Company Registration In Georgia (country)
Company Registration in Georgia triggers more and more questions each year. Georgia remains in top places in the world to register your business. Mostly questions arise from tax optimization perspective. The regulations and new approaches of Revenue Service make Georgian business climate more flexible for various industries. However, at the same time it creates more and more restrictions of their usage. In this article we will update you about registration of Georgian company struggles, changes and requirements. We consider all aspects that exist nowadays for companies intending to start, expand open company in Georgia, Tbilisi.
Since 1 January 2022 new Law on Entrepreneurs is effective, which must be considered during doing business in Georgia as LLC / JSC / Individual Entrepreneur. Detailed article may be found in our Analytics.
Company Registration in Georgia has many interesting tax incentives and their number even increased during last year. Here is the list of the main tax incentives for international structuring which you might be already familiar with:
Free Industrial Zone Entities (if all requirements are satisfied - 0% dividend tax, 0% corporate tax, no personal income tax is paid on behalf of employees);
Virtual Zone Entities (if all requirements are satisfied - 5% dividend tax, 0% corporate tax, 20% personal income tax on salaries);
Tourist enterprise (if all requirements are satisfied - 5% dividend tax, 0% corporate tax, 20% personal income tax on salaries);
Special Trading Company (if all requirements are satisfied - 5% dividend tax, 0% corporate tax, 20% personal income tax on salaries);
Individual Entrepreneurs with small business status (if all requirements are satisfied - 1% personal income tax on turnover up to GEL500,000 per year, 20% personal income tax on salaries);
In addition to that, recently were implemented following special regimes for Georgian LLC / JSC company registration:
Investment Funds (Investment Funds have two types of organization and special tax regime. Details related to them will be separately analyzed and shared in our next article);
International Company status (if all requirements are satisfied - 0% dividend tax, 5% corporate tax, 5% personal income tax on salaries).
For your convenience we’ve prepared a table here:
Recent news related to the mentioned regimes:
Company Registration in Georgia: Free Zone Entities (Free Industrial Zone Entities)
In 2020 Revenue Service created a tax manual stating that Georgian FIZ companies are not allowed to provide services nor within Georgia, nor abroad; otherwise they should be subject to regular taxation.
In I quarter of 2021 Revenue Service started to get in touch with FIZ companies representatives and showing their position that FIZ companies are not allowed to conduct purely trading activities. It means that FIZ companies should not buy and sell products without their processing on the territory of FIZ. For considering the goods as “processed” the goods shall change their HS codes, normally at least its last four digits, but to be more precise it is better to follow the respective instructions, depending on country to which the goods are exported.
Therefore, based on the latest Revenue Service strict tendencies business registration in Georgian Free Zone is very limited. Company formation in Georgia's Free Industrial zone should be related to involvement in manufacturing or processing of goods on the territory of Free Industrial Zone (FIZ). They could also be mining cryptocurrencies.
Read more about Free Zone Entities in our separate article related to Incentives for Free Industrial Zone companies in Georgia.
Company Registration in Georgia: Virtual Zone Entities
Virtual Zone Entities (VZE) were next after FIZ companies who fell under the loop of Revenue Service. In II quarter of 2021 the Revenue Service started to check whether the software on which the VZE companies work and benefit from special taxation was produced in Georgia. They mainly check if Georgia registered company’s director / shareholder / employees are or were presented in Georgia during creation / working on software. If not - they deem such entity as not having activities in Georgia, and therefore they treat it as regular LLC, claiming to pay tax as regular LLC and charging them penalties for delayed payment of tax.
Thus, to mitigate this risk while company registration in Georgian Virtual Zone our law firm advise to have Georgian employees who would work on the software and receive salary. However, besides the employees we advise to have other sufficient expenses related to provision of respective services. Please note that local professional firms or administrative stuff which is not involved in the core business of the VZE are not considered as sufficient evidence of activity in Georgia. Also, it is advisable for them to have office here.
So, to benefit from VZE status it is recommended to be involved in software development / support / design / implementation and have Georgian IT employees involved exactly in the same activities related to the software. Also it is advisable to have office in Georgia with utility bills.
We have prepared article about virtual zone entity in Georgia, fully covering VZEs.
Company Registration in Georgia: Tourist enterprise
Tourist enterprise tax benefits were extended till 2026.
Individual Entrepreneurs
Registration of Individual Entrepreneur is not the same as Company Registration. Individual Entrepreneurs are not regarded as legal entities. Individual entrepreneurs with small business status (IE) could be the next aim of Revenue Service based on our predictions. They pay just 1% of the turnover till GEL500,000 per annum. There are many foreigners using IE for provision of their services. It is noteworthy that IEs are not allowed to provide following services:
- 1. Activities that require licensing or permission.
- 2. Activities, the implementation of which requires a significant investment (production of excisable goods).
- 3. Carrying out foreign exchange transactions.
- 4. Medical, architectural, legal or notarial, audit, consulting (including tax consultants) activities.
- 5. Gambling business.
- 6. Staffing.
- 7. Production of excisable goods.
IEs are used by many foreigners with respect to their trading, programming or other not restricted activities, however tax code of Georgia mentions that income of IE consists of income received from Georgian source. Thus, in case if it is not received from Georgian source (based on latest aggressive RS approach) we expect that such revenue might be deemed as received by IE without small business status, which means it might be subject to ordinary (20%) taxation, though physical persons are normally subject to taxation only from Georgian source and for non-Georgian source they are exempt.
In order to determine income as received from the Georgian source (thus, subject to special regime) it must fall under one of the cases determined by the tax code. Best option is if the IE physical person resides in Georgia, at least 183 days or at least during provision of services. Second most relevant for foreigners registered as IEs receiving funds from the abroad could be expenses related to provision of services (like having Georgian employee, office, equipment required for provision of service etc.).
Starting from Feb 2025 small business status can not be obtained by an individual entrepreneur providing various handyman services to the legal entities (please note that IE still can provide independent handyman services under the regime to the physical persons).
Company Registration in Georgia: International Company
Before the latest changes to International Company status (IC) there was international financial company status. This transformation had a huge impact. It fully changed the substance of what the Financial IC was. Now IC status is applicable for many types of IT and maritime activities and has no relation to financial services at all.
Comparing VZE status and IC status IC status is much more beneficial. In both cases effective tax rate on dividend distribution is 5%, with only difference that IC pays this amount as corporate tax, and VZE company pays it as dividend tax. However, IC covers much broader scope of services listed below:
- 1. software release;
- 2. releasing of computer games;
- 3. releasing of other software;
- 4. computer programming, consulting and related activities;
- 5. computer programming activities;
- 6. consulting activities in the field of computer technology;
- 7. computer management activities;
- 8. other activities related to information technologies and computer services;
- 9. production and / or delivery of digital products, including software support and delivery of updated versions of software;
- 10. website development and / or delivery;
- 11. web hosting, remote maintenance of software and hardware;
- 12. software and related updates;
- 13. provide images, texts and information to ensure access to a database;
- 14. remote system administration;
- 15. online delivery of allocated memory capacity;
- 16. grant access to or download software (including purchasing / accounting software or antivirus software) and updates;
- 17. banner ads blocking programs;
- 18. download drivers, such as software that connects computers to peripherals (such as a printer);
- 19. automatic online installation of filters on websites;
- 20. automatic online installation of firewalls;
- 21. commercial and maintenance services by a shipowner and / or those related to ship ownership, including:
- 22. ship rental with or without a crew (bareboat charter)
- 23. route planning and / or analysis;
- 24. giving route instructions to a ship's captain as agreed with the charterer of vessels;
- 25. the counting of stallia, disbursement report analysis and management;
- 26. managing disputes over cargo-related claims, commercial and legal issues, and written chartering agreements;
- 27. organising new shipbuilding orders and / or the service of buying and selling used ships;
- 28. supervising the physical condition of a ship and / or supplying a ship with relevant technical parts and / or food products;
- 29. coordinating shipbuilding, ship docking and repair activities, and conducting inspections in accordance with the requirements of industry regulators;
- 30. ensuring compliance with the ISM Code, an international standard for the safe management and operation of ships and for pollution prevention, with the requirements of state control over flags and ports, and with the rules of a classification association.
You can find a detailed article about International company status.
The activities shall be rendered on the basis of a service contract.
Besides the fact that IC has much wider scope of eligible activities it has one more important benefit - 5% personal income tax on salaries. This tax relief creates perfect incentive for international companies for hiring Georgian developers or conduct mobility of their staff to Georgia.
At the same time IC has important requirement that must be satisfied in order to qualify - applicant or its parent company / HQ must have 2 years of experience in the respective field of activity. Also it is directly required during the process that IC must have Georgian qualified employees performing business activities.
To conclude - IC is more advanced status of VZE, with wider scope of activities, with background of working for at least two years and better tax rate for the salaries of employees.
Conclusion
Based on our understanding and experience below you may find the main tendencies and recommendations for the fiscal benefits of Georgia (see next page):
NOTE
Registration of company in Georgia is relatively less problematic procedure. The main problem arises with opening a bank account for such company. For more information you can read our article related to opening a bank account for Georgian companies.
DISCLAIMER: This is not a tax advice. Our opinion is not binding for any court or tax authorities. Any kind of investments bears risks.
