SATV, Kathmandu, April. 12 - Sri Lanka’s newly introduced Beneficial Ownership (BO) framework risks leaving a significant portion of offshore corporate structures outside its transparency net, due to a drafting gap, a tax and regulatory expert warned.
KPMG Principal Tax and Regulatory Suresh Perera said Companies (Amendment) Act No. 12 of 2025, which introduced sections 130A to 130J to strengthen ownership disclosure, fails to fully capture the offshore entities operating under different legal pathways, particularly those linked to the Colombo Port City regime.
The BO framework was designed to align Sri Lanka with the Financial Action Task Force standards by requiring the companies to disclose individuals holding at least a 10 percent ownership stake, maintain internal registers and report the changes to the authorities. However, its application is limited by the wording of Section 130A(10), which applies only to the offshore companies incorporated outside Sri Lanka and registered under the Companies Act.
“Despite these robust measures, a significant drafting oversight in the 2025 Amendment leaves the majority of offshore companies, including all Port City offshore companies and offshore companies registered after local incorporation under the Companies Act completely outside the BO regime,” Perera noted.
He explained that Sri Lanka recognises four pathways for establishing offshore companies but only one falls within the BO disclosure requirement. The entities operating through the Colombo Port City framework or those incorporated locally and later granted offshore status remain exempt, due to the legal inconsistencies between the Companies Act and Port City Economic Commission Act.
The Port City law, particularly Section 41(5), provides overriding provisions that exempt such companies from complying with parts of the Companies Act, effectively placing them outside the BO reporting regime.
“This gap was not a deliberate policy decision but a classic failure to harmonise two statutes,” Perera said, warning that the oversight could weaken the effectiveness of Sri Lanka’s transparency reforms.
The implications are significant, with the BO register, intended as a central tool to curb illicit financial flows, covering only a limited segment of offshore entities. Analysts say this could pose reputational risks, especially as Sri Lanka seeks to maintain compliance with the global anti-money laundering standards and position the Port City as a credible international financial hub.
Perera stressed that a targeted legislative amendment would be required to extend BO obligations across all offshore structures, including those governed by the Port City Act, to close the loophole and safeguard the integrity of the reform.
