Business Taxes in Georgia

Georgia’s government has attempted to simplify the tax legislation and make the procedure as business-friendly as possible. Currently, the country ranks eighth in the world for lowest taxes and fourteenth for convenience of payment.

Taxes are administered online, through revenue service portal. Monthly taxes are due to be declared and paid no later than 15th of the next month. The fiscal year runs from January 1st to December 31st.

The registration of an IE in Georgia is the peak of ease of doing business in Georgia. Typically, only one type of tax is payable – 1% of your income – and only one type of declaration – 5-6 fields – must be filled each month. Because all communications are handled through the portal, there is no need for trips or meetings.

Below you will find information for each type tax.

To simplify the Georgian tax system, we have broken it down to the essentials. However, please note that this is a simplified version, and it is always best to check beforehand for any changes.

• VAT is 18% for everyone, and it must be paid if revenue exceeds 100,000 GEL per year. Certain businesses may be exempt from VAT. Services to foreign individuals are generally considered as VATable turnover, with some exceptions. However, exports of goods and services to foreign entities are not subject to VAT.
• Property tax is 1% for everyone.
• Income tax – By this term we mean only the withholding tax paid on salaries to employees, and it is set at 20% for everyone, plus 2% for the pension scheme.
• By Profit tax here we mean the tax on profits earned by a company. LLCs pay tax on earnings + dividend tax at the same time, and the sum of both is represented below. For IEs, tax on earnings has another name (income tax), but it is still referred to as profit tax below for simplicity.
  • For an IE without SBS (Small business status) , it is 20% on the 1st of April + the same amount over the next year as advances.
  • For an IE with SBS, it is only 1% of revenue, paid monthly if revenue is less than 500,000 GEL per year.
  • For LLC and any other forms of business, it is only 20% at the time of dividend distribution.
• Import tariffs only apply at the time of import, and they are dependent on the imported product’s HS code and country of origin. As a rule, plastic components are given 12% tariffs, and most products are free to import (of course, VAT should be paid).
• Excise only applies to specific product groups, such as tobacco, petrol, oil, alcohol, etc.
• “You pay tax only on income generated in Georgia” is correct, but it only applies to money generated abroad without any action being taken in Georgia. In simple terms, passive income from outside Georgia is free of tax.

There are 6 categories of tax levied in Georgia:

• Value added tax (VAT)
• Income tax
• Profit tax / Corporate tax
• Property tax
• Import tax (Tariff)
• Excise

Additionally, withholding taxes must be paid by the person paying the amount rather than the one receiving it (The actual taxpayer). This category includes the tax percentage of wages, dividends, interest, and royalties, and the individual paying them is ultimately answerable to tax authorities.

You may find more information on each of the taxes listed below.

We will begin with withholding taxes because this is typically the first sort of tax that a firm would experience.

Salary is a good illustration of this form of tax. Companies that pay wages to their employees must withhold 20% of the entire amount and pay it to state authorities.

The following tax rates are provided:

• Salary paid to Georgian resident – 20%
• Salary paid to non-Georgian resident – usually 20%, but might be different if stated in a Double Tax Avoidance Treaty with the person’s place of residency.
• Dividends – 5%. Companies registered in Free Zones pay a 0% tax rate.
• Interest – 5%. If the interest is paid to a firm based in an offshore nation, the rate is 15%. This charge is once again waived for free zone entities.
• Royalties – 20% if paid to resident individuals. Non-residents are taxed at 5%. Residents of offshore jurisdictions pay 15%.
• Tax on services purchased from non-resident corporations, resulting in Georgian income for them – 10%. Residents of countries with Double Taxation Avoidance Treaty will be subject to 0% rate. Offshore entities – 15%.

Standard VAT rate is flat 18%.

VAT is applied to:

• All domestic transactions in which the seller is registered for VAT.
• At the time of import.
• When purchasing services from the source not paying Georgian VAT (Simply, foreign company). This is also called Reverse VAT.

Some product types may be exempt from VAT during their importation or local B2B or B2C sales. Export of the goods and/or services is not subject to VAT.

If your company is VAT registered, you can reclaim any VAT withheld at the point of sale, paid at import or reverse VAT, as long as your company is qualified.

If your VATable turnover exceeds 100,000 GEL in any 12-month period, you must register for VAT. Until that point, VAT registration is voluntary. Many Georgian enterprises with just overseas clientele have a typical VAT turnover of zero, and so have not considered registering for VAT.

However, because such transactions are VAT free in any case, failing to register for VAT exposes you to reverse VAT payments on all business purchases, as well as ordinary VAT on local purchases in Georgia. You might alternatively claim all of your purchase VAT while still not owing any VAT on the overseas goods and services you sell.

VAT declarations must be filed and paid by the 15th of every month.

Individual taxpayers are subject to income tax. It has to be declared and paid by the 31st of March.

Different income tax rates are applied to different situations.

• Standard rate – 20% – applied on a taxable income that has not been taxed elsewhere.
• For Sole Proprietors with Small Business Status – 1% – on turnover not exceeding 500,000 GEL per year, or 3% on a portion of revenue exceeding 500,000 GEL.
• For Sole Proprietors with Micro Business Status – 0% (Yearly turnover less than 30,000 GEL)
• For people who rent out residential dwelling space (situated in Georgia) – 5%
• For people who rent out commercial space (situated in Georgia) – 20%
• Gains on the sale of real estate and automobiles – 5%
• Gains on sales of foreign firm stocks or bonds – 0%
• Gains on crypto – 0%, as far as the crypto is not determined as a currency by local laws.
• Foreign dividends – 0% if the individual is not deemed to be the one controlling the firm from Georgian territory.

Income tax declarations must be filed and paid by the 31st of March.

Standard profit tax rate is 15%

However, Georgia adopted the “Estonian Model” of profit taxes in 2017, which effectively implies that profits are taxed only when they are dispersed as dividends.

This means that the business effectively pays 0% profit tax rate until dividends are distributed. But, when at the time of distribution, both 15% profit tax and 5% dividend tax are due.

Standard property tax rate is 1%

• Real estate owned by business – 1%
• Real estate owned by individuals – 0% or 1%, dependent on household income and municipality where the property is situated, and only on real estate and transport located/registered in Georgia.
• Land – varies according on location and kind of land (agricultural or not)

Individuals must file their declarations by November 1st and pay their taxes by November 15th for the previous year.

The tax declaration and payment deadline for businesses is March 31st.

There are three rates of tariffs – 0%, 5% and 12%

Import tariffs should not be confused with VAT due at the time of import. VAT paid upon import will be completely recovered if a firm is VAT registered and qualified.

Tariffs, unlike VAT, cannot be recovered and should be treated as business expenditures.

The majority of the items are subject to 0% percent tariffs. The tariff that would be imposed to a certain item is determined by its HS code, which may be verified on a revenue service portal.

Furthermore, some countries (including the EU, China, Turkey, and the CIS) may be additionally exempt from duties, but if only their official certificate of origin is present.

The excise rate changes according to the goods.

Typically, excise tax is levied on a restricted number of regulated commodities, such as tobacco products, alcohol, and hydrocarbons (Petrol, diesel etc).

The Georgian Tax Code has further information for each specific case.