When is income from employment taxable in Georgia?
Income from employment is taxable at 20% in Georgia either at source if the employer is a Georgian tax agent (e.g., a Georgian company, Georgian Permanent Establishment of a foreign company, Georgian organization, or individual entrepreneur – a “Georgian tax agent” is defined in Article 154 of the Georgian tax code) or by way of submitting a tax declaration by the recipient of the income (the employee) if the employer is not a Georgian tax agent.
Notably, salary income is taxable at 20% in Georgia as long as the salary is considered as having been received from a Georgian source according to the Georgian tax code.
Notably, individuals who are non-tax residents of Georgia also have an obligation to pay personal income tax on salary income received from a Georgian source. So, please be aware that you may have an obligation to submit a tax declaration and pay tax in Georgia even if you are not considered as a Georgian tax resident in a particular fiscal year (i.e., did not spend 183 days or more in Georgia within twelve consecutive months).
When is salary income taxable in Georgia (or is it considered as Georgian source income)?
The relevant wording of the Georgian tax code reads as follows: Wages will be considered as Georgian source income if received by means of employment in Georgia.
But what does “employment in Georgia” mean?
There are three potential ways of interpreting the above-mentioned term:
- The situation when a resident or non-resident individual (employee) spends time in the territory of Georgia while doing work under an employment agreement, regardless of whether the employer is a Georgian or non-Georgian business.
- When the employer is a Georgian tax agent regardless of where the employee is located (in Georgia or outside of Georgia) while doing work under an employment agreement.
- Or both.
There is not full clarity on this issue in the law, thus it remains subject to interpretation. There is even ongoing disagreement amongst Georgian tax professionals regarding the correct interpretation of the above wording.
I, personally, have clear views on the topic, which I can demonstrate using the relevant article of the Georgian tax code as well as logic. In short, both types of above income may be considered as being received from a Georgian source.
You can request a personal tax consultation from me by sending an email to info@tpsolution.ge or by filling in the contact form here https://tpsolution.ge/contact/.
How is personal income tax paid on salary income in Georgia?
As already mentioned, personal income tax on salary income is payable either at source if the employer is a Georgian business/organization or via submission of a tax declaration by the recipient (employee) him/herself.
Reporting periods on salary income tax
If the payer of salary income (employer) is a Georgian tax agent, it has an obligation to pay income tax on behalf of an individual (employee). In such cases, the tax reporting period is a month. Payment of 20% tax should be made by the employer on the same day when the salary is paid, and tax should be declared until (and including) the 15th of the month following the reporting month (i.e., the month when the salary was paid).
In cases where the payer of salary is not a Georgian business/organization, the employee must declare such tax himself/herself by 1st April of the year following the reporting calendar year and pay tax by the aforementioned deadline. Regardless of whether the employee is a Georgian tax resident or not, if such income is considered as Georgian source income.
Notably, when a Georgian tax agent pays salary, they pay 20% tax at source, and in some cases, 4% in total to the pension contribution fund. This 4% does not apply in all cases though.
How should non-tax resident individuals pay personal income tax on their salaries in Georgia?
The above-mentioned reporting period of salary income refers to Georgian non-tax residents in the same way as it refers to Georgian tax residents. In particular: If non-resident individuals are employed by a Georgian business/organization, their tax is paid by an employer at source, so that employees do not have to do anything regarding tax reporting on their wages.
In addition, if a non-tax resident individual is not employed by a Georgian business/organization (e.g., if his/her employer is a foreign company), then she/he must declare the tax on his/her salary income received from a Georgian source by 1st April in the same way as Georgian tax residents should.
The only difference between the wage taxation of residents and non-resident individuals may be the potential application of a double taxation treaty signed by the Georgian government for non-residents if the employee is a tax resident of a country with which Georgia has signed the double taxation agreement.
Even in the case of the application of a tax treaty, not in all cases do such treaties prevent non-residents from being taxed on salary income received in Georgia.
Note: In this article I discuss only tax on salary income, not a potential obligation of making contribution to a pension’s fund.
How much tax should a “small business” pay on his/her salary income in Georgia?
Individual entrepreneurs with the status of “small business” (1% taxation in Georgia – for more detail on this topic, please read my articles that can be found here and here) pays 20% on salary income in any case, meaning that the 1% tax rate is in no circumstances applicable to salary income.
Please also note that the tax authority of Georgia may requalify the service income of a “small business” as salary income even if the contract between the “small business” and his/her client is a “service agreement.”
As a result of such requalification, the Georgian tax administration can tax a “small business” retrospectively, at 20% instead of 1%, plus penalties and overdue payment interest.”
To avoid such requalification, you need to consult with a Georgian tax consultant, as well as review your contract to make sure that the contractual and real conditions are not more typical of “employment” rather than of a “service contract.”
You can ask for a personal consultation on this topic by sending a request by email to gela.barshovi@tpsolution.ge or by filling in the contact form here https://tpsolution.ge/contact/
Summary of salary income taxation for residents and non-residents in Georgia
To sum up, even if you are a non-Georgian tax resident and working for a foreign company under an employment contract within the territory of Georgia, please make sure that your income is not considered as Georgian source income, otherwise you will have to submit an annual tax declaration and pay 20% from your salary income, which you generated whilst in Georgia (at least).
More of my tax-related articles can be found using the following link: https://tpsolution.ge/our-articles/
About the Author: Gela Barshovi, a Georgian and international tax expert, is the founder of Tbilisi-based accounting firm, TPsolution LLC. You can contact Gela for tax consultations at gela.barshovi@tpsolution.ge.