Details of the HNWI Tax Residency Rule in Georgia (criteria, procedures, documents, timings, benefits, and tax consequences)
Introduction:
The below article is written by Georgian and international tax adviser Gela Barshovi, based on his knowledge of Georgian tax law and many years of experience.
A central part of the information provided below is based on professional experience because the law does not explain all the technical procedures (e.g., what documents should be presented to the Georgian Revenue Service) to obtain HNWI status.
The rules explained below are applicable as of January 2023.
The 183-day rule versus the HNWI program of tax residency relevant in Georgia
Georgia applies two tax residency rules for individuals:
- The general rule based on days spent in the territory of Georgia (the 183-day rule), which applies to any individual regardless of the amount of their income or value of their assets (please note this rule includes some exceptions);
- The special tax residency rule applies only to natural persons who qualify as High-Net-Worth Individuals (HNWIs) based on the value of their assets OR annual income. However, high net worth is not the only criterion for becoming a tax resident based on the HNWI program.
The 183-day tax residency rule in Georgia
Like many countries in the world, Georgia applies a 183-day rule of tax residency to individuals. In particular, an individual should spend 183 or more days within twelve consecutive calendar months to become a Georgian tax resident for a specific tax year.
Please note that the 183-day rule of Georgia does not require an individual to spend 183 days or more in the territory of the country within a tax year but within twelve consecutive calendar months (e.g., March 2022 to March 2023), assuming that the 183rd day falls within the tax year for which a person seeks to become a tax resident. So, for example, if we take the tax year 2023, 183 days do not need to be spent from 1st January 2023 until 31st December 2023, but time spent in 2022 may also count if the 183rd day falls within 2023.
The tax year and calendar year are the same in Georgia: From January to December.
More information about the 183-day rule can be found in a separate article of Gela Barshovi or through individual consultation. Most of this article is dedicated to explaining essential technical details about Georgia’s HNWI tax residency rule.
The High-Net-Worth Individual (HNWI) program in Georgia
Persons qualified under HNWI do not have to spend 183 or more days within twelve consecutive calendar months or within any period in the territory of Georgia to become a Georgian tax resident for a particular tax year (in some cases, it is possible to become HNWI tax resident without spending a single day in Georgia).
The benefits of becoming an HNWI tax resident in Georgia
There are three main reasons why it may be beneficial for you to become a Georgian tax resident under the HNWI rule:
It is relatively easy to become an HNWI tax resident in Georgia.
The required amount of assets and/or income is relatively low (especially the income criterion), and the status can be obtained without even traveling to Georgia. You can do all procedures remotely using Power of Attorney (POA) granted to a Georgian professional. This will give you a lot of flexibility while providing the benefits of being a tax resident in a reputable, non-offshore country with fifty-seven double taxation treaties in place.
Georgia taxes individuals only on their Georgian source income.
This means your non-Georgian income will be tax-exempt even if you become an HNWI tax resident of Georgia.
Here please note that the terms “Georgian source income” or “Foreign source income” should not be understood literally – any income generated (e.g., transferred from) outside of Georgia. Georgian source income is defined in Article 104 of the Georgian tax code. Sometimes, income from abroad is also considered Georgian source income.
For more details about Georgian source income, please read my article here.
Georgian tax treaties apply to HNWI tax residents as well.
An HNWI tax residency certificate is valid for applying double taxation treaties signed by the government of Georgia in the same way as the typical tax residency certificate granted under the 183-day rule.
Important note: Regardless of the applicability of the tax treaty, an HNWI tax residency certificate will be more beneficial for you if you are not a tax resident of another country. More details are explained below.
Do double taxation treaties apply to HNWI tax residents?
As stated above, yes.
Georgia has signed double taxation agreements with fifty-seven countries as of today. Such treaties apply to HNWI tax residents the same way as they apply to tax residents under the 183-day criterion. For example, as an HNWI tax resident of Georgia, you can enjoy exemption from withholding taxation at the source country with which Georgia has signed a tax treaty (although each case needs to be analyzed individually).
On the other hand, the HNWI program may not be beneficial if you are already a tax resident of another country based on the criteria of days spent there. A double taxation treaty may not help because an HNWI tax resident of Georgia usually has much less chance of winning the “tie-breaking” rule set by Article 4 of double taxation treaties against other countries where a person is also a tax resident based on days spent.
The reason for having a low chance of success is that the “tie-breaking” rule set by Article 4 of double taxation treaties provides the following criteria:
- Home;
- Economic and personal connections;
- Days spent in the country;
In typical HNWI cases, none of the above criteria will work for Georgia compared to another country where a person is a tax resident based on time spent there. In addition, Article 4 of the tax treaty is not a highly reliable clause because the article may be assessed by the authorities of the countries quite subjectively and independently from each other.
Therefore, the HNWI tax residency certificate is most useful when a person is not a tax resident anywhere else but in Georgia.
Note: The above is the author’s personal opinion and does not cover all cases. In addition, you may be confused regarding “tie-breaking rules”, as the above paragraph includes specific terms about international tax treaties that may not be familiar to many non-tax professionals. If you are a tax resident in another country and are still considering applying to the HNWI program in Georgia, we suggest discussing your case with the tax expert.
Criteria to qualify under High-Net-Worth Individual (HNWI) status in Georgia
There are two criteria for becoming HNWI in Georgia. Suppose an individual meets EITHER criterion (it is not necessary to satisfy both). In that case, they are considered as HNWI for Georgian law purposes (which does NOT automatically make them a tax resident of Georgia).
Asset criterion for HNWI
If an individual demonstrates that they own more than three million Georgian Lari (GEL) (around $1,075,000) of assets, then this is enough to be considered a High-Net-Worth individual in Georgia.
Types of assets for HNWI purposes (a non-exhaustive list):
- Real estate,
- Stocks,
- Deposits in banks,
- Cryptocurrencies,
- Share in a company (even if non-publicly traded),
- A combination of the above types.
Note: Each asset type needs a separate proof of ownership and valuation report.
Some assets need a valuation expert’s report to confirm their value, while other types of assets do not. For some assets, a Georgian valuation expert’s report is needed. In contrast, the value of some assets should be confirmed by non-Georgian experts. You need an expert to help you assess what proof of value and ownership of your assets will suffice.
It is not a requirement that the assets are owned in the territory of Georgia.
Georgian income criterion for HNWI
Suppose you do not own assets with a value of 3,000,000 GEL or more. In that case, you still have a chance to become an HNWI for Georgian tax residency purposes if you have received more than 200,000 GEL (around $71,500) income in each of the last three years from the year of application.
For example, suppose you apply for HNWI tax residency for 2023. In that case, you must demonstrate receipt of at least 200k GEL income in the following years: 2020, 2021 and 2022.
Note: It is not important whether the 200k GEL income source is Georgia or outside of Georgia.
To sum up the required HNWI criteria:
To qualify under HNWI status for Georgian tax residency purposes, you need to demonstrate that you own assets with a value of at least three million GEL OR show that you have received at least 200k GEL income in each of the last three calendar years.
After you qualify under HNWI status, you need to meet one additional precondition to become an HNWI tax resident in Georgia.
Let us separate two terms to understand them more clearly:
Term 1) A person qualified under HNWI status (based on asset or/income criteria);
Term 2) A person who is an HNWI tax resident of Georgia.
Term 2 covers Term 1, but Term 1 alone is not enough to become a tax resident of Georgia.
In other words, the assets mentioned above and/or income criteria are enough to be qualified as HNWI. However, more than being qualified as HNWI is needed to become an HNWI tax resident of Georgia.
25,000 GEL Georgian source income or a Georgian residence permit as criteria for HNWI tax residency.
In addition to qualifying under HNWI status, you need to:
Have a residence permit in Georgia;
OR
Receive at least 25,000 GEL income from a Georgian source in the calendar year for which you apply (e.g., if you apply for a tax residency certificate for 2023, you need to demonstrate that you have received and been taxed accordingly for 25k GEL income from a Georgian source in 2023).
Clarification: As already stated, it is optional to present poofs of receipt of 200k GEL income from a Georgian source; such income obtained from non-Georgian sources also is accepted, as long as you manage to demonstrate receipt of this. On the other hand, it is required that the 25k GEL income is received only from a Georgian source.
Four combinations of criteria to meet to obtain an HNWI tax residency certificate in Georgia
Below I present four potential combinations of criteria. Meet at least one of the below combinations of criteria, and you can qualify under HNWI tax residency in Georgia for a particular year:
Combination 1: Ownership of at least three million GEL of assets + Having a Georgian residence permit;
Combination 2: Ownership of at least three million GEL of assets + Receipt of at least 25k GEL Georgian source income in the current year;
Combination 3: Receipt of at least 200k GEL income in each of the last three years (regardless of the source) + Having a Georgian Residence permit;
Combination 4: Receipt of at least 200k GEL income in each of the last three years (regardless of the source) + Receipt of at least 25k GEL Georgian source income in the current year.
Satisfying one of the above four combinations would be enough to obtain a Georgian HNWI tax residency certificate for a particular tax year if you adequately demonstrate ownership of over three million GEL assets or receipt of over 200k GEL income in the last three years.
Please be informed that the most crucial part of the HNWI application is choosing the most reliable way (documentation) to demonstrate ownership of assets/receipt of 25,000 GEL income from a Georgian source and assessing tax consequences of being HNWI tax resident of Georgia.
The difference between the terms: “Tax Residency” & “Residence Permit” in Georgia
Please do not confuse the terms: “Tax Residency” and “Residence Permit”. “Tax Residency” is only a status for tax purposes, while a “Residence Permit” is a living and working permit in Georgia and has no connection with taxation except as one criterion for the HNWI process.
What you need to know about the document requirements for HNWI purposes
The law of Georgia does not clarify what proof is sufficient for demonstrating three million GEL of assets or 200,000 GEL income. Therefore, before collecting any documents, you (along with a Georgian professional) need to conduct a careful and detailed analysis of what type of documents are sufficient to present to the Georgian Revenue Service (the GRS) for the HNWI tax residency application to avoid rejection.
Experienced professionals can advise on what type of documents/proof would be best to present to the GRS to demonstrate ownership of assets or receipt of an adequate amount of income.
How to demonstrate 25k GEL income from a Georgian source?
Generating 25k GEL income from a Georgian source is usually more straightforward than obtaining a residence permit in Georgia. It does not necessarily require the HNWI status applicant to be present in Georgia.
The easiest way to generate at least 25k GEL income from a Georgian source is to relocate some of your business to Georgia. So long as the business’ transactions correspond with its actual area of conduct.
Based on our experience, generating 25k GEL income from a Georgian source will not hinder obtaining an HNWI tax residency certificate.
Do you automatically become an HNWI tax resident?
Even if you meet all the criteria to become an HNWI tax resident of Georgia for a particular tax year, you only obtain such a tax residency certificate if you specifically apply for it.
Does an HNWI tax residency certificate need to be updated annually?
An HNWI tax residency certificate needs to be updated annually if you plan to be a Georgian tax resident under the HNWI program in the following years. Meaning that the HNWI certificate is valid only for one entire tax year, and an application for the HNWI tax residency certificate needs to be submitted subsequently each year. That said, procedures will be more straightforward in the following years compared to the first year of application.
Family members of HNWI tax residents of Georgia
Suppose you received an HNWI tax residency certificate for a particular year. In that case, it does not automatically make your family members tax residents of Georgia, and they need to satisfy the criteria separately and apply individually.
Obtaining a Georgian HNWI tax residency certificate remotely
For HNWI purposes, travelling to Georgia is optional, especially if you satisfy the 25k GEL Georgian source income criteria (obtaining a residence permit may require traveling to Georgia). However, you can grant POA to a Georgian professional who will do all procedures on your behalf, make an application for an HNWI tax residency certificate, and represent you at the GRS, public service hall, banks, as well as will receive the HNWI tax residency certificate on your behalf and consequently send it to you by post or electronically.
We offer the full package of remote or/and in-person services of obtaining HNWI tax residency status. We have a 100% success rate with HNWI applications as of today. You can request our support in applying for HNWI tax residency by filling in the contact form here https://tpsolution.ge/contact/ or by reaching out to us directly at service@tpsolution.ge
How long does obtaining HNWI tax residency take?
Preparing all documents for HNWI tax residency takes around one to two months unless the individual has already generated the 25k GEL income from a Georgian source or has a Georgian residence permit.
Generating 25k GEL income and declaring it to the GRS, as well as obtaining a residence permit, takes time. Plus, documents confirming ownership of assets or receipt of income need to be appropriately approved (notarized, apostilled or legalized, depending on the country where the documents are prepared and sent from) and sent by post. In addition, such documents need to be translated; the translation needs to be confirmed by a Georgian notary. Going through this process requires a considerable amount of time.
Lastly, the GRS takes, on average, three months or even more to issue the certificate from the day of making the application. So, from the beginning (concluding the HNWI service agreement between you and our firm) to the end (receiving the HNWI tax residency certificate), the process may take around four months or even more.
When is the deadline for applying for the HNWI tax residency certificate?
We recommend applying at least 90-120 days before the end of the year. Still, even if you apply in the last month (in December, assuming that all documents, including tax declarations on the 25k GEL income, are ready before the application), this is workable.
In case of a late application (i.e., December), the certificate will be issued in the next year. However, the tax residency certificate will be for the tax year in which the application was sent.
Speaking from experience: Decisions from the GRS and the Ministry of Finance take three months on average or even more, and if you apply in October, November, or December, the HNWI tax residency certificate may be issued in the following year, but is the issue, the certificate will be for the year in which you applied.
For example, suppose you apply for an HNWI tax residency certificate for the 2023 tax year in November 2023, and the certificate is issued in February 2024. In that case, it will be indicated on the certificate that you are a tax resident of Georgia for the 2023 tax year.
Criteria to obtain a residence permit in Georgia
Below you can find a list of a few of the main criteria used to obtain a residence permit in Georgia:
- A residence permit through entrepreneurship or employment;
- A residence permit via ownership of real estate in Georgia (with a value of at least $100,000);
- A residence permit through investment in Georgia (at least $300,000 and an obligation to receive a certain amount of turnover in the following years);
- Other options.
Potential issues to analyze before becoming a Georgian tax resident
Before applying for a Georgian HNWI tax residency certificate, please consult with us or another tax expert regarding the potential (positive and/or negative) tax consequences of the HNWI tax residency certificate.
Generally, Georgia imposes an obligation on individuals to pay tax on only their Georgian source income regardless of the place of their tax residence. So, it is not important whether you are a Georgian tax resident; in any case, only your Georgian source income is taxable in Georgia.
On the other hand, being a Georgian tax resident may play a role in qualifying an individual’s income as received from a Georgian source, thus taxable in Georgia (this refers to active income from the provision of services).
As a result, it is wise to consult on this issue before starting the HNWI tax residency application process, especially if you regularly receive income from the provision of services. Then, if the initial tax consultation results are positive, you can confidently apply for HNWI tax status.
Georgian accounting/consulting firm supporting HNWIs in receiving Georgian tax residency certificates
TPsolution LLC is an accounting and consulting firm based in Tbilisi, Georgia, which is qualified in taxation, accounting, and other professional services (e.g., business registration, opening a bank account, obtaining an HNWI tax residency certificate, and more).
One of TPsolution’s specializations is supporting clients in obtaining HNWI tax residency certificates. As a result, the company has gained significant experience in this field. The main advantage of using TPsolution for HNWI projects is that the company’s team analyzes the situation very carefully before applying for an HNWI tax residency certificate, which significantly increases the chance of a positive result and wins time for clients.
Notably, the success rate of TPsolution LLC regarding HNWI projects is 100%. Preliminary, proper, and detailed analysis is the main reason for our 100% success rate.
A summary of tax residency certificates for HNWIs in Georgia
Georgia applies the 183-day rule as a general tax residency rule. However, besides that, the Georgian tax law allows High-Net-Worth Individuals to become Georgian tax residents even without spending a single day in the country.
Suppose a person qualifies for one of the four combinations of the criteria below. In that case, they become a Georgian tax resident regardless of days spent in the territory of Georgia.
The combinations are the following:
Combination 1: Ownership of at least 3 million GEL of assets + Having a Georgian residence permit;
Combination 2: Ownership of at least 3 million GEL of assets + Receipt of at least 25k GEL Georgian source income in the current year;
Combination 3: Receipt of at least 200k GEL income in each of the last three years (regardless of the source) + Having a Georgian Residence permit;
Combination 4: Receipt of at least 200k GEL income in each of the last three years (regardless of the source) + Receipt of at least 25k GEL Georgian source income in the current year.
Becoming an HNWI tax resident of Georgia is possible without even traveling to the country. However, before starting the process, we suggest you analyze the benefits and tax risks associated with HNWI tax status.
We offer support in the whole HNWI application process starting with the analysis, planning, consulting, technical support (e.g., business registration or opening a bank account) and representation.
If you are looking for support in applying for HNWI status in Georgia, you can contact us by filling in the contact form here: https://tpsolution.ge/contact/ or reach out to us directly via email: service@tpsolution.ge
About the Author: Gela Barshovi is an experienced international and Georgian tax expert and a managing partner of Tbilisi-based accounting & consulting firm TPsolution LLC. Gela is personally involved in each HNWI service provided by TPsolution.