Georgia continues to increase its level of attraction as a business hub. On the 1st of January 2017, the latest amendments of the Georgian Tax Code came into force. The new fiscal regime is simplified and made more liberal, in order to stimulate the country’s economic growth. In order to improve its investment environment, Georgia took example from the successfully functioning Estonian taxation model, which attracts a substantive volume of foreign investment.
Prior to the amendments, Georgia was offering a simple taxation model consisting of only six flat low-rate taxes, including 15% corporate income tax. The amended Tax Code will make the tax regime even more favourable.
The following changes in the Georgian Tax Code can be advantageous to businesses that are considering establishment in Georgia:
Replacement of the corporate income tax with a tax on distributed profits.
Georgia will implement the Estonian taxation model by replacing the previous corporate income tax with a tax on distributed profits. Therefore, the corporate income taxation will be cancelled for most companies. Resident companies and permanent establishments in Georgia will be taxed only on the following income: (i) distributed profits; (ii) expenses not related to business activities; (iii) gratuitous transfer of goods, services, and funds; and (iv) business representation costs exceeding 1% of the company’s total income.
As a result, high-turnover companies can keep their profits without the need to pay any income tax on them. For example, a Georgian company which has a profit of 1 million euro, will pay no tax on the profit unless the company distributes it.
However, it is important to note that certain entities, such as sole traders, insurance companies and Banks, public legal entities, and non-profit organizations, are not allowed to distribute profits. Therefore, the profits of such entities will remain subject to corporate income tax, even after the tax reform.
Suspension of bank accounts.
Under the previous Georgian legislation, banks were able to suspend bank accounts of businesses in cases of tax disputes. The new Tax Code states that only Georgian courts can issue orders for suspension of bank accounts during tax disputes.
Cancellation of VAT on imported fixed assets.
VAT will no longer be applied to fixed assets imported to Georgia. The regular VAT rate in Georgia is 18%. This change promises to simplify VAT administration.
Exemption from tax debts.
Georgian government is going to cancel about 100,000 taxpayers’ debts. The cancellation includes tax debts accrued before 2011 and monetary sanctions imposed before 2013.
Changes in tax regulatory authorities.
The new tax system will be solely supervised by the Georgian tax authority.
Some of the tax amendments have been already implemented, e.g., the VAT changes and the replacement of the corporation tax with a tax on distributed profits. Therefore, foreign investors can already enjoy a business-friendly tax environment. The tax reform will be fully completed in 2019.