Despite the fact that cryptocurrency has long been a legal tender, there is still no global understanding of how to classify and effectively tax this large element of income of individuals and legal entities. The main purpose of taxation of cryptocurrency is to combat the illegal turnover of funds. Let’s look at what taxes an investor in cryptocurrency pays if he is a tax resident of Georgia, and find out from what taxes private investors are exempt, and what taxes legal entities must pay. Also, in particular, what are the taxes in the field of cryptocurrency in Georgia, how the exchange of cryptocurrency and the sale of computing (hash) power for generation are taxed.
Cryptocurrency taxes in Georgia
Georgia is one of the leading countries in the world for the extraction of cryptocurrency. This year Georgia took 3rd place, behind only China and Venezuela. Affordable electricity prices and loyal tax policy attract entrepreneurs from all over the world to Georgia for crypto mining.
Back in 2019, the Ministry of Finance published a public decision on taxes applicable to cryptocurrencies in Georgia. According to the decree:
- individuals in Georgia are exempt from income tax on any profit that was received from the sale of cryptocurrencies;
- the sale of cryptocurrency (exchange it for Georgian or other national currency) is not subject to VAT (applies to both legal entities and individuals);
- the sale of computing (hash power) from Georgia abroad is also not subject to VAT. In addition, the right to reimburse the input VAT on such transactions remains (applies as for legal entities);
- the sale of computing (hash power) on the territory of Georgia (from a resident of Georgia to a resident of Georgia) is a transaction subject to VAT;
If you register a crypto company in Georgia, then it is beneficial to reduce your tax budget. And if you register in one of the three Free Industrial Zones of Georgia, then reduce taxes to a minimum. Read more about taxation in FIZ here.
Georgia does not participate in the automatic exchange of financial information, which guarantees confidentiality for your assets.
It is important to know that Georgia plans to start exchanging banking data using the CRS protocol in 2023, but so far there is no reliable information on this.
Selling cryptocurrency for individuals
If an individual becomes a resident of Georgia, he will not be taxed on the profits that they received from the sale of cryptocurrency, the same applies to VAT, which does not apply to such a transaction.
Sale of cryptocurrency for legal entities
The profit that the Georgian company received from the sale of the cryptocurrency is subject to 15% corporate income tax.
It should be noted that Georgia has a special system similar to Estonia. If a Georgian company decides not to distribute profits, but to reinvest it, they do not pay corporate tax on the reinvested amount. In the case of distribution of dividends at source, a 5% payout tax is applied in addition to the 15% corporate tax.
VAT and cryptocurrency
According to the country’s legislation in the field of taxes, VAT is levied in 2 cases: the provision of goods and the provision of services on the territory of Georgia. The VAT rate is 18%. In addition, money is not considered a commodity, so transactions with money are not subject to VAT.
According to the decision, the sale of any cryptocurrency (its exchange for Georgian or other currency) has the same character as the exchange of money. As a result, the sale of cryptocurrency is not considered a VAT-subject transaction.
VAT on the sale or purchase of hash power
If the person who receives and uses electronic services is residents of Georgia, this service is essentially provided on the territory of Georgia, and, conversely, if the person who receives and uses electronic services is not a resident of Georgia, then such a service is considered to be provided outside the territory countries.
The sale of hash power is not subject to VAT if a resident of a country sells it to a non-resident, and is subject to reverse VAT if a resident buys it from a non-resident. Finally, the sale of hash power by a resident to a resident is subject to VAT, which is 18%.
Payments to non-residents for services are subject to withholding tax at the rate of 10% if such income received by the non-resident is considered to be derived from a Georgian source. Whether the sale of hash power from abroad to Georgia is a source of income for Georgia, and it depends on the specific facts and circumstances. An important factor is, after all, the sale of goods, which means that it is unlikely to be subject to this tax, which is applicable to services and operations.
Application of tax treaties
Georgia has agreements on the avoidance of double taxation with 56 countries. They can be applied in cases where a resident of Georgia pays non-residents for hash power or vice versa. Provide an exclusive right of taxation to the country of residence of the service provider, except in cases where there is a permanent establishment in another country, which should not be given the nature of such a transaction. If tax treaties are applied, no withholding tax shall be levied when payment for purchased hash power is made from Georgia abroad.
As you may have noticed, mining, the sale and exchange of cryptocurrency in Georgia is possible on quite loyal conditions, but it still has many nuances. To know exactly what taxes your company will be subject to if you register it in Georgia, it is better to contact the professionals for a calculation. Leave a request and get a free consultation on the taxation of cryptocurrencies in Georgia.