Georgia, a country in the Caucasus region, is located on a crossroad between European and Asian markets. Due to Georgia’s business advantages, such as a low-cost workforce, a stable political environment, an attractive tax regime, and a well-developed infrastructure, an increasing number of foreign investors choose to outsource their business activities in Georgia. Moreover, in order to boost country’s economy,the government of Georgia has concluded bilateral investment treaties with 32 countries.
At present, foreign direct investments comprise almost 10% of country’s GDP. According to the Georgian National Investment Agency, foreign entrepreneurs mostly choose to develop businesses within the sectors of transport, communication, finance, and construction. One of the main advantages of establishing a company in Georgia is its favorable tax regime.
Georgia imposes six major taxes, no one of which exceeds 20%. More specifically, Georgia levies the following taxes: (1) corporate income tax, (2) personal income tax, (3) VAT, (4) import tax, (5) property tax, and (6) excise duties. Below, we will provide a brief overview of the general aspects of corporate and individual taxation in Georgia.
Next, we will discuss the tax incentives provided by Georgia.
Corporate taxation in Georgia
Companies are considered to be subject to Georgian taxation if their place of management is located in Georgia. Georgian corporate income tax is levied on the worldwide income of resident companies. Foreign companies are taxed on their income derived from Georgian sources. However, in order to avoid double taxation, Georgia has signed tax treaties with 52 countries. The rates of the main Georgian corporate taxes are as follows:
- Corporate income tax: 15%;
- Value Added Tax (VAT): 18%;
- Import taxes fluctuate between 0% and 12%;
- Property tax does not exceed 1%.
In Georgia, there are no payroll, social security, capital gains, wealth, and inheritance taxes. Also, it should be noted that excise duties are levied only on selected types of goods, i.e., alcohol, tobacco, oil, gas, automobiles, and mobile communication services.
Individual taxation in Georgia
Residents of Georgia are taxed on their worldwide income, whereas foreigners have to pay tax on their income derived from a Georgian source. The flat rate of Georgian personal income tax is 20%. An individual is considered to be a Georgian tax resident if she/he resides in the country for at least 183 days per year. For high net worth individuals, i.e., persons who either hold property valued at more than GEL 3 million (about EUR 1,2 million) or have annual income of more than GEL 200.000 (about EUR 80.000), more liberal tax residence rules apply.
Tax incentives in Georgia
In order to boost the economic development of the country, the government of Georgia introduced two major tax incentives, namely, (1) Free Industrial Zones (FIZs) and (2) a special customs regime for companies that export goods outside the country.
Georgian FIZs are located in 3 cities: Poti (a seaport), Kutaisi (country’s third largest city), and Tbilisi (the capital of Georgia). Companies that operate within the FIZs can benefit from 0% tax on corporate income, import, and property as well as significantly reduced VAT rates. A wide range of activities are permitted in the FIZs, e.g., manufacturing, trading, construction, financial, and consulting activities. Furthermore, all Georgian companies that produce goods for export can opt for a special Internal Processing Customs Regime license. Such a license permits the importation of raw materials which are used for production of goods to be exported into the country without paying customs duties and VAT.