Georgia which is located in the Caucasus region on the crossroad between Europe and Asia provides a number of highly beneficial tax incentives for the companies operating in the country. In addition to the incentives such as Free Industrial Zones, Virtual Zone persons, International Finance Companies, Tourist Enterprises etc., the country offers quite low tax rates. This article will briefly describe the tax rates in Georgia.
Georgia has a flat rate tax system. It means that the rate of the tax does not depend on the amount of income received by the taxpayer but the same rate applies for all taxpayers falling under the subject of concrete tax.
Corporate Income Tax (CIT): 15%.
Importantly, the so-called Estonian CIT model is applied in Georgia. Meaning that such tax is payable only upon the distribution of dividends by a company. In other words, companies in Georgia do not pay any corporate income tax until the profit is distributed to the shareholders except some cases when a transaction is deemed to be profit distribution. If the company makes the decision on profit reinvestment, NO CIT is paid on reinvested amount.
Notably, there is no special tax on capital gain in Georgia. It falls under the general CIT rules and 15% tax is payable only after the distribution such profit.
Personal Income Tax: 20%.
It is applicable only on the incomes received in the Georgian source. Non-Georgian source incomes received by Georgian resident natural persons are fully exempt from personal income tax. In addition, Article 104 of the Georgian tax code describes which incomes should be considered as received from Georgian source.
If a resident or non-resident natural person rents out a residential property used only for living purposes 5% income tax rate is applicable. The only precondition for enjoying such a low tax rate is to submit an application to Georgian tax administration and request the right of low taxation. Sending such an application is possible without registration as a tax payer if a rent payer is a registered tax payer. I that case 5% will be withheld at the source.
Surplus income gained by natural person from selling the residential property and the land attached to it or from selling a car is taxable by 5%.
Wage Tax: 20% + Contribution to the pension fund on company’s name 2% + contribution to pension fund on behalf of employee 2%.
VAT reverse charge: 18%. It is immediately deductible if a taxpayer uses service/goods in a taxable operation or in the operations which are exempt from VAT with the right of deduction.
Both traditional and reverse VATs are payable only on business operations conducted in the territory of Georgia. The article 166 of the Georgian tax code describes the operations considered to be conducted in the territory of the country. Note that the “destination principle” does not apply in the same way for Georgian VAT purposes as for VAT in the EU.
Withholding tax on service remunerations to non-residents: 10%.
Here one notable exception is payment to non-resident natural person for renting a property used for non-living purposes. 20% withholding tax rate applies in that case.
Withholding tax on service payment to resident non-registered natural persons: 20%.
Withholding tax on dividends: 5%. Applicable in case of payment to both, residents and non-residents.
Withholding tax on interests: 5%. Applicable in case of payment to both, residents and non-residents.
Withholding tax on royalty: 5%; Applicable in case of payment to both, residents and non-residents.
If the Georgian taxpayer makes payments for services, royalty or interest to a tax-heaven based person, higher, 15% withholding tax rate is applicable.
In addition, Georgia has signed the double taxation treaty with 56 states so far and most of them exempt the Georgian taxpayers from withholding tax obligation on the above-mentioned payments.
Low tax rates are one of numerous advantages Georgia offers to its potential and current investors. If you would like to know where to start your new business, please contact us, we will provide you with an entire ride map which will help you make the correct decision.