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Latest updates in the tax residency rules for High-Net-Worth Individuals in Georgia

Latest updates in the tax residency rules for High-Net-Worth Individuals in Georgia

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Latest updates in the tax residency rules for High-Net-Worth Individuals in Georgia
Georgia provides two separate rules of tax residency: First – The general, so-called 183-day rule. Second – The special rule of tax residency applicable to High-Net-Worth Individuals. Until 15 April of this year (2023), there were two preconditions to becoming a tax resident as an HNWI in Georgia. In particular, you needed to meet the following combinations of criteria to become a Georgian tax resident under the special.

HNWI rule:

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 (the year you submit the HNWI application); 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 (the year you submit the HNWI application).Recent Changes in the Georgian HNWI tax residency rules – Additional (third) criterion added

Recent Changes in the Georgian HNWI tax residency rules – Additional (third) criterion added

Since 15 April 2023, the rules have changed, and now three criteria need to be met instead of the above two to become an HNWI tax resident in Georgia. The additional criterion is ownership of assets in Georgia with a value of at least 500k USD. So, we now have four combinations of criteria for HNWI purposes, each of them consists of three preconditions instead of two:New combination 1: Ownership of at least three million GEL of assets (anywhere) AND Having a Georgian residence permit AND ownership of at least 500k USD of assets in Georgia; New combination 2: Ownership of at least three million GEL of assets (anywhere) AND Receipt of at least 25k GEL Georgian source income in the LAST (this is another change) year AND ownership of at least 500k USD of assets in Georgia; New combination 3: Receipt of at least 200k GEL income in each of the last three years (regardless of the source of income) AND Having a Georgian residence permit AND ownership of at least 500k USD of assets in Georgia; New combination 4: Receipt of at least 200k GEL income in each of the last three years (regardless of the source of income) AND Receipt of at least 25k GEL Georgian source income in the LAST year AND ownership of at least 500k USD of assets in Georgia.Meet either of the above combinations of preconditions, and you can become a Georgian tax resident for a particular year; you will need to apply and, in case of a positive answer, get a certificate that proves your Georgian tax residency status.

What is considered as ownership of assets in Georgia with a value of 500k USD?

The new law does not specify what is considered ownership of at least 500k USD of assets in Georgia. In my opinion, at least, the following types of assets will be considered:
  • Ownership of fixed assets located/registered in Georgia;
  • Ownership of movable assets located in Georgia;
  • Ownership of shares in a Georgian company;
  • Money in a Georgian bank account.
In addition, if a person trades shares using a Georgian brokerage company or holds crypto on a Georgian trading platform can also be considered (under the question so far).Theoretically, such shares/crypto could also be considered as ownership of assets in the territory of Georgia. However, it must still be made clear, and the Georgian Revenue Service needs to address the issue.I thin, the easiest way to satisfy the above criteria is to transfer 500k USD to a Georgian bank account.Other changes in the Georgian HNWI tax residency rules

Other changes in the Georgian HNWI tax residency rules

Besides the additional criterion of ownership of at least 500k USD of assets in Georgia, I would additionally distinguish two more, important differences in the Georgian HNWI tax residency rules:According to the previous rule, receipt of 25k GEL Georgian source income had to be demonstrated in the same year the HNWI tax residency status application was submitted. This rule has now changed, and a person must show they received at least 25k GEL Georgian source income in the year before their application.For example, according to the previous HNWI rule, if you applied for an HNWI tax residency certificate in 2023, you needed to demonstrate receipt of at least 25k GEL income from a Georgian source in 2023 (the same year), so it was easier to plan for the HNWI application in a short term. However, according to the new rule, if you apply for HWNI tax residency in 2023, you must demonstrate receipt of at least 25k GEL Georgian source income in 2022 (the previous year). So, now you must plan the HNWI application at least one year ahead.Another significant change is that now the following wording has been added to the HNWI tax residency certificate:“I certify that the following person is a resident of Georgia for tax purposes. Tax residency was granted based on income/capital holdings.This means that for some purposes (for example, the application of double taxation treaties), the HNWI tax residency certificate may not be applicable anymore.The HNWI tax residency certificate was not very useful before 15 April anyway if a person was a tax resident of another country whilst also being an HNWI tax resident in Georgia. This is because HNWI tax residency status sits outside of the so-called “tie-breaking rule” provided by Article 4 of the Georgian Double Taxation Treaty. HNWI tax residency status was and still can be beneficial when a person is not a tax resident of any other country according to their local tax law. So, I do not see significant difference here. However, every case needs to be assessed and analyzed individually.More details on the above and about applying for the HNWI tax residency certificate (procedures, benefits, timing, and more) and the usefulness of the status itself can be found here in my previous, more detailed article.To understand the whole picture about the current HNWI tax residency rule, you should read the current and the previous article in the following manner: Bear in mind the recent changes I have presented in this article while reading my previous, more detailed article (any other information from the previous article is still up to date) and you will have a complete picture about the HNWI rules applicable as of today.If you need more information or support in receiving an HNWI tax residency certificate or consultation on this issue, you can contact me directly at gela.barshovi@tpsolution.ge, request a tax consultation, and I will personally provide the consultation as well as support you throughout the entire process. I provide this service both remotely and in person. Or you can fill in the contact form on TPsolution’s website: Contact Page

Summary of significant changes in the tax residency rules for High-Net-Worth Individuals applicable in Georgia

Since April 2023, Georgia’s HNWI tax residency rules have been amended. The following three changes can be distinguished: The existing two criteria for receiving HNWI status remain, and an additional third criterion was added, which is ownership of assets in Georgia with a value of at least 500k USD.In addition, if you choose the criterion of 25k GEL Georgian source income, instead of a residency certificate, according to the previous rule, you needed to demonstrate receipt of at least 25k GEL income from a Georgian source in the year of application. According to the new rule, at least 25k GEL Georgian source income should be received in the previous year of the application rather than the current year.Lastly, the HNWI certificate has changed, and the following wording has been added: “Residency granted based on income/capital holdings”. Before, such language was not on the certificate. As a result, it was not clear whether the certificate was granted due to the general (183-day) rule of tax residency or the HNWI rule; it was previously not specified in the certificate.Regardless of the above changes, depending on the purposes of the applicant, for many people, the HNWI certificate will be still easy to obtain, and they will have the same benefits as before the changes. In contrast, others may not be able to receive HNWI tax resident status or enjoy the same benefits which they would enjoy before the additional wording was inserted in the HNWI certificate. I hope the first category will remain in the majority; however, only time will tell.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 project provided by TPsolution LLC.