Note: This article has previously been published by Gela Barshovi (the author) on “Forbes Georgia”.
A few days ago, The Minister of Economy and Sustainable Development of Georgia has announced on the government’s initiative regarding letting international freelancers visit Georgia for a long term and legally work from here.
The detailed information regarding the initiative is yet to be published. So far we know that the freelancers will need to fill a quite simple application form before crossing Georgia’s borders, provide certain information ahead (e.g. personal information, Employment/service contract, consent letter for passing the mandatory quarantine), Importantly, after entering the country, the freelancers will have to take 14 days’ quarantine at their expense.
All that information will be available soon in more details but the purpose of this article is not just to talk about the (really good) initiative and necessary procedures but to inform freelancers and other interested natural persons about what benefits they can enjoy from our country and where they have to be more careful. As an international and Georgian tax expert, I will be mostly focused on tax-related issues.
Advantages of living and working from Georgia
COVID-situation
First of all, Georgia is COVID-safe country with a relatively minor number of new cases every day, also, the number of recoveries frequently exceed to number of new cases. Which of course, provides a feeling of stability and safety to people living here. In addition, the economy is almost fully opened and while walking on the street you almost do not feel that the whole world is currently terrified by the global pandemic (only sign is lack of tourists). You feel like you are in the safe harbor during the storm.
Tax, Tax, and Tax
Ordinary taxation of resident natural persons is 20% personal income tax in Georgia. However, in many cases 1% or even 0% tax can be enjoyed. So, for many ex-pats, Georgia can become not only COVID-safe heaven but tax heaven as well.
Notably, the main rule of tax residency in Georgia is physical presence for more than 183 days within 12 consecutive months while the 183rd (and next) day(s) fall within this concrete calendar year.
After spending the above-mentioned 183 days, the longer you stay here, the higher the chance that other jurisdictions will not consider you a resident or the tie-breaker rules of the applicable tax treaties (article 4) will recognize you as a resident of only Georgia. That can protect you from taxation in other countries. By the way, the Georgian tax treaty network is pretty wide, you can see all 56 treaties here.
1% tax:
Taxpayer natural persons receiving income up to 500,000 Georgian Lari (GEL-approximately 165 000 USD) per calendar year can obtain a “Small Business” status, obtain a proper certificate and enjoy a tax rate of only 1% on gross revenue. It should be highlighted that If a small business entrepreneur’s annual revenue exceeds 500,000 GEL in one calendar year, that would not mean that his “small business” status be automatically revoked; only if the 500,000 GEL threshold was exceeded for 2 consecutive years, this special tax status would be lost.
Notably, in the first year of exceeding the threshold the revenue above 500,000 GEL, the excess amount is taxed at a 3% rate while revenue within the limit will remain subject to a 1% tax rate.
There are 3 types of economic activities of “small business” status entrepreneur with different tax implications:
- Economic activities which are allowed for small business entrepreneurs and are taxed by 1% (or 3% above 500,000 GEL, if applicable);
- Activities which are allowed for small business entrepreneurs and taxed with ordinary rate-20%;
- Economic activities which are not allowed for small business enterprises, meaning that in case of performing such activities, the statues of small business will not be granted/will be annulled.
It should be noted that the 1% tax rate does not apply to employment income. However, receiving a salary does not prevent a person from enjoying 1% taxation at the same time on other income received from economic activities (e.g. provision of service). So, as you see, the classification of the contractual relationship with your customer/employer can be very important.
In case, if you will not be able to obtain a “small business” status, you can establish a company (in one day with no minimal caital requirement) and pay 0% corporate income tax if you reinvest profit in Georgia.
0% taxation:
No worldwide taxation applies to natural persons in Georgia. They are taxed only on income received from Georgian sources.
However, the term “non-Georgian Sourced Income” should not be interpreted verbatim. For example, any income paid from abroad is not necessarily considered as being produced outside of Georgia. There is a special article (#104) of the Georgian Tax Code that defines the types of incomes which shall be considered as Georgian or non-Georgian sources.
Several examples of non-Georgian (exempt) incomes are the following:
- Dividend received from a non-Georgian company;
- Interest paid by non-resident operating abroad;
- Pensions received from outside of Georgia;
- Capital gains from selling a share in a non-resident company (unless most of the assets of this company are immovable properties located in Georgia);
- Profits from reselling crypto-currency.
- Etc.
So, Georgia is a good place for stock trading as well. If you are a tax resident here and receive dividend, capital gain or interst from aborad, most likely you get full personal tax exemption in Georgia.
Note: The same principle does not apply to service income, meaning that in many cases (but not all) service remuneration paid by non-residents are considered as received from a Georgian source. Service remuneration cases shall be examined individually with a tax consultant.
Living environment
Georgia is an affordable country with a low cost of living, friendly people, good weather, amazing nature (especially if you like mountains), delicious food and wine, and enjoyable social life.
Residential rents are cheaper than the most (if not all) European countries as well as the cost of utilities. A newcomer can rent a nice, small flat for ~300 USD and work from here. If you find working from home boring and mundane, you can rent a co-working space of which there are plenty in Tbilisi, whose prices are also very affordable. You can have great food and drink fantastic wine (Georgia is a birth-place of wine with a wine-making history going back for thousands of years) every day just for a couple of dollars. Additionally, bars, cafes, and restaurants are located in every corner of Tbilisi. Lastly, Georgians are one of the friendliest people in the world; the only thing you would need is to know us and respect our culture.
Crucial points to take note of:
Again, taxes in Georgia
VAT might become a problem for persons (natural and legal entities) providing services from Georgia abroad. The so-called, “destination principle” applies in many countries (including the EU) where services provided abroad are treated as export-exempted from VAT with right of VAT deduction. Georgia implements this rule partially, meaning that provision of services abroad is exempted from VAT only in certain types of activities. These activities exempted are listed in article 166, subparagraph “D” of the Georgian tax code. So, please, pay extra attention and be sure that your activities fall in the exempt category. Importantly, this article is to be amended very soon (hopefully from the beginning of 2021), according to a planned amendment of aforementioned law, most of the services provided from Georgia to abroad will be exempted from VAT.
Note: the VAT (and Reverse VAT) rate is 18% in Georgia. The registration threshold is 100,000 GEL of taxable transactions per 12 calendar months. VAT does not apply to employment income.
Roads
Please, also be a bit more careful when you cross the road in Georgia, we are still getting used to strictly follow driving rules (but we are obviously progressing). Also, use weekends to get out of the capital city to enjoy the fresh air (Always many options for that).
Conclusion
This article provides general information for natural person entrepreneurs/freelancers about the pros and cons of Georgia and mostly concentrates on tax issues. The information detailed in the paper is not lengthy but can provide a good start for interested foreigners to get an impression of the country as a new potential place for living/working, and to continue their research further. In one sentence, this is an amazing place for natural persons who are working independently/doing their own business remotely.
About the Author: Gela Barshovi is an international and Goergian tax consultant and managing pertner of audit and consulting firm TPsolution. For farther questions regarding the article you can directly reach him at Gela.barshovi@tpsolution.ge