Business, Taxation and Tourism In Georgia
Georgia, the small but progressive country sandwiched between Russia, Azerbaijan, Armenia and Turkey, is often called “Tbilisi Georgia” too. Tbilisi is in fact the capital city (the name means “warm place”), although it remains a modern quirk that many still say “Tbilisi Georgia” when referring to the country, says Rachel Smith.
Nestling against the Black Sea, Georgia is well known for its seaside holiday resorts, but the country deserves greater recognition by business and high net worth individuals for other reasons besides surf and sand.
It’s in fact surprising how many remain unaware that Georgia and the capital Tbilisi in particular, is a very favourable destination for business, particularly those businesses serving the EU. Long established as “Europe’s most bohemian city” (according to National Geographic and others), Georgia’s cool attitude towards life stems from its long and highly detailed history over the centuries.
More than just cosmopolitan, Georgia has made a concerted effort to be an inviting and user-friendly business portal. Particularly IT companies and small business startups will find a highly enabling environment in Georgia.
THE LOWDOWN ON GEORGIA BUSINESS
Much positive opinion can be found online about Georgia’s commercial savvy. Companies take only a few hours to register, and the process involves comparatively little paperwork with only a brief visit to the registration offices in Tbilisi. Indeed, even Power of Attorney company registration glides through as swiftly, and Georgia is rated second only to New Zealand for ease of company registration.
There is no starting capital requirement for companies, and also no restrictions on foreigners owning companies. There are no restrictions on the nature of directors either. There can be a single director, foreign or resident; there can be multiple directors made up of any mix of the two, and a foreign legal entity is perfectly entitled to own a company in Georgia without any obligatory local inclusion.
Although it might seem trivial to some, the fact that a foreigner who is also a shareholder in a Georgian company can serve as director of the company is a win for many companies looking to relocate with their architecture intact. When married with a maximum 20% corporate tax (although it’s typically much lower), it really is surprising that more European businesses remain unaware of what Georgia offers. Foreign companies looking for a centralised European locale to establish trade within the EU and beyond, will find Georgia to be a truly welcoming state.
Power of Attorney companies — where the owner commissions someone within Georgia to establish the company — fly through registration without any hitch, enabling remote company registration from anywhere in the world. Georgia has made a meal of building detailed legislative architecture to enable not only Free Industrial Zones, but also identifying Virtual Zone persons, and affording international finance companies and tourism ventures special dispensations to enable local business.
TAXATION IN GEORGIA
Zero percent tax is hard to beat, and that’s what many companies enjoy when operating in Georgia’s Free Zones. The zones enjoy special tax structures and other legislation, and many activities within Free Zones attract 0% taxation. IT companies will pay just 5% tax, small businesses pay a negligible 1% tax, and many companies employing sea freight pay only 5% as well.
As a general principle anywhere in Georgia, even regular LLC companies don’t pay tax unless they are periodically distributing dividends. Georgia has long been a transportation node, conveniently linking trade routes between East and West. Legislation governing business has largely been enacted to preserve this status.
Sometimes pro-business destinations offer a great deal, but company owners are still caught in double taxation arrangements back home. Georgia, however, has signed over 56 double taxation avoidance treaties with many different countries, and the country has done a deep dive on possible taxation issues in order to present a genuinely enabling environment to companies establishing themselves there for the long term.
The country also has a seasoned facilitation fraternity — private consultants who will perform company registration, bank account opening, and any other administrative task quickly and smoothly. Although not essential, they can prove very useful when trying to grasp the details in the numerous double taxation treaties Georgia has signed with so many other countries.
Personal income tax is capped at 20%, although income from any foreign source of any form lands tax-free in Georgia. Georgia runs on the so-called Estonian CIT model of taxation, which means that 15% tax is paid by companies only when profit is distributed, with companies otherwise running largely tax-free. If a transaction presents as an actual distribution of profit (although masked as a conventional business transaction), it can be deemed a taxable distribution or dividend.
With that said, were a company to reinvest the profit dividend again, zero CIT tax is applicable. Of note is that there is no specific Capital Gains Tax in Georgia — capital gains are only taxed as per the CIT framework at a rate of 15% when profit is distributed.
MORE GEORGIAN TAXATION DETAILS
There are some tax subtleties in Georgia, such as the fact that a non-resident natural person renting a property that is used for non-living purposes has a 20% withholding tax liability. By and large, however, Georgia is quite remarkable in its tax structure considering it’s within the eurozone. Although not a member of the EU, the country has been elevated to eligible status in 2022 by the European Commission, pending certain conditions being met.
Being something of a gateway between East and West, the country will have to dance between the EU and the Eurasian Economic Union, a collective of former Soviet states. Georgia holds all the cards, however, and rather than coming to the commission’s door cap in hand, Georgia can expect to be seen as a key asset in any such union of states.
The other relevant taxation details pertinent to life in Georgia involve a 5% tax payable on dividends received. Royalties and interest payments are also taxed at the same low rate of 5%. There is VAT levied in Georgia too, at a rate of 18%, and it applies to all goods and services within the territory of Georgia. If you trade goods or services in the country, regardless of origin or nationality, VAT is applicable.
ESTABLISHING A TRUST IN GEORGIA
Trusts in Georgia typically take the form of living trusts, where a grantor nominates a local person or company to act as trustee for the purposes of the beneficiary, the person or persons who will inherit the assets contained in the trust. Non-material property, or parts of or whole properties can be secured in this way, and although an irrevocable trust can also be established, living trusts seem to be the national flavour.
Another key benefit to the grantor of a living trust is the ability to protect themselves against acrimonious separations by altering its conditions years down the line. There is no inheritance tax in Georgia, and a living trust in Georgia is frequently listed as an “offshore trust” vehicle by investment firms. It’s a vehicle that will allow a person to transfer assets into the trust while still being able to use them, until they pass on to their beneficiaries after death.
IRAs and 401(k)s cannot form part of a Georgian trust, but movable or immovable property can, as well as any less tangible assets of value. For purposes of estate planning, a Georgian trust is simple and unambiguous. Because perhaps a prime motivator of any trust creation is the desire to shield assets from undue taxation or other liabilities, thus optimising the inheritance passed on, reassurance or sentiment plays a huge role when deciding exactly how to go about it. In Georgia’s favour is a very relaxed legislative framework that clearly keeps taxation low and government interference in private money matters to a minimum.
TOURISM AND FUTURE PROSPECTS IN GEORGIA
Georgia enjoys a very stable political environment, its economy is blossoming, and the country’s capital-friendly policies seem just the sauce for the dish they’re making. As a statistic, a great many entrepreneurs and other foreign nationals have become resident in Georgia over the last decade or two. The World Bank ranks Georgia as the 24th best place to do business, which outranks Switzerland and other countries that might appear to be more attractive at first glance. It gets better, as Georgia is also ranked 6th among the best places in the world to start a business.
The last two decades have seen the Georgian state carefully craft a legislative framework that is very pro-business, very laissez-faire on tax, and thus highly enabling. It’s a beautiful country with Tbilisi itself a relative haven for all manner of tourists each year.
Georgia’s location and its lean towards the Asian subcontinent belies the fact that it has a largely European culture, due in large part to the rather liberal business environment maintained at state level. For purposes of establishing a business or running one profitably, Georgia is a European locale hard to beat. EG