Georgia, with its strategic location and growing economy, creates opportunities for foreign investors, both in trade and services, and in information technology.
One of the most important factors in the decision-making process of expanding a business or entering a new market is the country’s tax policy and legislation, and the choices of business entities largely depend on it.
The Georgian tax system is distinguished by its liberal tax policy and preferential taxation principles, and employs flexible and investor-oriented approaches, which creates an even more favorable and attractive environment for starting a business and its subsequent growth and development.
Below are discussed the preferential regimes available in Georgia that are favorable to foreign companies, including the statuses of an international company and a virtual zone entity, as well as information about free industrial zones (FIZs).
Virtual zone person
Legal entities operating in the field of information technology can benefit from the status of a virtual zone entity and the corresponding tax benefits if they create a software product on the territory of Georgia.
The supply of information technologies created by a legal entity in a virtual zone outside Georgia is not subject to value added tax, while the distribution of profits received within the framework of this operation is exempt from profit tax, and the export of software products from the customs territory of Georgia is exempt from export duty.
To operate in a virtual zone, only obtaining the appropriate status is required, and no licenses, special permits, or other regulatory documents are required.
To obtain the status, the candidate electronically fills out the application form posted on the official website of the Financial-Analytical Service of the Ministry of Finance of Georgia, which must include information about implemented, ongoing or planned information technology projects (if any).
The company is granted the status of a virtual zone person no later than 10 working days from the date of application and the status is issued for life. No later than 2 working days from the date of granting the status, the Financial-Analytical Service issues an electronic certificate to the virtual zone person, which can be found on the Financial-Analytical Service website .
Useful links:
- Methodological guidance on taxation of personal income tax in the virtual zone
- Law of Georgia on Information Technology Zones
- Resolution of the Government of Georgia “On the Rules and Conditions for Granting the Status of a Virtual Zone Person and Determining the Person Granting the Status of a Virtual Zone Person”
International company status
Companies interested in international company status are granted even greater tax benefits than those operating in a virtual zone. It may be granted to companies operating in the information technology and maritime sectors, namely:
- A Georgian enterprise that has at least 2 years of experience in carrying out the activities specified by the Government of Georgia, for which it applies to the Revenue Service for the purpose of granting the status, and receives income only from these activities.
- In addition to the above, the status of an international company may be granted to a Georgian enterprise that is a representative of a non-resident enterprise in Georgia, if this non-resident enterprise has at least 2 years of experience in the permitted activity that the Georgian enterprise carries out and for which it applies to the tax authority for the purpose of granting the status.
- Also, a Georgian enterprise can benefit from the status of an international company if its partner enterprises, which hold more than 50% of the shares, independently (each partner separately) have at least 2 years of experience in the permitted activity that the Georgian enterprise carries out and to which it applies for the purpose of granting the status.
A person with the status of an international company is also entitled to receive only income from permitted activities, if during the calendar year such income (excluding VAT) does not exceed 2% of the income received by the person with the status of an international company from such permitted activities.
In case of using the status of an international company:
- Salaries paid by an international company will be taxed at 5 percent (instead of the standard 20%).
- Dividends issued by an international company will not be taxed at source and will not be included in the gross income of the person receiving the dividend.
- The object of taxation of an international company’s profit is determined in accordance with Part 1 of Article 97 of the Tax Code of Georgia (TCG), however, instead of 15%, the profit tax rate is 5%.
- The amount subject to corporate income tax for an international company is obtained by dividing the amount of the income/expenses incurred by the taxable entity by 0.95 (instead of the standard division by 0.85).
- An international company is exempt from property tax (except for land) if this property is intended or used for carrying out activities permitted by a resolution of the Government of Georgia.
- In the event that an expense specified by a resolution of the Government of Georgia (salary paid to a resident employee of Georgia and expenses for scientific-research, design and testing-construction services in the field of permitted activities) is incurred in Georgia, an international company has the right to reduce the amount subject to profit tax by the amount of this expense.
To obtain the status of an international company, interested parties must apply to the Revenue Service in the form established by the Minister of Finance of Georgia (in writing or electronically) (to view the application form, visit the link (“Annex No. VII4-01 to the Order of the Minister of Finance of Georgia No. 996 “On Tax Administration”)) .
Free Industrial Zone (FIZ)
A FIZ is a type of free zone provided for by Georgian tax legislation, a part of the territory of Georgia, with defined borders, where additional conditions and tax benefits apply.
A FIZ enterprise can be an enterprise of any organizational-legal and ownership form, registered in a free industrial zone in accordance with the enterprise registration norms established by Georgian legislation.
Activities in the FIZ are carried out by enterprises registered in this zone, while enterprises registered outside the zone (both Georgian and foreign) carry out activities in the FIZ through permanent establishments registered in this zone, except for Georgian enterprises providing electricity, water, natural gas distribution, communication and sewage services and related activities in the FIZ. It is also worth noting that an enterprise registered in the mentioned zone carries out activities in another territory of Georgia (outside the FIZ) as a permanent establishment of a foreign enterprise.
Tax-related issues in the FIZ are regulated by the Tax and Customs Code of Georgia, namely:
- Profits earned by a FIZ enterprise are exempt from profit tax.
- Imports of foreign goods are not subject to value-added tax.
- Operations carried out in a FIZ are not subject to value added tax.
- Property in a FIZ is exempt from property tax.
- The import of foreign goods is exempt from import tax.
- The importation (import) of goods produced in a FIZ into another territory of Georgia (outside the FIZ) is exempt from import tax.
- In a FIZ, the employee pays income tax based on the income declaration.
The import of Georgian goods into a FIZ and the import of goods from the zone to another country are considered as the export of goods. When importing goods from a FIZ to another territory of Georgia, the commodity operation specified in the Customs Code of Georgia is applied to the goods. In addition, when importing goods produced in the zone, the goods, regardless of their amount, are taxed only with value added tax.
As for currency, settlements within the FIZ, as well as between the FIZ enterprise and the Georgian enterprise, are carried out in any currency.
Useful links:
- Tax Code of Georgia, Article 25
- Law of Georgia on Free Industrial Zones
- Methodological reference on free industrial zone enterprises
In addition to the individual preferential regimes discussed above, the Georgian tax system is distinguished by a low tax burden (VAT – 18%, profit tax – 15%, income tax 1% – 20%), including the Estonian model of profit tax (the object of taxation is the distribution of profits), contributions to the capital of an enterprise are exempt from taxation, which emphasizes Georgia’s commitment to creating a favorable and attractive environment for foreign enterprises. In addition, double taxation agreements signed with 58 countries ensure the minimization of risks associated with double taxation.
For consultation on issues related to the status of a virtual zone entity, or international company and activities in a free industrial zone, or tax benefits and taxation principles, visit the link .
