Georgia applies exceptional rule of tax residency for High Net Worth Individuals (HNWIs)
If you aspire to become a tax resident without having to spend 6 months in a country, Georgia may be one of the best options. In general, Georgia applies a 183-day threshold for determining an individual’s tax residency. Specifically, a natural person should spend at least 183 days in 12 consecutive months in the country to become a tax resident for a specific fiscal year in Georgia.
Apart of the general clause, another, specific rule of tax residency is available in the Georgian tax code, namely, the so-called “High Net Worth Individual (HNWI)” tax residency rule, according to which, a natural person qualified under HNWI, can become a Georgian tax resident without spending even a single day in the country.
Preconditions for qualifying under HNWI status
High net worth Individuals:
Persons who either owns more than 3 000 000 Georgian Lari (GEL) (approx. 910 000 USD) assets OR have received more than 200 000 GEL (approx. 60 000 USD) annual income in each of last 3 calendar years from the year of the application (e.g. 2018, 2019, and 2020 if the application is made for the fiscal year 2021).
Note: sometimes tax authorities require an asset valuation report from a licensed expert showing the market price of the assets. The valuation report may be required for fixed and other tangible properties while for some type of assets no such proof is usually needed (e.g. bank’s signed official statement might suffice as proof for the funds on the bank account).
To apply for a tax residency certificate, besides meeting the criteria of “High net worth individuals” (described above) a person either should hold a residence permit or citizenship in Georgia (Note: residence permit is a living and working permit and is different from tax residency certificate) or demonstrate that he/she received at least 25 000 GEL (approx. 7500 USD) from a Georgian source in the calendar year when the application was submitted.
More specifically, a person applying for a tax residency certificate in Georgia as a “High net worth Individual” needs to satisfy the following criteria:
- To demonstrate the ownership of assets of a value of at least 3 000 000 Georgian Lari OR receipt of at least 200 000 GEL annual income in each of last 3 years AND hold a residence permit (or citizenship) in Georgia.
Or
- To demonstrate ownership of assets of a value of at least 3 000 000 Georgian Lari OR receipt of at least 200 000 GEL annual income in each of last 3 years AND demonstrate receipt of at least 25 000 Gel from Georgian source in the calendar year when the HNWI tax residency application is submitted.
Please note:
If you prefer to obtain a residence permit instead of demonstrating the receipt of 25 000-GEL income, you should visit Georgia and go through all the required procedures. There are several ways to obtain a residence permit which is not discussed in the present article. The 25 000-GEL income shall be received from a Georgian source (foreign source income will not count) and taxed accordingly. Notably, article #104 of Georgia’s Tax Code determines the categories of income considered as a Georgian source.
Why can it be beneficial for you to become Georgia’s tax resident?
Before applying for a HNWI tax residency certificate, you should make sure that:
Georgia is a suitable place for you to be a tax resident, and
Your income declared in Georgia (taxed or exempted) will not be taxed in other jurisdictions.
Here are several reasons of why Georgia may be an attractive place to become a tax resident:
Georgia does not tax individuals for their foreign-source income.
You need to bear in mind that “foreign source income” is not any income which are transferred from abroad to Georgia. Regarding services, the rule is opposite to how the term “foreign source” sounds. In particular, a service provided by Georgian resident to a foreigner (in other words, when the service fee is paid from abroad to Georgia) is mostly considered as Georgian source.
Fortunately, this definition does not apply to all category of incomes. For example, passive incomes (e.g. interest, dividend, capital gain, pension) of Georgian resident individuals from abroad mostly are considered as “foreign source income” and exempt from a personal income tax in Georgia.
I say “mostly” as there are details to be considered and analyzed individual bases, case by case to make sure that your passive income received from abroad is certainly qualified under the tax exemption.
Georgia provides tax exemption for the capital gains if an individual had ownership of the asset for more than 2 years before selling it;
(To certain type of assets additional precondition for such exemption is that the asset was not used in the economic activities in last 2 years before selling it. Such an additional precondition does not apply to shares and residential apartments).
Georgia does not tax individuals’ profit generated from selling a cryptocurrency;
For some category of business activities, an individual can obtain a status of “small business” and pay as low as 1% personal income tax in Georgia;
Georgia is not an offshore zone, is a cooperative country and has quite a rich tax treaty network (56 as of today, 57th with Hon Kong will be in force soon);
Relatively low prices and possibilities of profitable investment in e.g. real estate sector;
If you decide to incorporate a company in Georgia, you will have an obligation to pay corporate income tax only in case/when you distribute dividends to shareholders;
Other reasons.
Conclusion
Georgian’s tax law provides a possibility to become a tax resident without spending much or any time in the country. This exceptional rule is applicable for high-net-worth individuals, the term is defined above in the article. The rule might be highly beneficial for HNWIs traveling around, not willing to stay long in one country, and at the same time looking for the low-tax jurisdiction to become a tax resident. This rule is especially beneficial to individuals receiving passive incomes from a foreign source being usually exempt from a personal income tax in Georgia and to individuals receiving service fees qualifying under a “small business” status, thus – 1% personal income tax rate. Lastly, before analyzing Georgia’s tax system and applying for an HNWI tax residency certificate, initially make sure that an income (taxable or exempted) declared in Georgia is not subject to be taxed simultaneously in another jurisdiction(s).
About the author: Gela Barshovi is an international and Georgian tax consultant and founder of Tbilisi-based accounting/consulting firm TPsolution. If you would like to receive the service of obtaining an HNWI tax residency certificate, you can directly reach out to him at gela.barshovi@tpsolution.ge