The 2005 reforms in Georgia reduced the total number of taxes from 21 to 6. Tax rates and profit tax in Georgia fell significantly, and as a result, in the Paying Taxes report for 2019, the country was ranked 16th among 190 participants. As a result, taxation in Georgia in 2019 became one of the most comfortable in the world. Hundreds of businessmen from Russia, CIS countries, and all over the world come here to do business: open a shop, launch production, try their hand at tourism. Individuals prefer to invest in real estate and then rent out their apartments to foreigners. A clear bureaucratic system and low taxes for companies contribute greatly to this.
In order to start an efficient business or to invest in real estate in a profitable way, one should familiarize oneself with the current Tax Code of Georgia. In this article, we will consider income tax and real estate rental: how accrual is made and in which cases it is possible to avoid payment.
What is profit tax
Profit tax is a necessary cost column for legal entities operating in Georgia under the general taxation system. In this case, a legal entity is not only a company but also any enterprise, production, financial organization, etc. To calculate the tax, the following definition of profit is used – it is the total amount of the company’s income minus expenses and other mandatory taxes and discounts. The maximum and minimum income tax is determined differently in different countries.
Profit can be called a taxable base in another way. Thus, not all expenses of the company can be deducted from this base. They are determined by the Tax Code of each individual country. Most often it is possible to deduct the expenses:
- payments to employees;
- production, commercial and transportation costs.
Profit tax in Georgia
The taxable income of the enterprise is taxed at the rate of 15 percent. According to the amendments to the Tax Code of Georgia, if the founders reinvest profits, they are exempt from this tax.
The taxpayers of the profit tax are:
- resident enterprises;
- non-resident enterprises operating in Georgia through a permanent establishment or (i) deriving income from a source located in Georgia.
The Georgian government is working hard to reduce the tax burden on citizens and foreign entrepreneurs, thus attracting more investment into the country. This is a good strategy for a small country whose main source of income is tourism and agricultural exports.
In Georgia, income taxes can be roughly divided between those that are paid into the personal tax base and those that are not. In other words, there is a difference between taxes for individuals and legal entities. Let us consider each type of taxation in more detail below.
In most cases, the income tax is physical, when the profit is deducted at 15% of the amount withdrawn, and the dividend from the interest paid is 5%. Such a tax will not be recorded in the history of your tax deductions, which means that you will not have to prepare tax reports to the regulatory authorities. Such tax will have to be paid in the following cases:
- profit from the sale of real estate with a plot of land; (single receipt is optional)
- received dividends in Georgia from local companies;
- received a fee for content creation or royalties for franchise provision.
It is possible not to pay any tax at all if the profit was derived from the following activities:
- blood donation;
- alimony collection;
- income from a divorce;
- receipt of cash prizes;
- obtaining scientific and educational grants.
For legal entities
If you are the owner of a company, the profit tax in Georgia will be a full 15% for you. At the same time, for individual entrepreneurs with small business status, there is a simplified tax regime in the amount of 1% of the revenue in the amount of 500 thousand GEL per year.
Currently, Georgia is actively developing its tax system. This is confirmed by the introduction of the “Estonian model” of taxation in 2017. The essence of this model is that profits derived from business activities are returned to the company, i.e. reinvested. If a company operates under this tax model, it is automatically exempt from paying income tax contributions. That is, the country has a zero tax rate on undistributed profits of companies.
Property rental tax (real estate tax)
If you want to start renting housing in Georgia, your income will be taxed at 5%. In case you are renting out real estate for commercial purposes, the standard tax rate will be 20%.
It turns out that when you rent out real estate on your own your income reaches 10% per annum, and if you use the services of management companies your income will be 6-8%.
It is known that the Parliament of Georgia is considering an initiative to reduce income tax for owners of apartments and areas for rent. The main goal of the project is to encourage owners to rent out their properties more often and to reduce prices. Reduced taxes have a good impact on business and economy in general.
We can conclude that the taxation system in Georgia is quite simplified, but despite this, you should have a full understanding of all the nuances and options that are right for you before registering a company.
By addressing us you will secure yourself and choose the best strategy, which will fully comply with your goals. Jara Accounting provides you with the security of your payments and taxes in Georgia.