Amendments to the Law of Georgia on Innovations, New Terms and Tax Benefits
The Law of Georgia 'On Innovations' was adopted in 2016. Its main goal is to support the creation of a knowledge- and innovation-based economy in the country, encourage startups, and develop the technology sector. In 2025, several changes were made to this law, which will come into force on September 24, 2025.
The law introduces new terms such as: Technology Park, Acceleration, Innovative Startup, Angel Investor Network, Innovative Small and Medium Enterprise, and R&D (Research and Development) Service Company.
What is Innovation?
Innovation means a new or essentially improved, usable product, process or service having economic, scientific, or social value that may differ according to type, and includes: an innovative product, an innovative process, an organizational innovation, or innovative marketing.
Key Terms Introduced by the Law
Technology Park: An infrastructure space that provides technological, infrastructural, and professional services to interested people or companies.
Acceleration: A mechanism to support innovation. Through a competitive process, it selects subject of innovative activity and helps them with workspaces, business development, business model refinement, and, if necessary, investment.
Angel Investor Network: A legal entity that unites at least 10 angel investors. Over the past 2 years, these investors have invested at least 300,000 GEL in total into at least 5 companies. In return, they own no more than 20% of each of them.
What is an Innovative Startup?
An Innovative Startup is a company that:
- - Creates an innovative product, process, or service.
- - Has received at least:
- - 100,000 GEL investment from the investment fund, angel investor network, or its members, or an accelerator, and/or
- - 150,000 GEL grant funding from the government agency — within the last 2 years before applying for the status.
- - Has no tax debt, is not registered in the debtor’s registry, is not in bankruptcy or liquidation at the time of application.
This status is granted for 1 year, but can be extended up to a total of 10 years. However, requirements are increasing, over the next 3 years, an entity will be allowed to extend its innovative startup status up to 3 times, if by the end of the 3rd year after receiving the status, it has attracted a total investment of at least 5 million GEL, with at least 30% coming from an investment fund, an angel investor network or its member, and/or an accelerator.
Tax Benefits for Innovative Startups
During the first 3 years after granting the status of an innovative startup, the salary paid by it is exempt from income tax within the amount determined by the resolution of the Government of Georgia, in agreement with the Finance and Budget Committee of the Parliament of Georgia;
The scope of the amount determined by the Georgian government's resolution is not yet known.
Starting from the 4th year of granting the status of an innovative startup, the salary paid by it for the next 3 years is taxed at a 5% income tax rate, while during the same period the profit tax rate for an innovative startup is 5%;
Years 7 to 10: Salaries taxed at 10%; profit tax is 10%.
Note: A company cannot hold Innovative Startup status along with International Company or Virtual Zone Person status. If granted, only the startup status remains.
What is an Innovative Small and Medium Enterprise (SME)?
The status of an innovative small and medium-sized company may be granted to an entity registered in accordance with Georgian law that meets the following requirements:
- Must spend at least 5% (and no less than 100,000 GEL) of its total annual expenses on research and development.
- Is a 3rd category enterprise or a 4th category enterprise as defined by the Law of Georgia on Accounting, Reporting and Auditing (the list of requirements is incomplete).
Status is granted permanently.
Tax Benefits for Innovative SMEs
If a company distributes dividends from the previous year's net profit, it can reduce its income tax payable by three times the amount spent on research and development during the previous financial year.
An entity with the status of an innovative small and medium-sized company is entitled to benefit from the support mechanisms specified by the resolution of the Government of Georgia in the event of reinvestment of profits.
What is a Research and Development Service Provider Company?
To qualify:
- - Must be a registered Georgian company.
- - Its main activity is “Research and experimental development in natural and engineering sciences” under code 72.1 of the Georgian National Classifier of “Types of Economic Activities” and at least 80% of the total income received in the previous year must be derived from this activity;
- - Must not have tax debt, is not registered in the debtor’s registry, is not in bankruptcy or liquidation.
Status is granted once and is permanent.
Tax Benefits for Research and Development Service Providers
The salary paid by a company providing research and development services during the period of validity of the relevant status will be taxed at a 5% income tax rate, and the profit tax rate will also be 5%.
Note
A company is considered to officially hold any status under the Law of Georgia “on Innovations” starting from the 1st day of the month after the status is granted.
