Georgia is becoming an increasingly popular jurisdiction for
doing business both domestically and internationally. The
attractive factors include the country's top ranks in
international ratings on ease of starting and maintaining a
business, as well as the fact that Georgia has proven itself to
be a corruption-free destination. Additionally, due to a number
of benefits – such as the absence of currency control
rules, the free inflow and outflow of foreign capital, the
comparatively low cost of services, as well as the stability of
banking system – Georgia constitutes an attractive
non-EU hub for structuring an international business. Of
further importance is the fact that a foreign investor may
enjoy all respective benefits of doing business in or via
Georgia without the necessity to stay or come to Georgia. Worth
noting is also that Georgia has not yet committed to the global
automatic exchange of financial account information and common
reporting standard.
One of the benefits provided by the Georgian tax legislation
for both the local and foreign IT business sector is a special
status company. The so-called "virtual zone entity" (introduced
by the Georgian Tax Code) is a legal entity that performs
information technology activities and one that has been granted
a special status by the Georgian tax authorities. Profit
generated by a virtual zone entity (VZE) from the supply of
information technology services outside Georgia is exempted
from taxation in Georgia.
Some key features of the Georgian VZE include:
- The income of a VZE is exempt from VAT
(18%) and corporate income tax (15%) if the company provides
its services to foreign customers located outside
Georgia;
- In the case of dividends' payment (to a
physical person or non-resident legal entity shareholder),
the only Georgian tax on dividends payable is rated at 5% and
is paid by the company to the state budget at the moment of
the dividends' payment. Dividends distributed in Georgia to a
Georgian shareholder will not be included in the taxable base
of such a person. If dividends are paid to a foreign
shareholder, then the taxation of such a shareholder in the
country of its tax residency shall be analysed with the
consideration of provisions of the double tax treaty of the
relevant country with Georgia (if any). However, if income of
a VZE is not distributed in the form of dividends, but in
another manner prescribed by law, then the 5% withholding tax
in Georgia will not be paid and, accordingly, there will be
no taxation in Georgia;
- The director of the VZE can be either a
local or foreign individual who can be physically located
either in Georgia or abroad and can manage the company's
account by means of distance banking; and
- There is no requirement to hold employed
staff in Georgia, except for the company's director, who
shall be appointed at the point of the company's state
registration.
The Georgian legislation does not clearly define what exact
activities fall under the definition of the "information
technologies activities" for the company to be granted the
status of a VZE. However, according to the official website of
the Ministry of Finance of Georgia, it is considered to include
the "process of research, development, support, design,
production and implementation of computer and information
systems; as a result, various software products are in place".
Thus, a conclusion can be made based on such a definition that
any web-based product/service produced and delivered by a
Georgian VZE can be considered an "information technologies
activity", provided that such an entity performs research,
development, support, design activities and is the owner of IP
rights for the relevant product.
As a result, the Georgian VZE is becoming a new interesting
solution for international IT businesses focused on foreign
clients.
Anna Pushkaryova (anna.pushkaryova@eurofast.eu)
Eurofast Georgia
Tel: +995 595 100 517
Website: www.eurofast.eu