Tax Incentives for Georgian Companies

1. It is exempt from dividend tax;
2. It pays 5% corporate income tax only (instead of ordinary 15% tax);
3. It pays 5% personal income tax on behalf of their employees (instead of ordinary 20% tax);
4. Property Tax (other than Land) – exempted if such property is used only for allowed activities;
5. 100% additional tax credit on salaries and R&D activities.

What are the types of permitted activities under International Company Status?

• Permitted activities under IT industry
• Software release;
• Releasing computer games;
• Releasing other software;
• Computer programming, consulting and related activities;
• Computer programming activities;
• Consulting activities in the field of computer technology;
• Computer management activities;
• Other activities related to information technologies and computer services;
• 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 programmes;
• 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 under Marine Industry:

• 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.

The status of international company may be granted to a Georgian enterprise in any of the following cases:

a) if the enterprise has at least two years of experience in carrying out the permitted activities, on the basis of which it applies to obtain the status;

b) if the enterprise is a representative of a non-resident enterprise, which has at least two years of experience in the permitted activities.

Can a company render other services, while having a status of International Company?

The company with the status of International Company is entitled to receive income from other activities, only if such income does not exceed 2% of the income from the activities permitted under the status (within the calendar year). Otherwise, the status may get abolished.

An individual entrepreneur who conducts business, which is not under a list of prohibited activities. Prohibited activities for small businesses are the following:

• 1. Activities that require licensing or permission (except taxi drivers)
• 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, auditing, consulting (including tax consultants) activities.
• 5. Gambling business.
• 6. Staffing.
• 7. Production of excisable goods.

Following types of income will be taxed under ordinary regime, regardless having small business status (the following will not benefit from the special tax regime of small business status):

• 1. Leasing / renting real estate.
• 2. Income from the loan.
• 3. Profits from gambling business.
• 4. Gift.
• 5. Surplus income received from the sale of the following property:
• A) real estate;
• B) vehicle;
• C) securities.
• 6. Income received in the form of inherited property.
• 7. Income received in the form of dividends.
• 8. Income received as interest.
• 9. Income received in the form of royalties.
• 10. Income from debt forgiveness.
• 11. Surplus received from the sale of a share in a company.

An individual entrepreneur with a status of Small business pays only 1% of turnover per annum as a Personal Income Tax until reaching GEL500,000.

After reaching this turnover limit, they pay 3% Personal Income Tax, for two years of reaching the limit. The status will be abolished if a turnover exceeds the limit for two consecutive years.

Free Industrial Zones (FIZ) are created for manufacturing, processing and import/export of goods. FIZ companies are fully exempt from any taxes within the scope of the allowed activities.

Provision of services from FIZ to foreign countries are most likely not exempt from taxes and are subject to ordinary taxation based on the Revenue Service manual N2656, thus we do not recommend getting FIZ registration in case the essence of your business is rendering services abroad.

PLEASE NOTE: In accordance to the latest approach of Revenue Service - FIZ companies are not able to receive tax exemption if they conduct business of

• provision of services, and / or
• trading of goods without their sufficient processing (sufficient change of HS codes) in Georgia.

Revenue Service emphasize that in order to use tax exemption - FIZ companies must manufacture or process goods imported / exported to / from FIZ territory.

VZEs are fully exempt from Corporate Income Tax on profit that the company gets from provision of Information Technologies (services) outside of Georgia; They are fully exempt from VAT on provision of Information Technologies outside of Georgia. As a result, normally, companies pay only 5% dividend tax on the dividends distributed to the shareholder. And that’s it.

However, please note that in accordance with latest Revenue Service practice - VZE companies are treated as regular entities and they are able to use 15% CIT exemption only in case if the company creates software IN Georgia (which would require from the taxpayer sufficient evidences like having Georgian employees with respective qualification (with respective degrees as well), advisable to have an office and other expenses that would show that Georgian company creates software IN Georgia).

Virtual Zone Entity (VZE) is an LLC or JSC which is registered in Georgia, which provides Information Technology (IT) services abroad and gets the status from Georgian authorities.

Under Information Technology, Georgian tax code defines following activities: the study, support, development, design, production, and implementation of computer information systems, as a result of which software products are obtained.

Two different regimes are established for Common funds and Investment Companies.

Taxation of Common Funds

• 1. Taxable Income / loss of the Common Fund is determined individually for each holder of stake proportionally to its stake in the common fund (capital gain or capital loss, expenses / commissions related to asset management company are deductible).
• 2. Tax reporting (submission of tax declarations) is done by each unit-holder itself. No obligations of such by the Common Fund or Asset management company.
• 3. Activities of Common Funds do not create Permanent Establishment in Georgia for the unit-holder.
• 4. Profit distribution from the funds’ activities is not subject to corporate income tax.

Taxation of Investment Companies

• 1. Investment Companies are exempt from dividend tax.
• 2. Investment Companies are exempt from Corporate tax (CIT) on expenses related to investment activities: costs incurred or other payments not related to economic activity; free delivery of goods/services and/or transfer of funds; representation expenses paid in excess of a limited amount determined under the Code.
• 3. 5% CIT on distribution of profit to physical person (resident or non-resident) from investments in bank deposits and/or financial instruments (besides Georgian resident company profit distribution). In all other cases - CIT is 15%.
• 4. Full exemption from CIT to physical person (resident or non-resident) if the dividend is distributed from profit that:

A) does not belong to the income received from a source in Georgia;

• B) belongs to the income received from the sale of equity securities admittedly traded by a resident legal entity on a public offering issued in Georgia and recognized by the National Bank of Georgia;
• C) belongs to the income received from the sale of loan securities issued by a resident legal entity issued on a public offer in Georgia and recognized by the National Bank of Georgia for admission to trading on the organized market or the income received from this security as interest;
• D) belongs to the surplus income received from the sale of a loan securities issued by the Government of Georgia or an international financial institution or the income received as interest from these securities or a deposit placed in a commercial bank.

Investment Fund is a collective investment scheme, which fetches capital from investors, for the benefit of said investors, according to the defined policy of such Fund. Investment Fund needs to be Registered, and licensed properly. The rules on such operations are given in the Law on Investment Funds of Georgia. The rules vary according to what kinds of operations a fund is willing to pursue.

There are two forms of Investment Funds:

● Common Fund (an investment fund carrying out activities as a contractual scheme, without formation of a legal person). Common Fund has to be managed by an asset management company;

● Investment Company (an investment fund carrying out activities as a legal person. It may have an asset management company, which carries out its representative function).

Investment Fund can be two types:

• 1. close-ended investment fund – an investment fund which may not issue units continuously and whose unit-holders do not have the right to request the redemption of their unit (units) prior to the liquidation of the investment fund, unless otherwise provided for by the legislation of Georgia;
• 2. open-ended investment fund – an investment fund which may issue units continuously and whose unit- holders have the right to request the redemption of their unit (units), directly or indirectly, from the assets of the investment fund, in accordance with the procedure provided for in its founding document;
• 3. interval investment fund – an investment fund which may issue units in accordance with the procedure and with the frequency provided for in its founding document, but at least once a year, and whose unit-holders have the right to request the redemption of their unit (units), directly or indirectly, from the assets of the investment fund.