Inheritance Tax and Inheritance Law in Sri Lanka

The Global Property Guide looks at inheritance from two angles: taxation and the question of what inheritance laws apply to foreigners who leave property in Sri Lanka: what restrictions there are and whether it is advisable to make a will.

Inheritance Tax

How high are the inheritance taxes in Sri Lanka?

No inheritance tax is payable on the estate of a person who dies on or after 13 November 1985. However, administration of the estate is compulsory if the value of the estate is LKR 500,000 (USD 3,448) or more or if the testator has left a will.

Which law of succession applies in Sri Lanka?

The law of succession in Sri Lanka concerns everyone who owns real estate in Sri Lanka.
Sri Lanka has special laws for Muslims, including foreigners. All other persons, including foreigners, are subject to the provisions of the law enacted in Sri Lanka.

The main laws that apply to inheritance matters are:

• The Regulation on matrimonial rights and succession
• The Muslim Succession Ordinance
• The Last Will and Testament Ordinance
• The Regulation on the prevention of fraud
• The Roman-Dutch Law
• The Mohammedan Law

Real estate (landed property). The general principle regarding jurisdiction over immovable property (real estate) in Sri Lanka is that the law of succession is governed by Sri Lankan law. The national law of a foreigner is not applicable to the inheritance of immovable property located in Sri Lanka.

Movable property. The inheritance of movable property is subject to the law of the country in which the deceased owner had his residence (place of stay) at the time of his death.

With regard to Muslim foreigners owning property in Sri Lanka, the Muslim Intestate Succession Ordinance states that the law applicable to the inactivity of a deceased Muslim who was resident in Sri Lanka or owned property in Sri Lanka at the time of death is the Muslim law of the sect to which the deceased Muslim belonged.

If Sri Lankan citizens own immovable property abroad, the law of the country where the property is located is recognised by Sri Lankan courts as the applicable law of succession. With regard to movable property, Sri Lankan law has recognised the law of the country of residence as the applicable law.

Inheritance matters are dealt with in Sri Lanka by the competent district court

Decisions concerning the assets of non-resident foreigners are primarily made by this court. Inheritance cases usually last between six months and two years.

The Code of Civil Procedure (S.554U) provides that in cases where a probate court or other authority in a foreign country has granted an estate or administrative writings in respect of the estate of a deceased person, upon presentation and deposit of a copy thereof with a competent court, the estate or the writings so granted shall be sealed with the seal of that court and thereafter shall come into force in Sri Lanka and shall have the same effect as if they had been granted by that court.

There is no reserved portion for non-Muslims

As far as Muslims are concerned, the reserved portion is based on the principles of Muslim law of the sect to which the deceased belonged.

Intestacy

For non-Muslims, in the absence of a will, the entire estate goes to the heirs listed in Part III of the Regulation on Matrimonial Rights and Inheritance.

In the case of immovable property, the surviving spouse inherits half of the estate. Children, grandchildren and more remote descendants are preferred to all others. All children take the same amount per capita, but their children or more distant descendants of a deceased child take per scholarship or by proxy.

If there is none of these designated heirs, the estate falls to the state. However, if any heirs can be found, even beyond the tenth degree, they take the inheritance.

In all matters relating to the testamentary distribution of the estate, if the Regulation is silent, the rules of Roman-Dutch law apply. These rules apply to all deceased persons holding immovable property in Sri Lanka (except Muslims), regardless of their actual or marital residence at the time of death.

In respect of movable property, the inheritance ab intestato is subject to and governed by the law of the country in which he/she was resident at the time of his/her death.

It is advisable for a foreigner to make a local will

For Sri Lankans with immovable property, it is normal to make a will to bequeath the estate in a different way than under the provisions of the law of legal succession.

The Last Will and Testament Ordinance provides that it is lawful for persons authorised to make a will to dispose of property within Sri Lanka which belongs to him/her at the time of death and in exercising this right he/she has full power to exclude children, parents, relatives or descendants from the lawful or other part or to disinherit or not to mention these persons.

This provision of the law is not limited to Sri Lankans. By making a will in Sri Lanka, foreigners can avoid disputes among their heirs. The validity of the local will is determined by Sri Lankan law and not by the law of the foreigner's nationality or residence at the time of death.

The formalities for drawing up a will are set out in the Regulation for the Prevention of Fraud, which deals with wills made in Sri Lanka.

A foreign testator must be present in Sri Lanka when drawing up a will under this Ordinance. This cannot be done by a lawyer. The Ordinance states that the will must be in writing and signed at the foot or at the end of the will by the testator or by another person in his or her presence and on his or her instructions, and this signature must be made or certified by the testator in the presence of a licensed civil law notary and two or more witnesses who must be present at the same time to witness the execution properly.

If no civil law notary is present, the signature must be made or certified by the testator in the presence of five or more witnesses who must be present simultaneously, and these witnesses must sign the will in the presence of the testator, although no form of certification is required.

Foreigners' wills made outside Sri Lanka will be recognised and enforced by the Sri Lankan courts in relation to property in Sri Lanka. Section 5 of the Testament Ordinance states that any will made outside Sri Lanka which contains any disposition or disposal of immovable property situated within Sri Lanka and which has been duly drawn up and enforced in accordance with the forms and ceremonies prescribed by the law of the country where the will is drawn up and enforced by a person empowered to make such a will under the law of that country or Sri Lanka is valid and effective, notwithstanding any other law or practice to the contrary.

Property may be freely given by the owner to anyone before his death

There are no restrictions on such gifts regarding family residence, time frame, etc. In the case of non-Muslim foreigners, the validity of the deed of gift is determined by Roman-Dutch law. In the case of Muslims, the validity of the deed of gift is determined by the Muslim law of the sect to which the deceased belonged. If the deed of gift is executed in accordance with the applicable laws, it cannot be contested after death.

With regard to donations made by foreigners who are Muslims, the law applicable to donations (without usufruct or trusts) is the Muslim law of the sect to which the donor belongs; however, no deed of donation is considered irrevocable if this is not indicated in the deed. The handing over of the deed to the donee is considered as proof of the transfer of possession of the movable or immovable property donated by this deed.

Sri Lankan law recognises the concept of "just property" as set out in the Trusts Ordinance

Under the law of trusts, the trustee is the rightful owner and the beneficiary is the rightful owner. With respect to real estate located in Sri Lanka, the courts of Sri Lanka apply Sri Lankan law to determine ownership. In the first instance, the courts look at the title deeds to determine ownership. According to the statute of limitations, the title under the deeds can be replaced by an adverse title of ownership.

A guardian or curator protects the rights of children

If an estate (or part of it) is inherited by a child or other minor (18 years of age), a person named in the will as guardian or curator is entitled to exercise this function, unless the court objects to his or her suitability. If no such person is named in the will, the court is entitled to appoint a suitable person.

No law prohibits foreigners from inheriting property in Sri Lanka.
However, the Finance Act No. 11 of 1963 provides that if ownership of a property is transferred to a person who is not a citizen of Sri Lanka, a tax will be levied at the value of the property. This provision of the law does not apply to a transfer of ownership resulting therefrom:

• Intestacy
• A gift or testamentary disposition by a person to his or her spouse, child, parent, brother or sister and the issue of such child, brother or sister to a person who is not a citizen of Sri Lanka; or
• The succession of a person as trustee to a person appointed as trustee on the basis of a will or trust instrument or a pension fund or investment.