This content is from: Georgia

Georgia: Georgian virtual zone entities offer new opportunities for IT companies

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 (
Eurofast Georgia
Tel: +995 595 100 517

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