Private sector related activities. To fulfil this obligation the council works in few directions. According to the presidential decree N1324, a Presidential Commission on Support of the Private Businesses in Georgia was formed in the year 2000. By means of close cooperation of the Commission and FIAS, it became possible to study all administrative barriers to investment (see above). As a result, the problems impeding the development of business in Georgia were identified. On the basis of the results of this study, the recommendations were drafted and action plan was compiled, which was approved by the president of Georgia. The commission of cooperation with investors conducts permanent monitoring of fulfilment of the action plan, appraises its fulfilment and prepares relevant recommendations. The Secretariat of Foreign Investment Advisory Council actively cooperates with other donor organizations in terms of the private sector development projects.
- Tax Regime
- Taxation System and Tax Rates in Georgia
Legal Framework. The Tax Code of Georgia, adopted on June 13, 1997, is the principal law on taxation policy and administration. Other legislation that regulate taxation include the Administrative Offences Code, the Criminal Code, bankruptcy legislation, customs legislation, the Law on the Road Fund of Georgia, and the Law on the Medical Insurance Fund of Georgia.
The taxation system in Georgia includes both national and local taxes; the latter are set by local authorities following guidelines and limits set forth in the Tax Code. Every taxpayer must register with their regional tax inspectorate and is given a tax identification number, which must be indicated on all tax documents.
Taxes Paid by Individuals, Individual Enterprises.
Income Tax. Income tax must be paid on wages and income earned from economic activity, including income received in non-monetary form. Physical persons, both resident and non-resident, individual enterprises, and entrepreneurs are subject to this tax. Under Georgian law, residents are physical persons in the territory of Georgia for more than 182 days during any 12-month period ending in a given tax year.
An individual enterprise is defined as an entity owned and managed by a single person, an enterprise run solely by family members, or a farm solely owned by an individual or members of that individuals family. Physical person entrepreneurs are individuals who engage in entrepreneurial activity without first establishing themselves as legal persons (and in accordance with the entrepreneurs law). Physical person entrepreneurs and individual enterprises with annual gross income equal to or less than 24,000 GEL are subject to a presumptive tax in lieu of an income tax. The presumptive tax is described in the next section.
Georgian residents must pay income tax on gross income from all sources (Georgian and non-Georgian) received during the tax year, regardless of where the income was earned or paid, less allowable deductions.
Non-residents must pay income tax, but only on income received from Georgian sources. Non-residents who engage in economic activities through a permanent establishment are subject to profit tax on gross income received during the tax year from Georgian sources connected with the permanent establishment, less allowable deductions.
Taxable income is composed of the following:
- Salaries and wages
- Dividend, interest, and royalty payments
- Income from the lease or rental of property
- Income from the write-off of debts
- Income received from the supply of goods or performance of services
- Gains from the sale of assets
- Income received as a result of the restriction or closing of an entrepreneurial activity
- Income from the sale of shares in an enterprise
- Income in the form of insurance payments paid under agreements for the insurance or reinsurance risk in Georgia.
In addition to monetary wages, benefits are considered wage income and are taxable as part of gross income. Generally, benefits are included in income at the market price at the moment of receipt, reduced by any portion of the benefit paid by the employee. These include: use of an automobile for private service; gifts of goods or gratuitous performance of services; educational assistance to the employee or dependents; and employee expenses reimbursed by the employer.
Table 18.104.22.168 shows income tax rates. Income tax on dividends, interest payments, and payments to non-residents are withheld at the source of payment and are subject to different rates. Dividends and interest payments are taxed at the rate of 10 percent. Dividends and interest payments received by physical persons, taxed at the source of payment, are not subject to additional taxation. Further, taxes paid on the first 3,000 GEL of combined interest and dividends may be applied to reduce the taxpayers tax liability, assuming adequate documentation of the tax payment is provided.
Table 22.214.171.124: Income Tax Rates
Amount of taxable income during the tax yearTax rateUp to 200 GEL12% of the taxable income201 to 350 GEL24 GEL + 15% of the amount in excess of 200 GEL351 to 600 GEL46.5 GEL + 17% of the amount in excess of 350 GELMore than 600 GEL89 GEL + 20% of the amount in excess of 600 GELSource: Tax Code.
Tax agents who withhold tax at the source of payment are required to:
- Transfer the tax to the budget when making payments to physical persons;
- When paying wages, issue to the physical person receiving the income (at his or her request) a statement with the persons name, amount and type of income paid, and amount of tax withheld; and
- Within 30 days of the end of the tax year, present to the tax agencies and, if requested, to the person paid, a statement containing the persons registration number, total income, and total amount of tax withheld during the year.
Physical person entrepreneurs and individual enterprises are required to submit income tax payments in three instalments, based on their income tax liability for the previous year. Instalments are applied against the taxpayers actual liability. Payments may be reduced if income in the current year is expected to be at least 30 percent less than income in the previous year. Taxpayers with no income from the previous year must make payments based on actual income during the previous quarter.
Tax payers are required to submit returns before April 1st of the year following the reporting year. Before the income tax return due date, taxpayers may apply to the tax authorities for an extension of time to submit their returns. Taxpayers who cease entrepreneurial activity must submit a tax return within 30 days of the cessation of activities.
Taxes Paid by Enterprises.
Profit Tax. Profit taxes must be paid by Georgian entities and foreign entities with permanent establishments in Georgia. Foreign entities that do not have permanent establishment presence in Georgia are taxed via a withholding tax at the source of payment, as stated above. Enterprises are defined as:
- Legal persons established according to the legislation of Georgia
- Corporations, companies, firms, and other entities established pursuant to the legislation of foreign states
- Branches and other separate units that are structural units of the entities indicated in the first bullet and that have their own balance sheet and a separate settlement or other account.
Georgian and foreign enterprises are distinguished by place of activity and management. A Georgian enterprise has its place of activity or management within the territory of Georgia, whereas a foreign enterprise has its place of activity or management outside the territory of Georgia. If there is more than one place of management or activity, or the place of management and activity do not coincide, then the predominant location should be used to determine the place of activity or management.
Individual enterprises and physical person entrepreneurs are subject to income tax (or presumptive tax), not profit tax. Branches and other units of an enterprise do not pay profit tax separately, but aggregate profit with the main enterprise, which pays the full profit tax.
Georgian enterprises are taxed on gross income, which includes all income regardless of its source or place of payment, less allowable deductions. The profit tax is a flat rate of 20 percent. Foreign enterprises are also subject to profit tax, the extent to which depends on whether the foreign ente