Free Industrial Zone in the city of Poti, Georgia

Georgian Free Industrial Zones (FIZ) provide for a good opportunity to improve a business company performance by lessening the tax burden. Companies registered in such Zones do not pay the VAT, the profit as well as the dividend taxes. By creating beneficial conditions for doing business in FIZ, the Georgian government has made many foreign investors think of starting a business in this country. The first Georgian Free Industrial Zone was established in a port city called Poti in June 2008.

Introducing Poti Free Industrial Zone

The choice of the location for the first FIZ was not arbitrary at all. First of all, Poti is the city that has the largest seaport in Georgia. Second, there are motorway and railroad links to other countries. Due to the benefits that this location has, manufacturers of goods gain easy access to international markets, and incur less logistics and transportation expenses. By the way, goods manufactured in Georgia can be sold duty free to the markets whose population exceeds one billion people. These include China, Turkey, the EU, and the UIS countries. Besides, Georgia is the only country in the region that has free trade agreements both with the EU and with China.

Poti FIZ was established with the help of the investment from an Arab company Raika. This company was granted about 300 hectares (almost 1.16 sq. miles) of land for use for 49 years. However, Raika proved unable to meet its obligations and it had to return the 85% of the shares it had to the Georgian government. Currently the Poti FIZ shares are distributes as follows:

• CEFC Euro-Asia – 75%;
• Government of Georgia – 10%;
• Government of Ras Al Khajmah emirate – 15%.

The Georgian government sold 75% of its Poti FIZ shares to the investor company CEFC China Energy Company Limited quite recently, in September 2017. According to the contract, the investor is to intensively develop the territory. When signing the memorandum, the Chinese company undertook to invest not less than US$ 150 million here over three years.

A large construction project was launched in Poti FIZ early in 2019. A new marine terminal being built will be able to admit vessels with 50 to 60 tons of freight-carrying capacity. At the initial stage, the OPIC company (USA) plans to invest US$ 50 million into this project. The intended length of the quayside is 650 meters (710 yards), and the harbor bottom will be deepened to 12-15 meters (13-16 yards) to admit large-capacity vessels. The overall cost of the project is US$ 150 million. When the construction is completed, 250 new jobs will be created in the docks and 800 more in the supporting industries.

The exact area of Poti FIZ is 3 046 037 square meters. Some heavy industry, processing industry, and chemical plants are located here. However, resident companies are predominantly engaged in equipment assembly, construction materials production, packaging services, etc. All types of business activities are allowed in the FIZ excluding the following:

• Weapon and ammunition production and/ or sale;
• Nuclear and radioactive substances production and/ or sale;
• Importation, storage, production, and sale of narcotics and psychotropic substances;
• Importation, storage, production, and sale of tobacco and tobacco products.

Forms of business proprietorship in Georgia

Tax benefits in Poti Free Industrial Zone

Companies registered in Poti FIZ are tax exempt for the following:

• 0% to 12% custom duties;
• 18% VAT;
• 15% corporate profit tax;
• 5% dividend tax;
• 1% property (real estate) tax.

The taxes are not payable either by importers or by exporters. Only when selling goods and services to clients from Georgia the FIZ residents have to pay the VAT and the export tax. A 4% tax is levied on the import-export deals between FIZ resident companies and those registered in Georgia. The 20% income tax is payable by the employee while it is even unnecessary to hire employees in this Zone. In addition to that, companies registered in Poti FIZ do not have to keep books.

Drafting employment agreements in Georgia

Other advantages of Poti Free Industrial Zone

Apart from the tax exemptions, business companies registered in Poti FIZ enjoy the following additional benefits:

• There are no limitations as to the business type provided it is not illegal;
• The company can be registered very fast, within 1 or 2 working days regardless of the form of proprietorship;
• There is no need to hire staff so the salary fund is unnecessary;
• The electricity cost and the land rent are inexpensive;
• There are two customs offices that are open every day round o’clock;
• It is a free trade zone with the EU, the UIS, Turkey, Ukraine, Iceland, Norway, and Lichtenstein;
• There are preference trade agreements with the USA, Canada, and Japan;
• It is possible to obtain the “Made in Georgia” certificate that brings serious export benefits;
• It is the largest FIZ in Georgia.

Poti FIZ is especially attractive for investors from Iran, Azerbaijan, Armenia, Turkey and other Arab countries that do not have trade agreements either with the EU or with China but want to enter those markets somehow.

Poti Free Industrial Zone infrastructure

An essential advantage that Poti FIZ has is its location. The zone is next to a large seaport and it has direct links to Kutaisi and Batumi airports. Besides, both regional and international motor- and railways are easily accessible from here.

One can rent a warehouse in the FIZ 241 to 608 square meters (288 to 727 sq. yards) in size. The maximum surface load there is 5 tons per 1 sq. meter. Round o’clock security surveillance is provided for the warehouses. Apart from the warehouses, unfurnished offices 44 to 100 square meters (52 to 120 sq. yards) large can be found in Poti FIZ. When renting an office space the investor obtains not only a working place but a legal address too. In addition, a secretary or a translator/ interpreter can be hired to work in this Zone.

One has to make an initial investment of at least US$ 16 000 to start a business in Poti FIZ, but the ultimate cost will depend on the type of the company business activities and the required infrastructure. Currently around 100 companies use the benefits of the Zone. Among those, there are a number of foreign companies from Azerbaijan, Ukraine, Armenia, Turkey, India, and the UAE. The companies deal, for example, in alcohol production, manufacture of high quality roofs, lubricants, aromatizers, and so on.

The main expenditures that will be incurred by a businessperson wishing to open a company in Poti FIZ include the following:

• Land rent – US$ 7-12 per square meter per year;
• Office rent — US$ 130 square meter per month;
• Construction permit– 1-4% of the cost of the construction project;
• Licenses: a Special trade license for one type of products or services — US$ 5 000, a General trade license for several types of products or services — US$ 10 000;
• The “Made in Georgia” license — US$ 5 000.

Issues of concern in Poti Free Industrial Zone

Many analysists agree that there are favorable conditions for starting a business in this FIZ. At the same time, they suggest that such Zones could be made even more attractive if the following issues were tackled:

• The Georgian FIZ legislation needs some changes. In particular, it should give the resident companies an opportunity to make at least 5-year agreements for the rent of land lots and buildings. This would protect the businesses from unexpected changes that might occur due to the changes in state policy (such as a tax increase or land use law alteration, etc.) Many investors are repelled by the possibility to lose the buildings they have constructed for their own money;
• Living on the FIZ territory should be allowed. The current legislation prohibits the use of buildings in the FIZ for living in;
• Companies registered in a FIZ are not allowed to provide services to foreign companies which also should be changed;
• These companies also have to pay a 4% import tax when selling goods to companies located in Georgia, and this tax should be lifted as well.

In addition to that, investors are unhappy about the obligation to keep on making regular payments (rent, license) whether they are engaged in some business activities or they are not. Because of high rent and other costs, only 130 companies are currently registered in Poti FIZ. Only four of them are engaged in manufacture and all the others are export-import companies that have neither offices nor employees. Currently not more than 200 people have permanent jobs in the Zone.

Taking into consideration the high cost of doing business in Poti FIZ and the difficulties in obtaining services by non-residents, one has to conclude that manufacturing activities in this Zone are most likely to pay back. All the transportation facilities (seaport, motor roads, and railroad) are easily available and the manufacturer’s produce can be delivered to any place.

How to open a company in Poti Free Industrial Zone

You can apply for company registration in Poti FIZ remotely by logging on to their website https://potifreezone.ge/. There you will have to choose the type of the intended business activity:

• Manufacture;
• General trade;
• Specialized trade;
• Consulting;
• Services;
• Logistics;
• Construction;
• Warehousing.

In addition, you will have to indicate what type of real estate you are planning to rent: land, a warehouse, an office or a smart office. However, it would be much easier and more efficient to use the services we provide for company registration in Poti or any other Georgian FIZ and its subsequent support.

If you have any questions about having a business company registered in Poti FIZ, please contact us via e-mail: [email protected]. We will be happy to answer your questions and have a company registered for you in Georgia. We provide all the services needed to conduct a successful business in this country.