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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