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Over the past decade, Georgia has undergone significant changes in its tax system, making it one of the most attractive countries for investment and business, and a destination for thousands of foreign investors and entrepreneurs from all over the world to live and develop their businesses. In 2020, Georgia entered the ranking of the top 10 countries with the lowest corporate income tax rates, taking 9th place. The Georgian Law of Economic Freedom can be accessed via the following link: https://www.matsne.gov.ge/ka/document/view/1405264?publication=3
Also, in Georgia, you have an opportunity to conduct business in tax-free zones. The combination of low tax rates, tax incentives, and free economic zones makes Georgia one of the most attractive and favorable tax jurisdictions in the world.
According to Georgian legislation, both citizens of the country and non-residents staying on its territory for more than 183 days per year are required to pay taxes.
In this article, we will review the main taxes in Georgia for individuals and legal entities:
- Income tax;
- Value-added tax (VAT);
- Profit tax;
- Import tax;
- Property tax;
- Real estate sales and rental tax.
Income Tax in Georgia
Income Tax — is a tax on income received by individuals (resident and non-resident) from profits with a Georgian source, such as services, marketing, consulting, software development, and any other work performed inside the country. The residents or non-residents who stay in Georgia for more than 183 days during 12 consecutive calendar months become tax residents and are taxed at a 20% rate on their official salary within the country. It does not matter in what form you receive income (cash, non-cash), the income from any customers, Georgian companies, foreign corporations, or branches of foreign companies is subject to taxation, as long as the work was performed in the territory of Georgia. In a case when a Georgian citizen or resident works in another country, they do not pay tax contributions since the income tax rate from foreign sources is 0%.
There are also tax exemptions for individuals with certain types of income:
- Incomes received by non-residents for work in foreign diplomatic organizations in Georgia;
- Grants, state pensions, and state academic scholarships;
- Profits from non-commercial institutions for charitable activities;
- Profits from charitable organizations for financing expenses on treatment or medical services;
- Income received from the dissolution of marriage;
- Surplus income from the sale of residential real estate owned for more than 2 years;
- The amount of compensation to individuals after blood donation;
- The value of property received by heirs during the tax year;
- Compensations for persons with humanitarian status or refugees;
- Non-resident income from Georgian sources for risk insurance;
When income does not exceed 3,000 GEL per year, it is not taxed for:
- World War II veterans, veterans of military actions for territorial integrity, freedom, and independence of Georgia;
- Persons awarded the honorary title “Mother of Georgia”;
- Single parents;
- Persons who have taken a child for upbringing.
- Income that does not exceed 6,000 GEL per year for persons with disabilities is also not taxed.
There are also special tax regimes for individuals with micro-business and small-business status. Individuals with micro-business status do not pay income tax. For persons with small business status, the income tax is 1%, except in the case provided for in Article 90, paragraph 2 of the Georgian Tax Code. When small-business income exceeds 500,000 GEL, a 3% tax is applied – Article 90 of the Georgian Tax Code.
Value Added Tax (VAT)
VAT — is a tax on the value added to goods and services, meaning that the tax is applied on the difference between the sale price and the cost of purchase, production, and delivery of goods and services.
The following entities are subject to VAT in Georgia:
- Entities registered or obligated to register as VAT taxpayers;
- Entities that import or temporarily import goods into Georgia without the obligation to register;
- Non-residents (without registration as VAT taxpayers) with permanent resident status providing services on the territory of Georgia;
- Sales of goods at auction to ensure the collection of tax debt or for the purpose of collecting other monetary obligations;
- Import, export, and temporary import of goods.
- The VAT rate is 18%. All companies and individual entrepreneurs whose income has exceeded 100,000 GEL in the past 12 months are subject to VAT.
The following are exempt from paying VAT without the right to credit the service:
- Medical services;
- Educational services;
- Funeral services;
- Care and guardianship of children in educational institutions;
- Training in the fields of art and sport (persons under 18 years old);
- Works related to the restoration, rehabilitation, design, and research of cultural heritage monuments listed as world heritage;
- Postal services (under certain conditions);
- Supply of goods for religious purposes;
- Financial operations/financial services;
- Provision of land plots;
- Provision of passenger transport services (except for taxis);
The following are exempt from paying VAT with the right to credit the service:
- Transportation of goods (export, re-export, transit);
- Supply, repair, maintenance, or leasing of aircraft;
- Aero or marine navigation, dispatch, and information services;
- Provision of passenger and freight transportation services;
- Shipping agency in ports;
- Supply of goods and services intended for diplomatic representation;
- Supply of natural gas to thermal power plants;
- Gratuitous transfer of goods or services to the state;
- Supply of gold to the National Bank of Georgia;
- Provision of services to ships when importing goods into the customs territory of Georgia;
- Provision of services for air transportation and aviation work within the state border of Georgia;
Exemption from paying VAT applies to the following types of imported goods:
- Import of goods and raw materials intended for medical purposes;
- Import of goods necessary for the movement of persons with disabilities;
- Import of baby food products and hygiene products;
- Import of passenger cars under HS code 8703 and motorcycles under HS code 8711;
- Import of excise stamps established by Georgian legislation;
- Import of precious stones and metals owned by the state;
- Import of securities and money (excluding coins of collectible or numismatic value);
- Import of returned goods provided for in Article 107 of the Georgian Customs Code;
- Import of property of diplomatic missions or consular offices of Georgia abroad;
- Import of transport vehicles under HS code 8703 10 110 00;
It is important to mention that there is a wide range of goods and services that are exempt from VAT payment, and the ones listed in the article are only a sample. For more information, please refer to the Georgian Tax Code.
The companies and individual entrepreneurs registered as VAT taxpayers in Georgia can expect automatic refunds of any excessive VAT payments or miscalculations. If the automatic refund is not possible or didn’t happened, they can submit the appropriate declaration for a certain period and get a refund. If the organization paid less VAT than it received, it must pay the difference.
Reverse VAT arises when a resident of the country uses the services of a non-resident and amounts to 18%.
In addition, companies registered in the Free Industrial Zone or Virtual Zone of Georgia (Hualing Kutaisi, Tbilisi, and Poti) are not subject to VAT. Services provided outside of Georgia are also not subject to tax (Georgian companies providing consulting services to non-resident companies will not be subject to VAT payments).
Corporate Income Tax in Georgia
Corporate Income Tax is a tax on the income of private entrepreneurs, companies, and firms (residents and non-residents) conducting commercial activities on a permanent basis in Georgia or earning income from a source located in Georgia.
Resident enterprises pay corporate income tax on the following types of income:
- Distributed profits;
- Expenses or other payments not related to economic activities;
- Free supplies of goods, services, or transfer of funds;
- Representation expenses exceeding the limit established by the Tax Code;
Non-resident enterprises conducting commercial activities on a permanent basis in Georgia pay corporate income tax on the following types of income:
- Income generated through a permanent establishment;
- Expenses, payments not related to economic activities;
- Free supplies of goods, services, or transfer of funds through a permanent representative;
- Representation expenses exceeding the limit established by the Tax Code.
The taxable income of enterprises is subject to a tax rate of 15%. With the exception of profits from oil and gas operations, which are subject to a tax rate of 10% if the contract was concluded before January 1, 1998. The taxable profit from gambling establishments in the system-electronic form is subject to taxation at a rate of 10%. The profit of banking companies, credit unions, and loan-issuing entities is taxed at a rate of 20%.
The Tax Code provides for exemptions from corporate income tax on the following types of income:
- Income from the sale of religious items;
- Income of non-residents from a source in Georgia, based on insurance and reinsurance by the enterprise;
- Profit of agricultural cooperatives (on condition in Article 99, paragraph 1);
- Income of non-residents from leasing property not related to a permanent establishment of the non-resident in Georgia;
- Enterprises in a free industrial zone;
- Profit in a virtual zone;
- Distribution of profits of entrepreneurial objects in a tourist zone from the provision of hotel services (until January 1, 2026);
- Distribution of profits from interest of financial institutions licensed in accordance with Georgian legislation.
- Due to the amendment to the Georgian Tax Code, if an enterprise reinvests its funds in business development instead of paying dividends, it is exempt from this tax.
Import tax in Georgia
Import tax is paid by individuals who are importing goods into the territory of Georgia, except for exports, i.e. the customs value of goods when crossing the customs border of the country. The import tax rate depends on the type of goods, and the exporting country, and ranges from 0.5 – 12%.
The goods temporarily imported into the country from the day of registration of the customs declaration are subject to a tax rate of 3% for each calendar month when these goods are placed under import.
Property tax in Georgia
The property taxpayers are the enterprise (residents and non-residents) and individuals residents who own property in accordance with the Tax Code of Georgia, real estate, assets (including unfinished construction, buildings or parts thereof), yachts (boats), helicopters, airplanes, vehicles, property leased on the basis of a lease, rent or similar agreement, registered in Georgia are subject to taxation.
Property tax rates are set by the Tax Code of Georgia and do not exceed 1% of the value of the taxable property. The rate depends on the market value of the property. The value of the taxable property (real estate) is calculated based on the average value of the real estate during the entire year and is adjusted depending on the year.
Tax is not applied on the property that belongs to the organization that accounts for its real estate through revaluation and audited financial accounting (only for the 4th term) or not residents. This applies to state-owned enterprises determined by the Government of Georgia.
During a tax inspection, the Georgian tax authority has the right to determine the value of the taxable real estate at market value if the market value exceeds the book value.
The annual property tax rate on a taxable property depends on the income received during the year:
- Incomes up to 100,000 GEL: 0.05% to 0.2% of the value of the taxable property at the end of the tax period;
- Incomes over 100,000 GEL: 0.8% to 1%;
- Landowners also pay tax (minimum tax rate – 0.24 lari per sq.m). The tax depends on the size of the plot and its location.
- The rule for citizens of Georgia who are not tax residents of Georgia (their foreign income does not form family income for property tax) does not apply to income from sources in Georgia and abroad.
The Tax Code provides exemptions from property tax for:
- Real estate of individuals if family income does not exceed 40,000 lari during the year;
- Property of an organization or transferred into a lease for economic activity;
- Property used for activities with oil and gas as determined by Georgian law;
- Property located in territories established by Georgian law. This applies to occupied territories until the conflict is resolved;
- Property that has suffered damage of more than 50% from natural disasters;
- Land plots in high-altitude settlements permanently inhabited by residents;
- Property located in a free industrial zone;
- Property received on lease from a resident of Georgia;
- Property used for medical activities;
- Property related to providing hotel services by an entrepreneurial subject of a tourist zone (until January 1, 2026).
Tax on selling or renting real estate in Georgia
There is no tax on purchasing real estate in Georgia. However, if you rent out a residential property, you are required to pay a 5% tax. To do so, you need to register with the Tax Service Portal and obtain a taxpayer identification number. Otherwise, you will be required to pay 20% of the difference between your income and expenses, as well as a penalty. Renting out commercial real estate is subject to a 20% tax on the difference between income and expenses.
When selling a house, land, apartment, etc., your income from the sale is subject to a 5% tax. Income is determined as the difference between the purchase and the selling price. It is possible to reduce the tax with the utility bills and receipts for the renovation works. The tax rate is the same for residents and non-residents and is charged annually. Individuals (residents and non-residents) must file a declaration at the Tax Service of Georgia until 1st November and proceed with the payment until 15th November.
If the real estate property you are selling has been in your possession for more than two years, you are exempt from paying income tax on the sale.
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DISCLAIMER: This article is for informational purposes and we are not responsible for any inaccuracies in this article or information that differs from the official.