VAT in Georgia: all you need to know
The taxation system of Georgia is considered one of the most loyal and progressive in the region. In the ranking of Paying Taxes 2020, Georgia ranks the 14th among 198 countries in the world. And it can be positively assumed that this is one of the key attractive features of this jurisdiction for businesses. Let us take a look at how one of the main taxes in Georgia namely, value added tax (VAT), is accrued and accounted for, who is required to pay it, and most importantly, who is exempt from it. This information is remarkably worthy of note for non-residents intending to incorporate in Georgia.
What is VAT and who is required to pay this tax in Georgia?
Value added tax is an indirect tax that adds to the cost of delivered (imported) goods and services, and is paid by the consumer/importer. In this case, the obligation to pay it lies directly with the importers or suppliers of products/services, who are registered as a VAT payer.
In accordance with Georgian legislation, this tax obligation shall be borne by:
- persons registered as taxpayers;
- persons who are required to register as a payer of this type of tax;
- importers or entities/persons temporarily importing goods into the country (however, this requirement applies only to the specified goods and does not necessarily require a person to register as a VAT payer);
- non-residents providing services on the territory of Georgia without being recorded as a VAT payer or without registration of a permanent establishment for tax accounting purposes (in relation to only the particular services in question);
- a person who, transfers property (goods) to the creditor within the framework of contractual arrangements to secure an obligation, (only for this transaction and is refundable without obligation to register);
- a person whose goods are sold to cover a fiscal debt or in order to pay for another monetary obligation (other than fines imposed by criminal and administrative laws) at an auction, direct sale or otherwise (only for this transaction, without obligation to register);
- a person whose collateral has been sold in accordance with the Georgian legislation in the insolvency process (only for this transaction, without obligation to register).
The VAT rate in Georgia is 18% of the taxable turnover or import of goods. In case of temporary import of goods – 0.54% of the duty envisaged for the temporary import of goods – for each complete and incomplete month during which the goods are in the customs territory of the country, but not more than 18%.
Learn more how to avoid paying VAT after registration of a company in a tax free zone of Georgia.
Who is required to register as a VAT payer in Georgia?
Private entrepreneurs and companies whose turnover over a 12 continuous months exceeds 100,000 GEL (about 34,000 USD) have an obligation to pay Value Added Tax. It is necessary to apply for registration within 2 business days after the specified amount is exceeded. At the same time, obligations to pay VAT arise starting from the transaction that is in excess of GEL 100,000.
Registering as a VAT payer in Georgia is quite simple, and you can accomplish this by either of the following two methods:
- by means of directly visiting any branch of the Revenue Service;
- by means of an application in electronic form through the portal of the Revenue Service.
You may also become a VAT payer on a voluntary basis.
Cases when it is possible to revert the status of VAT payer in Georgia
A private entrepreneur or legal entity has the right to apply to the Revenue Service with an application to cancel its registration as a payer of a value-added tax, in the following cases:
- if the total amount of taxable transactions over the past 12 months does not exceed GEL 100,000 (excluding non-taxable transactions and taxable transactions excluded from deduction) and 1 year has elapsed since the date of the last registration as VAT payer;
- if the following conditions are met simultaneously: a person has voluntarily registered as a tax payer; 30 calendar days have elapsed since registration ; there are no facts confirming the presence of taxable transactions; no VAT returns were filed.
Deadlines for submitting declarations and paying VAT in Georgia
In accordance with applicable law, VAT payers are required to submit declarations and pay a VAT on a monthly basis, no later than by the 15th day of the following month.
In cases of temporary importation of goods:
- if the company / entrepreneur is not registered as a VAT payer – no later than the 15th day of the month following the reporting month; furthermore the last payment should have been made no later than by the day when the temporary import of goods has been completed. The VAT payer may also choose the option of fulfilling all obligations in full;
- if a person/entity is registered as a VAT payer, it does not need to additionally accrue a value added tax, as it is considered that the VAT payer has already recorded the corresponding amount of fiscal obligations for these goods.
In case of import of goods, VAT is paid in accordance with the rules established for the payment of import duties. However, for goods that relate to codes: 8401-9033, the accrued VAT is paid no later than 45 days after the release of the goods.
Practical issues related to Value Added Tax in Georgia
Is a company / entrepreneur obliged to register as a payer of VAT if it is a manufacturer / importer of excisable goods?
Only if the import of excisable goods is exempted from VAT; otherwise the company / entrepreneur should apply to the Revenue Service to register as a tax payer before the actual delivery of excisable goods.
An individual sold to an apartment at a price exceeding GEL 100,000. Does he/she need to register as a VAT payer?
No, as in Georgia the sale of up to 4 real estate objects that has been owned by an individual for a period of 48 months is not considered to be an economic activity and is not subject to VAT.
An individual rents an apartment or commercial property and for 12 months its revenue exceeded 100,000 GEL. Is he obliged to register as a payer of value added tax?
The rental of property in accordance with the law is a taxable type of activity, and therefore, once the revenue from such activity has exceeded the established threshold, the person must register as a VAT payer within 2 business days.
An individual sold his share in the company which he owns, for an amount exceeding 100,000 GEL. Does he need to register and pay VAT?
The sale of a share of a legal entity is a financial transaction that is exempt from VAT and is non-deductible. Accordingly, an individual is not required to register as a VAT payer or incur fiscal obligation in this regard.
Is it necessary to pay tax on interest received by an individual on a loan if the amount exceeds 100,000 GEL?
Interest income is not subject to VAT, and therefore an individual does not need to register as a VAT payer.
A VAT-payer company transferred goods to another company for free. Will this transaction be taxed?
Free transfer of goods is considered a taxable transaction and therefore subject to taxation. In this case, fiscal obligations are calculated based on the market value of the goods.
In case of canceling the registration of a company in Georgia as a VAT payer, does VAT apply to the goods in stock?
All goods received by the company one day before the date of cancellation of registration are taxed, and the amount of taxable transactions is calculated on the basis of balance sheet data.
A non-resident rendered services to a VAT payer in Georgia, can a VAT payer count on tax refunds and on what basis?
For a tax refund to a person registered as a VAT payer, the amount of compensation calculated and reflected in the VAT return is the basis for receiving a deduction at the same time.
How is a non-resident taxed in Georgia?
Services provided by a non-resident to a tax agent in Georgia are taxed in accordance with the VAT refund policy. The tax agent accrues value added tax in the amount payable for the service.
For tax purposes, a tax agent is any resident company/entrepreneur (except for a nonprofit person and an enterprise of a free industrial zone) and a non-resident permanent establishment. In this case, it does not matter whether or not the tax agent is registered as a VAT payer.
A resident of Georgia purchased an intangible asset (license) from a non-resident. Is this transaction subject to VAT?
A resident of Georgia purchases an intangible asset that is taxed because the place of service is the place of registration of the person receiving the service (Georgia). Accordingly, the amount paid for the purchase of intangible assets to a non-resident will be taxed at a rate of 18% of refunded VAT .
In which cases non-residents do not pay VAT?
Value added tax is not paid by companies with export revenue in the event:
- if they are registered in one of the Free Industrial Zones of Georgia. In principle, VAT does not apply in the territory of these zones, therefore the cost of services and goods is 18% cheaper than in another state
- if they are representatives of the IT sphere who have received the status of “Virtual zone entities” of Georgia.
In the context of tax optimization, these taxation regimes are very attractive for non-residents who intend to incorporate a company in Georgia.
If you need to optimize your expenses and at the same time have an opportunity to make international payments, we recommend that you register a company in Georgia with an account with your local bank or in an international payment system. Please contact us at email firstname.lastname@example.org and we will help you identify the most suitable solution for your particular business needs at an international scale.