Corporate Taxation In Georgia Country:
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Corporate Income Tax In Georgia : Some Great Incentives

Corporate taxation in Georgia is very favorable to economic growth and competitiveness.
Special Business Status, the Virtual Zone Company, the Free Industrial Zone company, and the International Status Company, make it possible to optimize the Georgian flat tax rates between 0% and 5%. These Georgia Corporate Income Tax Incentives are developed below.

Georgia Corporate Income Tax

• Generally, Georgian Resident companies are subject to Corporate Income Tax (CIT) on Worldwide Income.
• Non-resident companies carrying out economic activities in Georgia through a Permanent Establishment (PE) are subject to Corporate Income Tax for their Georgian-source income.
• The Corporate Income Taxation in Georgia is set at a flat rate of 15%.
• Non-resident companies earning Georgian-source income, other than through a PE, are subject to a withholding tax rate of 5%

Georgia Corporate Income Tax System

Georgia Corporate Income Tax system adopts the Estonian model of CIT: retained profits are not taxable until they are distributed. This regime does not exempt the profits from taxation but allows to defer the taxation moment. Therefore, taxpayers do not need to determine taxable gross income and allowable deductions to arrive at the taxable profits. Still, a standard 15% CIT rate applies to the grossed-up value of the following transactions:

• Profit distribution.
• Costs incurred are not related to economic activity.
• Free of charge distributions.
• Over limit representative expenses.

Distributed Profit

Distributed profit includes the distribution of profits by a company to its stakeholders in monetary or non-monetary dividends.

Distribution of dividends between Georgian legal entities and distribution of dividends received from a foreign company is not subject to Corporate Income Tax in Georgia.

Costs Incurred Not Related To Economic Activity

The main purpose of the listed taxable objects is to mitigate the hidden distribution of profit without taxation. The Georgian tax law requires taxation of such cash outflow, which may be embodied with profit distribution

• Non-documented expenses.
• Expenses whose purpose is not to gain profit, income, or compensation.

Some Transactions Are Considered Non-Business Expenses

• Payments for the purchase of shares/interest in a non-resident company or contributions to the capital of a non-resident company.
• Grant of a loan to an individual or a non-resident.

Some Transactions With Persons Registered In Countries With Preferential Tax Schemes Are Subject To Corporate Income Tax In Georgia

• Provision of loans to such persons registered in Tax Heavens.
• Purchase of debt securities issued by such persons.
• Payment of contractual penalties and fines to such persons.
• Payment of advances.
• Acquisition of debt claim towards such persons.
• Loss derived from transferring the right of claim to such entities.
• Loss incurred from waiving the claim receivable from such entities.

These companies subject to the Corporate Income Tax in Georgia in these above cases can claim back the paid CIT when the cash is returned, in the following cases:

• When compensation is received as a result of the supply of debt securities.
• When compensation is received from the supply of shares or transfer of the right of claim.
• When issued loan/paid advances are fully or partially returned.
• When goods/services are received in exchange for the paid advances.
• When the security of the issued loan from the third party is canceled.
• Free of charge delivery of goods/services and transfer of funds
• Free delivery of goods/services and funds transfer will be subject to Georgia Corporate Income Tax. Additionally, a shortage of inventory and fixed assets will be considered a free-of-charge supply at the moment of its revealing and will be taxed accordingly by CIT

Representative Expenses

According to Georgian Tax Law, 1% of the company’s total income in the previous calendar year can be expended on representative expenses. Above this limit, these expenses will be subject to Corporate Income Tax in Georgia.

Regional income taxes

There are no regional income taxes upon the profit of legal entities.

Corporate Taxation In Georgia Country – Corporate Residence

A resident company is any legal entity established under the laws of Georgia or whose place of effective management is in Georgia. Georgia Corporate Income Tax law defines economic activity as any activity carried out with the intent to earn profit, income, or compensation, regardless of the results of such activity.

Corporate Income Taxation In Georgia – Other Taxes

Value-Added Tax (VAT)

In January 2021, new VAT regulations came into force in Georgia. These changes result from the European Union (EU)-Georgia Association Agreement and the Deep and Comprehensive Free Trade Agreement signed in 2014. These agreements aim to approximate the Georgian VAT system with the EU VAT directive. Please read our page on this matter here. 

The standard VAT rate is 18% and applies to the supply of goods and services for consideration in the territory of Georgia within the scope of economic activities.

• Goods and services are considered supplied in Georgia if it’s located on the Georgian territory upon transfer.
• If the supply of goods and services is accompanied by transportation, then the place of supply is considered in Georgia if its shipment originates in Georgia.

Two cases to determine the place of supply: B2B or B2C supply of goods and services:

B2B Supplies 
The place where the service recipient or its fixed establishment is considered the place of service delivery.

B2C Supplies
The place where the supplier or its fixed establishment is located is deemed the place of service delivery.

However, concerning certain types of services, the place of B2C supplies is determined based on the location of the final customer. Such services include telecommunication services, digital services, electronically supplied services, consulting, advertising, financial and insurance services, immovable and movable property, transportation services, catering, leisure activities, and more.

A legal entity established in Georgia must register as a VAT payer when its taxable turnover exceeds GEL 100,000 in any 12 months period. Georgian fixed establishment of a foreign taxable person is liable for VAT registration from the beginning of taxable operations.

VAT-exempt supplies include financial services, oil, and gas-related goods and services, and medical and education services.

Reverse-VAT applies to services provided to Georgian VAT payers by a non-resident VAT liable legal entity.

VAT Compliance For Digital Business

Non-Georgian businesses that are not established in Georgia and do not have a fixed establishment in Georgia, providing digital services to individuals in Georgia, have to declare and pay VAT in Georgia.

Digital services are considered provided in Georgia if one of the following conditions is met:

• The financial institution where the corporate account and through which the services rendered are paid is located in Georgia.
• The location of the customer receiving the service is in Georgia.
• The device IP Address used by the customer purchasing the service is in Georgia.
• The country Phone code used to pay for the service is Georgian.
  Payment can be executed in USD, EUR, or Georgian lari (GEL). 

Corporate Taxation In Georgia Country – Customs Duties

Goods crossing the Georgian borders are subject to an Import tax. The general rates are 0%, 5%, and 12%, depending on the types of products. 

Excise Tax

Specific goods produced in Georgia or imported in Georgia are subject to Excise Tax. Generally, Georgian Customs calculate this excise tax regarding the quantity, volume, and weight of these goods. Regarding imported cars, an excise tax is calculated based on the engine capacity and vehicle age. 

An excise tax applies to the following goods:

• Alcoholic drinks.
• Compressed natural gas.
• Distillate fuel oil.
• Products made from crude oil.
• Tobacco products.
• Cars.

Note that the exports of excisable goods are exempt from excise tax with a right to credit.

Apart from the goods mentioned above, termination service of international calls in mobile and immovable networks is also subject to excise tax in Georgia. International call termination is taxable based on the call duration.

Corporate Taxation In Georgia Country – Property Tax

1% Property tax. This property tax is due on the annual average residual value of fixed assets (except land), investment property, and lease of property of Georgian entities or foreign entities with taxable property in Georgia.

Other Taxes

Land tax

The annual land tax rate for agricultural land varies depending on its location and quality.

Transfer taxes

There are no transfer taxes in Georgia.

Stamp taxes

There are no stamp taxes in Georgia.

Payroll taxes

Payroll tax in Georgia: a Personal Income Tax is paid by the employer at source when salary payment to an employee occurs: 20% rate of gross salary.

Pensions contributions

4%. See the Pension contributions summary here. 

Corporate Taxation In Georgia Country- Branch Income

Branch income is taxed at a rate of 15% upon its distribution. Distributed profit of a PE of a non-resident company is deemed distribution of profits attributable to the PE for its activities.

Corporate Income Tax in Georgia – Income determination

According to the Georgia Corporate Income Tax system, taxable income is the difference between a taxpayer’s gross income and the relevant deductions granted by the Georgian tax code.

Inventory Valuation

A taxpayer must record the value of goods produced or acquired as expenses or the purchase price. In addition, the taxpayer must include storage and transportation costs in the value of these goods. A taxpayer is entitled to record the cost of inventory. 

Capital Gains

The Georgian tax code does not define any separate tax for capital gains. Capital gains are taxable as normal business income at Georgia Corporate Income Tax Rate(15%).

Dividend income

• Dividends received by Georgian legal entities are not subject to taxation at source and shall not be included in gross income.
• Dividends received by a non-resident company from a resident company are subject to a Withholding tax at source at a 5% rate. 

Interest income

Resident company and Permanent Establishment of non-resident entity receiving interest income taxed at source in Georgia can set up a credit account on these taxes paid to the Georgian State budget.
Interest income received from a licensed financial institution is not subject to Withholding Tax at source 5%. A recipient’s gross income should not be included unless the recipient is from another approved financial institution.

Rent/royalty income

Rent and royalty income received by a resident company or a Permanent Establishment of a non-resident company is subject to Corporate Income Tax in Georgia upon dividends distribution.

A non-resident company receiving income from renting property to a person having no liability for acting as a tax agent is subject to Corporate Income Tax in Georgia on the difference between the Georgian source income earned during a calendar year and deductions related to the receipt of such income.

Foreign Income

Resident Companies are subject to Corporate Income Tax in Georgia on their worldwide income at a rate of 15% upon its distribution in the form of dividends. Taxes withheld abroad can be offset against Corporate Income Tax charged on the distribution of foreign income.

Corporate taxation in Georgia Country – Deductions

New Legal Entities operating in Georgia’s Corporate Income Tax system must follow International Financial Reporting Standards.

Depreciation

The maximum rate of depreciation is 20% for most fixed assets, though buildings and construction are subject to depreciation at the rate of 5%

Amortisation of intangible assets

15%. Intangible assets are amortizable in proportion to the period of beneficial use. Intangible assets less than GEL 1,000 are fully deductible from gross income.

Start-up expenses

Expenses before registration of a legal entity as a taxpayer are not deductible under Georgian tax legislation.

Interest expenses

Interest paid on loans is deductible within limits established by the Ministry Of Finance Minister. The annual deductible interest rate is 24% maximum. But, there is no such limit for loans received from local banks and Georgian microfinance organizations.

Charitable contributions

Charitable contributions are deductible from gross Corporate Income tax in Georgia, up to 10% of taxable profit.

Fines and penalties

Fines and penalties paid to the state budget are not deductible from gross Corporate Income Tax in Georgia.

The deduction of certain expenses is subject to limitations:

• Representation expenses, up to 1% of gross income.
• Repair expenses, up to 5% of the book value of the relevant asset at the end of the year.
• Net operating losses
• Losses may be carried forward for five years but may not be carried back.

Controlled foreign companies (CFCs)

Georgia tax legislation does not provide CFC rules.

Corporate taxation in Georgia Country – Tax Incentives

Foreign tax credit

Income tax or profit tax paid on income earned from outside Georgia may be credited against Georgia Corporate Income Tax payable within Georgian territory. The amount of credited taxes may not exceed the Georgian Tax payable on the foreign income. We kindly remind you that Corporate Income Tax in Georgia is due upon dividend distribution and not due if the profits are retained or reinvested.

Corporate Income Tax In Georgia: Incentives and Exemptions

The following are exempt from Georgia Corporate Income Tax.

• Distribution of profit earned by a FIZ company.
• Distribution of profit earned by a Virtual Zone company that provides IT services outside Georgia.
• Distribution of profit earned by a Georgian legal entity granted with International Status company.

Corporate Income Tax In Georgia: Free Industrial Zone (FIZ)

A Free Industrial Zone Company is a registered entity located inside a FIZ. The following apply to a company located in a FIZ:

Income received by a FIZ company is exempt from Georgia Corporate Income Tax.
Importing goods into a FIZ is free of customs duties and VAT-exempt.

• 0% VAT for operations carried out into a FIZ.
• 0% Property
• Export of Goods produced within the FIZ to another territory of Georgia is exempt from import tax.
• A FIZ company should pay 4% tax on the market price of the goods supplied to a legal entity registered under Georgian law.

Read more here about the Free Industrial Zone Company.

Corporate Income Tax In Georgia: Virtual zone Company

A virtual zone company is a Georgian legal entity engaged in IT activities. The following rules apply to virtual zone companies:

• Profits earned from providing IT services created by the virtual zone company outside Georgia are exempt from Georgia Corporate Income Tax.
• The supply of IT services created by the virtual zone company outside Georgia is VAT-exempt.

Read more here about the Virtual Zone Company. 

Corporate Income Tax In Georgia: International Company

An international company is a Georgian legal entity that provides certain services abroad and earns income from those activities. The following rules apply to an International company:

• Profits are subject to Georgia Corporate Income Tax at a 5% rate (instead of 15%).
• An international company is exempt from the 5% Withholding tax on dividends distributions.
• Salary Tax is subject to 5% withholding tax (instead of 20%).
• An international company is exempt from property tax.

The authorized activities are:

• Software development.
• Information technologies and other computer servicing activities.
• Web hosting.
• Supply of images, text, and information.
• Certain commercial and technical services supplied by a ship owner or related to this ownership.

Read more here about the International Status Company