Free Industrial Zones in Kulevi and Kutaisi
Many foreign investors find Georgian Free Industrial Zones (FIZ) very attractive. These are special territories with a lower tax burden often referred to as tax havens. Both legal entities and private entrepreneurs registered in a FIZ pay almost nothing in taxes on the condition that they export their produce to other countries. Another valuable merit such zones have is the provision for duty free trade with China, the EU and the UIS countries as well as those bordering Georgia. Thanks to this, goods marked “Made in Georgia” are highly competitive in many foreign markets. What else attracts investors to such Free Industrial Zones as those in Kulevi and Kutaisi?
The Kulevi Free Industrial Zone
The youngest of all Georgian FIZ is the one located near Kulevi settlement in Khobski region in the west of Georgia. The Georgian government has allocated 599 790 square meters (717 343 sq. yards) for this Zone, and it is to be in operation under the current conditions for 99 years.
Even though the government decision to establish this FIZ was made in 2012, the Zone was put into operation only in September 2017. This delay was caused by the change of the Zone management. In the beginning SOCAR Georgia Investments, Ltd. (Azerbaijan) was appointed managing company. It is a subsidiary of the Azerbaijani state oil company who had planned to invest over several years at least US$ 700 million into the construction of a carbamide production plant (carbamide is a nitrogen fertilizer).
At the time the memorandum was signed, SOCAR was the main supplier of oil, oil products, and natural gas to Georgia. It had invested over US$ 1 billion into different projects in this country. Besides, SOCAR owned an oil terminal in Kulevi.
The start of the FIZ operations was postponed several times, first until September 1, 2014, then until September 1, 2016. This delay occurred due to transition of the company to a new owner, Phasis Oil, Ltd. (a subsidiary of Streamtrade SA, Switzerland). The initial construction plan also changed: the carbamide production plant construction was terminated in 2015, and the construction of a petroleum refinery – the first one in Georgia – was started on this territory in 2018. The expected refinery production capacity is 4 million tons, 500 tons of refined oil per day. In addition to the refinery, a natural gas reservoir and a thermal power station will be built. The estimated overall cost of the project is US$ 1 billion.
Apart from constructing the plants, the FIZ administration is obliged to make it fit for conducting business activities there. This includes building the infrastructure, putting customs offices in place and providing all that is necessary for customs control, erecting office buildings and equipping the offices with furniture and clerical aids, and bringing the utilities. The existing infrastructure is meant to suit the companies connected with oil refinery in some way.
Kutaisi Free Industrial Zone
The Kutaisi Free Industrial Zone is located on the premises of a former motorcar factory. Its area is 27 hectares (0.1 sq. miles). It was established in June 2009 by the government act №106 “On establishing the Kutaisi Free Industrial Zone”. This zone is also to be in operation under the current conditions for 99 years. Georgian International Holding, Ltd. (a subsidiary of Fresh Georgia, Ltd. that belongs to Fresh Electric Company, Egypt) is the administrator of this Free Industrial Zone. In the year of establishment (2009), the investments into this Zone totaled US$ 55.7 million.
Kutaisi FIZ is located close to an international airport (10 km, a bit more than 6 miles) and relatively close to a large seaport in the city of Poti (95 km, less than 60 miles). All the infrastructure necessary for shipment and delivery of goods is in place, including access to motorways and the railroad. Warehouses, administrative and industrial buildings on the Kutaisi FIZ territory take up 128 thousand square meters (153 000 sq. yards).
The FIZ administration has invested heavily into building the infrastructure. The main motorcar factory production building has undergone serious repairs, the same goes for other buildings on the territory. Electric lines have been built and other utilities such as water and gas have been supplied. The territory has also been fenced, and a customs office has been erected and equipped with all the necessary machinery. The legal, brokerage, and security services available here will facilitate doing business on the FIZ premises.
The largest renter company in the FIZ is Fresh Georgia, Ltd. and it is engaged in manufacturing and sales of electric appliances including home appliances. There are twenty other companies there as well, and in addition to electric appliances manufacture they produce and sell textile goods such as pillows, blankets, bedsheets, etc.
The Kutaisi Free Industrial Zone administration have set themselves the following tasks: to make the FIZ the best renting option in the region; to contribute to Georgia’s economic development; to create jobs for the local population.
Company registration in a Free Industrial Zone: requirements
There are no special criteria a company must meet in order to start doing business in Georgian Free Industrial Zones. The company constitutors can be Georgians or foreigners. If it is a legal entity, it also can be whether domestic or foreign. In addition, there are no limitations as to the amount of registered capital.
Neither are there any limitations as to the form of proprietorship: limited liability, joint stock, public corporation, subsidiary, affiliation, or a private business – every form is acceptable.
Any types of business activities are allowed in the Free Zones excluding: manufacture and sale of weapons and ammunition, nuclear and radioactive substances, and excise goods. Living in the buildings on the FIZ territory is also prohibited.
The relationships between the FIZ administration and the resident companies are governed by the FIZ Charter and the registration/ license/ rent agreement.
Advantages of having a company registered in a Georgian Free Industrial Zone
The main advantage of having a company registered in a FIZ is the exemption from the following taxes:
- 18% VAT;
- 15% corporate profit tax;
- 18% import tax;
- 5% dividend tax;
- 1% property (real estate) tax.
Besides, FIZ companies do not have to make up annual reports, have audit inspections, and hire employees. Only the profit from trade transactions between the FIZ company and a Georgian resident company is taxed. The VAT is also levied on such deals.
Kutaisi Free Industrial Zone has advanced infrastructure giving the renters good opportunities to conduct business here: utilities, warehouses, office buildings, land lots, loading-unloading services, brokerage, and customs – everything is of avail.
The same cannot be said, however, about the infrastructure in Kulevi FIZ at the moment. They are still working on building the infrastructure there, but an oil terminal and gas and oil reservoirs are there already. Besides, this FIZ is very close (10 km or 6 miles) to the seaport in Poti.
Having a company registered in a Free Industrial Zone
The procedure of having a company registered in a FIZ is quite simple and it takes only one working day. All legal entities and private entrepreneurs have to be registered with the Georgian Public Registry first, and then obtain a certificate/ license from the FIZ administration.
The following standard documents are required for registration:
- If the constitutor is a private individual – foreign passport or other ID; if the constitutor is a legal entity – company constituent documents, company information, extract from the legal entities registry, and constitutors’ details;
- The new company Charter;
- Director’s passport and his/ her consent to take this position;
- Consent of the FIZ administration to grant a legal address to the newly established company.
Before staring work in a FIZ, companies registered there have to incur the following expenses:
- Registration fee;
- License fee;
- Rental charges;
- Building maintenance charges.
License is not required if the company is engaged in the following types of business:
- Production of food items for children;
- Generation and transmission of electricity;
- Distribution and transmission of natural gas;
- Local passenger transportation;
- Production of pharmaceutical items;
- Import of non-iodized salt.
The main purpose of Free Industrial Zones is to attract investors who would use their capitals to promote Georgian economy and create more jobs in the country. To meet this goal the Georgian government gives tax incentives to business people from around the world, and the FIZ administrations build comfortable business environments. At the same time, the solutions of some questions related to doing business in Georgian FIZ are still pending. For example, many business people are unhappy with the lack of opportunity to reside on the FIZ premises. In addition, they are worried about the vague status of the buildings they have erected. According to the law, these buildings belong to the FIZ administration, and resident companies face the risk of losing their assets in case the legislation changes. Nevertheless, Georgian FIZ are working and attracting more and more international investment capital to this country.
Our company will assist you in having your business registered in a Georgian Free Industrial Zone. Please contact us via e-mail: email@example.com and we will help you start a business in Georgia. You are also welcome to use other services that we provide in this country such as nominee service, accounting support, opening bank accounts, real estate purchase and rent, agreement drafting, and so on. We will be happy to answer any questions you have.
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