What are the main taxes that potentially apply to a business vehicle subject to tax in your jurisdiction (including tax rates)?
Georgia has switched to a new CIT (corporate income tax) system. Georgian government considered the Estonian 16 year experience with different corporate model as one of the potential ways forward and adopted changes to the country’s tax laws to introduce a new system of levying income tax on business. The changes fundamentally reformed the profit tax regime for Georgian companies and permanent establishments of non-resident companies. The profit tax regime, under which companies are subject to tax on their annual taxable profits, is changed to a system where tax has to be paid only if corporate profits are distributed, similar to the system adopted by Estonia.
Corporate income tax (CIT) in Georgia, Tbilisi
Profit tax payer is:
- Resident enterprise;
- Non-resident enterprise carrying out the business in Georgia through permanent institution and/or receiving income from the source of Georgia.
Object of profit taxation
The object of profit taxation of a resident enterprise and of a non-resident enterprise conducting business in Georgia through a permanent establishment (on the basis of the activity of its permanent establishment, disbursements made/expenses paid by the non-resident enterprise, or the permanent establishment) shall be:
- Distributed profit;
- Costs incurred or other payments not related to economic activity;
- Free delivery of goods/services and/or transfer of funds;
- Representation expenses paid in excess of a limited amount determined under the tax code of Georgia.
The profit tax rate is 15%, but the amount subject to profit taxation shall be calculated by dividing the sum of a disbursement made/expense paid according to the object of taxation by 0.85.
Exemption from profit tax
From profit tax shall be exempt:
- The distribution of profits received from the primary supply before the industrial processing of the agricultural products which are manufactured by an agricultural cooperative in Georgia before 1 January 2023, and the expenses incurred/payments made within the same activity which are provided for by Article 97(1)(b-d) of the Tax Code;
- The income received from the leasing of property by a non-resident, which does not belong to a permanent establishment of a non-resident in Georgia;
- Distribution of profits received from the activities permitted by the TIZ enterprise in the free industrial zone, and expenses incurred/payments made within the same activity, which are provided for by Article 97(1)(b-d) of the Tax Code;
- Profit received from the delivery of information technologies created by a legal entity of the virtual zone outside Georgia (profit distribution)
- Distribution of profits received from activities of an enterprise of a highland settlement in the same highland settlement and the expenses incurred/payments made within the same activity - within 10 calendar years from granting the relevant status (including the calendar year of granting the status) under Article 97(1)(b-d) of the Tax Code;
VAT in Georgia
A value-added tax (VAT) known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. VAT is a consumption tax placed on a product/service whenever value is added at each stage of the supply chain, from production to the point of sale. VAT is an indirect tax, thus by and large end-users of good and services bear costs on it.
A payer of value-added tax shall be:
- A person registered as a VAT payer;
- A person required to be registered as a VAT payer;
- A person carrying out import or temporary admission of goods into Georgia, only with respect to such import or temporary admission, without the registration requirement;
- A non-resident (other than a Georgian citizen natural person) that provides services in Georgia without VAT registration and without a permanent establishment of a non-resident registered with the tax authorities in Georgia, only with respect to these services and shall be subject to reverse charge.
- A person who is engaged in economic activity and whose aggregate amount of VAT-taxable transactions carried out during any continuous 12 calendar months exceeds GEL 100 000) shall
- Apply to a tax authority for VAT registration within not later than two business days from the day when the aggregate amount of a taxable transaction exceeds GEL 100 000;
- Be regarded as a VAT payer from the moment of executing the taxable transaction (including this transaction), according to which the aggregate amount of the taxable transaction exceeds GEL 100 000.
- VAT taxable transactions are:
- Supply of goods by a taxable person in the territory of Georgia in exchange for remuneration within the framework of economic activity;
- To provide services by a taxable person in exchange for remuneration within the framework of economic activity on the territory of Georgia;
- Import of goods.
- Property tax in Georgia
- Property tax payable by local or foreign enterprises. This is payable if the enterprise has immovable property in Georgia. The tax arrangements in relation to property tax are defined in the following way:
- For the resident enterprise (a Georgian company or a branch/permanent establishment of a foreign entity) it is payable on assets, uninstalled equipment, unfinished construction registered on its balance sheet as fixed assets, and on its leased property; and for the non-resident (foreign) enterprise it is payable on property based in Georgia (including property that has been transferred under a lease, rental agreement, usufruct or any similar agreement).
The property tax rate is 1% of the average annual net book value of the property recorded on the balance sheet of the company at the beginning and end of the calendar year. Enterprises (Georgian enterprises, branch offices, permanent establishments or foreign entities) also pay property tax on land. Tax returns for property tax must be filed before 1 April of the following reporting year. The rates on land differ depending on whether the land is classified as agricultural or non-agricultural. The rates for agricultural land plots are defined by the respective local administrative territorial units. The rates for non-agricultural land depend on a specific formula; the tax must be calculated by multiplying the annual base tax rate (GEL0.24) by the territorial co-efficient and the land area. The differentiation of the land tax by territorial coefficient is made in accordance with the location and zones of the land plot.
Withholding Tax in Georgia
Withholding tax on various payables (for example, interest, royalties, dividends, and salaries/benefits of employees). The tax return must be filed by the 15th day of the month following the respective reporting month. Tax rates differ depending on the type of payable:
Income Tax rates
A natural person’s (regardless of his/her residence) taxable income shall be taxed at the rate of 20%, unless otherwise provided for by the Tax Code of Georgia.
Incomes subjecting to taxation at the source of payment are taxed:
- Salary – 20%
- Dividends – 5%
- Rates – 5%
- Royalties – 20%
- As a result of renting out the residential space to an organization, legal or a natural person for residential purposes – 5%
- Surplus income gained by a natural person from the provision of a residential apartment (house) and of the land attached to it, or from the provision of a vehicle – 5%
Dividends paid in Georgia
Dividends paid by the resident company to physical individuals, non-commercial legal entities or non-resident entities are withheld at source at a rate of 5%. This is if no relief is granted under a respective tax treaty. If payment is made to an offshore resident, the rate is 15%. Dividends received by resident companies are not withheld at source and are not included in their gross income. Dividends received by an individual that were already withheld at the source of payment, are not included in their gross income. Dividends paid to the state by resident entities are not withheld at the source of payment.
Dividends received in Georgia
Dividends received from international financial institutions are not withheld at the source of payment and are not included in the recipient's gross income. Dividends received from freely floated securities institutions are not withheld at the source of payment and are not included in the recipient's gross income. Dividends received from an entity located in a free industrial zone are not withheld at the source of payment and are not included in the recipient's gross income. Dividends received from foreign companies are not included in the income of a Georgian enterprise.
Interest paid in Georgia
Interest paid to foreign corporate shareholders is withheld at source at a rate of 5%. This is if no relief is granted under a respective tax treaty. If payment is made to an offshore resident, the rate is 15%. Interest is charged at a rate of 5%, to be withheld at source for payments to:
- Non-commercial legal entities.
- Non-residents with no permanent establishment in Georgia.
IP royalties paid in Georgia
Royalties paid to individuals that are not registered VAT payers are subject to withholding tax at a rate of 20%. Royalties paid to the state are not withheld at source. Royalties received by non-residents are subject to withholding tax at source, at a rate of 5%. This is if no relief is granted under a respective tax treaty. Intellectual property royalties paid to foreign corporate shareholders are withheld at source at a rate of 5%. This is if no relief is granted under a respective tax treaty. If a payment is made to an offshore resident, the rate is 15%.
- interest, dividends and royalties are subject to a withholding tax rate of 5%;
- other payables to non-residents is subject to a withholding tax rate of 10%;
- salaries and other employee benefits are subject to a withholding tax rate of 20%; and
- dividends, royalties and other payables made to offshore/tax haven residents are taxed at a rate of 15%.
Import tax payable for importing various goods. The tax rate varies and is fixed at rates of 0%, 5% and 12%. Import tax is payable during customs clearance.
Excise Tax in Georgia
This is payable by business vehicles producing excisable goods in Georgia, or importing excisable goods. For the excisable goods produced or manufactured in Georgia from raw materials supplied by customers, the producer of the goods is subject to excise tax. Excise tax is an indirect tax, and therefore any excise tax paid in connection with exported goods produced in Georgia can be refunded to the exporter. Excise tax is imposed on alcoholic products, cigarettes and other tobacco products, cars, natural gas, oils, oil distillates, and other products produced from oil and bituminous minerals. Alcoholic beverages and tobacco products are also subject to the mandatory attachment of excise stamps. Excise tax rates are fixed per physical unit of the excisable goods and vary from product to product. Taxpayers are required to file an excise tax return and pay the tax liability within 15 days after the end of the reporting period.
Georgian transfer pricing rules generally follow OECD transfer pricing principles and apply to cross-border transactions between a:
- Georgian company and related foreign company.
- Georgian resident company and an unrelated foreign company registered in a tax haven jurisdiction or offshore country.
How are imports and exports taxed:
The export of goods is subject to VAT at a rate of 0% and is exempt from all customs duties. The import of goods is subject to:
- VAT at a rate of 18% (calculated from the customs value of the imported goods).
- Import tax at various rates (0%, 5% or 12%) depending on the type of product.
Georgia has a broad network of double tax treaties with 56 conventions in full force and effect (Saudi Arabia joined the list in 2019). The most important jurisdictions include:
- The Netherlands
- United Arab Emirates