Last modified: 29/04/2024 09:20

Corporate taxation

	Rate
Corporate income tax rate	15%
Branch income tax rate	15%
Capital gains tax rate	0

1. Importantly, the so-called Estonian CIT model is applied in Georgia. Meaning that such tax is payable only upon the distribution of dividends by a company. Georgia has a flat rate tax system. It means that the rate of the tax does not depend on the amount of income received by the taxpayer but the same rate applies for all taxpayers falling under the subject of concrete tax.

2. Notably, there is no special tax on capital gain in Georgia. It falls under the general CIT rules and 15% tax is payable only after the distribution such profit. 

Residence: According to Georgian law, an enterprise is considered resident in Georgia if it is incorporated in Georgia or if it is deemed to have its main place of activity and/or its place of management in Georgia. All other enterprises are considered to be non-resident enterprises.

Basis: Corporate income tax is charged on the profits earned by a Georgian enterprise and profits derived by foreign enterprises carrying out their activities through a permanent establishment in Georgia and/or generating income from sources in Georgia.

Taxable income: The Georgian Tax Code levies corporate income tax on the worldwide profits of Georgian resident entities and on income sourced in Georgia and derived by foreign non-resident entities either through a permanent establishment or otherwise. Gross income includes income from economic activities, interest income, royalties and rental income. Taxable income is calculated by adjusting accounting profits for non-taxable items and non-deductible items, and any other adjustments required by law. Foreign enterprises having no permanent establishment in Georgia and generating income from sources in Georgia are subject to withholding tax at the source of payment.

Significant local taxes on income: Profit Tax 15%

Alternative minimum tax: n/a

Taxation of dividends: Dividends distributed by Georgian companies (to a natural person or a non-resident enterprise) are subject to a 5% withholding tax at source (unless the provisions of a tax treaty applies with respect to dividends paid to a non-resident).

Capital gains: Capital gains are normally included in income and taxed at the normal rate of income tax. Certain gains are exempt, however, including: • Gains from the disposition of tangible assets owned for more than two years; • Gains from the sale of a means of transport owned for more than six months after registration.

Losses: Losses may be carried forward for up to five years and offset against profit of future periods. The carry forward can be extended to 10 years upon application.

Foreign tax relief: A double taxation avoidance treaty signed by several countries. Which means that income in both countries is not taxed and taxed only in one country according to residence

Participation exemption: Exemption from corporate income tax on income received from financial transactions and provision of financial services, provided the income from the financial services is Georgian sourced and it does not exceed 10% of the company’s worldwide gross income • Exemption from corporate income tax on gains received from the sale of investment securities issued by non-residents • Exemption from corporate income tax on gains received from the sale of securities issued by an International Financial Company. • Exemption from the obligation to withhold tax on interest payments • The dividends received from International Financial Companies shall not be taxed at the source of payment

Holding-company regime: n/a

Tax-based incentives: some companies (non CIT model) and individual entrepreneurs must make quarterly payments on account of income tax based on their final taxable income in the previous year. Payments are due as follows: • 25% on or before 15 May • 25% on or before 15 July • 25% on or before 15 September • 25% on or before 15 December The balance remaining, if any, is due by 1 April of the following year

Group relief/fiscal unity: From July 2019 the status of international company exists in Georgian Tax legislation. The following tax reliefs are defined for it:  Income received as a result of hired work (employment) in an international company is taxed at 5 percent.  A dividend paid by an international company shall not be taxed at the source of payment and shall not be included in gross income by the person receiving thereof.  The profit tax rate for an international company is 5%. The amount of taxable profit of an international company shall be calculated by dividing the amount of payment made/cost incurred according to the object of taxation by 0.95.  An international company is exempt from property (except for land) tax if that property is intended or used for the performance of activities allowed by the degree of the Government of Georgia.

Small company/alternative tax regimes: MICRO BUSINESS Based on the application filed with the Georgian tax authority (GTA) according to the place of registration, the status of Micro Business can be assigned to an individual who: • Conducts economic activities independently without hiring employees • Receives annual gross income up to GEL30 000 • Carries out activities that Micro Businesses are permitted to conduct • Maintains inventory balance up to GEL45000 SMALL BUSINESS Based on the place of registration specified in the application filed with the GTA, Small Business status can be assigned to an individual entrepreneur who: • Receives annual gross income from economic activities of no more than GEL500 000 in each calendar year during two calendar years. • Undertakes activities that are not prohibited for Small Businesses, as defined by the Government • Uses a cash register and has not been penalized for not using the latter more than 3 times during a calendar year.

Corporate taxation: compliance

Tax year: Profit tax taxable period is calendar Month, and some companies (NOT in CIT model) taxable period is calendar year (for example, banks, insurance companies, other financial institutions and etc.) Such companies must file corporate tax returns by 1 April following the tax year, which is the calendar year. Upon liquidation, the liquidation commission or the taxpayer must immediately notify the tax authorities in writing. Within 15 days of making a decision on the liquidation of a legal person, the liquidation committee must file a tax return with the tax authorities

Consolidated returns: n/a

Filing and payment: The profit tax payment period is every month, and the return and payment must be made before the 15th of next month.

Penalties: The term of limitation for taxpayer’s tax assessment, tax audit, imposition of a sanction (other than penalty) and reception of relevant tax notice, filling of taxpayer’s request and an individual administrative legal act of a tax authority is defined with 3 years.

Rulings: n/a

Taxation of individuals

	Rate
	Federal Income Tax
Income Tax	20%
dividend/interest	5%
royalties/rent	20%

1. The single flat rate of income tax is 20%, income received from renting out of residential space is taxable at the rate of 5%, though, as noted, dividends and interest are taxable at 5% and royalties and rent are taxable at 20%.

Residence: Georgia taxes individuals on the territoriality principle. Therefore, both residents and non- residents are subject to income tax on their Georgian-source income only. Under the Tax Code of Georgia, an individual is considered to be resident of Georgia if he or she is physically present in Georgia for 183 days or more in any continuous 12-month period ending in the tax year concerned. Persons in the Georgian public service are considered to be residents even if they spend the whole year abroad on service

Basis: Income tax payer is: • Physical person • Individual entrepreneur

Taxable income: According to the Tax Code of Georgia, the taxable income of a resident person consists of the gross income generated by him or her in Georgia, as reduced by deductions and allowances granted by the Tax Code. Gross income includes: • Income from employment • Income from independent economic activity • Income from alienation of property • Dividends and interest (except interest from deposits in a bank or licensed financial institution) • Royalties • Income arising from the waiver or cancellation of debts • Income from leasing, usufructs, rent, etc.

Capital gains: Capital gains are normally included in income and taxed at the normal rate of income tax. Certain gains are exempt, however, including: • Gains from the disposition of tangible assets owned for more than two years; • Gains from the sale of a means of transport owned for more than six months after registration.

Deductions and allowances: Other than the deductions and relief described above, there are no general deductions or allowances.

Foreign tax relief: A double taxation avoidance treaty signed by several countries. Which means that income in both countries is not taxed and taxed only in one country according to residence

Taxation of individuals: compliance

Tax year: Calendar Year

Filing and payment: As in the case of companies, individual entrepreneurs must make quarterly payments on account of income tax based on their final taxable income in the previous year. Payments are due as follows: • 25% on or before 15 May • 25% on or before 15 July • 25% on or before 15 September • 25% on or before 15 December The balance remaining, if any, is due by 1 April of the following year. An individual who had no taxable income (profit) during the previous tax year, either because he or she incurred a loss or was not trading, is not required to make any payments on account

Penalties: Penalties are awarded on the basis of tax checks carried out by the Revenue Service

Rulings: n/a

Withholding taxes

Type of Payment	Resident recipients		Non-residents recipients
	Company	Individual	Company	Individual
	Rate (%)	Rate (%)	Rate (%)	Rate (%)
Income Tax	20%	20%	20%	20%
Profit  Tax	15%	20%	0	0
VAT	18%	18%	18%	18%

Branch remittance tax: In taxes cash withdrawn from the founding company at the branch is not taxed

Anti-avoidance legislation

Transfer pricing: From 1 January 2014 new rule approved by the Minister of Finance entered into force – transfer pricing for international controlled operations. Present rule together with the relevant articles of The Code regulates international transactions between related parties, pricing and taxation guidelines. Georgian transfer pricing rules generally follow OECD transfer pricing principles. They apply to cross border transactions between: a) A Georgian resident company and a related foreign company b) A Georgian resident company and an unrelated foreign company, where the latter is a resident of low tax jurisdiction/offshore country. Taxpayer has a right to receive advance ruling for the operations subject to transfer pricing. The advance agreement shall be concluded before the operation for a certain period and within its scope shall be set criteria according which the prices shall be established. Such criteria are, for example, method, comparable operations and their corresponding adjustments, important assumptions about future operations, etc.

Interest restriction: According to the Tax Code of Georgia, only 20% of the interest expense can be deducted.

Controlled foreign companies: The current standard rate of corporate income tax on all taxable income is 15%

Hybrid mismatches: n/a

Disclosure requirements: What kind of price would the deal have been for the deal to be struck between ordinary non-interconnected individuals

Exit taxes: n/a

General anti-avoidance rule: General arm’s length principal

Digital services tax and Other significant anti-avoidance legislation: n/a

Value-added tax/Goods and services tax

Type of tax: On July 2020 quite significant amendments were made to the Tax Code of Georgia. The amendments affected the chapter of VAT in full. The draft of VAT was developed to approximate tax legislation with the EU VAT Directive (2006/112/EC). As a result, the VAT reform based on international practice will improve the investment environment, reduce disputes, and simplify the fulfillment of tax obligations. There is an opportunity to develop internal procedures for the application of European Court decisions and interpretations in practice. According to the amendments, the VAT regulations of the Tax Code have been completely revised, however some of the basic principles remained the same. Amendments are in force since 1 January 2021.

Standard rate: 18%

Reduced rates: Taxable persons must file a VAT return with the tax authorities for each reporting period no later than the 15th day of the month following the reporting period in question. They must pay the excess of output VAT over minus their input VAT at the time they file their return. If their input VAT exceeds output VAT, they may apply for a refund.

Registration: Persons (except for those supplying goods only in the territory of the Special Trading Zone) are required to register for VAT where: • They carry out an economic activity and the total amount of their taxable turnover over 12 successive calendar months exceeds GEL100 000 • An application for registration must be filed no later than the second day after turn over exceeds this threshold • They produce and/or import goods subject to excise tax (referred to as “excisable goods”) during the course of their economic activity (excluding the importation and/or supply of passenger cars). The person concerned must register for VAT before the supply of excisable goods takes place. • A taxable person who has a fixed establishment in Georgia shall be liable for VAT calculation and payment from the moment the service is provided / the goods are delivered (including this transaction). They are obliged to apply for registration as a VAT payer to the tax authority no later than the last day of the reporting period when the transaction occurred. Taxable persons whose taxable turnover during the previous 12 months was GEL100 000 or less may apply for deregistration after one year of registration for VAT.

Filing and payment: Taxable persons must file a VAT return with the tax authorities for each reporting period no later than the 15th day of the month following the reporting period in question. They must pay the excess of output VAT over minus their input VAT at the time they file their return. If their input VAT exceeds output VAT, they may apply for a refund.

Social security contributions

	Employer	Employee
	Rate (%)	Rate (%)
Pension contribution	2%	2%

A Pension Agency established following the 2018 pension reform, started collecting and administering the funds of the participants of the mandatory funded pension scheme on January 1, 2019. The funded pension scheme is based on the 2% + 2% + 2% principle of accumulation. The employer transfers on behalf of the employee 2% of the untaxed amount of employee salary to the employee’s individual pension account. The same amount is contributed to the employee’s individual pension account by the employer on their behalf. Based on the amount of the employee’s salary (but not more than 2% of the untaxed salary), the contribution for the benefit of the employee is also made by the state.

Self-employed

Participation in the self-employed pension scheme is not mandatory. If desired, each self-employed individual will transfer 4% of one’s annual income to the individual pension account.

Other taxes

Capital duty: There is no Capital duty in Georgia

Immovable property taxes: The following are subject to Property tax: • For a resident entity/organization • Fixed assets and/or investment property • Uninstalled equipment • Construction projects in progress • Leased business property • For a non-resident enterprise: all the above-mentioned properties are subject to property tax if they are located in Georgia (including properties that are leased out, rented or usufruct, or let under similar contracts by a non-resident). • For an individual: • Immovable property owned by a resident (including an unfinished construction, building or structure, or a part thereof) • Yachts (boats) • Helicopters Airplanes • Motor cars specified under Code 8703 of National Commodity Nomenclature • Property received from a non-resident under a lease agreement In the case of an economic activity: fixed assets, uninstalled equipment construction projects in progress, also leased business property Property tax is payable by resident companies and organizations and by non-resident enterprises persons holding property located in Georgia. In the case of individuals, property tax is applied to the property of the family unit. Families whose annual taxable income is less than GEL40,000 are exempt from the tax

Transfer tax: n/a

Stamp duty: Import duty is payable by persons moving goods into the Georgian customs territory. Gambling duty is levied on licensed operators of casinos, other gambling establishments and games of chance. For gambling establishments, the duty is payable per table at a rate of between GEL20,000 and GEL40,000 per quarter and per slot machine at GEL2,000 to GEL4,000 per quarter. Other rates apply to bingo and lotto, bookmakers, electronic games and lotteries.

Net wealth/worth tax: There is no wealth tax in Georgia

Inheritance/gift taxes: Georgia does not levy any inheritance or gift taxes, but certain inheritances and gifts are subject to income tax (see above under “Other income”).

Other: Property tax (except land) Resident individuals whose annual family income exceeds GEL 40,000 in a calendar year are liable for property tax. The following is subject to taxation: Immovable property owned by the individual (including property received under a lease from non-residents and property that is leased to other persons). Yachts, motor boats, airplanes, and helicopters. Motor cars starting from 2018. Property tax on land Individuals shall pay tax on land owned by them as of 1 April of the tax year: on land in their possession, on land owned by the state and used or owned by them, and on a parcel of land owned and/or used by a natural person that is registered as property of a deceased person, except for the cases when the parcel of land is used under a lease, rent, usufruct, or similar agreement. A natural person shall pay property tax and property tax on land no later than 15 November of a calendar year.

Tax treaties

The signing of a tax agreement is intended by signing the Prime Minister on both declared and undeclared taxes. After signing the tax agreement, fines are not accrued by the Revenue Service