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Tax Law in Georgia, Tbilisi

 
Georgia has become popular tax friendly jurisdiction for many international entrepreneurs, businessmen, digital nomads, and regional investors due to its business-friendly environment, easy of doing busibess, low corporate taxation, friendly immigration policies, and easy residence procedures. 
 
The concept of tax residence is recognised in Georgia. The individual is deemed to be resident in Georgia if they spend 183 calendar days or more during 12 consecutive calendar months in Georgia. For employees that are non-registered taxpayers (that is, individuals who have a separate tax identity and registration for complying with tax regulations), the employer acts as the tax agent and withholds personal income tax at source at the flat rate of 20%. In various cases, certain exemptions can be granted to the employee under specific tax treaties.
 

Tax resident employees

The only tax payable is personal income tax at the flat rate of 20%. The employer will act as the tax agent, withholding 20% of the personal income tax at source. Tax returns are filed on a monthly basis, on the 15th day of the month following the respective reporting month. No obligation vests with an employee who is a non-registered taxpayer to pay personal income tax. If the employee is a registered taxpayer (which happens rarely, for example, in cases when the employee also pursues certain economic activities), the obligation of paying personal income tax rests on the employee. This obligation is completed annually and a tax return will need to be filed before 1 April of the year following the respective reporting year.
 

Non-tax resident employees

An exception exists in relation to certain tax treaties. If the respective tax treaty provides an exemption from the payment of local tax, the non-tax resident employee will need to provide the tax residence certificate of the country with which Georgia concluded the relevant tax treaty on avoidance of double taxation.
 

Tax resident business

A Georgian enterprise is defined as one which has its place of management or place of activity in Georgia.
 

Non-tax resident business

There is a general understanding that all enterprises that are not local are considered as foreign enterprises. Enterprises with a permanent establishment and branch offices in Georgia are viewed as representative offices of foreign enterprises that pay local taxes only to the extent of income received from Georgian sources.
 

What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction (including tax rates)?

 
Georgian enterprises pay taxes on their worldwide income. Permanent establishments, branches and representative offices of foreign entities pay tax only on the income derived from Georgian sources. Taxes payable by the business vehicles (irrespective of whether they are Georgian enterprises or permanent establishments/branches of a foreign entity) are as follows:
 

Corporate income tax (CIT) in Georgia, Tbilisi

The rules relating to the payment of CIT were amended in January 2017. CIT is now payable from the distributed profit (dividends) at the flat rate of 15%. CIT is also payable on the free of charge delivery of goods, services or monetary funds, expenses that are not related with economic activities and representative expenses that exceed a certain threshold. CIT returns need to be filed before the 15th day of the month following the respective reporting month. The new rules relating to the payment of CIT do not apply to commercial banks, credit unions, insurance organisations, microfinance organisations and pawnshops. This is because they pay CIT from the difference between their taxable income and deductible expenses at a rate of 15% and file tax returns before 1 April of the following year. The new rules for paying CIT will become effective for these organisations on 1 January 2023.
 

VAT in Georgia

This is charged at a rate of 18% on services and goods provided. Compulsory registration of VAT will apply if income from economic activities exceeds GEL100,000 during a consecutive 12 month-period. Input VAT can be credited against output VAT. VAT returns are filed before the 15th day of the month following the respective reporting month.
 

Property tax in Georgia

Property tax payable by local or foreign enterprises. This is payable if the enterprise has immovable property in Georgia. The tax arrangements in relation to property tax are defined in the following way:

  • for the resident enterprise (a Georgian company or a branch/permanent establishment of a foreign entity) it is payable on assets, uninstalled equipment, unfinished construction registered on its balance sheet as fixed assets, and on its leased property; and for the non-resident (foreign) enterprise it is payable on property based in Georgia (including property that has been transferred under a lease, rental agreement, usufruct or any similar agreement).
 
The property tax rate is 1% of the average annual net book value of the property recorded on the balance sheet of the company at the beginning and end of the calendar year. Enterprises (Georgian enterprises, branch offices, permanent establishments or foreign entities) also pay property tax on land. Tax returns for property tax must be filed before 1 April of the following reporting year. The rates on land differ depending on whether the land is classified as agricultural or non-agricultural. The rates for agricultural land plots are defined by the respective local administrative territorial units. The rates for non-agricultural land depend on a specific formula; the tax must be calculated by multiplying the annual base tax rate (GEL0.24) by the territorial co-efficient and the land area. The differentiation of the land tax by territorial coefficient is made in accordance with the location and zones of the land plot.

 

Withholding Tax in Georgia

Withholding tax on various payables (for example, interest, royalties, dividends, and salaries/benefits of employees). The tax return must be filed by the 15th day of the month following the respective reporting month. Tax rates differ depending on the type of payable, for example:

 

Dividends paid in Georgia

Dividends paid by the resident company to physical individuals, non-commercial legal entities or non-resident entities are withheld at source at a rate of 5%. This is if no relief is granted under a respective tax treaty. If payment is made to an offshore resident, the rate is 15%. Dividends received by resident companies are not withheld at source and are not included in their gross income. Dividends received by an individual that were already withheld at the source of payment, are not included in their gross income. Dividends paid to the state by resident entities are not withheld at the source of payment.
 

Dividends received in Georgia

Dividends received from international financial institutions are not withheld at the source of payment and are not included in the recipient's gross income. Dividends received from freely floated securities institutions are not withheld at the source of payment and are not included in the recipient's gross income. Dividends received from an entity located in a free industrial zone are not withheld at the source of payment and are not included in the recipient's gross income. Dividends received from foreign companies are not included in the income of a Georgian enterprise.
 

Interest paid in Georgia

Interest paid to foreign corporate shareholders is withheld at source at a rate of 5%. This is if no relief is granted under a respective tax treaty. If payment is made to an offshore resident, the rate is 15%. Interest is charged at a rate of 5%, to be withheld at source for payments to:
  • Individuals.
  • Non-commercial legal entities.
  • Non-residents with no permanent establishment in Georgia.
 

IP royalties paid in Georgia

Royalties paid to individuals that are not registered VAT payers are subject to withholding tax at a rate of 20%. Royalties paid to the state are not withheld at source. Royalties received by non-residents are subject to withholding tax at source, at a rate of 5%. This is if no relief is granted under a respective tax treaty. Intellectual property royalties paid to foreign corporate shareholders are withheld at source at a rate of 5%. This is if no relief is granted under a respective tax treaty. If a payment is made to an offshore resident, the rate is 15%.
 
  • interest, dividends and royalties are subject to a withholding tax rate of 5%;
  • other payables to non-residents is subject to a withholding tax rate of 10%;
  • salaries and other employee benefits are subject to a withholding tax rate of 20%; and
  • dividends, royalties and other payables made to offshore/tax haven residents are taxed at a rate of 15%.
 
Import tax payable for importing various goods. The tax rate varies and is fixed at rates of 0%, 5% and 12%. Import tax is payable during customs clearance.
 

Excise Tax in Georgia

This is payable by business vehicles producing excisable goods in Georgia, or importing excisable goods. For the excisable goods produced or manufactured in Georgia from raw materials supplied by customers, the producer of the goods is subject to excise tax. Excise tax is an indirect tax, and therefore any excise tax paid in connection with exported goods produced in Georgia can be refunded to the exporter. Excise tax is imposed on alcoholic products, cigarettes and other tobacco products, cars, natural gas, oils, oil distillates, and other products produced from oil and bituminous minerals. Alcoholic beverages and tobacco products are also subject to the mandatory attachment of excise stamps. Excise tax rates are fixed per physical unit of the excisable goods and vary from product to product. Taxpayers are required to file an excise tax return and pay the tax liability within 15 days after the end of the reporting period.
 
 

Georgian transfer pricing rules generally follow OECD transfer pricing principles and apply to cross-border transactions between a:

  • Georgian company and related foreign company.
  • Georgian resident company and an unrelated foreign company registered in a tax haven jurisdiction or offshore country.
 

How are imports and exports taxed:

The export of goods is subject to VAT at a rate of 0% and is exempt from all customs duties. The import of goods is subject to:
  • VAT at a rate of 18% (calculated from the customs value of the imported goods).
  • Import tax at various rates (0%, 5% or 12%) depending on the type of product.
 
 
Georgia has a broad network of double tax treaties with 56 conventions in full force and effect (Saudi Arabia joined the list in 2019). The most important jurisdictions include:
  • UK
  • France
  • Germany
  • The Netherlands
  • Luxembourg
  • United Arab Emirates
  • China
  • Turkey
  • India
  • Malta
  • Japan
 

Our team of professional attorneys can provide you with:

  • General legal and financial consultations in the field of tax law;
  • Relationship with tax authorities on behalf of the Customer;
  • Appeal of orders or decisions received by the tax authority on tax violations in the system of the Ministry of Finance and the court;
  • Representation on disputes relating to tax requirements (tax and / or fines, imposing penalties) and protection of legitimate interests of a taxpayer;
  • Proceedings and representation of procedures related to restructuring of overdue tax and debt debts with relevant authorities;
 

Marketing agreements

 

Agency in Georgia

Under the Civil Code of Georgia, a transaction can be made through an agent. The power of an agent can arise either through operation of law or out of a mandate (power of attorney). Authority will be conferred by the declaration of intent made with respect to the person who is given the power of attorney or a third person by whom the agency is to be exercised. The declaration of intent does not need to be in the form prescribed for making the transaction for which the power of attorney has been granted. However, this rule will not apply when a special form is prescribed. A transaction made by an agent within the scope of their authority, and on behalf of the person represented by them, will give rise only to the rights and obligations for the principal. The Civil Code does not contain any specific requirements regarding nationality, registration, exclusivity and compensation on termination or failure to renew.
 

Distribution in Georgia

Georgian law does not provide for separate regulation of distribution agreements. Therefore, no specific requirements regarding nationality, registration, exclusivity and compensation on termination or failure to renew are prescribed.
 

Franchising in Georgia

Under the Civil Code of Georgia, a franchise contract must be executed in writing. The contract must contain a complete description of the franchise system in addition to the following:
  • Bilateral obligations.
  • Duration of the contract.
  • Provisions on termination or extension of the contract.
  • Other essential clauses.
 
The duration of the contract will be determined by the parties taking into account the requirements for marketing the given goods and services. If the duration of the contract exceeds ten years, either party can terminate the contract by providing one year's notice, which is required for termination. If neither party exercises the right to terminate the contract, the contract will be extended for two years. If the contract is dissolved by the expiry of its term or at the initiative of the parties, then the parties will try (by observing the principles of mutual confidence) to continue the contract on the same or altered terms until the business relationship actually ends.
 
Within these limits, the franchisee may be prohibited from competing within a specified area for a period of time, which must not exceed one year. If the prohibition of competition may endanger the professional business, then an appropriate monetary compensation will be given to the franchisee, despite the expiration of the term of the contract. Georgian legislation does not contain any other specific requirements regarding nationality, registration, exclusivity and compensation on termination or failure to renew.