1. Introduction

One of the most privileged and popular statuses among other statuses provided by Georgian tax legislation is the Free Industrial Zone Enterprise (hereinafter “FIZ Enterprise” or ”FIZ Company”). Entities with this status are exempt from almost any taxes and enjoy favorable customs framework. That’s why the temptation and demand for this status are very high, but along with the benefits, it has strict restrictions and conditions to follow as well. The main purpose of this post is to get to know the FIZ Enterprise status more closely and write down the benefits it has. First of all, let’s define the Free Industrial Zone Enterprise.

2. Definition

According to Law of Georgia on Free Industrial Zones a FIZ Enterprise may be an enterprise of any legal structure and any form of ownership registered within a free industrial zone (hereinafter “FIZ Area”) according to enterprise registration norms defined by Georgian legislation.

Free Industrial Zone is the type of a free economic zone envisaged by the “Tax Code of Georgia” where the business-friendly regulations, favorable tax, and customs regulations apply. It is a special territory in Georgia exceeding 10 hectares, with defined borders and a special status granted by law. A free industrial zones are designated for economic activities for a certain period of time, and entities within the zone shall be governed under special economic and legal regime as determined by the Law.

There are five free industrial zones operating in Georgia in the following cities: Poti (sea port), Kutaisi (third largest city) and Tbilisi (capital city):

• Poti Free Industrial Zone
• Kutaisi Free Industrial Zone
• Tbilisi Free Zone
• Hualing Free Industrial Zone
• Tbilisi Technological Park

Activities within a free industrial zone shall be conducted by enterprises registered in that zone. Enterprises registered outside of free industrial zone (both Georgian and foreign) may conduct activities within free industrial zone through permanent establishments registered in that zone, except for Georgian enterprises distributing electricity, water, and natural gas, as well as providing communication and sewerage services and conducting related activities within a free industrial zone.

A free industrial zone enterprise shall conduct activities in other territory of Georgia (outside of free industrial zone) as a permanent establishment of a foreign enterprise.

3. Benefits of Fee Industrial Zone Enterprise

The main privileges of FIZ Enterprises enjoy and which makes it attractive for investors are significant tax exemptions and favorable customs framework, which are as follows:

• Corporate Income Taxes (CIT) (15%) Exempt on dividend distribution;
• Value Added Tax (VAT) (18%) Exempt on exporting and selling goods within FIZ area;
• Dividend Tax (5%) Exempt to act as an income tax agent on paid Dividends;
• Salary Tax (20%)Exempt to act as an income tax agent on paid salaries;
• Interest Tax (5%)Exempt to act as an income tax agent on paid interests;
• Property Tax (1%)Exempt on the properties being within FIZ Area;
• Reverse VAT (18%)Exempt;
• No VAT applies to goods produced in foreign countries which are imported in FIZ;
• No import tax applies to goods produced in other country which are imported in FIZ;
• No VAT applies to the transactions carried out among FIZ entities;
• Export of the goods produced in FIZ within territory of Georgia is free from Customs duty;
• Payment in the free industrial zone can be made in any currency.

The question is, if FIZ Enterprise don’t pay for all this taxes, what taxes does it pay for? Almost no taxes are left with just one or two exemptions, which may be the Income taxes on received services from nonresidents and other Corporate income taxes on operations under tax code of Georgia. For example, if the FIZ Enterprise uses the international shipping, or transportation service from nonresident entities of Georgia it should pay source income tax of 10% in Georgia, or if FIZ Enterprise has no documented expenses it should pay of 15% corporate income tax on these kind of expenses.

Please note that selling of goods produced in Georgia to the FIZ Enterprise is considered to be an export operation for the purposes of the Tax Code of Georgia and are free from VAT. This means that if Georgian entities sell their goods placed in export mode to FIZ Enterprise with proper customs declarations there will not be VAT. Otherwise, if selling of goods are made simply without customs declaration it is not treated as an export operation and will be taxed as usual.

FIZ Enterprise is not considered as a tax agent in relation to paid salary, dividend and interest and does not have to withhold income tax at the source of payment. This does not mean that the beneficiaries receiving these types income are also exempt from income tax. They have to declare these taxes themselves and pay to the budget.

Due to the above-mentioned benefits, utility fees for electricity, gas, etc. are 18% cheaper than in other territory of Georgia which is also important and very attractive factor for businesses.

4. Restrictions of Fee Industrial Zone Enterprise

We have pointed out from the outset that giving so along with so many benefits, FIZ Enterprises has strict restrictions and conditions to follow as well. Let’s first begin with one of the most important issues. There was from the beginning and it is today a record in the Tax Code of Georgia (Article 25) that –

• The FIZ Enterprise may not provide services to a person (other than a FIZ Enterprise) registered under the legislation of Georgia
• The Government of Georgia has the right to determine the types of services to be provided by a FIZ Enterprise to a non-resident (other than a permanent establishment of a non-resident in Georgia), which will be considered as a permitted activity in the free industrial zone by the FIZ Enterprise.

Based on these records, many people thought that FIZ Enterprises would be able to provide services to non-residents for the FIZ Enterprise and would be exempt from taxes. However, in 2020, the Georgian Revenue Service issued a special situational guidance where FIZ Enterprises are not allowed to provide any services because the Government of Georgia has not yet determined the types of services, which could be provided by a FIZ Company. So, we should remember that when we are talking about free economic zones or FIZ Enterprise we imply the production & processing of goods, not providing any kind of services.

The FIZ Company is prohibited from providing any kind of services to both local and non-resident entities (except to FIZ Enterprise within FIZ Area).

The following activities are prohibited within the FIZ Area and therefore for the FIZ Enterprises:

• Hotel and residential buildings;
• Import, storage, production, or/and sale of arms and munitions, defense technology;
• Import, storage, production, or/and sale of nuclear and radioactive substances;
• Import, storage, production, or/and sale of Narcotic and psychotropic substances;
• Import, storage, production, or/and sale of Excise goods (Tobacco products, Alcohol and etc. except for personal use).

A FIZ Enterprises are not allowed to purchase services from a person (other than other FIZ Enterprise) except for:

• Auto-tech services;
• Fast food service;
• Postal service;
• Medical care;
• Advertising services;
• Laboratory services;
• Design, design services;
• Expeditionary services;
• Fire services;
• Examination services;
• Cleaning and waste management services;
• Main equipment repair services
• Security services and/or services related to letting or leasing out property provided by an organizer and/or administration of the Free Industrial Zone;
• Transport, communication, sewage, audit, and/or consulting services, execution of financial transactions and/or delivery of financial services by a licensed financial institution, as well as services relating to installation, assembly, and/or construction of fixed assets;
• In addition to the listed services above, any kind of service, if the total cost of these types of services (s) (excluding VAT) does not exceed 2% of the annual income or expenditure (of its choice) of the FIZ Enterprise.

According to the Tax Code of Georgia (Article 25):

• If a FIZ Enterprise supplies goods to a person (other than a FIZ Enterprise) registered under the legislation of Georgia, the FIZ Enterprise shall pay 4% of the revenue received/receivable from the supply of such goods (if the supply of goods is made free of charge – 4% of the market price of such goods) not later than the 15th day of the month following the month in which the goods are supplied.
• If a person (other than a FIZ Enterprise) registered under the legislation of Georgia supplies goods (other than electricity, water and natural gas intended for local consumption and/or production) to a FIZ Enterprise, the FIZ Enterprise shall pay 4% of the market price of the supplied goods not later than the 15th day of the month following the month in which the goods are supplied.
• If a person (other than a FIZ Enterprise) registered under the legislation of Georgia delivers goods to a FIZ Enterprise, the market price of the supplied goods shall be used for taxation purposes.

FIZ Enterprises are isolated from other ordinary enterprises and are limited to operations with them but not completely. FIZ Enterprise can have an office and a certain part of its staff can work normally outside FIZ Area, but if it has production, it must have within Free Economic Zone.

5. Obtaining Fee Industrial Zone Enterprise Status

A free industrial zone enterprise may be an enterprise of any legal structure and any form of ownership registered within a free industrial zone according to enterprise registration norms defined by the legislation of Georgia.

FIZ Enterprise status is granted by the Georgian tax authorities as a result of the request of an authorized representative of the enterprise. To apply for this status, you have to be a Georgian enterprise incorporated by Georgian Legislation and registered in a free economic zone. To register within FIZ Area you have to contact to Free Economic Zone organizer (The five industrial zones mentioned above are in Georgia today) pay annual fee (which is not so expensive) and get a special license.

The Organizer and/or an administrator shall not be a free industrial enterprise and it must be registered in another territory of Georgia (outside the free industrial zone) as determined by the legislation of Georgia.

6. Conclusion

Georgia has a free trade agreement with the European Union which means that Georgian goods can be exported without tariffs compared to Asian goods. Therefore, the FIZ Enterprise status is a good way to produce and export goods for the EU market.

Many countries, including Georgia, have free economic zones to develop their production and economy. Although Georgia adopted the Law on Free Industrial Zones in early 2007, the Free Industrial Zones have not been as successful as expected. There are several factors and reasons for this. First of all, the tax legislation is already liberal, and it is easy to obtain entrepreneurial licenses and permits in Georgia. Also, there are already successful free economic zones in the region, including neighboring Turkey, which is difficult to compete with. Moreover, according to the law on Free Industrial Zones, an investor leases an object within a FIZ Area and does not have the right to take ownership of the object (for the period for which the Fee Economic Zone was created), which reduces its interest in FIZ Enterprise status. One of the reasons also can be that the Georgian government is not promoting it at the appropriate level.

For more information or to get help with obtaining a status contact us.

Georgia is a great destination for investors and companies from all around the world with stable economic development, liberal and free market oriented economic policy, low tax rates, significantly simplified administrative procedures, low level of corruption and bureaucracy, significantly decreased number of licenses and permissions, competitively priced workforce, lack of language barrier, advantageous geographic location and access to 2.3 billion consumer market through its solid FTA network including both EU and China.

Georgia is a member of the United Nations, the Council of Europe, the World Trade Organization, the Organization of the Black Sea Economic Cooperation, the Organization for Security and Cooperation in Europe, the Community of Democratic Choice, the GUAM Organization for Democracy and Economic Development, and the Asian Development Bank.

Georgia’s impressive progress in improving business environment is well reflected in a number of international indices. Country is considered as a politically stable, corruption-free investment destination with low business costs.

Georgia is maintaining its position among the world’s top 10 economies in the World Bank Group’s annual Doing Business report, which measures ease of doing business. In 2019 Georgia has moved up to 6th place in the global rankings and is currently the highest ranked economy in the Europe and Central Asia region.

Source: World Bank (2020) 

• In Georgia it is easy to start a business Georgia by simplified post-registration procedures (tax registration, social security registration, licensing)
• Georgia has special tax exemptions for virtual zone entities, free industrial enterprises, special trading companies, tourist enterprises, etc.
• Georgia has double tax avoidance treaties with more than 50 countries, including the China, Germany, UK and Spain.
• Georgia has almost no custom duty, with 90 % of goods being exempt from import tariffs, with no quantitative restrictions. The average time for customs clearance is currently about 15 minutes – one of the fastest and most efficient in the CIS.
• In Georgia almost all tax, financial reporting and customs clearances administration procedures are online/web-based
  In Georgia it is easy to pay taxes by significantly revised tax laws, simplifying tax compliance processes and decreasing the number of tax fillings or payments
• In Georgia it is easy to enforce contracts by expanding court automation through introduction of electronic payments and processes, automatic assignment of cases to judges and by publishing judgements

Source: The Heritage Foundation (2019)
Source: World Bank (2020)
Source: Transperency International (2013)

According to the “law of Georgia on Entrepreneurs” the following organizational and legal forms of the enterprises can be formed in Georgia:

There are no restrictions on foreign ownership or corporate governance of legal entities in Georgia with few exceptions. A Company shall have a charter capital, but the Georgian legislation does not contain any specific requirements with regards to the amount of charter capital.Also Georgian legislation does not contain any limitations with regard to the minimum/maximum number of directors/founders of a company. Therefore, it is upon the discretion of founding partners to determine the charter capital amount. The National Agency of Public Registry (NAPR) provides the registration of all types of legal entities. The registration completed on the same day of submission of required documents costs 200 GEL, otherwise ordinary registration takes 1 business day and the relevant fee is 100 GEL. The list of documents required to register a company depends on the organizational-legal form of the company and its founders.

Following documents are required to be submitted for ordinary Limited Liability Company (LLC) registration:

All the documents issued outside Georgia shall be notarized and apostatized or legalized, then translated in Georgian and notarized.
In order to register as an IE, an interested person shall submit an ID card and application for registration.

• No restrictions on foreign ownership or corporate governance of legal entities in Georgia.
• Not any specific requirements with regards to the amount of initial capital.
• Not any limitations on the number of directors/founders of a company.
• Company formation is possible without being in the country .
• Company can be fully managed remotely.
• Registration can be completed on the same day of submission.

The Georgian Lari is the currency of Georgia and sole legal tender for payments on the territory of Georgia, except for the operations related to export-import and free industrial zone.

The central bank is the National Bank of Georgia (NBG). It sets monetary policy, issues licenses, and supervises the activities of banking institutions and currency exchange offices. Commercial banks require a license from the NBG and the minimum statutory capital required to register a bank is 12 million Georgial Lari. Banks are required to be organised as Joint Stock Companies and to report using International Financial Reporting Standards (IFRS).

While there are dozens of banks in Georgia three biggest banks are Bank of Georgia, TBC Bank and Liberty Bank which have correspondent banking relationships with the United States through Citibank.They are included in the London Stock Exchange’s top 250 largest companies list and their shares are traded on the London Stock Exchange.

Opening a bank account in Georgia for foreigners is a remarkably simple process compared to most countries in the world and takes about 30 minutes. Bank accounts for newly registered entities can be opened as soon as the entity registration is completed and a unique identification number is given. All you need to do is visit a bank, show your international passport, fill out a forms and typically your account is open for the next business day. While English is fairly commonly spoken in the country Foreign citizens need to bring a translator with them. You can also make an appointment at the bank of your choice and ask for an English-speaking banker. It is important that opening bank account can be done from distance, remotely by Power of Attorney (POA).

Unlike most international accounts for foreigners, Georgian banks do not require a minimum deposit in order to open the account. Fees for operating the bank account are very low  and the exact amount depends on which particular bank you decide to use and the level of service offered by the account. The only payment that you need to make at the time that you open the account is a small payment (about 70 Gel) in order to obtain a debit card, which can also be used to withdraw funds from ATMs both inside Georgia and around the world. The bank offers a choice of either a Visa or Mastercard. All the three banks offer mobile apps for mobile banking as well as internet banking – so you can track your funds from anywhere in the world.

Bank accounts opened are three currencies in one – one each for GEL, USD and EUR, which means that if you wire funds into your account in either USD or EUR, then the funds will remain in that currency until you want to convert them. All bank accounts in Georgia use the international IBAN format, which makes it simple to transfer funds between the accounts without difficulties of working out the SWIFT/BIC Codes. Funds sent to the account arrive quickly, no later than the next working day.

The Georgian Stock Exchange (GSE) is the only organized securities market in Georgia, which was established with the financial support of USAID and Barents Group in 2000. The GSE’s automated trading system can accommodate thousands of securities that can be traded by brokers from workstations on the GSE floor or remotely from their offices: www.gse.ge

In Georgia, every company is entitled to choose a field of activity at its own discretion and run a business without limitation, unless such an activity is directly prohibited by the “law or a permit or license” is required to perform the activity. Special permits and licenses for doing business in Georgia are required only for companies whose activities will be related to medicine, construction, communications, gambling, energy, security and etc.

According to the Georgian legislation, there are two types of applicable licenses: the license to exercise an activity and the license to use.

The License to Exercise an Activity is a license which grants a person the right to exercise a certain activity specified by the law (e.g. to set up a private security service). To obtain a license for an
activity, one has to meet particular requirements. This type of license may be used only by the person (a natural person or legal entity) who has been granted the license. Therefore, a transfer of a license for an activity to another person is not allowed.

The License to Use applies to the use of national resources specified by the law. Such a license grants its holder the right to use certain resources (e.g. natural resources). Licenses of this type can only be awarded in an open outcry tender, except the cases stipulated by the law and the holder of the license may transfer it to others.

In addition to special licenses and permits, there are various types of business activities in Georgia that are provided with special status such as Virtual Zone Entity, Free Industrial Zone Enterprise, Special Trading Company, Tourist Enterprise, etc. and benefit from special tax or other favorable regimes. In order to get these benefits, it is required to apply and obtain the appropriate status and certificates from the relevant agencies. 

If your main business activity is to provide business activity in IT and / or software & app development service to the clients outside of Georgia, then you can apply for the Virtual Zone Entity status to the Ministry of Finance of Georgia. Virtual Zone Entities are exempt from VAT and corporate income tax and pay only 5% of personal income tax in case of dividend distribution. 

Free Industrial Zone (FIZ) is the type of a free zone envisaged by the “Tax Code of Georgia” where the business-friendly regulations, favorable tax, and customs regulations apply. FIZ is open for production & processing of any goods or provision of services, except for: Using of buildings for residence, Production of Arms and munitions, trade of arms and munitions, Production of nuclear and radioactive substances, trade in nuclear and radioactive substances, Import, storage, production or/and sale of Narcotic and psychotropic substances, Excise goods (except for the cases for personal use).

Free Industrial Zone entities are exempt from all taxes except personal income tax (20%) which is paid a the employee. You need to apply for this status to the organizer of Free Industrial Zone and pay annual fee. There are five industrial zones operating in Georgia in the following cities: Poti (sea port), Kutaisi (third largest city) and Tbilisi (capital city): Poti Free Industrial Zone; Hualing Kutaisi Free Industrial Zone; Kutaisi Free Industrial Zone; Tbilisi Free Zone;Tbilisi Industrial Park Free Industrial Zone.

#	Indicator Name	2014	2015	2016	2017	2018
1	Population, total (million)	3.72	3.73	3.73	3.73	3.73
2	Time required to start a business (days)	2	2	2	2	2
3	Time required to register property (days)	1	1	1	1	1
4	Strength of legal rights index (0=weak to 12=strong)	9	9	9	9	9
5	Time to resolve insolvency (years)	2	2	2	2	2
6	GDP (US$ billion-Current)	16.5	14	14.4	15.1	16.2
7	GDP growth (annual %)	4.6	2.9	2.8	4.8	4.7
8	GDP per capital (US$ )	4.4	3.8	3.9	4	4.3
9	Inflation (average)	3.1	4	2.1	6	2.6
10	US$/GEL exchange rate (average)	1.77	2.27	2.37	2.51	2.68
11	EUR/GEL exchange rate (average)	2.35	2.52	2.62	2.83	3.01
12	Foreign direct investments (US$ billion)	1.8	1.7	1.7	1.9	1.3
13	Total Reserves (US$ billion)	2.7	2.5	2.8	3	3.3
14	Real interest rate (%)	7.8	6.2	8.1	5.1	7.2
15	Lending interest rate (%)	11.9	12.5	12.6	11.5	11.1
16	Deposit interest rate (%)	8.4	8.9	9.9	9.7	8.8
17	Unemployment Rate	17.4	16.5	16.6	13.9	12.7
18	Total Export (US$ billion)	7.1	6.3	6.3	7.6	8.9
19	Total Import (US$ billion)	10	8.7	8.5	9.4	10.8
20	Number of tourists (million)	5	5.3	5.4	6.5	4.8

Source: National Statistics Office of Georgia
Source: National Bank of Georgia
Source: The World Development Indicators – The World Bank

There are only six taxes in Georgia, of which five (personal income tax, corporate income tax, Value added tax, excise tax and import tax) are nationwide, and one (property tax) is a local tax. There are no inheritance, wealth, property transfer, social, branch remittance or other taxes imposed in Georgia.

From 1 January 2017 a new model of Corporate Income Tax was enacted in Georgia, which means that for Georgian entities and foreign entities doing business in Georgia by a permanent establishment the retained profit will no longer be taxable until they are distributed.The main purpose of the new model is to encourage domestic and foreign investments by taxing the businesses when they will extract the profits. Commercial banks, credit unions, insurance companies, microfinance organisations, and pawn shops will be switched to the new tax regime after 1 January 2023.

According to the Tax Code of Georgia, “A person/entity, which carries out an economic activity and the total amount of VAT taxable transactions carried out in any continuous period up to 12 calendar months exceeds GEL 100 000”, shall apply for a VAT registration to Revenue Service under Ministry of Finance of Georgia. A person/entity can also perform voluntary registration.

Georgia – Business Friendly Country!