23. Exemption from income tax of any venture capital company

Official English translation. The Sinhala text prevails. Open the official Sinhala text, official PDF on documents.gov.lk

(1)

The profits and income within the meaning of paragraph (a) of section 3 (other than profits and income from the sale of any capital asset within the meaning of paragraph (b) of subsection (7) of section 25) of any venture capital company shall be exempt from income tax, for a period of five years commencing from the year of assessment in which the company commences to carry on commercial operations, where such company invests a sum of money as specified in subsection (2), which investment shall be identified as a specific investment, for the purchase of ordinary shares in a company engaged in—

(a)

a project which is of a pioneering nature and the operation of which results in value addition and the promotion of economic development;

(b)

a project which is engaged in the business of information technology;

(c)

any other project as may be specified by the Minister by Order published in the Gazette, and such investment shall be for the financing of seed capital or start up or early stage financing of the investee company :

Provided however–

(i)

the venture capital company shall not have commenced commercial operations prior to April 1,

2003; and

(ii)

the specific investment shall not be made in relation to a company which is at the time of making the first investment, an associate company.

(2)

In order to qualify for the tax exemption provided for in subsection (1), the venture capital company shall have invested a sum–

(a)

not less than forty per centum of the total equity capital of such company, during the second year from the year in which such company commenced its commercial operations, on or before the end of that second year;

(b)

not less than eighty per centum of the total equity capital of such company, during the third year from the year in which such company commenced its commercial operations, on or before the end of that third year;

(c)

not less than eighty per centum of the total equity capital of such company, during the fourth and fifth years from the year of commencement of commercial operations, on or before the end of such fourth and fifth years respectively, in any project specified in subsection (1) :

Provided that if a company which has claimed exemption under this section fails to comply with the provisions of this subsection, or any dividends have been declared during the first two years from the year of assessment in which the company commences to carry on commercial operations or more than twenty per centum of the total specific investment made in any year has been made in one or more associate companies of such venture capital company, the exemption afforded to such company shall be withdrawn and the assessment shall be issued for the relevant years.

(3)

Investment may be made in foreign companies, and such investments shall be considered as a specific investment for the purpose of this section in the second year and thereafter, where such investment is not more than ten per centum of equity capital of such company during the second year and not more than twenty per centum of equity capital of such company during the third year and subsequent years respectively, from the year in which such company commences its commercial operations.

(4)

During the first three years including the year in which such company commences its commercial operations, any equity capital in excess of the minimum investments required by subsection (2) may be invested in Government Securities and such investment shall be considered as a specific investment.

(5)

The year of commencement of commercial operations for the purpose of this section, shall be the year in which the issued equity capital of the venture capital company has reached one hundred million rupees and shall not apply in respect of commercial operations commencing on or after

April 1, 2008.

(6)

For the purposes of this section :—

“associate company” means any company within a group of companies which includes a parent company and all its subsidiaries where the parent company has one or more subsidiaries and such subsidiaries are controlled by the parent company either by appointing a majority of the Board of

Directors of such subsidiary or by holding more than one half in nominal value of the equity share capital of such subsidiary ;

“non performing” means the failure to carry out commercial operations ;

“under performing” means incurring of operational losses for a period not less than two consecutive years of assessment ; and

“venture capital company” means any company registered under the Companies Act, No. 17 of 1982

with a minimum issued share capital of rupees one hundred million and which is engaged in the business of providing equity investment in relation to any project as is specified in subsections (1), (2), (3) and (4), and–

(a)

which has entered into a Technical Service

Agreement with a management company possessing the required experience in the relevant area of investment; or

(b)

which has in its employment, professional staff who have been trained by foreign venture capital companies and other local staff possessing the required professional venture capital management experience.

Read on from s 24

Chapter IV