If you’re starting a new company in Sri Lanka and planning to buy or rent property, you may be surprised to learn that you could end up paying stamp duty and taxes twiceβ€”once before incorporation and again after incorporation.

Here’s what business owners need to know to avoid costly mistakes.

πŸ” What Is Stamp Duty?

Stamp Duty is a government tax charged on legal documents. In property transactions, stamp duty applies to:

  • Sale or transfer of property
  • Lease or rental agreements

The rates in Sri Lanka are:

  • Sales: 3% on the first Rs. 100,000 + 4% on the remaining value
  • Leases: 1% of the total rent for the lease period

πŸ—οΈ Can a Company Buy or Rent Property Before It’s Incorporated?

Yes, but only through a pre-incorporation contract.

A pre-incorporation contract is a legal agreement signed on behalf of a company before it legally exists. The law allows this, provided:

  • The company is later incorporated
  • The company ratifies (officially accepts) the contract soon after registration

⚠️ The Catch: You Might Pay Stamp Duty Twice

Here’s where many new business owners go wrong.

If you:

  1. Sign a rental or purchase agreement in your personal name (before incorporation)
  2. Then ratify or re-sign the agreement in your company’s name (after incorporation)

➑️ You could be required to pay stamp duty again, because it’s treated as a new legal transaction.

πŸ“˜ Real-Life Scenarios

πŸ”Ή Scenario 1: Renting a Commercial Office

  • Pre-incorporation lease:
    • 5-year lease worth Rs. 3,000,000 total rent
    • Stamp duty: Rs. 30,000 (1%)
  • Post-incorporation ratification:
    • Treated as a new lease
    • Stamp duty: Rs. 30,000 again

βœ… Total paid: Rs. 60,000

πŸ”Ή Scenario 2: Buying Property for the Business

  • Founder signs a sale agreement for Rs. 10 million
    • Stamp duty: Rs. 399,000
  • Company ratifies the contract post-incorporation
    • New document = new stamp duty
    • Stamp duty: Rs. 399,000 again

βœ… Total paid: Rs. 798,000

πŸ’Ό So, Can You Avoid Paying Twice?

Yes β€” if you plan carefully.

βœ… Tips to Avoid Duplicate Stamp Duty:

  • Wait until the company is incorporated to sign the agreement.
  • If you must sign early, include a clause:
    β€œThis agreement shall be ratified by [Company Name] within 30 days of incorporation.”
  • Use one contract that transfers to the company automatically upon incorporation.
  • Work with a lawyer or notary to ensure correct wording and timing.

πŸ’° What About Other Property Taxes?

Besides stamp duty, also watch out for:

  • Capital Gains Tax (CGT) – 10% on profit when selling property
  • VAT – 18% if the seller is VAT-registered
  • Municipal Rates – Ongoing local government taxes
  • Withholding Tax – On rental income (if applicable)

πŸ“Œ Summary Table

ActionStamp Duty Applies?How to Avoid Paying Twice
Pre-incorporation leaseYes (1%)Add ratification clause or wait to sign
Post-incorporation ratifyYes (1%)Use same contract with proper clause
Pre-incorporation property saleYes (3–4%)Avoid signing separate agreements
Post-incorporation sale ratificationYes (3–4%)Use one contract and lawyer guidance

πŸ“’ Final Word for Business Owners

If you’re leasing or purchasing property for your business before your company is registered, be aware that the same transaction might attract stamp duty twiceβ€”once under your name, and again when ratified by the company.

To avoid double taxation, time your agreements wisely and consult with a legal professional to structure contracts correctly.

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