An increasingly smaller number of countries now offer sufficiently convenient taxation to allow cross-border business to be carried out. Georgia is one such country.
Despite the recent deterioration in the attitude towards newcomers, this small country still affords to expatriates the opportunity of working under very comfortable conditions.
Georgia has two tax statuses which can prove very alluring for individuals and companies engaged in international business: (1) a regime for an individual entrepreneur, and (2) a tax regime for IT companies.
The tax regime for individual entrepreneurs
The tax regime for individual entrepreneurs provides for a tax rate of 1% on income, irrespective of the country from which such income was received.
An individual entrepreneur pays taxes on a monthly basis at the rate of 1%, provided that his/her annual income does not exceed 500,000 Georgian lari, which is approximately 170,000 Euro. If this threshold is exceeded, the tax on the amount of such excess will be 20%, or, in other words, the standard tax on the income of individuals becomes applicable. To properly formalize the status of an individual entrepreneur, it is important to correctly determine the types of activities that fall under this tax regime. It is also essential to employ the services of a local accountant to ensure the proper and timely filing of monthly reports and to avoid having significant fines imposed and one’s accounts blocked.
An important and positive aspect of obtaining the status an individual entrepreneur is that it takes a day or two to formalize and this can be done remotely. It is also possible to open a bank account at the same time; however, to do so, an individual must attend a bank’s office personally. Therefore, it is advisable to prepare the documents in advance and then go to Georgia for a couple of days to complete all the formalities and to enjoy the unique ambiance of Tbilisi.
The tax regime for IT companies
The tax regime for IT companies in Georgia remains one of the most liberalized. First, Georgia does not have very strict criteria for defining an IT company. Naturally, a company that is engaged in the retail sector cannot benefit from this tax status. However, a company that upgrades or adapts a finished product and sells it to third countries may very well be eligible for special tax incentives.
The first option for creating an IT company is to establish a company with the status of a subject of a virtual (free economic) zone. The types of activities which allow a company to obtain this status include the development and maintenance of software. A person of a virtual zone means a legal entity that is engaged in information technologies and has obtained the relevant status. Information technologies means studying, designing, developing, implementing, supporting and managing computer information systems and, specifically, software products and computer hardware.
IT companies that have such status are obliged to have an office in Georgia as well as employees who live, work and earn their salaries there. When a company pays salaries to its employees it will pay income tax at the rate of 20%. Companies with this status are exempt from VAT. Corporate profit tax is 5%, which is one of the lowest tax rates in Europe. It is mandatory to maintain financial accounts.
The second option for creating an IT company is to obtain the status of an international IT company. The types of activities that allow a company to obtain this status include the development and maintenance of software. The specific types of activities are listed in the Georgian Government’s Resolution No. 619. This status is temporary and is assigned for two years. Income tax of 5% is accrued only when salaries are paid to employees. Corporate profit tax, which is paid only when dividends are distributed, amounts to 5%. There is no tax on dividends.
To obtain the tax status of an IT company under either of the above two options, it is necessary to establish a Georgian company and hire employees, most of whom must be working and earning salaries in Georgia. They must also be directly engaged in the development or adaptation of an IT product.