Sri Lanka
Retail_Trading_Status
- Analysis ID
- #793
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- 2025-12-12 05:16
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Executive Summary
Retail cryptocurrency trading in Sri Lanka operates in a 'Gray-Zone' characterized by a strict banking ban on the mainland contrasted with a developing licensing regime within the Colombo Port City Special Economic Zone. While holding and trading cryptocurrencies is not explicitly criminalized for individuals, the Central Bank of Sri Lanka (CBSL) has prohibited licensed banks from facilitating crypto transactions, including the use of debit/credit cards. Conversely, the Colombo Port City Economic Commission has begun authorizing exchanges, creating a dual-track regulatory environment.
Key Pillars
Central Bank of Sri Lanka (CBSL): Primary financial regulator; maintains a hostile stance towards crypto usage for payments and banking integration.
Colombo Port City Economic Commission (CPCEC): Regulator for the Port City SEZ; has authorized specific crypto exchanges (e.g., Bitazza, Scallop) to operate within the zone.
Financial Intelligence Unit (FIU): Enforces AML/CFT rules; monitors for crypto-related scams and money laundering risks.
Department of Foreign Exchange: Enforces the Foreign Exchange Act, which currently restricts the use of electronic fund transfer cards (EFTCs) for crypto purchases.
Landmark Laws
Directions No. 03 of 2021 under Foreign Exchange Act, No. 12 of 2017 (Directions No. 03 of 2021) - Enacted: 2021-03-18
- Explicitly prohibits the use of Electronic Fund Transfer Cards (EFTCs), such as debit and credit cards, for payments related to virtual currency transactions.
- Source
Colombo Port City Economic Commission Act (Act No. 11 of 2021) - Enacted: 2021-05-27
- Establishes the Special Economic Zone and Commission with the power to regulate businesses within the Port City, leading to the authorization of crypto exchanges independent of CBSL's general ban.
- Source
Banking Act No. 30 of 1988 (Section 83C) (Section 83C) - Enacted: 1988-01-01
- Used by CBSL to identify and warn against prohibited schemes, including certain crypto-related multi-level marketing schemes like 'OnmaxDT'.
Considerations
Banking Blockade: Local banks are strictly instructed not to process crypto-related transactions, forcing traders to use P2P platforms.
Foreign Exchange Restrictions: Due to the country's economic context, there are strict controls on capital outflows, making purchasing crypto with LKR difficult.
Taxation: While no specific crypto tax law exists, gains are generally treated as 'intangible assets' subject to Capital Gains Tax (10%) and standard Income Tax.
Scam Prevalence: High incidence of crypto-themed pyramid schemes (e.g., OnmaxDT, MTFE) has led to increased police scrutiny and public warnings.
Notes
The 'Gray-Zone' status is heavily influenced by the strict Foreign Exchange controls. Even if the CBSL were to soften its stance on the asset class, the macroeconomic requirement to preserve foreign reserves would likely keep the banking ban on crypto outflows in place for the foreseeable future.
Remaining Uncertainties
- The practical ability for retail users outside the Port City to access Port City-licensed exchanges remains unclear.
- The timeline for the introduction of the promised comprehensive regulatory framework by the CBSL is uncertain.
- Specifics on how the Inland Revenue Department enforces tax collection on P2P crypto transactions are not publicly detailed.
Detailed Explanation
Detailed Explanation
Retail cryptocurrency trading in Sri Lanka operates in a 'Gray-Zone' regulatory environment, defined by a contradictory dual-track framework. On the mainland, the Central Bank of Sri Lanka (CBSL) maintains a hostile stance, having prohibited licensed banks from facilitating any cryptocurrency transactions. This banking blockade is reinforced by the Financial Intelligence Unit (FIU) monitoring for scams and the Department of Foreign Exchange enforcing capital controls. Specifically, the Directions No. 03 of 2021 under the Foreign Exchange Act, enacted on 2021-03-18, explicitly bans the use of Electronic Fund Transfer Cards (EFTCs) like debit and credit cards for virtual currency payments. This creates significant friction for individuals, forcing reliance on peer-to-peer platforms due to the strict banking and foreign exchange restrictions aimed at preserving the country's foreign reserves. Conversely, within the Colombo Port City Special Economic Zone, a separate regulatory regime is developing. Established by the Colombo Port City Economic Commission Act (Act No. 11 of 2021) enacted on 2021-05-27, the Colombo Port City Economic Commission (CPCEC) has begun authorizing specific cryptocurrency exchanges, such as Bitazza and Scallop, to operate independently of the CBSL's mainland ban. This creates a legal enclave for licensed crypto activity, though it remains geographically and jurisdictionally distinct from the rest of the country. The overall gray-zone status is further complicated by the high prevalence of crypto-themed pyramid schemes, like OnmaxDT, which the CBSL has warned against using powers under Section 83C of the Banking Act No. 30 of 1988, leading to increased police scrutiny. For taxation, while no specific crypto law exists, gains are generally treated as intangible assets subject to Capital Gains Tax and standard Income Tax. The fundamental tension between the CBSL's restrictive posture on the mainland and the CPCEC's permissive approach in the Port City SEZ defines the current uncertain landscape, with the strict foreign exchange controls likely to keep the banking ban in place for the foreseeable future regardless of any potential future shifts in policy toward the asset class itself.
Summary Points
I. Regulatory Status
* Gray-Zone: Characterized by a dual-track system.
* Strict banking ban on the mainland enforced by the Central Bank of Sri Lanka (CBSL).
* Developing licensing regime within the Colombo Port City Special Economic Zone (SEZ) overseen by the Colombo Port City Economic Commission (CPCEC).
* Holding and trading cryptocurrencies is not explicitly criminalized for individuals, but systemic barriers severely limit access.
II. Key Regulatory Bodies
* Central Bank of Sri Lanka (CBSL): Primary financial regulator; maintains a hostile stance, prohibiting banks from processing crypto transactions.
* Colombo Port City Economic Commission (CPCEC): Regulator for the Port City SEZ; has authorized specific crypto exchanges to operate within the zone.
* Financial Intelligence Unit (FIU): Enforces Anti-Money Laundering/Counter-Financing of Terrorism (AML/CFT) rules; monitors for crypto-related scams.
* Department of Foreign Exchange: Enforces the Foreign Exchange Act, including restrictions on crypto purchases.
III. Important Legislation
* Directions No. 03 of 2021 under Foreign Exchange Act, No. 12 of 2017 (Enacted: 2021-03-18)
* Explicitly prohibits the use of Electronic Fund Transfer Cards (EFTCs—debit/credit cards) for payments related to virtual currency transactions.
* Colombo Port City Economic Commission Act (Act No. 11 of 2021) (Enacted: 2021-05-27)
* Establishes the SEZ and Commission, granting it power to regulate businesses, leading to the authorization of crypto exchanges independent of the CBSL's general ban.
* Banking Act No. 30 of 1988 (Section 83C)
* Used by the CBSL to identify and warn against prohibited schemes, including certain crypto-related multi-level marketing schemes.
IV. Compliance Requirements
* For entities operating within the Colombo Port City SEZ, authorization from the CPCEC is required.
* All entities are subject to general AML/CFT monitoring by the FIU.
* For individuals, cryptocurrency gains are generally treated as intangible assets for tax purposes, subject to Capital Gains Tax (10%) and standard Income Tax, though no specific crypto tax law exists.
V. Notable Restrictions or Limitations
* Banking Blockade: Licensed banks are strictly prohibited from facilitating any crypto-related transactions, forcing traders to use peer-to-peer (P2P) platforms.
* Foreign Exchange Restrictions: Strict controls on capital outflows, driven by macroeconomic necessity to preserve foreign reserves, make purchasing crypto with Sri Lankan Rupees (LKR) difficult. The Directions No. 03 of 2021 formalizes the ban on card usage.
* Scam Prevalence: High incidence of crypto-themed pyramid schemes (e.g., OnmaxDT, MTFE) has led to increased police scrutiny and public warnings from regulators.
VI. Recent Developments or Notes
* The Colombo Port City Economic Commission has begun authorizing specific crypto exchanges (e.g., Bitazza, Scallop) to operate within the SEZ, creating a formal, licensed channel distinct from the mainland's prohibitive environment.
* The 'Gray-Zone' status is heavily influenced by strict foreign exchange controls. Even a potential softening of the CBSL's stance on crypto as an asset class would likely not lift the banking ban on crypto outflows due to the ongoing need to protect foreign reserves.
* The regulatory dichotomy means the legality and accessibility of crypto services are entirely dependent on geographic and jurisdictional context—within the Port City SEZ versus the rest of Sri Lanka.
Full Analysis Report
Full Analysis Report
As of December 2025, Sri Lanka's regulatory stance on retail cryptocurrency trading is bifurcated, placing the country firmly in the 'Gray-Zone'. The Central Bank of Sri Lanka (CBSL) maintains a restrictive approach for the general economy, repeatedly warning that cryptocurrencies are not legal tender and have no regulatory safeguards. Crucially, the CBSL has not issued a general ban on the ownership of digital assets by individuals; however, it has effectively severed the link between the traditional banking sector and the crypto market. Under Directions No. 03 of 2021 issued under the Foreign Exchange Act, the use of debit and credit cards for virtual currency transactions is explicitly prohibited. This forces retail investors to rely on Peer-to-Peer (P2P) markets and offshore platforms, bypassing local banking channels.
Despite the mainland restrictions, a parallel regulatory framework is emerging within the Colombo Port City, a Special Economic Zone (SEZ). The Colombo Port City Economic Commission (CPCEC) has taken a progressive step by granting 'Authorized Person' status to international crypto exchanges such as Bitazza and Scallop. This allows these entities to operate within the zone, theoretically offering a regulated environment for digital asset trading. However, the interaction between these Port City-licensed entities and the domestic banking system remains complex and restricted, as the CBSL's jurisdiction over the Sri Lankan Rupee (LKR) and domestic banking stability takes precedence outside the zone.
The regulatory environment is further complicated by the government's focus on anti-money laundering (AML) and financial stability following the economic crisis. The Financial Intelligence Unit (FIU) actively monitors the sector, primarily focusing on fraudulent schemes masquerading as crypto investments. Notable enforcement actions have been taken against entities like 'OnmaxDT' and 'MTFE', which were flagged for operating prohibited schemes under the Banking Act. These incidents have reinforced the CBSL's cautious narrative, framing crypto largely as a high-risk vehicle for scams rather than a legitimate financial instrument.
Taxation remains an area of ambiguity but is tightening. While there is no dedicated 'Crypto Tax Act', tax experts and the Inland Revenue Department (IRD) consider cryptocurrency as 'intangible assets' or 'financial assets'. Consequently, profits from trading are subject to Capital Gains Tax (typically 10%) and personal Income Tax. As of late 2025, discussions are underway to introduce specific legislative amendments to formalize crypto taxation and potentially introduce a Value Added Tax (VAT) framework for digital services, although a comprehensive regulatory bill for the sector remains in the draft or discussion stage.
As of December 2025, Sri Lanka's regulatory stance on retail cryptocurrency trading is bifurcated, placing the country firmly in the 'Gray-Zone'. The Central Bank of Sri Lanka (CBSL) maintains a restrictive approach for the general economy, repeatedly warning that cryptocurrencies are not legal tender and have no regulatory safeguards. Crucially, the CBSL has not issued a general ban on the ownership of digital assets by individuals; however, it has effectively severed the link between the traditional banking sector and the crypto market. Under Directions No. 03 of 2021 issued under the Foreign Exchange Act, the use of debit and credit cards for virtual currency transactions is explicitly prohibited. This forces retail investors to rely on Peer-to-Peer (P2P) markets and offshore platforms, bypassing local banking channels. Despite the mainland restrictions, a parallel regulatory framework is emerging within the Colombo Port City, a Special Economic Zone (SEZ). The Colombo Port City Economic Commission (CPCEC) has taken a progressive step by granting 'Authorized Person' status to international crypto exchanges such as Bitazza and Scallop. This allows these entities to operate within the zone, theoretically offering a regulated environment for digital asset trading. However, the interaction between these Port City-licensed entities and the domestic banking system remains complex and restricted, as the CBSL's jurisdiction over the Sri Lankan Rupee (LKR) and domestic banking stability takes precedence outside the zone. The regulatory environment is further complicated by the government's focus on anti-money laundering (AML) and financial stability following the economic crisis. The Financial Intelligence Unit (FIU) actively monitors the sector, primarily focusing on fraudulent schemes masquerading as crypto investments. Notable enforcement actions have been taken against entities like 'OnmaxDT' and 'MTFE', which were flagged for operating prohibited schemes under the Banking Act. These incidents have reinforced the CBSL's cautious narrative, framing crypto largely as a high-risk vehicle for scams rather than a legitimate financial instrument. Taxation remains an area of ambiguity but is tightening. While there is no dedicated 'Crypto Tax Act', tax experts and the Inland Revenue Department (IRD) consider cryptocurrency as 'intangible assets' or 'financial assets'. Consequently, profits from trading are subject to Capital Gains Tax (typically 10%) and personal Income Tax. As of late 2025, discussions are underway to introduce specific legislative amendments to formalize crypto taxation and potentially introduce a Value Added Tax (VAT) framework for digital services, although a comprehensive regulatory bill for the sector remains in the draft or discussion stage.
Source Evidence
Primary and secondary sources cited in this analysis
"CBSL has not given any license or authorization to any entity or company to operate schemes involving VCs... Electronic Fund Transfer Cards (EFTCs) such as debit cards and credit cards are not permitted to be used for payments related to virtual currency transactions."
"Cryptocurrencies are unregulated in Sri Lanka, not considered legal tender, and lack regulatory safeguards."
"List of Authorized Persons... Bitazza (Pvt) Ltd... Scallop (Pvt) Ltd"
"Sri Lanka's Colombo Port City will allow crypto currency trading subject to some limitations... We have included digital assets in the asset classes that the Port City will entertain."
"Cryptocurrency falls under the category of intangible properties, and any gains made from it are subject to existing tax laws."
Web Sources (9)
Sources discovered via web search grounding
Search queries used (5)
- is cryptocurrency legal in Sri Lanka 2025
- Sri Lanka crypto tax laws 2024
- Port City Colombo crypto regulation status
- Central Bank of Sri Lanka cryptocurrency regulation status 2024 2025
- CBSL press release virtual currency 2024
https://www.lightspark.com/knowledge/is-crypto-legal-in-sri-lanka
https://coingeek.com/sri-lanka-central-bank-warns-against-digital-assets-investments-amidst-political-unrest/
https://www.themorning.lk/articles/sKBK0rMfcPdjlsfPwpTk
https://lankanewsweb.net/archives/31096/cbsl-urges-public-not-to-associate-with-cryptocurrency/
https://www.cbsl.gov.lk/en/news/public-awareness-of-virtual-currencies-in-sri-lanka
https://www.sundaytimes.lk/251026/business-times/sri-lanka-needs-to-implement-express-tax-legislation-for-cryptocurrency-617041.html
https://blog.mexc.com/wiki/is-crypto-legal-in-sri-lanka/
https://www.cbsl.gov.lk/sites/default/files/cbslweb_documents/press/notices/notice_20240114_protecting_the_public_from_crypto_investment_scams_e.pdf
https://www.lankatalks.com/post/sri-lanka-issues-new-regulations-offering-incentives-for-strategic-investments-in-port-city