Foreign exchange is the purchase or sale of one national currency in exchange for another nation's currency, usually conducted in a market setting. Foreign exchange makes possible international transactions such as imports and exports and the movement of capital between countries. The value of one foreign currency in relation to another is defined by the exchange rate.
Capital Transactions
Foreign exchange transactions relating to acquisition/sale of real and /or financial assets are classified as capital account transactions. The sequential liberalization of capital transactions was started in the early 1990s and still continues.
Investment Abroad
Applications are made by Sri Lankan residents to the Controller of Exchange for release of foreign exchange to make investments abroad. Where such investments involve the acquisition of shares prescribed under Section 17 of the Exchange Control Act, the law requires that the investments could be made only with the permission of the Hon. Minister of Finance.
Foreign Currency Accounts
Resident individuals and companies are free to open the following foreign currency accounts in the Domestic Banking Unit (DBU).
- Non-Resident Foreign Currency (NRFC) Accounts
- Resident Foreign Currency (RFC) Accounts
- Exporters Foreign Currency Accounts (EFCA)
- Foreign Currency Account for Professional Services Providers (FCAPS)
Non Resident Foreign Currency Accounts (NRFC)
NRFC accounts should be opened in the name of Sri Lankan Nationals or Non-Nationals who had at any time been a Sri Lanka national, while they are resident abroad or within 90 days of their return to Sri Lanka after employment abroad. These accounts may be held jointly, provided all joint account holders confirm these conditions. Funds in the accounts are freely remittable for current international transactions and for the transfer of funds from one NRFC account to another. Income on NRFC funds are exempted from income tax and the NRFC account holders are eligible for loans up to 90% of the funds available in the accounts on pledging their NRFC accounts as a collateral for the loan. Credit card facilities are available against the funds in the NRFC accounts.
NRFC accounts should be opened in the name of Sri Lankan Nationals or Non-Nationals who had at any time been a Sri Lanka national, while they are resident abroad or within 90 days of their return to Sri Lanka after employment abroad. These accounts may be held jointly, provided all joint account holders confirm these conditions. Funds in the accounts are freely remittable for current international transactions and for the transfer of funds from one NRFC account to another. Income on NRFC funds are exempted from income tax and the NRFC account holders are eligible for loans up to 90% of the funds available in the accounts on pledging their NRFC accounts as a collateral for the loan. Credit card facilities are available against the funds in the NRFC accounts.
Resident Foreign Currency (RFC) Accounts
Individuals whether citizens or non-citizens resident in Sri Lanka who are in a position to deposit foreign currency to a minimum of US$ 100 or its equivalent in other convertible currencies out of inward remittances and/or currencies brought into the country can open RFC accounts. These accounts may be held jointly. Interest income on RFC funds are exempted from income tax.
Exporters Foreign Currency Account (EFCA)
Merchandise Exporters are eligible to open Exporters Foreign Currency Accounts (EFCA) utilizing their export proceeds. These accounts may be maintained in the form of Current/Savings/Fixed Deposit accounts with the Domestic Banking Unit (DBU) of any Commercial Bank in Sri Lanka. These export proceeds cannot be credited to any bank account in Sri Lanka which qualifies for tax exemptions or amnesty, such as Non Resident Foreign Currency (NRFC) or Resident Foreign Currency (RFC) accounts.
Foreign Currency Accounts for Professional Services Providers (FCAPS)
This scheme has been introduced for individuals, firms or companies in Sri Lanka for those who provide professional services to residents outside Sri Lanka and/or to local firms or companies earning foreign exchange. This account was expected to encourage professional services providers, who render their services to residents outside Sri Lanka and/or to local firms or companies who earn foreign exchange.
This scheme has been introduced for individuals, firms or companies in Sri Lanka for those who provide professional services to residents outside Sri Lanka and/or to local firms or companies earning foreign exchange. This account was expected to encourage professional services providers, who render their services to residents outside Sri Lanka and/or to local firms or companies who earn foreign exchange.
Last Updated on: 19-05-2010
