Place of Georgia in the rating Doing Business 2020

Georgia is the small country located to the west of the Caucasian mountains and washed by the Black Sea on the east. The economy of the country is mostly oriented on tourists. The main exporting goods in Georgia are copper, gold, nuts, automobiles, drugs, and ferrous alloys. Import is mostly represented by oil products and automobile vehicles. The latter are being actively imported to Georgia with the purpose of re-export to CIS.

Georgia in the new rating of simplicity of making business

Despite such a poor economy in the recently published rating Doing Business 2020, Georgia took the 7 place among 190 economies, which is 1 lower if compared to the last year. And still, this is a very high position. For comparison, Georgia’s neighbors: Russia — 28 place, Armenia — 47 place, Azerbaijan — 34 place, Turkey — 33 place.

This is because the local government had introduced an active policy aimed at creating conditions for successful making of business, both by residents and non-residents. Establishing a legal entity in Georgia is profitable for non-residents by multiple reasons, which is verified by the new rating.

Currently, Georgia takes the 7 place of the rating, having given its 6 place to the USA. This Caucasian country took the highest ranks in sections:

• registration of companies – 2 place;
• registration of ownership — 5 place;
• protection of minority investors – 7 place.

In general, the rating Doing Business analyzes the situation in the country under 10 parameters. It should be noted that Georgia had improved its positions under five parameters, while the remaining 5 were left practically unchanged. The total number of points achieved – 83,7, which is even 0,2 points more than the results of last year.

Why it is very easy to register a company in Georgia by non-residents

The second place is lawfully taken by Georgia in the rating by the level of simplicity of registration of a legal entity. To establish a new company here, a resident or non-resident will spend just a few days.

All documents for opening of business are accepted in Houses of Justice, which are present in all major cities. In brief, the entire process of establishing a new company can be described as following:

1. Submitting an application in the House of Justice.
2. Registration of a company in the register of legal entities.
3. Obtaining a statement from a register of entrepreneur and non-entrepreneur companies with an ID number.
4. Registration in the tax service for payment of VAT (if a company is a VAT payer).

To establish a company, a non-resident or his authorized representative must provide:

• application of a certain form signed by all founders or their legal representatives (with mandatory stating of company email, alternative address other than legal address, official contacts for communication with the tax service and other state bodies);
• copy of an international passport;
• constitutive documents signed by all founders;
• bill on payment of a state fee;
• verification of a legal address (consent of an owner of premises for using it or a rental agreement);
• written consent of a director for working on this position.

The price for registration of a company is:

• 200 lari – in this case, documents can be obtained on the addressing day; or 100 lari – statement on registration will be issued the next day;
• 1 lari – bank commission;
• 5 lari – payment for certification of constitutive documents.

The cost of registration can be paid directly in the House of Justice.

It should be remembered that if an application for registration is submitted by an authorized representative, documents must be certified by a notary.

Registration by a VAT payer is made according to the Art.157 of the Tax Code of Georgia, if the total sum of operations subject to VAT for last 12 months had exceeded 100 000 lari. If necessary, it is also permitted to undergo a voluntary registration.

From 27 February of 2018, it is permitted to request a voluntary registration of a VAT payer, together with an application for registration of a company. Already after receipt of documents, an official of a House of Justice will forward a corresponding appeal to the Income Service in electronic form. Upon completion of a procedure, a representative of a company receives SMS and email.

Verification of registration as a VAT payer can also be made online through the official site of the tax authority of Georgia.

A non-resident who wishes to register a company in Georgia shall account these peculiarities:

• all documents must be completed in Georgian;
• it is impossible to register a company in Georgia without a verified legal address.

These problems can be easily solved with the help of our company, Offshore Pro Group. Our employees have a wide experience in registration of companies in Georgia and will provide any assistance in organization of business.

To obtain a qualitative bank services, open a personal account for non-residents in Bank of Georgia remotely.

Obtaining permission for construction in Georgia

Under this parameter, Georgia had improved its position in the rating by going from 27 to the 21 place. According to the report of the World Bank, the procedure of obtaining a permission for construction had not changed, and just as a year ago includes 11 stages and takes 66 days:

1. Topographic are survey – 4 days.
2. Technical permission for water supply and sewage – 3 days.
3. Application for provision of terms of construction in Tbilisi Architectural Department – 5 days.
4. Approval of construction norms in the Architectural Department – 15 days.
5. Obtaining permission for construction – 10 days.
6. Inspection of a construction by the Tbilisi Survey Agency – 1 day.
7. Notification of the Tbilisi Survey Agency on completion of works — 1 day.
8. Final inspection of an object by the Tbilisi Survey Agency – 1 day.
9. Request and obtaining connection to water supply and sewage – 10 days.
10. Request and obtaining permission for exploitation of a building from the Tbilisi Survey Agency – 15 days.
11. Registration of a building in the Public State Register – 1 day.

At the same time, Georgia had improved the index due to transparent information on quality of control over construction. The index of quality of control over buildings had improved in comparison the last year for 2 points, up to the level 9.

Connection to the system of electric supply

This index describes procedures, time and expenses faced by a businessman who wants to register a company in Georgia, so that to provide recently built premises with electricity. The position of Georgia under this parameter had downshifted insignificantly – the country went down from 39 to 42 place.

To calculate the index of connection to the system of electric supply, employees of the World Bank analyzed the data of supplier of electric energy JSC Telasi; meanwhile, the price of 1 kW made 6,6 cents.

The procedure of connection to the system of electric supply remained unchanged, and includes three stages:

1. Filing an application to JSC Telasi and inspection of place of connection – 5 days, the price is 7 627 lari.
2. Preparation of technical conditions – 11 days.
3. Execution on works on laying of cables and installation of meters – 55 days, the price is 7 627 lari.

In total, by estimates of representatives of the World Bank, a businessman will have to pay 15 254 lari for connection to the system of electric supply, while the procedure itself will take up to 71 days.

Registration of ownership rights for real estate

Under this parameter Georgia takes one of the leading positions – 5 (but in the last rating took the 4 place). When this index is calculated, the procedure, time and expenses related to registration of ownership rights of an average businessman, who wants to purchase land or real estate are accounted.

An application for registration of ownership rights can be submitted:

• online;
• directly in a branch of the National Agency of Public Register;
• during registration of real estate in authorized organizations (these are approx. 500): banks, notaries, realty offices. Most often services on registration of real estate are provided by banks.

The price of registration of real estate is:

• on addressing day – 200 lari;
• next day – 150 lari;
• in 4 working days – 50 lari.

It is possible to submit an application for electronic statement through the website of the National Agency of Public Register of Georgia with payment: obtaining a statement next working day — 10 lari and on day of submitting application — 40 lari.

A buyer may pay registration fees as in a bank, so as in a branch of the Public Register, at a notary, a realty office or online.

To execute ownership rights, it is necessary to provide:

• purchase and sale agreement;
• documents certifying personalities of the parties;
• bill on payment of a registration fee.

In general, the Georgian legislation provided favorable conditions for registration of ownership rights for real estate, which was appreciated by the global community:

• procedure of registration of ownership rights in Georgia may only take 1 day;
• Georgian legislation does not oblige certifying a purchase and sale agreement by a notary;
• absence of taxation of purchase and sale agreements, except when sale of property is made within 2 years after its purchase. In such case 20% (income tax) is withdrawn from natural persons or 15% (tax on profit) from legal entities, on a difference between the price of purchase and sale. Upon expiry of 2 years, the income tax is not applied to citizens.

Such terms made purchase of real estate for vacations in Georgia attractive, especially in cities like Batumi and Tbilisi. Also, in recent years real estate in ski resorts Gudauri and Bakuriani had become popular among investors.

To make payments as in the territory of Georgia, so as abroad, non-residents should open a personal account in TBC Bank.

Receiving loans

This index is also interesting for businessmen who want to register a company in Georgia, because it shows: quality of systems of credit reporting and efficiency of laws on pledge and bankruptcy. If compared to last-year report, the estimate of Georgia under this parameter had lowered insignificantly, from 12 to 15.

The main problems of Georgia are not fully formed legal framework on protection of rights of creditors and imperfect registers of provision.

Protection of minority investors

This index analyzes the level of protection of minority shareholders from illegal use of corporate assets by directors for their own profit, evaluates guarantees of management and requirements to corporate transparency that minimize the risk of abuse. In comparison to the last0year report, Georgia had downshifted from 2 to 7 place.

The main problem of the country in this direction is imperfection of Georgian legislation in the sphere of protection of shareholders’ rights; e.g., shareholders have no automatic right of preferential purchase of shares at each issue.

Taxation

A loyal system of taxation is one of the main benefits of Georgia. This is particularly attractive for non-residents, especially from neighbor countries. By quality of the tax system Georgia had gained 2 points at once, from 16 to 14 place.

This index evaluates quality and amount of taxes, tax burden born by an average company, and fulfillment of procedures of VAT recovery and fiscal inspections.

The World Bank evaluated taxation and amount of time necessary for payment of taxes in Georgia the following way:

Global experts highly rank the automatic system for VAT recovery, due to which companies get back their money in just a few days.

Non-residents will be very interested in opening a company in Georgia in one of free trade zones: Tbilisi, Poti, Kutaisi and Kutaisi Hualing. Here tax benefits are applied to exporting companies; they do not pay tax on income from export profit, VAT, tax on property, tax on dividends, and customs duties. Besides, FTZ have a number of benefits that attract investors:

• the entire infrastructure necessary for making business at one place: offices, land areas, warehouses, containers, checkpoints, customs points, access ways for automobile transport, railroads for acceptance of freight trains, etc.;
• VAT is not applied in territories of FTZ; therefore, everything is 18% cheaper. This factor attracts to free zones businessmen who want to open a company in Georgia for mining cryptocurrency, because electric energy is very cheap here;
• absence of currency control, due to which you can make payments to foreign counteragents in any currency without any limits;
• convenient location near major transport junctions minimizes expenses on transportation and logistics;
• in absence of free warehouses in the territory of FTZ, companies are allowed to use warehouses outside zones;
• administrators of FTZ promote certification of products of manufacturing companies, so that they could duty-free supply their products to countries of EU, CIS, EFTA, China, Hong Kong, Turkey, and Great Britain;

Loyalty of the tax system and possibility to optimize tax burden makes it reasonable to establish a company in Georgia, to supply products abroad. This is essential for non-residents from countries without such possibilities, e.g. Armenia and Azerbaijan had not yet concluded agreements on free trade with China. Russians may register a legal entity in Georgia by the following reasons:

• country is located not far;
• no problems with communication, because Georgians understand and speak Russian language;
• Georgia does not participate in sanctions;
• Georgian companies have an open access to markets of Europe, China, CIS, and also use the regime of preferential trade with the USA, Japan, and Canada.

Owing to the abovementioned, it will be reasonable to open a company in Georgia and trade with foreign partners in avoidance of sanctions.

Global trade

Another important index that investors put attention to when establishing an export company in Georgia: this parameter shows time and expenses related to logistics, checking of documents, procedures of border transfer, export and import of goods. Under the parameter “Global trade”, Georgia had insignificantly lost its positions, having downshifted from 43 to 45 place.

According to estimates of the World Bank, export-import of goods across borders of Georgia will take:

These indexes remained unchanged since last year.

Provision of contracts

This index shows time and expenses for solving a commercial dispute through a local trial court, and evaluates the quality of judicial processes. The position of Georgia under this parameter had worsened, from line 8 to 12.

The low estimate was given to Georgia because of: absence of a special court or its branch responsible solely for consideration of commercial cases, absence of time standards for judicial events, no possibility to pay judicial expenses immediately in a competent court, as well as a number of unsolved issues related to absence of a separate judicial body for settling commercial disputes.

Dealing with insolvency

One of the lowest indexes of Georgia, which in comparison to last year had only decreased – from 60 to 64 place. Nevertheless, the number of achieved points in this year is bigger – 56,2 against 50,03. This index shows time, cost and results of proceedings on bankruptcy of legal entities. For evaluation of the parameter, it is necessary to calculate: how many cents from a dollar is returned to a creditor during procedures of reorganization, liquidation and forced collection of a debt.

In the report of Doing Business the following estimates were obtained under this parameter:

• how many cents from a dollar is returned to a creditor – 40,5 cents;
• procedure on recognition a company insolvent lasts up to 2 years;
• expenses on procedure of collection – 10% of cost of provision (approx. 7% of cost will be paid to the National Agency on Execution for their work as a bankruptcy manager, 1% of cost of property will be paid to the National Agency on Execution for actions as an auctioneer (Article 9 Decree № 144 of the Minister of Justice d.d. 30 July 2010). Other expenses will include fees of lawyers that vary between 1
  and 4%).

In general, all these indexes brought Georgia to the 7 place in the rating of simplicity of making business. Among European countries, the only better place belongs to Denmark (4 place). Such a high position of Georgia certifies favorable conditions for making business, which is a kind of indicator for foreign investors.

If you need to open a company in Georgia or if you have any questions on business in this Caucasian country, feel free to contact us at Offshore Pro Group via: info@offshore-pro.info.