working visa is secured under the normal laws similar to the Malaysian scheme.
Minimum investment in SDA
The failure to maintain the minimum amount of $ 500,000 in the SDA would result in a burden being imposed on the commercial bank to inform the Controller of Immigration and Emigration within seven days after the expiry of the grace period of one month of such account not meeting the minimum balance.
Permissible investments
A foreign national who makes such a deposit into a SDA is not barred from utilizing such amount for investment in Sri Lanka. However, such investments should be carried out within the parameters of the regulations to be issued by the Minister of Finance in future.
The bill is silent as to who should be the authority to monitor that such permitted investments are being carried out in the prescribed manner and to also whom such proof of investment be admitted. The bill stipulates the failure to adduce to the continuance of the investment in the permitted area should be reported to the Controller of Immigration and Emigration by the commercial bank. The practicality of imposing this burden on the commercial bank should be analyzed further in the context of the permissible investments to be regulated. Under the Malaysia scheme permissible investments include investment in stock market, unit trusts or local companies.
Other causes for cancellation of visa
Death and bankruptcy of the account holder could also be causes for the cancellation of a visa. The bill also contains a subjective and ambiguous provision for cancellation of visa being “the account holder being suspected of treason.” It is significant to note that the cancellation is due to a mere ‘suspicion’ and not ‘conviction’ or ‘charge’. The bill is silent as to whether the suspicion of treason is in the eyes of the Government of Sri Lanka or a foreign government. The interpretation section of the bill does not contain a definition for the word ‘ treason’. The word treason is defined in the Oxford dictionary as “the crime of betraying one's country, especially by attempting to kill or overthrow the sovereign or Government”.
The account holder failing to route foreign exchange utilized for investment purposes through the account is also a reason for cancellation of the visa.
During the period of the visa the SDA should continue to be maintained and the closure of the account is a cause for cancellation of the visa.
Visa for spouse and children
As per the provisions of the bill a spouse of the deposit holder is also eligible for a Residency Visa if an additional $300,000 (Rs.45 million) is deposited in to the same SDA. For a deposit of $800,000 (about Rs.120 million) a deposit holder and spouse will both enjoy visas up to a maximum term of 10 years. However, the validity of the visa of the spouse is conditional upon validity of the visa of the main deposit holder.
As per the bill, upon the death of the main deposit holder, the spouse stands to lose the residency visa. However, one should appreciate that if the wife is the heir to the wealth of the husband upon his demise including the sum in the special deposit account, there is no logic for depriving the residency visa to the wife for the balance period. Perhaps this aspect warrants a revisit by the policy makers to add an additional condition for the wife to enjoy the residency visa for the balance period subject to conditions.
Minor children (below 18 years) of the foreign national unlike in the case of the spouse are entitled for residency visa without any additional deposit. However, such a minor child reaching the age of 18 stands to lose the residency visa. Similar to the case of the spouse, a minor child’s resident visa is also conditional upon the validity of the visa of the main participant.
Medical certificate and insurance
In addition to financial requirements, the Malaysian scheme requires participants/spouse and minor children to forward medical certificates and be covered with medical insurance during the stay subject to exceptions. It is recommended the SDA should also encompass a medical requirement for issuance of residency visa.
Tax benefit to the deposit holder
A salient feature of the bill is that a deposit holder is free from any tax or any other levies with regard to the foreign sourced income (derived from outside Sri Lanka). The bill also extends the tax free status on the “interest on income accrued or capital in the account.” The bill has reserved the right to the Central Bank to impose an administrative or operational levy on the deposit holder.
A significant point that requires the attention of the policy maker is that the income tax free status has been granted under the provision of the Inland Revenue Act No 10 of 2006 which is currently in operation. However, a brand new Inland Revenue Act (IRA) led by the International Monetary Fund (IMF) is in the pipeline and the draft of the proposed IRA prohibits granting of any income tax exemption from any other statute other than under the contemplated IRA. Hence if the aforesaid income tax release stipulated in the SDA is to be effective, it must be entrenched in the provisions of the proposed new IRA. On the other hand, this barrier could be overcome by the policymakers by enacting the SDA in Parliament prior to the commencement of the new income tax regime.
In addition to the foreign source income being free from income tax in the Malaysian law, a participant is allowed to import a personal motor vehicle sans any duty ( under Malaysia scheme).
Dual citizens
A ‘foreign national’ has been defined to include a dual citizen as well. As such a dual citizen has the opportunity of remitting the stipulated sum of $500,000 and enjoy the tax benefit as specified in the SDA, if a similar benefit is not available for a ‘resident’ in the new IRA.
Existing Resident Guest Scheme Visa
At present, Sri Lanka also has a ‘Resident Guest Scheme Visa’ in operation. This was introduced for prospective investors and professionals who would contribute to the economic and socio cultural development of Sri Lanka.
Under the investor category, any foreign national may obtain a residency visa but for a period of five years on investment of $250,000 which should be deposited in a special account in any commercial bank. A further sum of $ 35,000 should be deposited for each dependent accompanying the investor. Funds remitted should be invested in an approved project such as new ventures subject to BOI approval, existing or new companies subject to relevant authority approvals and listed shares.
A professional may obtain the residency visa on remitting $2,000 per month for him and $ 1,000 per month for each dependent, including spouse for living expenses.
One stop shop
‘Malaysia My Second Home’ scheme is set up under the Ministry of Tourism. However, as per the bill the Sri Lankan scheme is under the preview of the Minister of Finance. Perhaps it is more efficient for the scheme to be promoted by the ministry in charge of tourism rather than by the Ministry of Finance.
A ‘ one stop shop centre’, affording much convenience to the applicants could be created if the visa issuance process under the scheme is also to be under the supervision of the Ministry of Tourism.