What is an International Company Status. Why and How to Get It

Georgian Government introduced new tax incentives for Georgian companies with the status of International Company recently, which caught the attention of businesses outside Georgia, wanting to move their business in Georgia as well as of the ones already established in Georgia.

In this article, you will read about the status of International Company, tax incentives set for such companies, the permitted activities under the status, requirements for getting the status and about the process itself.

Getting the status of International Company is pretty tempting, as tax incentives are attractive, there are numerous nuances though, a company has to think through before applying for the status. We strongly suggest reading this article attentively and having a consultation with the legal counsel. In case you have questions or want assistance, we are ready to answer your questions and help, as always.

What is an International Company?

As defined by Georgian Tax Code, an international company is a Georgian enterprise, which carries out activities defined by the Georgian Government and receives income only from permitted activities.

According to this definition, a company wanting to get the status of International Company shall be operating in Georgia. This requirement does not prevent foreign companies from establishing their businesses in Georgia and applying for the status here. Some conditions have to be met though and we talk more about that below.

The Ordinance №619, of 8^th of October, 2020 of the Government of Georgia, “On Determining the Status of an International Company and Approving the List of Permitted Activities and Certain Expenses”, defined the exact list of permitted activities for enterprises holding (or wanting to get) the status. The document also defines rules for getting the status. Tax incentives for such companies are determined by the Georgian Tax Code.

The International Company Status is given indefinitely and may also be revoked.

The status may be granted to businesses operating in the following sectors: IT (Information Technology) and Maritime (see detailed list of Permitted Activities below).

Tax Incentives

The following tax incentives are set by Georgian Tax Code for International Companies:

• - Corporate Income Tax – 5% (instead of regular 15%),
• - Personal Income Tax – 5% (instead of regular 20%),
• - Withholding tax on Dividends – 0% (instead of regular 5%),
• - Property Tax (other than land) – exempted, in case the property is used only for the activities allowed under the status (instead of regular percentage which is up to 1% depending on type of the property and the exemption does not include property tax on lands).

The tax that you will have to keep in mind is Value Added Tax (VAT). Entities having International Company’s status are subject to regular VAT taxation. Thus, in case your activities are subject to VAT, your company will have to act on it (report and pay VAT as defined by law). VAT taxation rules have also changed in Georgia recently, in order to comply with European standards. So, as exemptions apply to some activities, please consult with tax adviser, whether the company will have to pay VAT, which is 18% in Georgia. Based on the substance of International Company - they normally provide services abroad and in most cases are anyway exempt from VAT. 

What you would also have to keep in mind, is the instruction given regarding the calculation method of your Corporate Income Tax. The International company would have to regard to 1st paragraph of Article 97 of the Tax Code, which indicates that the following amounts (activities) are taxable by CIT a) distributed profit (thus you’d have to pay 5% Corporate Income Tax in case you distributed your profit); b) expenses or other payments, that is not in connection with the economic activities of the company; and d) representative expenses (i.e. expenses for events, dinners, etc.) that exceeds the amount permitted by law (see article 98⁴ of the code in this regard).

Concerning expenses:

Salary expenses paid to a hired citizen of Georgia and expenses of scientific-research, design and experimental-construction services in the field of activity permitted for an international company incurred in Georgia, may be deducted from the distributed profit amount of the company. Other expenses, including expenses mentioned incurred outside Georgia, may NOT reduce the taxable profit.

Permitted Activities

A company planning to get the status of international company will have to look closely and attentively to decide whether its activities would comply with the activities listed.

As at least 98% of the annual revenue of the company seeking or having the IC status, shall come from permitted activities, otherwise the status will get abolished, which will have effect on the taxes not paid, as considered exempt under IC status, so, as the abolishment of the status takes effect from the date it was issued, the taxes not paid may be considered now payable, since the company would be considered not to have been subject to tax exemption at all. We talk more about the consequences below.

Permitted Activities for IT sector

Under IT sector, the enterprise has the right to render the activities listed below. (Some activities are indicated with respective codes under Georgian National Classification of Economic Activities, as indicated in the tax code).

It should be noted that the activities under IT sector shall be rendered on the basis of a service contract. This is a direct requirement by law. Thus, respective evidential documentation has to be provided to respective authorities.

• 58.2 – software release;
• 58.21 – releasing of computer games;
• 58.29 – releasing of other software;
• 62.0 – computer programming, consulting and related activities;
• 62.01 – computer programming activities;
• 62.02 – consulting activities in the field of computer technology;
• 62.03 – computer management activities;
• 62.09 – other activities related to information technologies and computer services;
• Other activities under IT sector:
• production and / or delivery of digital products, including software support and delivery of updated versions of software;
• website development and / or delivery;
• web hosting, remote maintenance of software and hardware;
• software and related updates;
• provide images, texts and information to ensure access to a database;
• remote system administration;
• online delivery of allocated memory capacity;
• grant access to or download software (including purchasing / accounting software or antivirus software) and updates;
• Banner ads blocking programs;
• download drivers, such as software that connects computers to peripherals (such as a printer);
• automatic online installation of filters on websites;
• automatic online installation of firewalls;

Permitted Activities for Maritime Sector

Permitted Activities for Enterprises in Maritime Sector are commercial and maintenance services by a shipowner and / or those related to ship-ownership, including:

• ship rental with or without a crew (bareboat charter)
• route planning and / or analysis;
• giving route instructions to a ship's captain as agreed with the charterer of vessels;
• the counting of stallia, disbursement report analysis and management;
• managing disputes over cargo-related claims, commercial and legal issues, and written chartering agreements;
• organizing new shipbuilding orders and / or the service of buying and selling used ships;
• supervising the physical condition of a ship and / or supplying a ship with relevant technical parts and/or food products;
• coordinating shipbuilding, ship docking and repair activities, and conducting inspections in accordance with the requirements of industry regulators;
• 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.

Requirements for obtaining the Status of International Company.

There are 5 requirements a company has to comply with, in order to get and maintain the status of an International Company:

1. Be a Georgian Company – the International Company Status can be obtained only by a Georgian Enterprise, meaning, a company must carry out its core income-generating activities permitted under the status in Georgia. It is strongly required, that the company has operational expenses and adequate human resources (full-time employees) to carry out such activities, with the necessary qualifications, and shall ensure the coverage of appropriate operating costs. So, this requirement means an enterprise has to have physical presence and employees in Georgia.
2. Have sufficient Experience – The Company seeking the status has to have had operated for more than 2 years in the field for which it requests the status. This 2-year experience can come from the Georgian Company itself, or from a foreign company the Georgian company represents or a foreign company that the Georgian Company is owned by (in this case, a parent company having sufficient experience must have at least 50% ownership of a company in question). The ability to have a foreign parent company with sufficient experience is an important recent addition to the law, as it gives the ability to foreign companies to establish a subsidiary or a representative in Georgia, in order to obtain the status of International Company.
3. Have 98% of income from permitted activities – The company having the IC status are allowed to only carry out activities permitted by the certificate. In case the activities not permitted exceeds 2% of the income, the status will get revoked (abolished). This is a requirement a company has to give substantial attention to, as in case the status gets revoked, the decision on revocation becomes effective from the date of granting the status of international company, meaning, the company would have to pay regular taxes on all activities, from the beginning of its operation, as if the status was never obtained. There is no experience or practice regarding this issue, but there is a high possibility that the Revenue Services will ask payment of taxes on pervious activities / dates in case the requirement is not met.
4. Deliver services outside Georgia -There was a recent addition to the ordinance №619 of the Government of Georgia, stating that an International Company will have to only deliver to the person(s) of which place of registration OR place of management are located outside of Georgia.
5. Not to be established in Free Industrial Zone - the Georgian Enterprise seeking/having the status may not be established in a free industrial zone.
6. Not to be an Enterprise of Virtual Zone - In case a company already is a VZ entity, it will lose the VZ status and get the IC one.

Procedures to get the Status of International Company

An application requesting to get the International Company Status is initially sent to Revenue Services (RS), which has 10 days for compliance check.

After RS permits, the application is sent to Ministry of Finance of Georgia. There is no time limitation set for the Ministry to make a decision on whether the application is in compliance with the law, but with regard to the General Administrative Code of Georgia, administrative bodies are given 3 months to issue decisions on this matters.

In case the ministry of Finance has the positive conclusion, the application will be sent to the administration of Government of Georgia, which will issue a decree on granting the status of International Company to the applicant.

Regarding the time limit of the procedure: we suggest that the decision-making process shall not exceed 6 months and 10 days, as the maximum time limit, but assuming the time limitations set by law may not be met by administrative bodies, the process duration may elongate, which will not be unusual considering our practice with the similar processes.

So, should you apply for the status?

In case you have been rendering permitted activities for the past two years and you are going to establish a full business in Georgia, intending to have employees, an office and generally business presence in Georgia, and deliver your services outside Georgia, then it is absolutely justifiable to open a company in Georgia and get an International Company status in Georgia.

DISCLAIMER: This is not a tax advice. Our opinion is not binding for any court or tax authorities. Any kind of investments bears risks.