Business Relocation To Georgia – Corporate and Company Law

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Benefits of relocation of business to
Georgia:

• Strategic geographical location (i.e. a door to Russia and the
  Eurasian Economic Union, a single market of 183 million people, as
  well as to China and to Central Asia) and ease of travel to Europe
  and East Asia with direct flights to major destinations;
• The EU and Georgia signed an Association Agreement on 27 June
  2014, which entered into force since 1 July 2016. The agreement
  introduces a preferential trade regime – the Deep and
  Comprehensive Free Trade Area (DCFTA). This regime increases market
  access between the EU and Georgia based on having better matched
  regulations;
• Georgian Language is the official language in Georgia.
  Residents of Georgia, approximately above 40 years, have good
  command of Russian. English language is quite commonplace across
  all ages;
• A developed and stable banking system, advanced digital banking
  infrastructure, liberal approach towards foreign capital and
  foreign currency, internationally-oriented banking
  regulations;
• The visa policy of Georgia allows citizens of 98 countries to
  enter, reside, work and study in Georgia for 1 full year without
  the necessity to obtain either visa or residence permit;
• Low tax rates and preferences, especially as regards CIT, which
  aims to bolster corporate growth
• Low cost of labor and utilities.

1.Tax rates and tax administration

Tax administration procedures are conducted by Legal Entity
under Public Law (LEPL) within the Ministry of Finance of Georgia
– the Revenue Service.

Tax system of Georgia is composed of national and local taxes.
National taxes include Personal Income Tax, Corporate Income Tax,
Withholding Taxes, VAT, Excise Tax and Import Duty. A Property Tax
shall be a local tax.

Apart from these taxes, employed and self-employed persons are
obliged to make pension contributions to the funded pension scheme,
as a part of the funded pension system.

The Personal Income Tax rate is flat and amounts to 20% of
taxable income. This tax is paid by a resident natural person and a
non-resident natural person earning income from a Georgian
source.

Corporate Income Tax rate is flat and amounts to 15% of the
object of profit taxation and is paid by resident enterprises and
non-resident enterprises that conduct business in Georgia through a
permanent establishment and/or earns income from a Georgian source.
To receive a taxable amount, the object of taxation must be divided
by 0.85. The object of profit taxation shall be a) distributed
profit b) costs incurred or other payments not related to economic
activity c) free delivery of goods/services and/or transfer of
funds d) representation expenses paid in excess of a limited amount
determined under Tax Code of Georgia. Due to the above-mentioned
amendments the existing profit tax model was shifted to the
so-called “tax on distributed profits” model, very
similar to Estonian one. Under the Estonian Taxation Model and
after 2017, January 1 st under the Georgian Taxation system all
businesses, except profit-sharing businesses, should be exempt from
income tax. More specifically, if a company reinvest its profits,
it will no longer be obliged to pay income tax.

Under the Tax Code of Georgia an income tax/profit tax return
shall be filed with a tax authority by 1 April of a year following
the reporting year.

Different taxation rates apply to the different withholding
tax, in particular:

• Dividends paid by a resident enterprise to an individual, a
  non-entrepreneurial (non-commercial) legal entity or a non-resident
  enterprise shall be taxed at source at the rate of 5% of the amount
  payable;
• Interests paid by a non-resident’s permanent establishment
  or by a resident, or on their behalf to an individual or to a
  non-resident having no permanent establishment in Georgia shall be
  taxed at the source at the rate of 5% of the amount payable;
• Royalty paid by a non-resident’s permanent establishment or
  by a resident or on their behalf to a resident individual (other
  than the individual registered as a VAT payer) shall be taxed at
  the source at the rate of 20% of the amount payable.

The Pension Contribution conducted by employed and self-employed
participants’ amounts to 6% of the taxable salary of an
employed person and/or of the income of a self-employed person. In
case of employed participant, The Pension Contribution is divided
up between the Employee, the Employer and the State, each
contributing 2% of the designated amount. In case of a
self-employed person, The Pension Contribution is divided up
between the Self-employed and the State. 4% is contributed by the
Self-employed and 2% by the State.

The VAT rate is flat and amount to 18%. Accounting period of the
VAT is a calendar month. A taxable person registered as a VAT
taxpayer shall submit to a tax authority a VAT declaration not
later than the 15 th day of the month following the accounting
period and shall pay the tax within the same period. A VAT taxable
person shall be considered any person who, at any place,
independently performs any type of economic activity, irrespective
of the purpose and result of the activity. The VAT taxable
transactions include, the supply of goods by a taxable person
within economic activity in the territory of Georgia, for
consideration, the provision of a service by a taxable person
within economic activity in the territory of Georgia, for
consideration, the import of goods.

A taxable person shall, unless otherwise provided for by this
Code, from the day when he/she exceeds the total amount of GEL 100
000 for VAT taxable transactions of supplying goods/providing
services carried out during any 12 consecutive calendar months,
within not later than 2 business days, apply to a tax authority for
registration as a VAT taxpayer. The obligation of a taxable person
to calculate and pay the VAT shall arise from the moment of
carrying out a taxable transaction, just mentioned (including this
transaction), according to which the total amount of taxable
transactions has exceeded GEL 100 000.

Excise Tax rate is different depending on the product concerned.
The accounting period for excise tax is a calendar month. It shall
be subject to payment by the 15 th day of the month following the
accounting period of performing an excisable transaction, except
otherwise provided by the Tax Code of Georgia.

Import Tax rate is different depending on the product concerned.
It may amount to 5%, 12% or fixed tax and its exact amount depends
on the quantity and type of imported product or service.

The property tax rate is no more than 1% of the value of the
property. In all specific cases, the amount of property tax rate
depends on the status of the property owner (whether it is a
natural person or a legal person), as well as the type of property
and the amount of income. The tax period for property tax shall be
a calendar year. An enterprise/organisation shall file a property
tax return with the tax authority by no later than 1 April of a
calendar year, and pay the property tax within the same time
frame.

2.Legal Forms of Business

As per the Law of Georgia on Entrepreneurs, operational after
January 1 st 2022, six forms of doing business are stipulated, one
of which possesses no legal personality and is conducted by the
individual. Legal designation thereof is an individual
entrepreneur. It exercises his/her rights and fulfils his/her
obligations in business relations as a natural person. It is
personally liable to a creditor with all his/her assets for the
obligations arising from his/her business activities, unless
otherwise provided for by an agreement between the individual
entrepreneur and the creditor.

Other five forms of doing business include, General Partnership,
Limited Partnership, Limited Liability Company, Joint-Stock Company
and Cooperative, all of which possesses independent legal identity
and acts as independent legal person.

Partners of General Partnership are personally liable to
creditors, without limitation, for the obligations of the company
as joint and several debtors.

Limited Partnership is composed of General Partner/Partners and
Limited Partner/Partners. The liability of the Limited Partner to
the creditors of the Limited Partnership is limited to a guarantee
amount, whereas General Partner/Partners are personally liable to
the creditors of Limited Partnership, without limitation, as joint
and several debtors.

Limited Liability Company, is a company, the capital of which is
divided into shares and the partners’ liability for the
obligations of which is limited. This Form is mainly used for the
businesses without necessity of acquiring public funding and which
chiefly operate outside of the domain of regulated financial
markets.

Joint-Stock Company is a company whose capital is divided into
shares and shareholders of which are not liable for the obligations
thereof. This is a legal counterpart of the U.S. Corporation,
mainly operating on the regulated financial markets and observing
stringent disclosure and compliance requirements.

Cooperative is a company based on the labor activity of its
members or incorporated to support the economic or social
activities of its members, the objective of which is to satisfy the
needs of its members, and the primary goal of which is not to make
profit.

3. Currency regulation

The Lari (GEL) is the only legal tender in Georgia. Since 1998,
the GEL has maintained a floating currency. There is no informal or
parallel exchange rates in Georgia. Foreign businesses may convert
GEL into hard currency at the market exchange rate and freely
transfer the proceeds abroad without limitation. One may hold
foreign exchange in bank notes or on deposit in designated bank
accounts. There are no limitations on these accounts’
operations.

4. International banking availability (possibility to open bank
account in a local bank etc.)

National Bank of Georgia and commercial banks use SWIFT to
process international payments and messages. There are no
restrictions on the number of bank accounts individuals and
enterprises may hold with Georgian banks. Banking is one of the
fastest growing sectors in the Georgian economy. The cost of
lending remains high but may decline as Georgia’s banking
sector develops.

As of July 1, 2021, Georgia’s banking sector consists of 15
commercial banks, including 14 foreign-controlled banks, with 154
commercial bank branches and 830 service centers throughout the
country. Two Georgian banks are listed on the London Stock
Exchange: TBC Bank (listed in 2014), and the Bank of Georgia
(2006).

Credit from commercial banks is available to foreign investors
as well as domestic clients, although interest rates are high.
Banks continue offering business, consumer, and mortgage loans.

Foreign investors are allowed to open bank account in the local
banks. These accounts are permitted to be in foreign currency.
There is no restriction imposed upon commercial banks by National
Bank of Georgia in this regard.

5. Entry requirements (Visa/work permits)

Categories of visas in Georgia include:

1. Diplomatic visas (Type A);
2. Special visas (Type B);
3. Ordinary visas (Type C);
4. Immigration visas (Type D);
5. Transit visas (Type C).

The one, which relates to the Entry requirements i.e. which
serves working purpose is to be found within Type D.

D1 category of the Immigration visas pertain to persons arriving
in Georgia to conduct labor activities, representatives and
consultants of companies and firms who travel to Georgia to perform
their official duties, aliens entering Georgia to work under
concluded contracts, persons arriving in Georgia to carry out
entrepreneurial activity under the Law of Georgia on
Entrepreneurs.

The visa shall be issued by:

1. The Ministry of Foreign Affairs of Georgia or,
2. Diplomatic mission, the Georgian interests division at a
   diplomatic mission of a third country and a consular office of
   Georgia or,
3. Authorized body designated under an individual administrative
   legal act of the Minister of Internal Affairs of Georgia.

Visa requirements can vary from one embassy to another.
Some of the general requirements include:

1. a completed and signed visa application form;
2. a valid passport with at least one blank page for any entry
   stamp;
3. an employment contract with a company based in Georgia;
4. payment of the visa fee.

In the case of employment of an alien in Georgia, a local
employer shall, within 30 calendar days after the entry into force
of an employment agreement, send a notification on the employment
of an immigrant to the Ministry of Labor Health and Social Affairs
of Georgia in a material or electronic manner.

Foreign nationals should begin the visa application process by
getting in touch with the nearest Georgian consulate or embassy.
The officials at the embassy will be able to provide an accurate,
up-to-date list of the requirements for the visa. Foreign employees
can apply for a visa online through Georgia’s e-application
submission process. Applicants should gather all necessary
supporting documents before beginning their visa application. After
applying online, the applicant will need to submit an additional
hard copy of the completed application form along with the required
documents to the embassy. In some cases, the applicant can mail
these documents to the embassy. Otherwise, they should take them to
the embassy and submit them in person. Upon approval of the visa
application, the employee can travel to Georgia. Once there,
they’ll need to obtain a residence permit from the Public
Service development agency. Spouses and dependents who travel to
Georgia with the employee will need residence permits as well.
Residence permits for foreign workers are valid for one year, after
which they are eligible for renewal for up to five years.

Detailed information as regards this procedure is stipulated in
Ordinance No 280 of the Government of Georgia on Approval of the
Procedures for Issuing, Extending, and Terminating Georgian
Visas.

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.