Guide To Taxation And Investment In Georgia
Guide to Taxation andInvestment in Georgia
Guide to Taxation and Investment in Georgia 2016Table of ContentsBusiness and Investment Environment3Taxation in Georgia 14Tax & Legal contacts — Georgia44Office locations 452
Guide to Taxation and Investment in Georgia 2017Businessand InvestmentEnvironment3
Guide to Taxation and Investment in Georgia 2017IntroductionGeorgia is the aspiring economic centerof the Caucasus. It boasts years of robusteconomic growth, liberal tax and laborlegislation, business friendly practices,low corruption, high security and opennessto foreign investment. Georgia signedthe association agreement with the EUin 2014 and an aspiration to join the EU willguide future policy decisions. On February2nd 2017, the European Parliament votedin favor of visa-free travel for Georgiancitizens to the Schengen Area at theplenary session and the visa-free regimebetween Georgia and the EU will enterinto force in April 2017. Georgia has stateand private investment funds that welcomeforeign investments to implement largescale projects in agriculture, tourismand hydro energy generation.The World Bank rated Georgia as the 16theasiest place in the world (among190 countries) to do business in 2017.Heritage Foundation ranked Georgia 13th(among 180 countries) for its economicfreedom in 2017. Georgia has a Standardand Poor and Fitch ranking of (BB-)for the 2017 fiscal year. Internationalsecurities markets showed their confidencein Georgia by the oversubscribedpurchase of the state bonds in 2011.The state securities trade at about 450bps above the comparable US treasury4rates. Georgia has ongoing IMF programas a stand-by, if financial need emerges,considering the tensions in the country’smajor trade partners: Russia and Ukraine.The government’s statement of the longterm priorities and plans emphasize energy,agriculture, regional trade. Georgia hasminerals, water, hydro power and goldresources. Expansion of the financialsector, hydropower, mining, apparelproduction, telecommunications, on-landand sea transport services significantlyenhanced the country’s GDP.Georgia has a picturesque sea cost and twomodern seaports allowing easy access toall the world’s marine centers. Georgia hasa track record of prudent macroeconomicmanagement, with low budget deficitsand low inflation. Georgia is a small openeconomy, not immune to the economictrends of the trading partners. On the positivenote, the cheaper local currency may facilitateexports. The Central Bank and the Ministryof Finance coordinate their efforts tocounteract negative international trendsthat led to the depreciation of the localcurrency. Georgia has large unemploymentand predominantly young population, whichcan be a benefit for the firms seeking to enterthe market. However, some skills upgrademay be needed for the local, entry levelhires. As in any transitional country, changesand fine-tuning of policies are frequent
Guide to Taxation and Investment in Georgia 2017which may lead to confusion. Penalties for tax and that will allow Georgian market reforms to advancecustoms violations are strict and so is theirin the right direction.enforcement.The Tax Code was simplified, but someThe effective Tax Code of Georgia was enacteduncertainties remain. The Ministry of Financefrom September 2010, uniting the tax and customs officials strive to limit the number of Tax Codelegislation. Many consider that the introduction of amendments per year to a maximum of threea new Tax Code is the major step forwardpackages and establish clear rules of tax dispute.Georgia country key factsPopulationTerritoryAutonomyNeighbor statesCapitalOther main citiesCurrencyLanguageStock ExchangeOfficial share index53.72 m (2016)69,700 square kilometersAdjara Autonomy Republic, Abkhazia Autonomy RepublicAzerbaijan, Russia, Turkey, ArmeniaTbilisi (pop. 1,113 000)Kutaisi (pop. 147,900), Rustavi (pop. 126,000), Batumi (pop. 154,600)Georgian Lari (GEL)GeorgianGeorgian Stock Exchange (GSE)GSE Index
Guide to Taxation and Investment in Georgia 2017Deloitte in GeorgiaDeloitte provides services to Georgian clientsand investors in Georgia from its officein Tbilisi. The firm offers accounting, statutoryand international auditing, tax consultingand legal services. The Georgian officeof Deloitte is part of the Deloitte ToucheTohmatsu global network.We offer our clients locally oriented, individualservices with the background and resourcesof an international organization. We havethe strength, knowledge and expertiseto provide sound advice for any businessneeds, anywhere in the world. When youcall on us, you call on the resourcesof a strong local practice and an integratedglobal network. For a relatively newmarketplace, our experience is wide-rangingand comprehensive. The scope of our servicesmatches the needs of our clients. In this rapidlyevolving market, we have toremain flexibleand responsive to the needs of our clients.Forms of Business OrganizationThe main types of business organizationsin Georgia are general partnership, limitedpartnership, Limited Liability Company,joint-stock company, cooperative. Foreignorganizations can also pursue their businessinterests using the registered branchesand representative offices. An individualperson can also conduct entrepreneurialactivities as an individual enterprise.6Legal Requirements for Establishinga Company in GeorgiaIn order to establish an enterprisea number of documents must be submittedto the National Agency of Public Registerof Georgia. The documents requiredare stipulated in the “Law on Entrepreneurs”,namely: Article of association or the charter,which includes: company name, legal form,legal address, official email address, mainactivity, name, first name, date, place of birth,and place of residence of an entrepreneurand every founder of the partnership,company name and informationon its registration in case the founderis a legal person; representative authorities.In addition to the above mentioned,limited liability companies and limitedpartnerships should submit informationon the contributions made by each founder,and their shares, accordingly; name, firstname, date and place of birth and addressof each director, and each memberof supervisory council (if any); full informationon the enterprise’s authorized representatives,directors, procurators (if any). Limitedpartnerships should also submit the listof limited partners as well as the list of general(personally liable) partners.If the partner is a legal entity, the decisionof partners on founding a companywould also be needed.
Guide to Taxation and Investment in Georgia 2017If the director of the companyis not the founding partner of the company,in this case his/her consent of becomingthe authorized representative would alsobe required for submission.Notarization of the registration applicationshall not be mandatory if the authorizedpersons sign it in person at the registrationauthority or if the registration applicationhas been duly certified by the administrativeauthority. It should be taken intoconsideration that a document confirmingthe contribution to the authorized capitalis not required and a document certifyingthe title to the enterprise’s office premisesis required by the state authority.The National Agency of Public Registerof Georgia registers the enterprise withinone day after the date of submissionof the documents. In case the stateauthority fails to register the enterprisewithin the mentioned period, they providea substantiated refusal or a reasonto the applicant in order for the enterpriseto correct an error indicated by the stateauthorities within 30 calendar days aftersubmission of the application form.In order to register an individual enterprisean individual person must submitto the National Agency of Public Registerof Georgia an application. The state authorityregisters the individual enterprise withinone day after the date of submissionof the documents. The applicationform must include: name of individualentrepreneur; first name and surname,place of residence, ID Number, the dateof the submission of the document, signatureand e-mail of an individual entrepreneur.Establishing a Branch of a ForeignCompany in GeorgiaFirst of all, the foreign companyshould notify the National Agencyof Public Register of Georgiaof the intention to establish a branch.The following documents are requiredby the state authorities for the registrationof a branch: decision of the enterprisemanagement on creating a branch, a copyof the enterprise’s and a branch’s statutes,decision on appointment of a branch manageror warrant giving him a power of authority,copy of passport, consent of a Director who willbe appointed as the director of the Branch.Authorized Capital and Contributionsof PartnersIn terms of the Law “On Entrepreneurs”,the authorized capital of a Limited LiabilityCompany may be determined with any amount.A Joint-Stock Company is a company withthe authorized capital divided into shares.The minimum nominal value of the authorizedcapital may be determined with any amount.The most frequent form of ownershipin Georgia is a Limited Liability Company.7
Guide to Taxation and Investment in Georgia 2017Licensing and Compulsory Notificationto State AuthoritiesThe law of Georgia, #1775 on “Licensesand Permits” adopted on 24 June 2005,that abolished the Law #1426 dated14 May 2002, defines business activitiesto be licensed by the corresponding stateagencies. It is prohibited to establishany license for an activity that is not providedby the abovementioned law.Furthermore, the law enumerates the typesof business activities which require notificationto the corresponding state agencies.Acquisition of Real Estate in GeorgiaThe transfer of title to immovable propertyis regulated by the Civil Code of Georgia(which came into force on November25, 1997). Immovable property includesland-plots with fossils (minerals), plantsand buildings.In order to purchase immovable propertyit is necessary to submit a legalized(notarized) document indicating ownershipand an extract of the purchaser’s registrationin the National Agency of Public Registerof Georgia. The seller and purchaser couldalso submit an application for registration.The title to agricultural land plots is grantedto citizens of Georgia and private legal entitiesregistered according to Georgian legislation.8Exchange ControlsGeorgia has adopted a very liberal monetarypolicy that is investor friendly. Thereare some legal restrictions for taking foreigncurrency in or out of Georgia both in cashand credit forms. A loan can be issuedin a foreign currency to an individualif the amount of the loan exceedsGEL 100,000 (hundred thousand). In January2017, the president of the National Bankissued Orders N4/04 and N5/04 thatenable commercial banks to issue loansand bank credits to individuals in the amountof GEL 100,000 (hundred thousand)and below in foreign currency in casethe borrower is not a citizen of Georgia.The National Bank of Georgia pursuantto the Law on “The National Bank of Georgia”No. 24/04 dated April 7, 2011, controlsthe monetary regulations in Georgia.In terms of the Decree of the Presidentof Georgia No. 363, dated September16, 1995, all legal and physical entitiesare obliged to estimate all prices for productsand services, prepare declarationsand calculations within the territoryof Georgia only in national currency,which is Lari. Therefore, Georgiancurrency is the only permitted instrumentfor settlements within the territoryof Georgia.
Guide to Taxation and Investment in Georgia 2017Bank Accounts and Confidentialityof Bank Information in GeorgiaResident and nonresident entities of Georgiahave a plenipotentiary power to openand dispose of any accounts in nationalas well as any other foreign currency.In order to open foreign currency bankaccounts the entities conducting theiractivities in Georgia are obliged to submita document confirming their registrationwith the National Agency of Public Registerof Georgia or the tax authorities. As for legalentities and their branches, in order to openan account they are required to submitadditional documents confirming theirregistration and foundation.Cash may be transferred abroad withoutany limitation, provided there is a validorder by the nonresident owner of the bankaccount instructing the bank of this transfer.In order to transfer foreign currency abroad,residents (entrepreneurs) are requiredto indicate in the payment order the purposeof operation and present the documentsconfirming the legality of the operationto be performed.In the territory of Georgia paymentsbetween residents and nonresidentsare to be carried out in the nationalcurrency of Georgia, except for operationsconnected with export and import activitiesthat may be performed in any foreigncurrency acceptable to the parties.According to the Law of Georgia, #121on Activities of Commercial Banks (dated23 February 1996), disclosure of confidentialaccount information is prohibited.Suchinformation may be disclosedonly on the basis of a Court decision.Investment IncentivesObject of Investment Activitiesand Rights of Foreign InvestorsThe Law of Georgia “On Promotionand Guarantees of Investment”No. 473, dated November 12, 1996determines the legal grounds of makingboth foreign and domestic investmentsin Georgia and guarantees their protection.An Investment is any kind of propertyor intellectual value or right to be contributedand used in the entrepreneurial activitymade on the territory of Georgia for earningof possible income. An Investor is any physicalor legal person, or international organizationmaking investments in Georgia. A Foreigninvestor may be a citizen of a foreign country(alien), a stateless person not residingin the territory of Georgia, a citizen of Georgiapermanently residing abroad, or a legalperson registered outside Georgia.A foreign investor, whilst executinginvestment and entrepreneurship,9
Guide to Taxation and Investment in Georgia 2017is guaranteed and enjoys equal rightsto those granted a physical and legalperson of Georgia. A foreign investor,after payment of taxes and other mandatorycharges is entitled to repatriate the earnings(income) gained from investmentsas well as other funds abroad withoutany limitation. This right can be limited onlyby law, a Court verdict in case of bankruptcy,committing a crime and violationof civil obligations. Besides, a foreigninvestor has the right to take abroadthe property which he owns.Investment Protection in GeorgiaInvestment in Georgia is entirelyand unconditionally protectedby the applicable law. Investment may beseized in cases directly specified by the law,by the court decision or in case of emergencyestablished by the fundamental law, providedthere is appropriate compensation thereof.Compensation to be given to the investorshall correspond to the real market valueof the confiscated investment at the momentof the deprivation. Compensation shallbe given without any delay and shall accountfor the losses incurred by the investorfrom the moment of deprivation untilthe payment of the compensation.10Compulsory Registration with the NationalAgency of Public Registry of GeorgiaA company registered in Georgia or any entitycarrying out economic activity in the territoryof Georgia should register with the legalentity of public law National Agency of PublicRegister of Georgia on a mandatory basis.The National Agency of Public Registerof Georgia shall assign an identificationnumber to each taxpayer to be usedfor all taxes, including customs tax.Pursuant to the Tax Code, a taxpayer willbe subject to payment of financial penaltiesin case of performing activities without beingregistered with the state authorities.Law of Georgia on Accountingand Financial AuditOn 8 June 2016, Georgian parliament passeda new Law on Accounting and FinancialAudit that will have a significant effecton the businesses environment, challengingcompanies’ ability to quickly adopt to changesof the future with the least possible effecton their operations.The new Law on Accounting and FinancialAudit classifies entities in 5 major categories.Entity should meet at least two of followingcriteria to fall into categories 1-4.
Guide to Taxation and Investment in Georgia 2017CategoryTotal Assets (GEL)Operating Revenue (GEL)EmployeesI 50 mln 100 mln 250II 50 mln 100 mln 250III 10 mln 20 mln 50IV 1 mln 2 mln 10PIEPublic interest entities including: commercial banks and credit institutions,microfinance and insurance companies, non-governmental pensionfunds, investment funds, nonbank depositories and credit unions, othercompanies, defined as PIE by the Georgian Government.Size categories for the Group are determined based on the consolidated financial numbersusing the same table above.11
Guide to Taxation and Investment in Georgia 2017Financial Accounting and Reporting gand es***YesYesPaymentsmadeto the tsmadeto the state*IIIFRS for SME(Optional – IFRS)Yes***YesYesNoneIIIIFRS for SME(Optional – IFRS)NoNoYesNoneIVDefinedby AgencyNoNoYesNone(Optional – IFRS,IFRS for SME)*Payments made to the state is a mandatory report for entities,which perform oil and gas extraction and wood production from natural forest.** Only those PIEs who fall under category I.*** Are not exempt from standalone audit even if they are subsidiariesof the audited group.12
Guide to Taxation and Investment in Georgia 2017Management ReportAll PIE, category I and II entities are obligedto prepare management reports. Financial Statements Management Report Statement on payments made to the stateManagement report shall include: Review of the entity’s activities(development plans, share movements, riskassessment and management tools etc,); Corporate Governance Statement;(Obligatory for listed entities); Non-financial statement. (Obligatoryfor PIE’s which fall in category I).PIE and enterprises of the first and secondcategories shall provide the managementreport to an audit firm for opinion.Management report information can bedisclosed in financial statements of the entity.Management report should include: reviewof the entity’s activities (developmentplans, share movements, risk assessment,management tools etc.)Filing and Publishing Financial Statementsand Enforcement DatesNew regulation will enter into force fromJanuary 2017 for category I, II and PIEand from January 2018 for category III and IV.Following statements should be filledno later than October 1st followingthe reporting period: Audit OpinionOther important requirements An entity shall prepare financial statementsat least once a year and should disclosethe comparative numbers as well; PIEs shall publish financial statements(including consolidated financialstatements) at their webpages; Where an entity / group afteran end of the two successive reportingperiods no longer meets at least two criteriafrom the size category table the sizecategory of an entity / group shall changeand requirements of a new category apply; The entity shall be entitled to use onlya standard permitted for entities belongingto a larger size category; Entities that fall under PIE, categoryI and II are also obliged to have audit of theirfinancial statements done in accordancewith the law even if they are partof the Group that has been audited; Financial statementsand supporting documents shouldbe maintained for 6 years afterthe end of the financial year.13
Guide to Taxation and Investment in Georgia 2017Taxation in GeorgiaTaxation SystemThe Tax Code of Georgia is the principalsource of tax law and is referredto as a normative act. The Tax Code has beenamended several times since it was publishedon December 22, 2004. With effect fromJanuary 1, 2011 the Parliament of Georgiaad
Guide to Taxation and Investment in Georgia 2016 Table of Contents Business and Investment Environment 3 Taxation in Georgia14 Tax & Legal contacts — Georgia 44 Office locations 45. 3 Guide to Taxation and Investment in Georgia 2017 Business and Investment Environment. 4 Guide to Tax
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