Business Environment in Georgia | KPMG | GE

Business Environment in Georgia

2016

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Free Trade Agreement and Incentives for Investors

Deep and Comprehensive Free Trade Area (DCFTA)

Since September 2014 free trade area was set up between EU and Georgia covering the trade in goods, but also energy and services. DCFTA was set up as part of the Association Agreement signed on 27 June 2014 between the EU and Georgia and aims to gradually integrate Georgia’s economy with the European economy. DCFTA will help Georgia gain better access to the EU market for its goods and services and also set a path for further reforms in trade-related policies.

Free Trade Agreement

Georgia’s liberal trade regimes provide investors with favourable trading opportunities. To date, Georgia has signed Free Trade Agreements with CIS countries that include Ukraine, Russia, Belarus, Moldova, Kazakhstan, Azerbaijan, Armenia, Uzbekistan and Turkmenistan, as well as its neighbour, Turkey.

In the beginning of 2016, the final round of negotiations was held between Georgia and the European Free Trade Association. Negotiations were successful and on 27th of June 2016, the FTA will be signed in Geneva, giving Georgian products duty free access to the markets of Iceland, Liechtenstein, Norway and Switzerland.

Technology Park

In the beginning of 2016 the prime minister of Georgia opened a technology park. This is a USD 5 million project, which was started at the beginning of 2015 and completed one year later. The project itself was carried out by the Innovation and Technology Agency of the Ministry of Economy.

Tech Park provides resources for start-ups and is equipped with small incubators, learning centres and laboratories, a library, as well as large offices for companies. It also includes co-working spaces, training centres, showrooms, conference rooms and a recreational space.

Energy

The government of Georgia offers 10-year Power Purchasing Agreements (PPA) for up to 100% of total generation in winter months, the investor has an option to export the remaining generated electricity. Starting from 2008 Georgia has liberalized and deregulated the energy market. Renewable energy projects are based on the Build-Own-Operate (BOO) principle. There are no tariffs set for newly-built hydro power plants (HPP) and the, investor
is free to choose the customer and negotiate the price. No fee is required for the connection to the transmission grid. No license is required for export of electricity and new HPPs have priority access to the capacity on the new
interconnection to Turkey. Generation and export activities are exempted from VAT.

Hospitality and Real Estate

Georgia has two Free Tourism Zones - Anaklia and Kobuleti that offer pre-packaged hotel projects, a free casino license for a hotel with a capacity of over 80 rooms, free land and certain tax exemptions. The Government of Georgia offers to interested investors good terms for the construction of hotels along the seasides within these Free Tourism Zones. The government of Georgia will provide engineering and infrastructural networks to the territories and exempt the investor from profit and property taxes for 15 years.

Manufacturing

As noted above, Georgia has a Free Trade Agreement (FTA) with Turkey and CIS countries, as well as the Deep and Comprehensive Free Trade Agreement (DCFTA) with the EU. Currently there are 5 Free Industrial Zones (FIZs) in Georgia: one in Poti port (operated by Rakia Georgia) two located in Kutaisi (operated by Georgian International Holding and the Hualing Group) the fourth FIZ is just outside of Tbilisi, next to Tbilisi Sea (owned and operated by operated by Georgian Technology Park, a leading blockchain technology company) and fifth in Kulevi (operated by Socar). If a company produces goods for export in a FIZ, the Company is exempted from all taxes. If a company imports products from a FIZ into Georgia, it has to pay VAT and 4% of revenue is to be paid by FIZ enterprise. All FIZs are operated by private companies and investors should rent a space from the FIZ operator.

Agriculture

The government of Georgia initiated two new projects which support agriculture development in Georgia:

– Cheap agro-credit program – 11 banks are involved in this program, where part of loan interest payments are
subsidized by the Agriculture Projects Management Agency (under the Ministry of Agriculture).
– Grants for agro processing companies – new agriculture processing factories (minimum value of project USD 200,000) can get a grant (maximum GEL 500,000 and 40% of total project) from the Agriculture Projects Management Agency.

Other Conditions

– Work Permit – According to the Ministry of Foreign Affairs of Georgia no work permit and/or visa/ residence permit is needed for citizens of EU, the US and a number of other states for up to 365 days (total of 94 countries).*
– Produce in Georgia – The program was initiated by the government of Georgian in June 2014.

In the beginning the aim of the program was to support industrial manufacturing and agriculture processing in terms of financial and infrastructure support and technical consulting. According to the new initiative of the government, a hotel development incentive scheme has been introduced within the program. In the frames of this initiative entrepreneurs receive financial and technical assistance from the state.

Additionally, the program was recently expanded to encourage the film industry development in Georgia. The government offers international and local producers a special 20-25% cash rebate scheme on the qualified expenses incurred in Georgia. Both, the hotel development and the film production incentive programs are implemented by Enterprise Georgia, the body under the Ministry of Economy and Sustainable Development

 

© 2017 KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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