1. Introduction

One of Georgia’s goals is to become an information technology center in the region, and since 2011 the country has been attracting international investment and stimulating the IT business. Even from January 1, 2011 law on information technology zones came into force, changes were made to the tax code and the Government resolution on the procedures and conditions for Virtual Zone IT Company’s status was realized, which sets an important regulatory and tax benefits and attractive environment for export-oriented IT companies.

Let’s explain what a Virtual Zone IT Company means and what benefits these entities enjoy in detail.

Virtual Zone IT Company is a legal entity that carries out information technology activities and has been granted the appropriate status.

information technologies (IT) is defined by law. It means – the study, support, development, design, production, and introduction of computer information systems, as a result of which software products are obtained. It should be noted that the definition of information technology is very broad and combines many activities.

2. Benefits of Virtual Zone IT Company

Virtual Zone IT Company is exempt from:

• Special Regulationsdon't need licenses, permits and other regulatory documents to conduct their activities;
• Corporate Income Tax (15%)tax on the profits earned from supplying outside Georgia the information technologies created by Virtual Zone IT Company;
• VAT (18%)tax on the supply with VAT outside Georgia of information technologies (ITs);
• Export Dutiesexport duties on exporting from the customs territory of Georgia of the information technologies created by Virtual Zone IT Company.

It should be noted that the Virtual Zone IT Company may have other economic activities or operations simultaneously. But it is allowed to use this status only in the field of information technology. The expenses, related to earning income from supplying within or outside of the territory of Georgia the IT developed by a Virtual Zone IT Company, shall be deducted from the gross income in proportion to the share of the income earned from supplying the IT within the territory of Georgia.
Here we also mention one important detail. If a Virtual Zone IT Company incurs certain costs (such as renting an office, hosting, etc. not salary) associated with performing its activities, it can register as a VAT taxpayer and receive and deduct VAT on these costs from other taxes. This is because selling IT services or products outside Georgia are exempt from VAT with the right of deduction. If a Virtual Zone IT Company hires an employee, then tax benefits don’t apply to the salaries paid to him/her and are taxed as usual by 20%.

3. Example

George, who is a programmer incorporated a company and got Virtual Zone IT Company’s status in 2019. George creates/develops computer software with mobile applications and sells licenses outside Georgia on behalf of the Virtual Zone IT Company. A total net profit of 200,000 GEL was generated from the sales in 2019 and fully distributed as a dividend. Due to the fact that by the tax code of Georgia, it is obligatory to register as a VAT taxpayer after the income exceeds 100,000 GEL, and in 2019 the income of the Virtual Zone IT Company exceeds 200,000 GEL, George doesn’t have to register his company and pay VAT. Moreover, it is exempt from corporate income tax, which means that it pays only 10,000 GEL (200,000 * 5%) to the budget and George will receive the net amount of 190,000 GEL revenue as a physical person.

4. The terms and conditions of granting the Virtual Zone IT Company’s status

In order to receive the Virtual Zone IT Company status a candidate must apply to the Ministry of Finance of Georgia. The candidate electronically fills in the application form posted on the website www.newzone.mof.ge, which is sent to the Financial Analytical Service. The list of information-technological projects done during the last three years (if any) should be attached to the application. The Financial Analytical Service is authorized to request additional information regarding the information-technological activities of the candidate. The status shall be granted to the interested entity no later than 10 working days after the application for granting the status.

Virtual Zone IT Company status is issued for life if there is no reason to cancel it.                               

It should be noted, that the status is issued only to legal entities (not to individuals) and doesn’t require any experience. Moreover, it doesn’t require or impose any restrictions on the initial capital, directors, founders, and employees of the enterprise. So you can register a company and then apply for a status immediately. However, of course, having some experience in information technology activities or a contract with a foreign client will make it easier to get a status.

5. Cancellation of Virtual Zone IT Company’s status

The Financial Analytical Service of the Ministry f Finance of Georgia revokes the Virtual Zone IT Company status: a) if the status obtained is used to avoid paying taxes in accordance with the current legislation; b) on the basis of the electronic application, which is sent through the website. In case of revocation of the status, the Financial Analytical Service shall ensure the deletion of the electronic certificate from the Financial Analytical Service website (www.fas.ge).

6. Conclusion

Virtual Zone IT Company has significant tax and regulatory benefits. It creates a very attractive business environment for people working in the field of information technology. The demand for the status is growing over time, and therefore obtaining it becoming more difficult also. If before it was obtained only on the basis of the submission of certain information, today some information needs to be specified and additional documents may be required to submit.

Information technologies in Georgia are not yet so developed that to have significant exports of related services. Therefore the demand for Virtual Zone IT Company status largely comes from foreigners. They can incorporate a company and obtain the status in Georgia remotely, even without coming to the country. For more information or to get help with obtaining a status contact us.