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Low taxation, Tax Incentives and Tax Exemptions provided by Republic of Georgia for Natural Persons

Low taxation, Tax Incentives and Tax Exemptions provided by Republic of Georgia for Natural Persons

Low taxation, Tax Incentives and Tax Exemptions provided by Republic of Georgia for Natural Persons

Note: This article has initially been published by Gela Barshovi on “Forbes Georgia”.

Georgia, with its growing economy, has the intention of becoming one of the most attractive investment destinations in the world. This is the main reason why the Georgian government has inserted several, very important incentives and exemptions into the local tax legislation. Preferential tax rates apply to corporations as well as for natural persons. In this article, I will describe some of the highly beneficial tax regimes natural persons can enjoy in the country.

Tax rates in Georgia (country)

Natural person entrepreneurs with “Small Business” status

Taxpayer natural persons who receive income of up to 500,000 Georgian Lari (GEL) – approximately 175,000 USD–per calendar year can obtain “Small Business” status, receive the relevant certificate and enjoy taxation of only 1% on gross revenue. It should be underlined that if a small business owner’s annual revenue exceeds 500,000 GEL in one year that is not sufficient reason to lose “Small Business” status and the right to low taxation. This right is only lost when one exceeds the 500,000 GEL threshold two years in a row. 

Notably, in the first year of exceeding the threshold, revenue above 500,000 GEL is taxed at 3% while revenue within the limit will remain subject to only 1% taxation.

There are 3 types of economic activities for a “Small Business” status entrepreneur with different tax implications:

  1. Economic activities that are allowed for “Small Business” entrepreneurs and are taxed at 1% (or 3% above 500,000 GEL, if applicable);
  2. Economic activities that are allowed for “Small Business” entrepreneurs and taxed at the regular rate of 20%;
  3. Economic activities that are not allowed for small business enterprises, meaning that in the case of performing such activities, the status of “Small Business” will not be granted or will be revoked. 

Territorial taxation (Full tax exemption on income sourced outside of Georgia)

A natural person in Georgia is taxed only on income received from a Georgian source. 

However, the term “Outside Georgia Source Income” should not be understood verbatim. For example, all income paid from abroad is not considered “Outside Georgian Source Income”. There is a special article, #104 of the Georgian tax code, which defines the types of revenue that are considered as Georgian versus non-Georgian. 

Non-Georgian source income (exempted from individual taxation) is, for example:

  • Dividends received from non-Georgian resident companies;
  • Interest paid by non-residents operating abroad;
  • Pension payments received from outside of Georgia;
  • Capital gains from selling a share in a non-resident company unless most of assets of this company consists of immovable property located in Georgia.

In other words, if a Georgian resident natural person purchases shares in a foreign company and periodically receives income as a dividend from this shareholding, this income is considered as a non-Georgian source, as a result, exempt from taxation in the country. 

In addition, capital gains from reselling such shares is exempt from personal income tax as well, unless the foreign company in which the shares are owned holds immovable property in Georgia, the value of which is more than half compared to the company’s total assets’ value. 

Another example is interest income and pensions paid by non-Georgian residents. In most cases such income is exempt from personal income tax in Georgia. 

Please note: The same principle does not apply to income from service provision. Meaning that in many cases (but not all) service remuneration paid by non-residents is considered as received from a Georgian source. Service remuneration cases shall be examined on an individual basis.

Exemption from capital gains tax in certain cases

If a natural person owns assets (including shares) for more than two years that have not been used in an economic capacity during that period, the capital gains from selling such assets is exempt from personal income tax. 

Restrictions regarding the usage of assets in economic activities do not apply to profit from residential properties. Profit earned from reselling such assets is exempt from taxation if they are sold after two years, regardless of whether the properties were used in an economic capacity or not. 

Exemption from VAT on selling up to 4 apartments within 4 years

The VAT rate in Georgia is 18%. It applies to selling goods and providing services within the territory of Georgia. There is a threshold of 100,000 GEL (approximately 35,000 USD) in 12 consecutive months for VAT registration. However, that threshold and VAT rate does not apply to natural persons who sell up to four apartments within four years. 

Low tax on rental income and capital gains from there selling of residential properties

There are additional incentives within the Georgian tax legislation with regards to residential properties. Notably, only 5% applies to rental income of residential properties, if those properties are used only for living purposes. However, the 5% tax rate does not apply automatically, it needs to be obtained via submission of an application. 

The same rate (5%) applies to capital gains from reselling a residential property if it does not qualify for the exemption described above.

No or low taxation of interest and dividends

According to the Georgian tax legislation, if a natural person receives interest income from bank deposits and savings, this type of income is exempt from personal income tax. 

In addition, Georgian banks offer remarkably high interest rates on deposits in the local currency. Annual interest rates from 7% to around 14%are offered for bank deposits in Georgian Lari with monthly interest payments made to the deposit holder. 

Additionally, the withholding tax rate for dividends and interest is as low as 5%. If a natural person is taxed at source by 5%, such income will not be included in natural persons’ taxable income and taxed again. 

Tax exemptions for cryptocurrency resellers

The Georgian minister of finance recently issued a public declaration regarding the taxation of cryptocurrencies in Georgia. According to that decision, income earned by natural persons from reselling crypto assets (e.g. bitcoin) is exempt from personal income tax as well as from VAT. 

Rich tax treaty network

As of today, Georgia has signed 56 double taxation treaties, a few others are on their way to be ratified soon. Most of the treaties do not remarkably deviate from the older OECD models (2008 model and older), while some of them to some extent are based on UN model tax conventions. 

The application of these tax treaties can protect natural persons from double taxation in case of other countries claiming the right of taxation. For example, application of the “tie breaking” rules of article 4 of the Georgian tax treaties, which allocate “exclusive residency” to Georgia can protect a person from additional taxation in another country. 

It is important to note that the criteria needed to be met for the winning of “tie breaking” rules in Georgia’s favour needs to be examined on a case by case basis. 

Georgian Residency rules

Article 34 of the Georgian tax code is dedicated to determining Georgian residency for a certain calendar year. The main rule is presence in the country for more than 183 days within 12 consecutive months while the 183rd(and next) day(s) fall within this concrete calendar year. 

For example, if a person has been in Georgia since 1stJuly of 2019 to the end of March 2020, he/she will be considered a Georgian resident for 2020 because he/she spent more than 183 days in 12 months (including the days spent in 2019) in Georgia; the183th day and the next day fell into the calendar year of 2020. 

In addition, a person making certain amount of investments in the country also can obtain residency certificate. 

Please note that Georgian residency rules have their own exceptions and peculiarities; the general rules described above do not apply to all cases. 

Other benefits

In addition to tax benefits, natural persons who are interested in Georgia as an investment opportunity and a destination for relocation, will be able to enjoy easy regulations, low bureaucracy, a low level of corruption, good weather, fantastic nature, the Black Sea, wonderful mountains, a comfortable social environment, friendly people, low prices, great food, fantastic wine (we are birth place of wine with 8,000 years of wine-making history) and much more.

To sum up

Georgia is a developing, highly cooperative, low-tax country, with almost all the comforts an entrepreneur could want. People relocating and investing in Georgia can enjoy personal income tax exemptions if they trade crypto, be taxed at only 1% of their revenue if they provide services, are fully exempt on foreign sources of income including dividends, interest, and pension payments received from abroad, as well as some other tax benefits briefly described above. Plus, the attractive tax incentives are only one of many reasons that people can benefit by living and doing business here.  

We will gladly assist you in finding the most suitable and beneficial way of setting up and running a business in Georgia.

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