The Ministry of Finance of Georgia has recently initiated important changes in the system of corporate income taxation, particularly related to the moment of taxation itself.
The draft law "On introducing amendments to the Tax Code of Georgia" dated February 12 2016 (the Draft Law) abolishes the taxation of corporate income at the moment of earning the profit and, instead, introduces the taxation of corporate profit at the moment of its distribution. Accordingly, the tax on corporate income is being replaced with the tax on profit distribution. At the same time, income reinvested into the business activities of taxpayer becomes exempt from taxation.
Additionally, the Draft Law introduces the following novelties:
- New methodology of determining the tax base by means of dividing the amount of distributed profits by a coefficient of 0.85;
- Reporting period set at 1 (one) calendar month;
- Income which is subject to taxation under the new rules will include the following: profit distributed to shareholders in a monetary and non-monetary form (with certain exceptions); free-of-charge supply; expenses which do not relate to business activities; granting of a loan to an individual; payments made for a purchase of debt securities or a stake in an entity located in a tax heaven; expenses for business representation purposes which exceed the threshold defined by the Tax Code.
It is worth noting that the novelties introduced by the Draft Law do not apply to banks, insurance companies, microfinance organisations, pawnshops and non-profit organisations.
The Draft Law, if adopted, will become effective for tax periods starting from July 1 2016.
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