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Taxes in Georgia. Advantages of the Taxation System And Preferential Statuses for Businesses

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4/27/2023

Today, entrepreneurs from across the world are choosing to open their companies in Georgia. The country has low tax rates and a variety of government programs promoting business growth. In the World Bank's Ease of Doing Business ranking, Georgia ranks 7th in the world. Such a high result is largely due to the favorable system of taxation.

In 2005, Georgia held a tax reform, retaining only 6 mandatory payments out of 22:

Personal income tax - 20%
Value-added tax - 18%
Profit (corporate) tax - 15%
Import tax - 0%, 5%, or 12%
Property tax - up to 1%
Excise duty - variable amount depending on the type of goods and services

In addition to low tax rates, Georgian companies are actively using preferential taxation statuses to optimize their tax burden. The statuses are assigned by the revenue service depending on the company's legal form, type of activity, and annual turnover.

Preferential tax treatment for individual entrepreneurs

Micro Business Status. If the individual entrepreneur doesn't have any employees, and their annual income doesn't exceed 30,000 GEL, they may receive the status of micro business, meaning complete exemption from the tax burden. An individual entrepreneur with the status of a micro business is required to keep accounting records and file an annual tax return by the due date.

Small Business Status. This tax status is considered the most in-demand and is assigned to an individual entrepreneur with an annual income of up to 500,000 GEL. The tax rate is only 1%.

Unlike micro businesses, small business owners are allowed to hire employees. They are required to keep proper accounting and file a monthly tax return by the 15th day of the month following the reporting one.

If the entrepreneur's annual income exceeds 500,000 GEL, they will retain the small business status for the next 2 years but with a 3% tax rate.

Flat Taxpayer Status. Another special tax regime is intended for entrepreneurs engaged in specific lines of business (nail artist, stylist, massage therapist, hairdresser, car service specialist, baker), each of which has a flat tax rate. A flat taxpayer is required to pay taxes by the 15th day of each month. If the entrepreneur is temporarily not working, they should apply to the revenue service with a request for tax exemption for this period.  

Tax declaration registration. Business owners in Georgia often have difficulty filling out tax declarations. Jara Accounting helps to prepare and file a tax declaration on time and also offers services training entrepreneurs to file tax declarations, allowing them to independently submit correct data on the first try and without penalties.

Company opening by foreign nationals. Georgia is one of the most attractive countries for registering as individual entrepreneur by a foreign citizen. You can live anywhere in the world while running a Georgian company, and even your bank account can be registered in another jurisdiction. Such a company will be able to pay taxes via third parties. In this case, the bank fills in the identification code of the organization for which the tax is paid.

The preferential taxation system for small businesses allows Georgian companies to take leading positions in terms of annual income compared to other European representatives.

Сomparison table showing the net annual income of entrepreneurs in several European countries with annual revenue of $30,000. 

A

Country

Annual revenue, USD

Tax rate, %

Tax burden per year, USD

Other fees per year, %

Other fees per year, USD

Net annual income

Georgia (small business)

30,000

1%

300

None

0

29,700

Serbia

30,000

10% (income-expenses)

1909.5

37.5% at minimum wage

905

27,186

Czech Republic

30,000

Flat amount

2954.4

None

0

27,046

Lithuania

30,000

15% (income-expenses). By the entrepreneur's choice, 30% of income is tax-exempt. Expenses are $10,000

1328.25

19.5%

2,145

26,527

Bulgaria

30,000

15%

4,500

None

25,500

Poland

30,000

15%

4,470

Flat amount in the first 2 years

1,800 (with allowances)

23,730

Latvia(self-employed

30,000

20% (including a $10,000 expenses deduction)

4,000

37.07% of €500 ($597.35) and 5% of the difference between the income earned and €500 ($597.35) minus $10,000 expenses

2850.48

23,149.52

Estonia

30,000

20% (including a $10,000 expenses deduction + 33% social tax + €6,000 of non-taxable income)

1,575

2% (funded pension) + 33% social income tax with deductions

4,355

23,070

Montenegro

30,000

9% + additional 13% tax

2,135.7 (including 30% expenses deduction and 13% additional tax)

33.8% of the national average wage

5,684.72

22,179.58

Preferential tax treatment for LLCs

Free Industrial Zones. Free industrial zones operate in Georgia with a special tax regime. At the moment, such zones are open in three regions: Tbilisi, Kutaisi, and Poti. Companies based in Free Industrial Zones receive the following benefits:

Profit tax - 0%
Additional dividend payments - 0%
Value-added tax - 0%
Property tax - 0%
When purchasing and selling goods in Georgia, the tax will be 4% of the actual revenue.

Virtual Zone Status. Georgia-operating companies in the sphere of information technology can receive a special status of a Virtual Zone. After that, the business will be exempt from paying profit tax and VAT on selling products or services outside of Georgia, as well as the export customs duty.

The company will also be issued an electronic certificate confirming its right to preferential tax payment. In fact, the company will only need to pay a tax on dividends equal to 5%.

International Company Status. This preferential program will be of interest to companies with a high amount of taxation. To receive the International Company Status, the business must be registered in Georgia with 50% of its shareholders not being Georgian residents. At the same time, restrictions on the minimum operation period of the company and its line of activity should be considered. The International Company Status grants the following benefits:

Tax withholding on employee income - 15% (instead of 20%)
Profit tax - 5% (instead of 15%)
Dividend tax - 0% (instead of 5%)

Moreover, Georgia has an economic model of capital reinvestment, in which the income tax is not levied if capital gains are reinvested in business development.

Low tax rates, supportive legislation, and preferential government programs make Georgia one of the most attractive countries for growing your company. Doing business here is simple, and all the efforts of the government are aimed at further developing entrepreneurship in the country.

 

If you've decided to open a company in Georgia or have questions concerning finances and taxation, the experts at Jara Accounting will help you understand the intricacies of Georgian legislation and take care of the burdens of registering and supporting your business.

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