Existing migrants should:

1. Check your current status in the electronic labor migration database.
2. Apply for a new work activity permit well before the January 1, 2027 deadline.
3. Submit the residence application (Work permit in Georgia for foreigners, residence card, or relevant permit category) in time.
4. Ensure your employer (if applicable) updates their documentation in Georgia’s system.

Failing to obtain both the work activity permit and a matching residence permit by the end of 2026 will mean working without authorization, which could result in fines or other administrative actions under the new law.

Requirements for New Foreign Nationals After March 1, 2026

Foreign nationals intending to start working or conducting business in Georgia after March 1, 2026 must:

Step 1 – Obtain Work Activity Permit

Before entering Georgia (or working within Georgia), the foreign national must secure a work activity permit from the Ministry of Internally Displaced Persons from the Occupied Territories, Labour, Health, and Social Affairs. This authorization defines:

• The type of work (employee, self-employed, entrepreneur)
• Scope and field of permitted activity

Step 2 – Obtain a Proper Visa or Residence Permit

Once the work activity permit is issued:

• If you are outside Georgia, you must apply for a D1 work visa for entry.
• Once in Georgia, or if already inside, the foreign national must apply for an appropriate work or labor residence permit (including the new three-year IT specialist residence permit if applicable).

Both conditions must be satisfied simultaneously.
Working without a permit will constitute a legal violation under the amended Law of Georgia on Labour Migration.

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Penalties for Non-Compliance With Georgia’s Work Permit Law

The new law introduces meaningful enforcement measures:

Fines for violations include:

• GEL 2,000 for each foreign worker/employer that engages in work without a valid permit
• GEL 2,000 for self-employed foreigners operating without authorization
• Repeat offenses can lead to higher fines (double or more), deportation procedures, and further administrative measures.

Employers and agents are jointly liable if they facilitate unauthorized labor activity.

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Important Notes for Specific Groups

 

We’re excited to share some groundbreaking news from the Georgian government, aimed at fostering the growth of the IT sector and attracting international talent. Starting September 1, 2025, amendments to the Georgian Law “On the Legal Status of Aliens and Stateless Persons” come into force. This significantly simplifies the process for IT specialists Georgia residency.

What’s Changing?

Under the new regulations, IT specialists Georgia residency can be obtained through a simplified procedure. This permit is initially for 3 years, with a possible extension up to 12 years. This unprecedented step underscores Georgia’s aspiration to become a regional IT hub. It also aims to attract skilled professionals from around the globe.

Why Is This Important?

This change offers numerous advantages for IT professionals:

• Simplified Procedures: It will reduce bureaucracy and accelerate the residence permit acquisition process.
• Long-Term Perspective: A 3-year initial permit and its potential 12-year extension offer stability. This benefits those planning long-term development in Georgia.
• New Opportunities: Georgia’s technology sector is rapidly expanding. Tbilisi is fast becoming a startup hub, creating many career opportunities.

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Tax Benefits in the IT Sector

Beyond the simplified residence permit process, Georgia offers significant tax incentives for IT specialists and companies. These benefits make the country even more attractive:

1. International Company Status

The Georgian government has introduced the “International Company” status. IT and maritime service companies can benefit from it. Companies with this status enjoy the following advantages:

• Profit Tax: Instead of 15%, it’s only 5%.
• Income Tax (on employee salaries): Instead of 20%, it’s 5%.
• Dividend Tax: It does not incur taxation at the source of payment.
• Property Tax: You are exempt from property tax (excluding land) if you use the property for permitted activities.
• Reduced Taxable Profit: You can reduce taxable profit by salaries paid to Georgian citizen employees. You can also reduce it by costs of research, design, and experimental-constructive services.

Important: To obtain International Company status, a company must meet certain conditions. These include having at least 2 years of experience in permitted activities (e.g., software development, computer games, computer programming, and other information technologies).

For more information about International Company status check our blog post here.

2. Virtual Zone Status

Individual and legal entities in the IT sector can obtain “Virtual Zone Person” status. This allows them to benefit from significant tax incentives. This applies if they supply their IT services/products to non-resident customers outside of Georgia.

The advantages of this status are:

• Profit Tax: The distribution of profits from a Virtual Zone Person’s IT supply outside Georgia is not taxed.
• Value Added Tax (VAT): Supplies made outside of Georgia are not subject to VAT.

Important: To obtain Virtual Zone status, the company must be registered in Georgia. Its main activity must also be in the IT sector.

For more information about Virtual Zone status check our blog post here.

3. Small Business Status (for Freelancers)

If you are an individual IT specialist (freelancer), you can benefit from Small Business status. This applies if your annual turnover does not exceed 500,000 GEL. In this case, you tax your income at a rate of only 1%, instead of the standard 20% (if you are not a VAT payer).

For more information about Small Business status check our blog post here.

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Why Georgia?

Georgia is not only distinguished by its developing IT sector but also offers:

• A Friendly Environment: Georgian hospitality is renowned worldwide.
• Favorable Tax System: Low taxes are particularly attractive for freelancers and small businesses.
• Affordable Cost of Living: Compared to Western countries, the cost of living in Georgia is significantly lower.
• Rich Culture and History: Georgia boasts stunning nature, ancient history, and a unique culture.
• Strategic Location: Georgia serves as a bridge between Europe and Asia.

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If you’re an IT specialist looking for new challenges, career advancement, and a better quality of life, Georgia is the ideal place for you. Don’t miss out on this unique opportunity for IT specialists Georgia residency!

For more details about new IT Residency Permit in Georgia refer to the Georgian Law “On the Legal Status of Aliens and Stateless Persons”: https://www.matsne.gov.ge/ka/document/view/2278806?publication=20

Do you have any questions or want to learn more about Georgia’s tax benefits amd IT Residency Permit in Georgia? Contact and let us know.

Introduction

Recently, crypto technologies have become very popular in Georgia. Until now, crypto regulation was unregulated in Georgia, which raises the risks of money laundering and terrorist financing, but from January 1, 2023, the National Bank of Georgia began regualtion of the crypto industry.

Regulation includes the registration of digital asset operators with the National Bank and their regulation in terms of prevention of money laundering and financing of terrorism. In connection with this, amendments were made to the Organic Law on the National Bank of Georgia, which came into effect on January 1, 2023. Regulation is based on the recommendations of the Financial Action Task Force, FATF. Also, the experience of the United States of America, EU member states and Singapore was taken into account.

Definition

Let’s get acquainted with the amendment to the law of the National Bank, according to which it was determined:

1) Digital (crypto) asset – a digital expression of value, which is interchangeable and not unique, is the subject of transfer or trade in digital form and is used to make investments and/or payments. A digital asset does not include a digital representation of cash, securities or other financial instruments;

2) Convertible digital (crypto) asset – a digital asset that has an equivalent value in the market in national or foreign currency, in another digital asset and/or financial instrument, in which it can be exchanged;

3) Digital (crypto) asset service – exchange of a convertible digital asset (including through a self-service kiosk) in national or foreign currency, another digital asset or financial instrument, transfer and/or storage/administration of a convertible digital asset or an instrument necessary for its use, which allows for control over a digital asset, management of a portfolio consisting of convertible digital assets (except collective portfolio management) and/or administration of a trading platform for convertible digital assets and/or lending of such digital asset and/or initial offering and/or initial offering services;

4) Digital (crypto) asset service provider – an entity who provides digital asset services for the benefit of another entity.

Regulation

Let’s start by saying that according to the law the digital (crypto) asset is not a legal tender in Georgia.  The National Bank has been granted full authority to supervise the activities of the digital (crypto) asset service provider. The National Bank is authorized to:

a) In accordance with the legislation of Georgia on the prevention of money laundering and financing of terrorism, the entity subject to supervision shall request and receive information on the sources of capital of the subject subject to supervision, ownership structure, direct owners and beneficial owners of significant shares (including the origin of property and/or funds) );

b) In case of violation of the legislation of Georgia on the prevention of money laundering and financing of terrorism, the entity subject to supervision should stop or limit certain operations, prohibit the distribution of profits, accrual and distribution of dividends, increase wages, issue bonuses and other similar compensation, impose a monetary fine, cancel registration. , authorization, recognition and revocation of license;

c) in case of violation of the legislation of Georgia on the prevention of money laundering and financing of terrorism, suspend the administrator of the entity subject to supervision from the right to sign, impose a monetary fine and demand his dismissal;

d) to provide the entity subject to supervision in accordance with the legislation of Georgia on the prevention of money laundering and terrorist financing, the list of entities whose activities contain or may contain the risk of money laundering or financing of terrorism;

e) In case of non-submission or incomplete submission of the requested information within the defined period, impose a sanction on the entity subject to supervision in accordance with the Georgian legislation on the prevention of money laundering and terrorism financing.

In order to prevent money laundering and financing of terrorism and fight against them, the National Bank supervises the activity of the entity subject to supervision based on a risk-based approach. Information about the sanctions imposed by the National Bank is published on the official website of the National Bank according to the procedure established by the National Bank.

Supervision

1) The National Bank is authorized to supervise the activities of the digital (crypto) asset service provider. Supervision provides for the registration and deregistration of the digital (crypto) asset service provider, the establishment of suitability criteria for the administrators of the digital (crypto) asset service provider, inspection and regulation in order to facilitate the prevention of money laundering and terrorist financing, the determination of information accompanying the transfer of the digital (crypto) asset, the issuance of written instructions, the imposition of additional requirements, restrictions and sanctions .

2) The digital (crypto) asset service provider is obliged to register with the National Bank and meet the requirements established by the National Bank. The rules of registration, cancellation of registration and regulation of the digital (crypto) asset service provider in the National Bank are established by the normative act of the National Bank.

3) It is not allowed to provide digital (crypto) asset services by a an entity who is not a digital (crypto) asset service provider registered by the National Bank or a representative of the financial sector, who is authorized to provide digital (crypto) asset services by the activity regulatory legislation.

4) The digital (crypto) asset service provider is prohibited from providing digital (crypto) asset services, supporting activities necessary for the provision of this service, and performing activities other than the exchange of its own digital (crypto) asset.

5) The National Bank is authorized to the digital (crypto) asset service provider and the representative of the financial sector, who has been granted the authority to provide digital (crypto) asset services by the activity regulatory legislation, to stop or limit the implementation of certain types of activities/operations (including, depending on the types of digital (crypto) assets), as well as other digital (crypto) assets Business relationships with service providers that pose increased risks related to money laundering and terrorist financing and/or the risk of evading international financial sanctions, hinder the traceability and/or supervision of the transactions carried out.

6) The National Bank is authorized to impose a sanction (including a monetary fine) on the digital (crypto) asset service provider and the provider’s administrator for violation of this law and the legal acts of the National Bank in the manner determined by it. The amount of the monetary fine will be sent to the state budget of Georgia.

Conclusion

The amendments included in the Organic Law on the National Bank of Georgia entered into force on January 1, 2023, but the National Bank of Georgia has until July 1, 2023 to introduce the all relevant rules for crypto regulation. Entities that carry out activities related to digital assets must register with the National Bank within 90 days of the implementation of the mentioned rule, because otherwise, their activities will be considered illegal business activities.

For more information or/and questions about the regulation of crypto assets in Georgia please contact us, we are always ready to help you.

Introduction

According to the order of the head of the Revenue Service N33544 of December 29, 2022, the methodical instruction was approved on the taxation of virtual zone IT company in Georgia.

The methodological reference explains the rules related to granting and canceling the status of virtual zone IT companies, as well as defines the tax obligations and rights within this status. We will discuss here the main examples given in the approved order.

Example 1:

The creation of information technologies by a virtual zone IT company is carried out by one hired person (programmer) and a person hired on the basis of a service contract (programmer). A person fulfills the obligation of a tax agent in relation to the taxes carried out in accordance with the rules established by the tax legislation of Georgia, in particular, he withholds the tax at the source of payment and pays it to the budget. The person supplies information technologies only outside of Georgia.

Evaluation:

According to the Tax Code and the Law of Georgia on “Information Technology Zones”, as a result of information technology activities, a software product should be created, which will have a form and, accordingly, will be available on the market in the form of goods or services. Based on the objectives of the legislation on information technology zones, software products should be considered as ready-made software developed for a wide range of users, as well as software intended for specific categories of users.

Software products are considered to be created if their creation is substantially performed directly by the employee(s) and/or resident founder(s), including the possibility that the virtual zone IT company purchases services to create the software products.

Taking into account that in the considered example, the virtual zone IT company has both a hired person employed in the relevant profile section (programmer), as well as one person hired on the basis of a service contract (programmer), it will be considered that the information technologies, which were provided outside the country, were essentially created in the territory of Georgia. Accordingly, the distribution of the net profit received by it to the founders for the purpose of tax relief in the profit tax will be exempted from the profit tax.

Example 2:

A virtual zone IT company is established by a physical person. Information technologies are created on the territory of Georgia directly by the resident founder and their delivery is carried out outside Georgia. The company does not have a person working for hire with the relevant profile section. The shareholder natural person receives income only in the form of dividends.

Evaluation:

Considering that the founder of the company is a resident of Georgia, the place of business of the company is Georgia, and the company creates information technologies, it will be considered that its activity complies with the requirements of the Law of Georgia “On Information Technology Zones”, as well as the requirements of the Tax Code, and in the case under consideration, the requirements established for the use of the tax relief are fulfilled.

Example 3:

The company’s activity is development/development of products and software tools in the field of information technology. Namely, architecture and layout design, creating applications for different devices and operating systems and designing and projecting databases and peripheral integration tools. The company carries out its activities through hired person/persons. And the created product is delivered only to persons registered outside of Georgia.

Evaluation:

Acceptance of the software as a result of the described activity implies a complex and multi-step process of software development. Due to this circumstance, it is possible that specific work performed in this process (for example, written code) may be removed or not included in the final product due to changes in the concept or other characteristics of the final software product in the later stages of development. Therefore, for getting tax relief, the purpose of the activity should be considered as the main circumstances, in particular, the provision of information technologies should mean the study, support, development, design, production, and/or implementation of computer information systems if the purpose of this activity is to create a software product.

In the part of the provision of the service in question, it will be considered that the supply of information technologies created by the company, as a virtual zone IT company, is carried out outside the borders of Georgia, which is the basis for the use of tax relief established by Tax Code, because:

– The company’s activities are carried out through the hired person/persons;
– Creation of information technologies by the company;
– The company’s clients (recipients of services) are outside Georgia.

Example 4:

The company’s activity is the electronic provision of services defined by it using various hardware and software.

Evaluation:

The legislation of Georgia does not define the concept of a software product and the regulations related to its creation. At the same time, the Law of Georgia “On Copyright and Neighboring Rights” recognizes the concept of a computer program, according to which a “computer program” is a set of instructions in words, codes, schemes or other machine-readable forms, which allows to operate a computer to achieve specified results. The term includes computer program design preparatory material.

As in “computer program,” software generally refers to a program or set of programs that contains instructions necessary for the computer itself to operate or instructions to perform other tasks. Software is independent from hardware (computer devices) and it is through it that computers can be programmed.

In order to comply with the activity within the status of a virtual zone IT company, it is important that the company’s activity implies the implementation of such activity in the field of computer information systems, which is used in the development of software. Accordingly, if the company’s activity is limited to the electronic provision of services defined by the company using various hardware and software, the purpose of which is not to create a software product, the profit from such activity will not be considered as a profit from the supply of information technologies, and therefore, its distribution cannot be subject to the tax relief prescribed by the Tax Code.

Example 4:

The company’s activity is the electronic provision of services defined by it using various hardware and software.

Evaluation:

The legislation of Georgia does not define the concept of a software product and the regulations related to its creation. At the same time, the Law of Georgia “On Copyright and Neighboring Rights” recognizes the concept of a computer program, according to which a “computer program” is a set of instructions in words, codes, schemes or other machine-readable forms, which allows to operate a computer to achieve specified results. The term includes computer program design preparatory material.

As in “computer program,” software generally refers to a program or set of programs that contains instructions necessary for the computer itself to operate or instructions to perform other tasks. Software is independent from hardware (computer devices) and it is through it that computers can be programmed.

In order to comply with the activity within the status of a virtual zone IT company, it is important that the company’s activity implies the implementation of such activity in the field of computer information systems, which is used in the development of software. Accordingly, if the company’s activity is limited to the electronic provision of services defined by the company using various hardware and software, the purpose of which is not to create a software product, the profit from such activity will not be considered as a profit from the supply of information technologies, and therefore, its distribution cannot be subject to the tax relief prescribed by the Tax Code.

Example 5:

In 2020, a legal entity created a software product, which in the same year was provided to clients operating outside of Georgia under a license. In exchange for said license, customers pay a monthly license fee. This legal entity received the status of a virtual zone IT company in 2021.

The transfer of the mentioned software for temporary use is not a one-time process that limits the contractual obligation of the legal entity to its clients, but further support services are an integral part of the software transfer agreement. In turn, this service implies (1) constant availability of the software transferred under the license and timely response to emerging defects and (2) conducting work for software improvements and updates. The counterparties are not contractually granted any right to independently modify or transform the temporarily transferred product.

The service of further support of the software product is the most important component of the use of this product, as the economic activity of the legal entity’s clients and, accordingly, the income of this entity itself essentially depends on its faultless operation.

As a result of the changes made to the software by the legal entity, the support costs have a significant share in the total operating costs of the company.

Evaluation:

One of the stages of software development is the post-release support, development, and servicing of a software product, which is typically performed by software developers. This phase may include the detection and elimination of various errors, process updates, software updates, and other similar activities that ensure the error-free operation of the product and its further development.

Since the further support and service of the software product is an important component of the use of this product, it will be considered that the income received by the legal entity in exchange for the license to use the such product after receiving the status is received in exchange for the information technologies provided after receiving the status.

Accordingly, in this case, the tax relief established by the Tax Code will be applied to the profit received in exchange for information technologies delivered outside of Georgia by the legal entity after receiving the status of the software product created before the status of the virtual zone IT company.

Example 6:

The entity of the virtual zone, which is established by individuals in the territory of Georgia, creates information technologies, for which it uses the individuals hired in Georgia with the appropriate profile.

In addition, the virtual zone IT company provides the information technologies created by him in the territory of Georgia, both in the territory of Georgia and outside its borders. The work of the employees who serve to provide information technology both in the territory of Georgia and outside it is not separated.

The annual net profit of the virtual zone IT company was 1,000,000 GEL, and the annual financial income was 2,500,000 GEL. The received income consists of the income received from the delivery of information technologies created on the territory of Georgia outside of Georgia (2,000,000 GEL) and on the territory of Georgia (500,000 GEL).

The person fully distributed the received net profit to the founding natural persons.

Evaluation:

Taking into account that in relation to the virtual zone IT company, the tax relief in the profit tax is established only in the part of the profit (profit distribution) received from the supply of information technologies outside the territory of Georgia, and at the same time, the person may receive income from the supply of the information technology created by the company in the territory of Georgia, in order to take advantage of the tax relief in the profit tax, the company must to identify profits exempted from profit tax. It is important to calculate the specific share of the exempted profit in the total profit. For this purpose, if the expenses incurred by the person cannot be attributed to a specific income, the calculation of the exempted profit can be carried out in accordance with the specific share of the income received from the delivery of information technology outside of Georgia in the total profit. However, if in a particular case it is possible to use another more accurate and reasonable method, the company is entitled to calculate the amount of profit exempted from profit tax using such method. Based on the provisions of the Tax Code, in order to identify the amount of profit exempt from profit tax, it is considered that this amount is given first when distributing the dividend by the company. In this case, if there is no possibility of using another more accurate and reasonable method:

Profit exempted from profit tax is 800,000 GEL (1,000,000 *2,000,000/2,500,000).

Taxable profit – 200,000 GEL (1,000,000 *500,000/2,500,000).

In addition, since the distribution of profit received by the virtual zone IT company from the delivery of information technologies created on the territory of Georgia outside of Georgia is exempted from profit tax, the said profit will be considered as distributed in the first place. Accordingly, the company is liable for profit tax on the distributed profit in the amount of 200,000 GEL.

Example 7:

The virtual zone IT company is the sole founder of the resident legal entity (LLC “A”). On the other hand, the virtual zone IT company is established by 2 physical persons. LLC “A” fully distributed the net profit of 100,000 GEL to the founder.

Evaluation:

The legal entity of the virtual zone, which has been granted the relevant status for the purpose of exemption from profit tax, will be considered as a person exempted from profit tax as part of the relevant activity.

Taking into account that the tax benefit in the profit tax for the virtual zone IT company is established for the profit (profit distribution) received by it from the delivery of the software product outside Georgia, the benefit will not be applied to the further distribution of the dividend received and accordingly, it will be taxed with the profit tax in the manner established by the tax legislation.

Thus, when distributing the net profit received by LLC “A” as a dividend to a virtual zone IT company, will not be considered exempt from profit tax.

Accordingly, the distribution of the net profit received by LLC “A” in the form of dividends to the virtual zone IT company will not be subject to income tax.

However, the subsequent distribution of the dividend received by the virtual zone IT company to the shareholder natural persons is considered an object of taxation with the profit tax, which is not exempted from the profit tax.

Taxation of income received from a virtual zone IT company at the source

The virtual zone IT company, in the cases provided by the Tax Code, is obliged to withhold the tax from the source of payment when making the relevant payment.

Example 8:

The virtual zone IT company creates information technologies on the territory of Georgia and provides them only outside Georgia. The founders of the company are natural persons. In addition, the company has employees who create information technologies in the territory of Georgia. The company distributed the net profit in the amount of 100,000 GEL, and also paid a salary in the amount of 20,000 GEL.

Evaluation:

For income tax purposes, distributions of profits based on the Tax Code are exempt from profit tax.
Regarding the dividend issued, the virtual zone IT company is obliged to tax the dividend (100,000 GEL) paid to the individual in accordance with the tax code at the rate of 5% of the amount paid at the source of payment and to carry out the relevant tax reporting. In addition, the virtual zone IT company is also obliged to fulfill the obligation of the tax agent in relation to the paid salary (20,000 GEL).

Conclusion

According to the order of the head of the Revenue Service N33544 of December 29, 2022, the methodical instruction on “Virtual Zone IT company Taxation” the previous methodological guidelines have been revoked and we should be guided with the new one.

For more information or/and questions regarding the Virtual Zone It Company Taxation please contact us, we are always ready to help you.

Introduction

According to the order of the head of the Revenue Service N33543 of December 29, 2022, the methodical instruction on taxation of  Free Industrial Zone Enterprise was approved.

The methodical reference explains the rules of activity of the Free Industrial Zone Enterprise, including the permitted and prohibited activities, and the rules for using tax benefits, as well as defines the tax obligations and rights within this status.

Example 1

A non-resident enterprise in a free industrial zone carries out activities allowed for a Free Industria Zone Enterprise (production of perfumery products) through a permanent establishment registered in this zone.

The permanent establishment of the non-resident enterprise has transferred the profit received from its activities in cash to the non-resident enterprise.

Evaluation:

For the purposes of extending the tax relief in the profit tax, it is essential that the Free Industria Zone Enterprise carries out the permitted activities in the free industrial zone and distributes the profits received from the permitted activities in the free industrial zone, therefore, the established tax relief cannot be extended to the activities of the Free Industria Zone Enterprise outside the free industrial zone.
Taking into account the above-mentioned legal norms and the fact that a non-resident enterprise through a permanent establishment in a free industrial zone carries out the activities allowed for a Free Industria Zone Enterprise, the benefit established in the profit tax by the non-resident enterprise attributed to its permanent establishment will be applied to the deduction of profit attributed to its permanent establishment according to Tax Code.

Example 2

The Free Industria Zone Enterprise provided advertising services to the non-resident enterprise and distributed the profit from the said operation as a dividend to the shareholders.

Evaluation:

According to Tax Code of Georgia, profits received by the Free Industria Zone Enterprise from the activity permitted in the free industrial zone is exempted from profit tax. The tax relief can be used only in the case and for the services that will be determined by the resolution of the Government of Georgia.

Taking into account that the government of Georgia has not determined the list of types of services to be provided by the Free Industrial Zone Enterprise to non-residents and, accordingly, the list of activities allowed in the free industrial zone, therefore, the established tax relief cannot be applied to the advertising activities

Example 3

The Free Industria Zone Enterprise purchases goods outside of Georgia, assembles the purchased goods in the territory of Free Industrial Zone, and then sells the said goods in and outside Georgia.

Evaluation:

Taking into account that the free industrial zone is a type of free zone provided for by the Customs Code of Georgia, and according to the customs legislation of Georgia, it is possible to consider the free zone as permitted, for example, the importation, storage and export of the same goods from the free industrial zone, including any kind of without going through the processing or production process, therefore, the established tax relief will be applied to the activities of Free Industrial Zone Enterprise.

Example 4

The Free Industrial Zone Enterprise purchases goods outside Georgia and then sells them outside Georgia, so that the goods do not fall under the free zone procedure.

Evaluation

In this case, considering that the Free Industrial Zone Enterprise does not bring goods into the free zone procedure, bring goods into the free industrial zone, and take the same goods out of the zone, the activities carried out by it cannot be considered as permitted activities in the free industrial zone, and the tax relief cannot be applied to such activities.

Example 5

The Free Industrial Zone Enterprise purchased the goods from a legal entity registered under the legislation of Georgia, which does not represent the Free Industrial Zone Enterprise.

Evaluation

The use of the market price by the Free Industrial Zone Enterprise for the purposes of the 4% tax on the goods delivered to it by an entity registered under the legislation of Georgia is an obligation established by the Tax Code, and not a right. The tax should be determined from the market price of the goods.
In addition, the Free Industrial Zone Enterprise is obliged to submit to the tax authority the tax calculation for the taxable operations carried out no later than the 15th of the month following the reporting month.

Taxation of income received from the Free Industrial Zone Enterprise at the source

1. In some cases, the income received from the Free Industrial Zone Enterprise is subject to taxation by the person receiving the income, and in some cases, such income is not taxed by the person receiving the income either. In particular:

a) the dividend received from the Free Industrial Zone Enterprise in the free industrial zone is not taxed at the source of payment and will not be included in the collective income of the recipient of this dividend;

Example 6

The conditions are the same as in Example 3 and Example 4.

Evaluation

Considering that the activity carried out by the Free Industrial Zone Enterprise cannot be considered as an activity allowed in the free industrial zone, the dividend paid from the profit obtained from such activity will be taxed at the source of payment according to the general rule established by the legislation.

b) The interest received from the Free Industrial Zone Enterprise in the free industrial zone is not taxed at the source of payment and will not be included in the collective income of the person receiving this interest.

2. When paying salary to a resident employee of Free Industrial Zone Enterprise, it is not required to withhold tax at the source of payment.

3. According to the Resolution N291 of the Government of Georgia of June 15, 2017, the rule of income tax is regulated for the individual resident of Georgia hired by the Free Industrial Zone Enterprise. And the manner of taxation of wages paid to a non-resident natural person of Georgia hired by the Free Industrial Zone Enterprise is determined in accordance with the tax legislation of Georgia.

4. The employee is obliged to pay income tax on the income (salary) received as a result of employment by a resident of Georgia as a result of employment at the Free Industrial Zone Enterprise, no later than the 15th day of the month following the reporting month. In addition, he is obliged to submit the annual income tax declaration to the tax authority every year, until April 1 of the year following the reporting year.

5. The Free Industrial Zone Enterprise can, with the consent of the hired person, voluntarily fulfill the obligations of tax calculation, withholding, and payment in the budget according to the established procedure. He must notify the tax authority in advance about the assignment of tax agent functions. In addition, the measures of responsibility defined by the Code, including tax sanctions, are not applied to the performance of this function.
In such a case, the subject of tax liability is considered to be the employee, on whose behalf the Free Industrial Zone Enterprise fulfilled the obligation to pay income tax.

Example 7

The Free Industrial Zone Enterprise has paid salaries to both resident and non-resident physical persons of Georgia working for hire in the enterprise.

Evaluation

In accordance with the Tax Code and the Resolution of the Government of Georgia N291 of June 15, 2017:

a) The Free Industrial Zone Enterprise is obliged to perform the function of a tax agent in relation to the salary paid to non-resident natural persons working for hire in the enterprise – to withhold the relevant tax at the source of payment and transfer it to the budget, and no later than the 15th of the month following the reporting period, to submit a declaration to the tax authority regarding the taxation of the taxes carried out.

b) A resident natural person working for hire in a Free Industrial Zone Enterprise is obliged to fulfill his tax obligation in relation to the income (salary) received as a result of hired workers in a Free Industrial Zone Enterprise – to pay income tax every month, no later than the 15th of the month following the reporting month and by April 1 of the following year to submit the annual income tax declaration to the authority.

Example 8

The non-resident legal entity provided services to the Free Industrial Zone Enterprise. In accordance with the Tax Code, the income received by a non-resident is classified as income received from a source in Georgia.

Evaluation

In the case under consideration, the Free Industrial Zone Enterprise is obliged to perform the function of a tax agent – to withhold the relevant tax at the source of payment and transfer it to the budget, and not later than the 15th day of the following month of the reporting period, to submit a declaration to the tax authority regarding the taxation of the performed taxes.

Taxation of Free Industrial Zone Enterprise property

1. According to the Tax Code, property in the free industrial zone is exempt from property tax according to the relevant taxation object.

2. The tax relief does not apply to the land plot (or its part) transferred by a person to another person by lease, usufruct, rent, or in any other such form and/or to the buildings and structures (or their part) transferred by the enterprise/organization in the same form, except in the case, When real estate is transferred by a higher education institution established by the state and the transferred real estate is used in higher education activities and/or for providing services related to higher educational activities.

3. According to the Tax Code, the property includes taxable property and land.

Example 9

The enterprise registered in the free industrial zone of Poti has built and put into production a car mechanical components enterprise, which includes a workshop, warehouse, office, and canteen, on a selected 2000 m2 plot of land in the mentioned area.

Evaluation

The Free Industrial Zone Enterprise will benefit from property tax relief, in accordance with the Tax Code.

Example 10

The organizer of the Kutaisi Free Industrial Zone built buildings and equipment on the territory of 230,000 square meters designated for the Kutaisi Tiz.

Evaluation

The organizer of the free industrial zone will benefit from the property tax (taxable property and land) benefit, in accordance with the Tax Code.

Example 11

The organizer of the Kutaisi Free Industrial Zone leased the building and the land attached to it to the Free Industrial Zone Enterprise.

Evaluation

According to the Tax Code, the organizer will not be able to benefit from property tax relief on the said property and land plot.

Conclusion

According to the order of the head of the Revenue Service N33543 of December 29, 2022, the methodical instruction on taxation of  Free Industrial Zone Enterprise the many previously unknown topics were answered.

For more information or/and questions about the taxation of  Free Industrial Zone Enterprise please contact us, we are always ready to help you.

According to the information of the Ministry of Economy, one of the largest international chemical production companies – Indorama Corporation – entered Georgia.

As mentioned in the information released by the Ministry, the Singaporean company has been studying the investment climate and opportunities of Georgia for years, in which the investment team of the “Enterprise in Georgia” agency was actively involved.

“With the active involvement of the agency of the Ministry of Economy and Sustainable Development, “Enterprise in Georgia”, one of the largest international chemical production companies, Indorama Corporation, entered Georgia.

The Singaporean company, which has more than 160 enterprises in 38 countries of the world and employs more than 45,000 people, acquired the Rustavi nitrogen fertilizers enterprise.

The Singaporean company has been studying the investment climate and opportunities of Georgia for years, in which the investment team of the “Enterprise in Georgia” agency was actively involved,” the information states.

According to Mikheil Khidureli, director of the agency “Enterprise in Georgia” of the Ministry of Economy and Sustainable Development, with the introduction of the largest Singaporean corporation, the investment potential of Georgia has been demonstrated with another large-scale project. According to him, by introducing one of the leaders of world-scale chemical production to the Georgian market, the agency exceeded all the indicators outlined in the strategy.

“With the support of the Georgian government, this project was completed and the said investment will be one of the largest in the country. In the coming years, the corporation plans to invest significant financial resources in the direction of modernization, development, and expansion of production of the enterprise”, said Mikheil Khidureli.

Source: GEORGIAN PUBLIC BROADCASTER

Translated By I&D Consulting.

Starlink belonging to the richest man on the planet, Elon Musk, is preparing for operations in Georgia.

On June 29, Starlink Holdings Netherlands established a subsidiary “Starlink Georgia” in Georgia and applied to the Communications Commission for authorization. The regulator plans to review the documentation submitted by the company on July 14.

Starlink provides high-speed, low-latency broadband Internet access worldwide, including in areas where Internet access is expensive, unreliable, poor quality, or completely unavailable. SpaceX has launched more than 2,700 Starlink low-orbit (LEO) satellites to date.

In the context of Georgia, Starlink is especially important and interesting in mountainous regions and in settlements without broadband internet coverage.

No large infrastructure is required to receive Starlink Internet. Only a power source and receiving device are required. As a result, it is possible to use the Internet anywhere in the world.

“SpaceX is currently working on the study of interesting niches in the Georgian market and is preparing for the commercial launch of Starlink operations in Georgia. I think this fact is a very important event for the country and the telecom sector, since after the introduction of Starlink, satellite Internet will become available in Georgia, and this will open a window to the innovative digital future.” for the development of the services market”, said Ekaterine Imadedze, a member of the Communications Commission, on June 21, after a meeting with the representative of SpaceX.

Source: Business Media Georgia, TV Imedi

The British company is leaving Russia – part of the team is already in Tbilisi

The British electric car manufacturing company Arrival, which was founded by the Russian billionaire, the former head of Yota and the former deputy minister of communications of Russia, Denis Sverdlov, will stop operating in Russia. The Financial Times reports on this. The publication writes based on the vice-president of Arrival, Tom Elvidge, that the company does not plan business activities in Russia in the future. According to him, part of the team of developers has already been transferred to Tbilisi.

He says that the company started the process of leaving Russia in the first days of the war in Ukraine. Elvidge said the company has a team in Russia working on software for electric cars. According to his own words, Sverdlov opposed Russia’s invasion of Ukraine from the beginning.

“Dennis has come out publicly and made it clear that he and Arrival are opposed to what’s happening in Ukraine,” Elvidge said when asked about the possibility of sanctions against the company. According to him, most of the Russian team of the British company is already in Georgia and an office has been opened for them in Tbilisi. According to Arrival’s vice president, the process of completing operations in Russia will continue for several more months.

I will tell you that Arrival was founded in 2015 by Denis Sverdlov, the former Deputy Minister of Communications of Russia and the former head of Yota. Among the company’s investors are Hyundai, Kia, and the BlackRock fund. Among its clients is the largest shipping and delivery company United Parcel Service, which signed a contract with the manufacturer for the purchase of 10,000 electric cars. In 2021, Arrival was estimated at 13.6 billion dollars. As of December 28 of the same year, Arrival’s capitalization on the Nasdaq was $5.1 billion, and Sverdlov’s fortune was estimated by Forbes at $3.7 billion.

Source: Commersant.ge

1. INTRODUCTION

The profit tax rate in Georgia is – 15%.

The following shall be subject to profit taxation:

1. Distributed profit;
2. Costs incurred or other payments not related to economic activity;
3. Free delivery of goods/services and/or transfer of funds;
4. Representation expenses paid in excess of a limited amount determined under the Tax Code of Georgia;

The amount subject to profit taxation is calculated by dividing the sum of a disbursement made/expense paid according to the object of taxation determined by 0.85.

2. DISTRIBUTION OF PROFIT

The following shall be deemed as a distribution of profit:

1. Any operation performed by an enterprise with a related party (who is not subject to the new Estonian model profit tax) if the price of a transaction concluded between them is different from its market price and their relationship affects the outcome of the transaction;

2. Conduct a controlled transaction if the established conditions for the transaction fail to satisfy the market principle;

3. Any operation performed by an enterprise with a person exempt from income tax/profit tax if the price of a transaction concluded between them is different from its market price.

3. NON-ECONOMIC COSTS / PAYMENTS

Costs not related to an economic activity shall be:

1. Costs that are not documented;

2. Costs the purpose of payment of which is not to gain profit, income or compensation;

3. Costs paid for goods/services purchased from a natural person having the status of a micro business, except when the income gained from the delivery of goods/services by a person having this status is taxed under the general rule, or when a consignment note/a document of a form determined by the Minister of Finance of Georgia is issued upon the supply/purchase of goods;

4. The interest paid for a credit (loan) above the annual interest rate established by the Minister of Finance of Georgia;

5. Costs paid by a person for purchasing foreign goods from a special trade company in the amount exceeding the customs value of the goods, except for the costs not related to payments to the special trade company.

4. NON-ECONOMIC COSTS / PAYMENTS

The following shall be subject to profit tax:

1. Payments made to purchase debt securities issued by a person registered in a country with preferential tax treatment, as well as by a person exempt from profit tax;

2. Contractual penalties and/or other fines paid to a person registered in a country with preferential tax treatment, as well as to a person exempt from profit tax, which was incurred on the basis of contractual relations;

3. Advance payments to a person registered in a country with preferential tax treatment, as well as to a person exempt from profit tax;

4. Granting of a loan to a person registered in a country with preferential tax treatment, as well as to a person exempt from profit tax and/or payments made to purchase a claim against that person;

5. Loss incurred due to the transfer of the right to claim to and/or the denial of the right to claim for a person registered in a country with preferential tax treatment, as well as a person exempt from profit tax.

6. A contribution made to the capital of a non-resident, as well as of a person exempt from profit tax, and/or a payment made to purchase a share/equity (except for a share/equity placed on a foreign recognized stock exchange.

7. Granting of a loan to a natural person or a non-resident (except for the purchase of loan securities placed on a foreign-recognized stock exchange).

5. TAX RECOVERY

1. If payment was affected (a sum was actually received) as a result of providing debt securities purchased or the right to participate in the capital (shares/interest), or satisfying a demand, a company may set off and recover a sum of the previously paid profit tax in the amount of a profit tax calculated according to the sum paid within the accounting period of the actual receipt of the sum.

2. If a loan granted/advance payment was repaid, or goods/services were received in return for the advance payment, a company may set off and recover a sum of the previously paid profit tax in the amount of a profit tax calculated according to the sum repaid within the accounting period for repayment of the loan/advance payment or actual receipt of the goods/services, or according to the amount of compensation for the goods/services received.

6. FREE TRANSFER & REPRESENTATION EXPENSES

1. Delivery of goods or services not intended to gain profit, income or compensation shall be considered free delivery;

2. Shortage in the inventory and/or assets at the moment of its identification shall be considered as free delivery of the good;

3. The amount of representation expenses to be incurred during a calendar year shall be limited to 1 % of the income gained during a previous calendar year, and to 1 % of the expenses incurred if the expenses exceed the income gained. The amount of representation expenses incurred during the calendar year of an enterprise establishment shall be limited to 1 % of the expenses incurred before the end of the current calendar year.

7. CONCLUSION

In this article, we discussed the significant main topics of the profit tax in the Tax Code Of Georgia.

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