Georgia: not an offshore but a tax paradise for entrepreneurs
Georgia in the Caucuses offers one of the most lucrative tax systems in the world. The Paying Taxes 2020 report ranks Georgia fourteenth among 190 countries, which is the best ranking in the region. Sole proprietorships in the former Soviet republic enjoy an especially beneficial tax regime. Businesses with this form of ownership make up more than half of the total number of commercial enterprises registered in Georgia. As of April 1, 2020, there were 95,587 sole proprietorships in the country. Other forms of business ownership as well as private individuals also find some attractive taxation conditions in Georgia.
Small business taxation in Georgia
Georgian tax legislation is particularly mild on small businesses. Private entrepreneurs whose yearly income does not exceed 500,000 laris (around US$ 156,000 by the April exchange rates) have to pay only 1% of their gross turnover in taxes.
If a sole proprietor did extremely well during the last year and his or her taxable income exceeded the set limit, his/ her business is not going to lose the ‘small business’ status that brings such considerable tax benefits. The business will lose the status only if the taxable income exceeds 500,000 laris for two years in a row.
The following taxes are payable if the private entrepreneur’s yearly income is more than 500,000 laris for the first year:
- 1% is payable on the gross turnover below 500,000 laris;
- 3% is payable on the gross turnover above 500,000 laris.
For example, suppose that the entrepreneur has made 650,000 over one tax year. The taxes payable will then amount to 500 000*1%+150 000*3%=9,500 laris. In US dollars, the entrepreneur’s income is around 202,500 while the tax that he/ she has to pay is only around US$ 3,000.
Who may be interested in establishing a small business in Georgia: The ‘small business’ status should attract foreign entrepreneurs who would like to open a café in Georgia, a restaurant, a hotel, or a guesthouse with apartments for rent. In other words, those looking to engage into the service industry in Georgia will benefit from the ‘small business’ status greatly as far as taxes are concerned.
Taxation of personal income obtained outside Georgia
In accordance with the Georgian Tax Code, resident and non-resident private individuals have to pay taxes only on the income obtained from local sources. These sources are specified in Article 104 of the Tax Code. They include, for example:
- Income derived from service provision or work for hire in Georgia;
- Income derived from leasing real estate or chattels in Georgia;
- Income derived from provision of transportation services in Georgia;
- Dividends received from a Georgian resident legal entity;
- Interests if paid by a resident of Georgia (company or individual).
At the same time, incomes derived from outside Georgia are not taxable in the country. Some of these incomes include the following:
- Dividends received from a legal entity that is not resident of Georgia;
- Interests paid by non-residents of Georgia;
- Pensions paid by foreign states;
- Income obtained from the sale of a foreign company on the condition that its assets are located outside Georgia.
For example, if you receive income in the form of dividends from a foreign-based company, you do not have to pay taxes on that in Georgia while residing in the country. You also will not have any fiscal obligations if you sell the shares of a foreign company that you own.
Who may be interested: any foreign person who would like to live in a country with a beautiful nature, fine cuisine, and fantastic wines while deriving income from a foreign source such as an interest on a bank deposit, dividends, a pension, and so on.
Low taxes on leasing residential estates in Georgia
Georgia is a highly popular tourist destination and residential estate rental is very much in demand in the country especially in the capital city of Tbilisi and seaside cities. The tax on letting property on a lease is only 5% in Georgia. You have to be registered with the tax authorities to be taxable on this source of income.
Some other facts pertaining to taxes on real property in Georgia:
- Purchase of real property is not taxable in the country;
- Sale of real property is not taxable if it has been in the seller’s possession for over two years;
- If you sell taxable real property, the tax payable (5% of the difference between the buying and the selling price) can be lowered by submitting the documents confirming the property maintenance costs such as utility bills, property repair contracts, and so on;
- The property tax is 1% but it is payable only by those who receive an income in Georgia that exceeds 40,000 laris per year.
Who may be interested: a foreign national wishing to purchase residential property in Georgia for the purpose of living there or renting it out.
Taxes on interests and dividends in Georgia
In accordance with the Georgian tax legislation, the interest on bank deposits is taxed at 5%. If compared to some other former Soviet republics, Georgia has a more attractive tax on interests. Thus, in Ukraine, the tax is 19.5%, the Russian Federation is soon introducing a 13% tax on the interest on deposits exceeding one million rubles, and Armenia has a 10% interest tax.
It should also be noted that the interest rates are quite high in Georgia: they can exceed 12% per year with some banks and deposit types. However, before putting money into local banks, you have to take the following factors into consideration:
- The national currency of Georgia – the lari – is not a very stable one. Its exchange rates can change significantly over a short period of time;
- The bank deposits in Georgia are insured for up to 5,000 laris (a bit more than US$ 1,500) only.
The dividend tax is also quite low in Georgia at 5%. For the sake of comparison: the dividend tax in Russia is 13% to 15% while that in Ukraine is 5% for non-resident private individuals and 18% for non-resident legal entities.
Please note that entrepreneurs registering a company in a Free Industrial Zone in Georgia are excused from paying the dividend tax.
Who may be interested: anyone looking to receive a high passive income and business people wishing to establish a company in a Georgian Free Industrial Zone.
Cryptocurrency taxes in Georgia
The following factors need to be mentioned in relation to cryptocurrencies and taxes in Georgia:
- The State Bank of Georgia does not consider cryptocurrencies legitimate financial instruments but it does not impose any restrictions on cryptocurrency deals. The Bank only warns the dealers that all the fiat consequences of cryptocurrency deals are the responsibility of the deal participants;
- Georgia is the third largest cryptocurrency miner in the world (trailing only China and Venezuela).
In 2019, the Georgian Ministry of Finance issued a decree that excuses cryptocurrency dealers from the income tax and the VAT.
Who may be interested: cryptocurrency miners and traders.
One more advantage that Georgia boasts is a considerable number of double taxation avoidance agreements that it has made (56 in total). These agreements will help lessen the tax load for the business people who want to engage into economic activities in Georgia while remaining citizens of other countries of the world.
Another important factor to remember is that Georgia is not a signatory to the CRS (Common Reporting Standards) agreement. This means that the information about the money flows going through Georgian banks is not available to foreign tax authorities.
If you would like to set up a foreign company in Georgia, open a bank account there, or purchase some real property in the country thus acquiring residence permit please contact us at firstname.lastname@example.org. We love Georgia and we will be happy to assist you in establishing presence in this beautiful little country!
What is the income tax rate in Georgia?
The standard income tax for private individuals (the salary tax) is 20% in Georgia. However, incomes derived from abroad are not taxable in the country.
What is the dividend tax rate in Georgia?
In accordance with Article 130 of the Tax Code, the dividend tax is 5% in Georgia. However, the dividend tax is not payable if the company that pays the dividends is registered in a Free Industrial Zone.
What is the tax on real property lease that a foreign property owner has to pay in Georgia?
In accordance with the Georgian tax legislation, foreign citizens owning property in the country and letting it on a lease have to pay a 5% tax if it is a residential estate. In case they rent out commercial property, the lease tax is 20%.
Tags: #Business in Georgia #Taxes in Georgia