A preferential taxation scheme for Small businesses in Georgia came into force on 1 July 2018. Following the changes, the usual 5% of income tax has been reduced to 1%. The preferential tax regimes in Georgia are considered as an essential incentive for small business development. What is more, the Georgian government has adopted the Estonian tax model, which does not have a corporate tax on the reinvestment of company income. This regime also makes it possible to do business in tax-free zones. The lowered taxation rates, alongside tax exemption incentives and free industrial zone in the country - have turned Georgia into one of the most attractive and loyal tax jurisdictions worldwide.
Before starting a business in Georgia, it is advisable to examine all aspects of the taxation in the state. The Tax Code and Legislative Acts are the main regulatory bodies of the taxation system in Georgia. At the given moment, there are six types of mandatory Taxes in the country, that are regulated by the State:
- Value Added Tax (VAT) – 18%;
- Profit Tax – 15%;
- Income (salary) Tax – 20%;
- Dividends – 5%;
- Import Tax – 0% or 5% or 12%;
- Tax Deducted at Source (TDS) – 10 to 15%;
- The Excise Tax - not a fixed amount.
This list does not include the property tax 1%, which is set and controlled by the local government.The updated Taxation Scheme allows residents and non-residents to develop a successful business in Georgia, which was very difficult in the past, considering 22 different types of tax.
Free Industrial Zones of Georgia
To encourage enterprise development and tackle unemployment, the Government Committee of Georgia had established the Free Industrial and Virtual Zones, which offers an entirely different Taxation mechanism.The Preferential Tax regimes in Georgia are currently available in three zones: Tbilisi, Kutaisi and Poti.The main advantages:
- Companies are exempt from the profit tax;
- Companies do not pay additional fees for dividends and interest;
- All trade agreements between Free Zone enterprises are exempt from Value Added Tax (VAT);
- Organizations are exempt from property tax;
- For all trading operations between enterprises, there is a fixed tax – 4% of the tax invoice.
The Virtual Zone in Georgia
An enterprise that directly operates in developing IT technologies can apply for the Virtual Zone Status by submitting an application to the Ministry of Finance in the Republic of Georgia. Within ten working days from the submission date, the company obtains the Virtual Zone status. During another two working days, the company will receive a special certificate ascertaining the rights to the privilege of preferential taxation.
According to the current legislation, the Virtual Zone Status holders are exempt from:
- Profit Tax - Distribution of goods and services abroad;
- Value Added Tax (VAT) - Established outside Georgia;
- Customs Duty - Export transactions.
The company pays only 5% tax on dividends.
The Tax Burden certainly depends on the legal form of the business. The Georgian government consistently operates to accumulate the best possible way of supporting entrepreneurs and creating favorable conditions for business within the Free Industrial and Virtual Zones. All this undeniably attracts foreign investors and improves the country's reliability in the international financial arena.
In 2021 the Revenue Services of Georgia introduced adjustments of an interpretation to the Article on activities in the Virtual zone. According to which, among other conditions, the subsistence (presence) on the territory of Georgia became a mandatory requirement for the Virtual Zone Status. It can be conveyed through an administrative expense, for example, renting an office or local specialist hiring.
International Company Status
A Georgian resident company, which is subject to an income tax (in accordance with Part 1 of Article 97 of the Tax Code of Georgia) can qualify for the status of an international company. But, the company must perform only an authorized activity (the list of permitted activities is specified in the government decree No. 619).One of the requirements is also for the company or the company shareholder (at least 50%) to have experience in the field no less than two years.The information technology services should be provided to an individual whose registration and management point is outside Georgia.These services may include any of the following:
- Software release;
- Publishing computer games;
- Release of other software;
- Computer programming, consulting and related activities.
The following tax incentives will apply to these companies:
- Income tax rate of 5% (instead of 15%);
- The payroll tax will be set at the rate of 5% instead of 20%;
- In addition, the withholding tax on dividend payments will be 0% instead of 5%.
An international company is liable for only 5% of the withdrawn profit (Georgia operates based on the Estonian model of capital reinvestment, there is no mandatory monthly payment) and 5% for payrolls, which significantly decreases the tax burden on business.
In addition, international companies in Georgia are partially exempted from property tax and are able to reduce bases for the corporate income tax.