IT Company Privileges
What are the benefits?
- For Virtual Zone – 0% corporate tax, 0% VAT for services to non-Georgian residents
- For International Company Status IT firms – ONLY 5% corporate income tax and 5% employee income tax applicable
- Simple and remotely accessible registration processes
- Absence of red tape bureaucracy
The Georgian government has long sought to position the nation as a favorable site for IT firms. As a consequence, a special tax regime of Virtual Zone was implemented in 2011, and a considerably more advantageous International Company regime was enacted in 2020.
Important note: the tax benefits given below are applicable only for Georgian LLCs. Obtaining tax benefits for turnover <500,000 GEL is much easier through opening an IE in Georgia.
Virtual Zone (Georgia)
The status of “Virtual Zone Entity” is a special tax status that can be granted to specific types of IT enterprises. The tax breaks are only available for services/products delivered to overseas (outside of Georgia) non-resident clientele.
A company having “Virtual Zone” status pays 0% corporate tax and 0% VAT on revenue generated from non-Georgian entities.
Other normal Georgian tax rates, such as the 5% dividend tax (only when distributed), the 20% withholding of employee income tax, and the 1% property tax, remain in effect.
The Virtual Zone appears to be a magical tax haven, but obtaining this unique tax status is not straightforward. If you do qualify, the tax advantages are every bit as fantastic as they sound.
The regulation itself is rather ambiguous, and it might be read to mean that crypto, IT consultancy, eCommerce, internet marketing, or other IT businesses could qualify. In fact, however, article 6 of the rule, which states that <Activities in the virtual zone shall comprise the economic activities of legal persons related to the production of ITs in the territory of Georgia> functions as a major stumbling block to obtaining Virtual Zone designation. According to the most recent developments, an IT firm involved in software development and with a Georgian economic presence (often an office with Georgian employees, ideally with IT qualifications) has the best chance of obtaining the status.
Other components of the application, such as a Georgian registered company, a Georgian phone number, and a Georgian bank account, are readily obtained. Once granted, the status is not up to renewal as long as all of the boxes are ticked, and if a firm does not get International Company Status in accordance with Georgian law (discussed below)
International Company Status
Unlike Virtual Zone status, International company status (ICS) is only accessible to a limited number of applicants, but once gained, the tax benefits are enormous.
Companies that hold ICS are eligible to the following benefits:
- A 5% corporate income tax is only payable at the time of dividend distribution.
- 0% Dividend tax
- 5% withholding on employee income tax (rather than 20% for non-ICS businesses)
- 0% property tax (rather than 1%).
The ease with which the status may be obtained is another significant difference. The following conditions must be met by the successful applicant:
- 98% of the annual income must come from activities in eligible IT areas, both at the time of application and going forward.
- The applicant must be a Georgian enterprise that has been operating in the specified sectors for at least two years, OR
- A Georgian company representing a non-resident firm that has been operating in the specified industries for at least two years, OR
- A Georgian company owned by another company (either Georgian or non-resident) with a parent that has at least two years of experience in the specified sectors and owns over 50% of the Georgian company.
- The Georgian Enterprise cannot operate in a free industrial zone.
- The Georgian firm must have a physical presence in Georgia and conduct fundamental income-generating operations with the necessary personnel and abilities.
It’s important to keep in mind that if more than 2% of the income is generated from activities not on the approved list, the status can be cancelled within 10 working days after the Ministry of Finance begins a review.
What is the procedure?
- Remote or in person incorporation of an entity in Georgia (Roughly 2 days + 1 day for revenue service registration)
- Submission of the application to Ministry of Finance (In case of Virtual Zone) or Revenue Service (In case if ICS), indicating services rendered, place from which activities are performed, and 2+ years of operational experience (in case of ICS)
- Up to 10 days for authorities to review the application (In practice could be extended to 30 days)
Authorities may seek further information to confirm compliance with standards, which may necessitate more time.
Company Registration in Georgia is Easy
Let us guide you through the process
List of permitted activities for ICS
- Software release
- Release of computer games
- Release of 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
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