A double taxation agreement is usually concluded between the two countries. The agreement prescribes the rules for the collection of taxes on the income of a resident of one country received in another. The agreement specifies the types of taxes subject to the document and the legal entities to which they apply.
What is a Double Taxation Agreement
The main purpose of the Double Taxation Treaty is to control tax evasion and to promote trade cooperation between countries, as well as to stimulate foreign investment. The standard agreement concluded by Georgia with friendly countries is based on the model agreement of the OECD tax convention, according to which tax rights are distributed among partners depending on the agreed conditions. Namely, a resident of one country receiving income from another country may be taxed both in the state of the source of income and in the country of residence. In order to avoid double taxation, income received by a resident of one country from another country will be credited to the tax account in the source country. The Double Taxation Treaty also regulates issues related to the prevention of tax evasion and the means of applying internationally recognized standards for the exchange of information for tax purposes.
Georgia has 56 double taxation treaties for 2020.
|Country||Permanent establishment||Dividend tax||Interest tax||Royalty tax|
The remaining 46 countries can be found here.
How does the double tax treatment work
All agreements on the avoidance of double taxation are different, that is, each country has its own specifics. It is clear from the name itself that the tax must be paid in one of the countries, that is, in one place, so that taxes are not paid in two countries for the same service, under the same contract.
Let's give an example based on our work to make it clear. We act as a contractor outside the customer's country, for example, we conclude an agreement with a Belarusian company, on whose behalf we open a company or carry out some actions in the interests of this company. Georgia has an agreement with Belarus to avoid double taxation. So that a resident of Belarus does not pay tax at the source for the services provided by a Georgian company - we are asked for a certificate confirming that we are a tax resident of Georgia. In the electronic tax office, we request a certificate of the state for the current year on tax residence and we send this certificate in English to Belarus, where it is translated, attached to the tax office, or physically submitted to the tax office so that it becomes an official reason not to pay tax.
Withholding tax on services rendered by a non-resident exists in many countries. Our many clients have outsourced contractors from completely different countries. With countries from the list given in the table above, everything works exactly according to the same scheme as described. If the company is Georgian and the contractor has concluded an Agreement, for example, with Turkey, we see that money has gone under such a contract and immediately ask our clients for a certificate from the Turkish side. We attach this certificate in English that the Turkish company is a tax resident of Turkey to the declaration. That is, the declaration is filed as usual, but the tax base is zero. This certificate is attached to the tax office and is the basis for reducing the tax base to zero. This only works with countries from the list.
In some cases, the agreement also applies to income tax.
In some cases, the agreement also applies to income tax. For example, we had a client, a Georgian company that hired several employees of citizens of Turkmenistan. Employees were paid under a contract to their personal accounts in Turkmenistan. The employees worked outside their home country, but pay taxes as individuals in Turkmenistan. After several months, when it was discovered, in order not to pay tax in Georgia, we requested a certificate of tax residency from Turkmenistan. The agreement on avoidance of double taxation between Georgia and Turkmenistan allows these amounts to be offset even though it is a salary tax. If one of the parties has already paid the tax, this allows the other party to avoid it. We requested an explanation of this nuance and received it from the tax service.
The United States is probably the toughest jurisdiction in terms of taxes because there is no agreement with Georgia on the absence of double taxation. A US citizen opening a company in Georgia is obliged to pay taxes in accordance with the laws of the United States of America. If you are opening a company in Georgia, then you definitely need an account in Georgian bank. When you open a bank account, you will be issued a special form for American residents. After filling out, this form is transferred to the tax service of America, that is, the Georgian bank immediately transmits all information about you. The United States has full access to and is aware of all the income that comes even from foreign business to American residents. Failure to pay taxes in America faces criminal prosecution.
The situation with Russia is slightly different. Although the Agreement between Russia and Georgia has not been concluded, Russian citizens can bypass the tax legislation of Russia not to report to the tax service of their country about their business abroad. Information about Russian citizens is not sent automatically without a request from the state.
That is why it is so important to thoroughly study all the nuances of taxation of the countries with which you work or to entrust it to professionals. This will allow you to significantly save on paying taxes in an absolutely legal way. If you want to receive a detailed and free consultation on your case, then leave a request on the website.