Wondering what is best business to start in a rapidly developing market? Sri Lanka attracted approximately $730 million in foreign direct investment in 202328, making it an increasingly appealing destination for international entrepreneurs. Over the past decade, 748 new startups have launched in the country, with projections suggesting this number will exceed 1,000 by 202529.
When considering how to start a business in Sri Lanka, understanding the most popular business sectors is essential. The ICT industry has established itself as the country’s second-largest export earner30, while the government actively seeks to expand investment in renewable energy, agriculture, electronics, and light manufacturing28. For those exploring what is best small business to start with limited capital, the minimum investment requirement of US$250,000 for section 16 projects28 offers an entry point. Additionally, physical business ideas in export-oriented manufacturing benefit from attractive incentives, including a corporate income tax rate of just 14% for five years28.
In this comprehensive market analysis, we’ll examine Sri Lanka’s business landscape, explore lucrative sectors generating $14.9 billion in total exports7, and highlight the stable legal framework and robust infrastructure that support foreign investment31. Whether you’re seeking significant returns or researching what is best business to start with little money, our guide provides the essential insights needed for successful investment in Sri Lanka’s promising market.
Macroeconomic Outlook and FDI Trends in Sri Lanka (2025)
Sri Lanka’s economic landscape shows remarkable resilience in 2025, making it an ideal time to discover what is best business to start in this recovering market. The IMF-supported reforms have dramatically transformed the economy, creating new opportunities for entrepreneurs.
IMF Program Impact on Inflation and Currency Stability
The Extended Fund Facility (EFF) program has yielded impressive results for Sri Lanka’s macroeconomic stability. Following bold reforms, economic growth reached 5% in 202432, outperforming expectations. Furthermore, inflation has been effectively tamed, dropping dramatically from double digits to negative territory at -1.1% in 2025Q233, creating a stable environment for businesses.
Currency stability has improved significantly, with gross international reserves climbing to $6.5 billion by end-March 202534, representing more than 3-4 months of import coverage4. This stability makes 2025 an opportune time for considering how to start a business in Sri Lanka with reduced currency risk.
Debt Restructuring Progress and Investor Confidence
Sri Lanka’s debt restructuring efforts have delivered substantial relief. External creditors have forgiven $3 billion in debt and restructured another $25 billion, extending repayment over two decades at lower interest rates32. As a result, external debt service as a share of GDP has been halved over the next decade32.
Consequently, investor confidence is rebounding. Sri Lanka’s country rating was upgraded from ‘Restricted Default’ to ‘CCC’5, and its bonds are once again included in global indices32. For entrepreneurs exploring what is best small business to start, this improved investment climate offers access to more stable financing conditions.
2025 FDI Target vs. 2023 Performance
Sri Lanka has set an ambitious target of attracting $1.8 billion in FDI for 20256, substantially higher than the $730 million recorded in 20237. Early signs are promising, with FDI more than doubling in the first half of 2025 to $507 million8 compared to the same period last year.
The most popular business sectors driving this growth include port development, manufacturing, tourism and hospitality, and services8. Despite these gains, challenges remain as the World Bank projects GDP growth to moderate to 3.5% in 20259, primarily due to trade policy uncertainties and global headwinds. For entrepreneurs seeking physical business ideas, these growth sectors present tangible opportunities with significant potential returns.
Top Performing Business Models for Foreign Investors
Foreign investors seeking profitable ventures in Sri Lanka have several lucrative opportunities across established sectors. For those wondering what is best business to start in this strategically located island nation, four models consistently demonstrate exceptional returns.
Export-Oriented Manufacturing in BOI Zones
Sri Lanka’s 15 free trade zones, also called export processing zones, offer excellent conditions for manufacturing ventures10. Foreign investors enjoy identical investment opportunities as local entities within these zones. Notably, companies can import project-related materials duty-free, though other taxes may apply10. The apparel sector leads exports, generating USD 5.60 billion in 202211. For entrepreneurs exploring how to start a business in Sri Lanka, BOI zones provide streamlined processes through SWIFT (Single Window Investment Facilitation Taskforce)10.
IT and BPM Services with 25-Year Tax Holidays
First and foremost, Sri Lanka’s IT and BPM sector has emerged as a regional hub, generating an estimated USD 2 billion in export revenue in 2023 with over 144,000 IT-BPM professionals employed12. Major multinationals including EY GDS, Virtusa, and HSBC have affirmed their commitment to Sri Lanka12. For those searching for what is best small business to start, the IT sector offers opportunities in software development, fintech, and IT-enabled services13. The government supports this most popular business sector through substantial tax holidays and reduced import duties for equipment13.
Tourism and Hospitality Ventures in High-Growth Corridors
The tourism industry presents compelling physical business ideas for foreign investors. Specifically, the BOI has designated several high-potential projects: the Integrated Tourism Resort in Kalpitiya (556 acres, USD 200 million minimum investment) and the Lake Resort Development in Dedduwa (1,800 acres, USD 500 million minimum investment)14. For investors with modest capital wondering what is best business to start with little money, boutique hotels near cultural heritage sites offer viable entry points15.
Renewable Energy Projects under National Sustainability Goals
Subsequently, the renewable energy sector presents substantial opportunities under Sri Lanka’s goal of achieving 70% renewable energy generation by 203016. In June 2025, the World Bank approved a USD 150 million program to support clean energy transition2. This program aims to add 1 gigawatt of clean electricity to the grid and is expected to mobilize more than USD 800 million in private investment2. Investors can participate in solar, wind, biomass, and hydropower projects, with the government planning substantial capacity additions by 203016.
Legal and Regulatory Framework for Foreign Ownership
Understanding Sri Lanka’s legal landscape is crucial before deciding what is best business to start as a foreign investor. The regulatory framework provides both protections and limitations that shape investment decisions.
Land (Restrictions on Alienation) Act and BOI Exemptions
The Land Act prohibits the sale of land to foreigners, foreign companies, and Sri Lankan companies with 50% or more foreign ownership17. However, several exemptions exist, primarily for condominium properties where payment is made upfront through foreign remittances17. Additionally, companies listed on the Colombo Stock Exchange with foreign shareholding of 50% or more are exempt from these restrictions since April 201817. For entrepreneurs exploring how to start a business in Sri Lanka, long-term leases up to 99 years remain unrestricted, subject only to a 15% Land Lease Tax17.
Section 16 vs Section 17 BOI Approvals
The Board of Investment offers two registration pathways. Section 16 approvals require a minimum investment of USD 250,000 and provide routine incorporation assistance without fiscal concessions18. In contrast, Section 17 approvals, requiring USD 3 million minimum investment, offer substantial benefits including tax concessions, customs duty exemptions, and exchange control exemptions18. For those considering what is best small business to start with little money, Section 16 provides the lower investment entry point.
Foreign Exchange Act and Capital Repatriation Rights
The Foreign Exchange Act (2017) governs all foreign currency transactions19. Remarkably, Sri Lanka permits 100% repatriation of profits for foreign investors3. All inward investments must be routed through Inward Investment Accounts (IIAs) with licensed commercial banks20. This structure ensures that subsequent repatriation of dividends and capital proceeds occurs smoothly20. For most popular business models, these guarantees provide essential financial security.
Visa and Residency Support for Expatriate Staff
The BOI facilitates work visas for expatriate personnel in registered companies7. Residence visas are available for workers and dependents, albeit subject to labor market testing21. This support is particularly valuable for physical business ideas requiring specialized foreign expertise.
Incentives, Protections, and Entry Requirements
Sri Lanka offers one of the most attractive incentive packages for foreign investors in South Asia, especially for those researching what is best business to start with substantial capital.
Tax Concessions under Section 17 for USD 3M+ Projects
Projects meeting the USD 3 million threshold receive exceptional fiscal benefits. Firstly, investors enjoy enhanced capital allowances ranging from 100% to 150% in addition to normal depreciation22. Moreover, projects in the Northern Province receive an impressive 200% enhanced capital allowance22. Select sectors benefit from reduced corporate income tax rates between 14% and 18%, while agro farming, IT services, and export services enjoy zero corporate income tax22. For projects exceeding USD 50 million, the government provides PAL and CESS exemptions during implementation1.
100% Profit Repatriation and Exchange Control Exemptions
Undoubtedly, one of the strongest attractions for entrepreneurs exploring how to start a business in Sri Lanka is the complete freedom to repatriate profits. Foreign investors can transfer 100% of their profits outside the country3. Essentially, Section 17 companies receive exemptions from most exchange control regulations22, creating a remarkably business-friendly environment for what is best small business to start with international backing.
Minimum Investment Thresholds for BOI Registration
The entry point for foreign investment through Section 16 is USD 250,0001. Nevertheless, for trading activities, a minimum remittance of USD 5 million is required23. Under those circumstances, investors seeking tax concessions must qualify under Section 17 with minimum investments of USD 3 million24.
Protection from Nationalization under Article 157
Article 157 of Sri Lanka’s constitution markedly strengthens investor confidence by guaranteeing protection of investment agreements approved by parliament25. Currently, Sri Lanka has signed bilateral Investment Protection Agreements with 25 countries26. This constitutional safeguard explicitly prohibits legislation that contravenes investment protection treaties “otherwise than in the interests of national security”27.
Conclusion
Sri Lanka undoubtedly presents compelling investment opportunities for foreign entrepreneurs in 2025. Throughout this analysis, we have examined several promising sectors with significant growth potential. The ICT industry stands as the second-largest export earner, while manufacturing, tourism, and renewable energy sectors offer substantial returns on investment. The country’s economic resilience, demonstrated by 5% growth in 2024 and inflation dropping to -1.1%, creates a stable foundation for business ventures.
Foreign investors benefit significantly from the various entry points available. Section 16 BOI approvals require a modest $250,000 investment, making this market accessible even for those with limited capital. Meanwhile, larger investors can leverage the extensive tax concessions offered under Section 17 approvals, including reduced corporate income tax rates between 14-18% and enhanced capital allowances.
Constitutional protections against nationalization provide peace of mind, while 100% profit repatriation rights ensure financial flexibility. The government’s active pursuit of $1.8 billion in FDI for 2025 has created a welcoming environment through streamlined processes and dedicated investment zones.
Challenges still exist within this emerging market. Land ownership restrictions and minimum investment thresholds for certain activities require careful navigation. Therefore, conducting thorough due diligence remains essential before committing capital. Should you need personalized guidance about specific investment opportunities in Sri Lanka, please contact our team for better advice tailored to your investment goals and risk tolerance.
Finally, as Sri Lanka continues its economic transformation, early movers stand to gain competitive advantages across multiple sectors. The combination of strategic location, growing infrastructure, skilled workforce, and attractive incentives positions the country as one of South Asia’s most promising investment destinations for 2025 and beyond.
References
[1] – https://mip.gov.lk/faq/ [2] – https://www.worldbank.org/en/news/press-release/2025/06/20/world-bank-group-to-support-sri-lanka-s-clean-energy-transition-with-150-million-program [3] – https://www.srilankaembassy.fr/en/pages/sri_investment_policy [4] – https://www.seco.admin.ch/dam/seco/fr/dokumente/Aussenwirtschaft/Wirtschaftsbeziehungen/L%C3%A4nderinformationen/Asien_Ozeanien/wirtschaftsbericht_sri_lanka.pdf.download.pdf/Wirtschaftsbericht_Sri_Lanka_2023.pdf [5] – https://www.ft.lk/financial-services/New-SL-sovereign-bonds-win-foreign-investor-confidence/42-775098 [6] – https://lankatruth.com/en/?p=28468 [7] – https://www.state.gov/reports/2024-investment-climate-statements/srilanka [8] – https://www.dailymirror.lk/business-news/FDI-more-than-doubles-in-1H2025-signalling-investor-confidence/273-314679 [9] – https://www.reuters.com/world/asia-pacific/sri-lankas-economy-grow-35-2025-despite-us-tariff-headwinds-world-bank-says-2025-04-23/ [10] – https://www.state.gov/reports/2023-investment-climate-statements/sri-lanka [11] – https://www.trade.gov/country-commercial-guides/sri-lanka-market-overview [12] – https://www.ft.lk/front-page/IT-and-BPM-sector-urges-Govt-to-reconsider-tax-measures-affecting-export-services/44-763999 [13] – https://www.investasian.com/country-guides/sri-lanka/ [14] – https://investsrilanka.com/hospitality-and-tourism/ [15] – http://www.srilankaembassybeirut.com/category/trade-and-investment/key-sectors-for-investment-in-sri-lanka [16] – https://www.pucsl.gov.lk/electricity/quality/environment-and-renewable-energy/ [17] – https://www.srilankalaw.lk/revised-statutes/alphabetical-list-of-statutes/1567-land-restrictions-on-alienation-act.html [18] – https://www.cmathew.com/corporate-investment-a-tax/incorporation-investment-a-boi/193-setting-up-a-boi-entity [19] – https://practiceguides.chambers.com/practice-guides/doing-business-in-2025/sri-lanka [20] – https://www.lexmundi.com/guides/foreign-investment-restrictions-guide/jurisdictions/asia-pacific/sri-lanka/ [21] – https://www.lexology.com/library/detail.aspx?g=6f00d4bd-7a9f-4cd5-8793-0f7f961b8ba0 [22] – https://www.acmigroup.lk/setting-up-a-boi-company-in-sri-lanka/ [23] – https://simplebooks.com/srilanka/boi-company-sri-lanka [24] – https://investsrilanka.com/setting-up-in-sri-lanka_new/ [25] – https://www.treasury.gov.lk/web/investing-in-sri-lanka/section/investment%20protection%20and%20double%20taxation [26] – https://www.investsrilanka.com/wp-content/uploads/2025/01/BOI-Investment-Guide-01.01.2025.pdf [27] – https://legalblogs.wolterskluwer.com/arbitration-blog/constitutionalising-investor-rights/ [28] – https://www.linkedin.com/pulse/hidden-investment-gems-sri-lankas-boi-unlocks-zones-foreign-fernando-92fec/?trackingId=5oCmiSwiRJ2y436r5hQgIg%3D%3D [29] – https://www.seekahost.com/best-business-ideas-sri-lanka/ [30] – https://www.portcitycolombo.lk/port-city-perspectives/unlocking-investment-business-in-sri-lanka-why-port-city-colombo-is-the-ideal-destination-for-global-investors/ [31] – https://www.3ecpa.com/blog/why-set-up-business-in-sri-lanka/ [32] – https://www.imf.org/en/News/Articles/2025/06/16/sp061625-gg-this-time-must-be-different-lessons-from-sri-lankas-recovery-and-debt-restructuring [33] – https://www.imf.org/en/News/Articles/2025/07/24/pr-25264-sri-lanka-imf-staff-concludes-visit-to-sri-lanka [34] – https://www.imf.org/en/News/Articles/2025/04/11/pr25102-srilanka-imf-staff-team-concludes-visit