Georgia

Georgia

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An individual’s liability to income tax in Georgia is determined by residence status for taxation purposes and the source of income derived by the individual. Income tax is levied at a flat rate on an individual’s taxable income for the year. Residents are taxed on worldwide income (however, overseas income of resident individuals is exempt from income tax) and non-residents are taxed on their Georgian-sourced income only.

Key message

Extended business travelers are likely to be taxed on employment income received in Georgia.

Income tax

Liability for income tax

Income tax payers are resident and non-resident individuals of Georgia. Residency is defined by the Tax Code of Georgia (TCG) as follows: 

  • During the entire current tax year, an individual shall be recognized as a resident of Georgia if he/she was ‘actually present’ in the territory of Georgia for 183 days or more in any continuous calendar 12-month period ending in this tax year, or was in the Georgian state service abroad during the tax year. 
  • ‘Actually present’ shall be considered as the time of actual presence in the territory of Georgia during which a person has been in the territory of Georgia, as well as the time period which he/she has spent outside the territory of Georgia specifically for the purposes of medical treatment, vacation, business trip, or study. Time during which a person was in Georgia is not considered as a time of actual presence on the territory of Georgia if he/she stayed: - as a person having diplomatic or consulate status or as a family member of such person.
  • as a staff member of an international organization under Georgian international agreements, or as a person who is in the state service of a foreign country, and/or a family member of such a person, except citizens of Georgia.
  • exclusively for moving from one foreign country to another through the territory of Georgia
  • for medical treatment or resting purposes.

A day of presence in Georgia is considered any day during which a person actually stayed in the territory of Georgia, regardless of the duration of this stay. The status of residence or non-residence is established for each tax period. Moreover, days to which the person was considered a resident during the previous tax period shall not be considered while establishing residency for the following tax period. 

An individual is regarded as a non-resident of Georgia if he/she does not comply with the criteria established for residency. 

Irrespective of the above-mentioned criteria established for residency, Georgian residency may be granted: 

  • to a high net worth individual according to the rule and the conditions prescribed by the Ministers of Finance and Justice of Georgia. 
  • to Georgian citizen, if it is impossible to identify the residency of this individual for any country and the individual appeals to the Georgian tax authorities. 

Tax trigger points

There is a tax exemption for income from employment of a non-resident employee received from a non-resident employer, provided that the employee spends less than 31 days in a calendar year in Georgia and the expenses on salaries are not attributable to the non-resident employer’s permanent establishment (PE) in Georgia. Otherwise there is no threshold/minimum number of days that exempts the employee from the requirements to file tax returns and pay tax in Georgia.

To the extent that the individual qualifies for relief in terms of the employment income article of an applicable double tax treaty, there will be no Georgian tax liability.

Types of taxable income

Generally, all earnings (whether in cash or in the form of a benefit-in-kind), made by an employer to an employee, are taxable unless specifically exempted. 

Tax rates

For the year ending 31 December 2016, the following rates apply for various types of income:

Residents 

Type of income Tax Rate Taxable through withholding (W)/ Filing tax return (R)
Employment 20% W
Interest from Georgian source 5% W
Dividends from Georgian source 5% W
Taxable income of entrepreneur individuals 20% R
Royalty 20% W
Capital gains 20% / 5% R
Rental income from residential space 5% W/R

 

Non-residents

Type of income Tax Rate Taxable through withholding (W)/ Filing tax return(R)
Employment 20% W
Dividends 5% W
Interest 5% W
Royalty 5%
W
International traffic, international telecommunication
10% W
Rent
20% / 5% W
Other payments (except for sale ofproperty) 10% W
Service payments (including interest and royalty) to a nonresident in the list of offshore countries 15% W
Taxable income of individuals throughhis/her PE 20% R

 

Social security

Employers, employees, and individual entrepreneurs are not liable to any obligatory social security payments on income paid/received.

Compliance obligations

Employee compliance obligations

Annual income tax returns must be filed by non-resident or resident individuals who derive any Georgian-sourced income which are not subject to withholding tax. 

Income tax returns are due by 31 March following the tax year-end, which is 31 December.

Employer reporting and withholding requirements

Normally withholdings from employment income are covered under the Pay-As-You-Earn (PAYE) system. If an individual is taxable on employment income, the employer has a PAYE withholding requirement. Particularly, the employer (who is considered as a tax agent according to Georgian tax legislation) shall withhold taxes at the source of payment and transfer to the budget upon salary payment. In case of benefits-in-kind, the taxes should be withheld and paid to the budget no later than the last day of the respective month. 

Monthly withholding tax returns must be filed by tax agents. Withholding tax returns are due by the 15th day of the month following the reporting month. Within the same deadlines the employer is obliged to present to the tax agency a statement reflecting the registration number of that person, his/her name, living address, the total amount of income, and the total amount of tax withheld during the reporting period. 

In the case where salary is paid by a non-resident entity and this expense is not attributable to PE expenses, the employee may have to account for income tax. 

Immigration

Immigration Compliance

Administrative sanction may be imposed for violation of legal terms of stay on territory of Georgia. Maximum penalty is GEL 360

Other issues

Double taxation treaties

Georgia has entered into double taxation treaties with more than 35 countries to prevent double taxation, and allow cooperation between the Georgian and overseas tax authorities in enforcing their respective tax laws.

Permanent establishment implications

There is the potential that a PE could be created as a result of extended business travel, but this would be dependent on the type of services performed, the functions and level of authority of the employee, and the specific terms of any applicable double tax treaty.

Indirect taxes

Georgia imposes value-added tax (VAT), which is a tax on consumer expenditures. Businesses (that are VAT registered and fully taxable) do not bear the final costs of VAT. They are able to charge VAT on the supplies that they make (output VAT) and recover VAT on purchases that they have made (input VAT). 

VAT is applicable at 18 percent of taxable supplies. Some goods and services may be exempt from VAT (with or without the right to credit input VAT). 

Transfer pricing

The TCG contains a specific chapter on transfer pricing with rules based on the Organization for Economic Co-operation and Development (OECD) arm’s length principle and OECD methods. The TCG states that the guidance on the application of transfer pricing rules is issued by the Minister of Finance (MOF). Accordingly in December 2013 MOF issued the instruction on “Pricing International Controlled Transactions” defining transfer pricing methods and their application, comparability criteria, documentation requirements, information sources on arm’s length prices, procedure for application of arm’s length range, procedures on advance pricing agreements and other procedural issues. The TCG and the current administrative practice recognize the concept of ‘market price’ with respect to transactions between related parties.

Work permit / visa requirements

Individuals visiting Georgia to carry out the labor activities, representatives and consultants of companies, who travel to Georgia to perform their duties, aliens, who enter Georgia to work on the basis of the labor contract, individuals visiting Georgia to carry out entrepreneurial activities need to obtain the immigration visa. Immigration visa is a prerequisite for issuing residence permits.

The citizens of the EU, USA, Canada, the former Soviet Union and some other countries do not need visa to enter Georgia for 1 year.

Local data privacy requirements

Georgia has data privacy laws.

Exchange control

Georgia does not restrict the flow of Georgian or foreign currency into or out of the country. Certain reporting obligations are imposed, however, to control money laundering. Certain limitations on the amount of importing and exporting of cash (or securities) without customs declaration are applied (the limit is 30,000 Georgia lari (GEL) (approximately 13, 000 US dollars), or its equivalent in foreign currency).

A bank account cannot be opened in Georgia without proof of identity. 

Non-deductible costs for assignees

A person is declined a deduction for an amount of expenditure to the extent to which it is incurred in deriving income from employment. Furthermore, as a rule, expenses not related to economic activity are not deductible from the gross income.

Other immigration considerations

The Ministry of Foreign Affairs of Georgia issues immigration visa to aliens residing in Georgia legally. There is an  e-Visa Portal function within the Ministry of Foreign Affairs. You can access to the electronic application on the following link: www.evisa.gov.ge

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