One of Georgia's greatest advantages in terms of economic attractiveness is the simplicity of its administrative procedures for setting up a business and above all, the country's very advantageous tax system: the Georgian government's policy has been aimed, for about ten years now, at attracting as much foreign investment as possible, by enacting, law after law, new tax exemptions for foreign investors who plan to set-up a company in Georgia. So much so that Georgia has become the ninth lowest taxed economy in the world.
The new corporate tax regime came into force in 2017 and allows companies incorporated in Georgia (with some exceptions) to pay corporate income tax after the distribution of dividends. In other words, if these companies reinvest their profits, they do not pay tax on the amount reinvested. This is already a very interesting tax benefit when starting a business in Georgia, but the country offers an even better tax system for IT companies to develop their activities. If you are planning to set up an IT company in Georgia, and in order to make the most of it, you must apply for "Virtual Zone Status" to benefit from other tax incentives with the Georgian government.
THE VIRTUAL ZONE STATUS
In accordance with Article 8 of the Georgian Tax Code, a legal entity with the status of Virtual Zone Person, is a legal person operating in the IT sector, having been granted a certificate issued by the Georgian Government attesting to this status.
IT or Information Technology includes the study, support, research and development, design and deployment of computers and related technologies to produce software products, applications and IT services.
In accordance with Article 99 of the Georgian Tax Code, a company with this VZP Status has the advantage of not paying corporate income tax in Georgia. The sole restriction is that this income must come from the supply of IT services and products (in the very broadest sense: website development, application development, software development, etc.) to non-resident customers.
HOW TO OBTAIN THIS VIRTUAL ZONE STATUS?
- The process of obtaining VZ Status is quite easy and fast, making the process even more interesting for IT companies.
- A limited liability company (LLC) is the most popular legal form in Georgia. Its registration is fast, generally it only takes one day to register, there is no minimum capital required.
- Once the company is registered, its IT activity is defined in the company's articles of association, the company can apply for Virtual Zone status.
- Usually, the authority issuing the Virtual Zone Status requires proof of three years' activity in the IT sector, but this is not mandatory, especially for companies newly registered in Georgia seeking to obtain the status. It usually takes ten days to get it.
- The status issued by the tax authorities to the IT company can no more be revoked if the company meets the main requirement for the supply of IT services abroad.
PAYMENT OF VAT
The tax benefits granted to IT companies are not limited to direct taxes. Articles 160 and 161 of the Georgian Tax Code provide that VAT is only due in Georgia for transactions carried out on its territory. The terms of Article 166 also provide that VAT may not be charged if IT services are supplied to non-residents, such services are considered to be carried out outside the territory.
HOW MUCH AND WHAT TAXES SHOULD BE PAID IN THE END?
The taxation of companies and freelancers in the Virtual Zone complies with the rules and standards established by the Georgian Tax Code. Any company or individual holding this status is exempt from:
- Taxes on the revenue earned by supplying their IT services and products beyond Georgian borders
- VAT or Value-Added Tax on the services and products delivered outside the borders of Georgia
- Export duties or taxes on IT products exported from the customs territory of Georgia
- All the expenses with respect to the income earned by supplying information technology products outside or within the borders of the Georgian territory shall be deducted from the gross income according to the share of the earnings by supplying within its territory.
- Furthermore, the Virtual Zone persons will also be exempted from any special regulation and they will not require licenses, permits or any other regulatory document to carry out business activities on the Georgian soil.
An IT company that provides services outside Georgia after obtaining Virtual Zone status will only pay withholding tax on dividends, at 5%, in accordance with article 130, paragraph 1, of the Tax Code.
If you pay salaries in Georgia, 20% will be withheld at source from the salaries of employees, as well as a property tax, if any, of up to 1% of the average value of the company's assets.
It should be noted that Georgia has concluded 55 double taxation treaties, including with most European states, and provides additional protection for taxpayers against the risk of double taxation. Most of these treaties are based on earlier versions of the OECD Model Tax Convention (2008 and earlier). The list is here, you can download the tax treaty of the country in which you are a resident.
Overall, an IT company that chooses to operate in Georgia to provide services to its foreign customers will not only save taxes, but will also benefit from tolerant regulation, simple administrative procedures, ultra-simplified accounting, low costs, and will be able to take advantage of the available workforce trained in this sector in Georgia.
Our service for the incorporation of an LLC company in the IT sector in Georgia includes ALL the services and fees necessary for the incorporation and proper functioning of such an entity, namely:
- Drafting of the Articles of Association ;
- Registration of your LLC in the Commercial Register;
- Its registration with the tax authorities;
- Opening the company's multi-currency bank account ($-€-GBP-GEL) + debit card + online banking service ;
- Registration of your IT company in the Virtual Zone under the Ministry of Finance of Georgia.
- The address of the registered office;
- Legal Fees; administrative and legal costs.
It should be noted that our clients' time is precious, so to avoid that they travel to Georgia all the procedure can be done remotely via a Power of Attorney.
Important notes :
- No minimum capital is required to establish a limited liability company in Georgia.
- Only one registration is required and it is not necessary to renew the registration each year.
- The number of shareholders can be from 1 to 50 people and there are no requirements regarding the existence of local partners. The company can be wholly owned and managed by foreign citizens.