Georgia is still one of the most underrated countries in the world. At Tax Free Today we’ve already talked about Georgia as a place for your residence, since that here, thanks to territorial taxation, you can live a tax-free life the European way.
The country also stands out as a good place to invest, as it has recently become the world’s sixth easiest place to do business.
So, Tax Free Today, in collaboration with other local partners, operates a walnut plantation on 73 hectares of arable land in the Kakheti region. If you’re interested, you can still invest with us. The minimum amount is €10,000 with expected returns of 25% from the fifth year (for more information, watch this video, although the conditions described in it are only valid until the end of March 2019).
Just by setting foot in the country, Georgia gives you a 365-day visa to most citizens from Western countries, making it one of the most open countries to immigration.
While it has recently gotten more difficult to get a permanent residence permit, whoever really wants to spend parts of the year in Georgia can just keep doing so. The only thing you need to do is register as self-employed or set up a business in Georgia.
Otherwise, to get a permanent residence you have to make a property investment of €100,000 or another type of investment of €300,000.
We can help you first-hand in everything you need to get a residence in Georgia.
In today’s article we’ll not talk so much about residence, but more about the different business options currently offered by Georgia.
The country has made astonishing developments since the fall of the Soviet Union. Not only has it gotten rid of an apparatus of generally corrupt officials, but the country is in the process of a digital revolution similar to that of its Baltic precursor, Estonia.
Testament to this are Georgian administration’s drive-through windows, as well as hundreds of terminals to pay for public services in many cities.
Banking is also modern and (contrary to what happens with this service in most countries) surprisingly uncomplicated. Opening a local private account, including authentic credit cards, using just your passport is one of Tax Free Today’s most popular offers.
The tax-deferred model was also taken from Estonia (whereby you do not pay corporation tax as long as you do not distribute dividends) for regular capital companies, but with better conditions.
However, there are two other company models that might just be more interesting: the 1% individual entrepreneur and the tax-free Virtual Zone Company. Added to this are good conditions and tax-exemption for international financial business. It is important to know that territorial taxation only applies to physical people if the tax residence is in Georgia, but not to companies.
The common Georgian capital company: deferred taxation with the LLC in Georgia
Although the Georgian capital company is often referred to as an LLC (to avoid using the Georgian alphabet), it is actually a common capital company, not of a partnership with general taxation, as in the United States.
This means that partners have shares in a Georgian LLC with limited liability and receive dividends. It is not necessary to pay out share capital to set up a company.
This is where taxation is applied in a similar way to the Estonian system.
In 2018, Georgia was the second country to introduce deferred taxation, which, economically, carries many advantages.
With this form of taxation, corporation tax is only applied upon distribution of dividends, thus favouring the rapid growth of the business with tax-free profit reinvestment.
Another advantage is that corporation tax is 15%, less than that of Estonia, at 20% (although as of 2019 there are options for lowering corporation tax in Estonia to 14%).
In order to avoid possible tax avoidance, the salaries, loans or invoices of certain countries are examined in detail.
Operating expenses can of course be deducted, but they have to be reasonable and recorded. Loans and other disbursements are taxed at the time of spending, but after full repayment, taxes can be refunded.
In general, it is a very similar system to that of Estonia, except the 15% taxation upon distribution of dividends is a little lower.
Just as in Estonia, dividends from shares in subsidiaries are not taxed. However, unlike Estonia, Georgia is still not a good option for creating a holding as it is not an EU member state and does not have good double taxation agreements (although, of course, it always depends on each case).
Being an aspirational emerging country, Georgia is not a typical tax haven, and despite – or thanks to – being largely unknown, it is not affected by reputational problems.
Thanks to this, you won’t have problems when invoicing companies elsewhere in the world. Furthermore, if you need a substrate, it’s very easy in Georgia as maintaining a commercial establishment or workers is very cheap.
As things stand at present, OECD initiatives, such as economic substrate conditions, are unlikely to make their way into Georgia in the coming years.
Automatic exchange of information is also out of the question for now. However, companies do not have anonymity because the trade register is public (which has the added advantage that opening bank accounts for Georgian companies is much simpler than for offshore companies).
Nonetheless, if you need anonymity, you can also use the services of trustees.
Thanks to relatively low wage-costs and non-wage labour costs (there is no social security in Georgia) it is not difficult to create economic substrate if necessary.
It is far more economical than in Estonia or other so-called European tax havens, such that it makes sense for business owners living in Spain, Germany, France, Italy, etc. who want to set up a commercial establishment with tax advantages in Georgia.
Thanks to deferred taxation, it is possible to accumulate one’s own investments through the company tax-free.
VAT in Georgia is 18% and is applied above a threshold of 100,000 Laris (about €33,000) for services carried out or products sold in Georgia.
As we’ve said, until now there was no social security contribution to be made, but only a 20% wage tax. From 2019 onwards, a pension insurance of 6% (2% from the company, 2% from the employer and 2% from the State, within certain income bands), will also be added, but which, however, only has to be paid with tax residence in Georgia.
Since Tax Free Today has local representation in Georgia, we offer the full record of companies in Georgia first-hand.
We do not delegate in this case to other law firms, but take on for you the whole process of incorporation, administration and, if you request it, also accounting.
Furthermore, with us you can have a company address and, of course, along with the company record, we can help you open good business bank accounts in Georgia’s two largest banks (Bank of Georgia and TBC Bank).
To set up a common Georgian LLC we charge, if you travel personally, about €1,350. The annual cost is only €700.
For remote registration of a company, we charge an extra €250 (+€50 for each partner) and will need a certified and apostilled photocopy of your passport (and of the eventual partner), as well as a power of attorney apostilled and certified before a notary.
For accounting (mandatory in Georgia) we can offer packages from €150 a month. But, of course, you can also choose to look for an accountant yourself.
The Georgian virtual zone: tax-free companies in the IT sector
Just a little more expensive, but much more interesting for online entrepreneurs, are companies in the so-called Georgian virtual zone.
It’s a sort of free trade zone that covers the whole country and is specifically designed for services related to information technology (IT).
From our experience, Georgian financial administration is relatively open when it comes to defining IT. So, we have received positive reports to requests of incorporation from the following sectors:
- programmers of all kind
- Advice in the field of IT
- Freelance professions more or less related to IT, such as designers, online marketing managers, SEO experts, etc.
- Digital product sales
- Exploitation of other intellectual property rights
- Journalistic services
- Web hostings, domains, etc.
- Outsourcing agencies related to IT
- E-commerce solutions
If you’re not sure your business is on the list, we can check for you if your business model has a realistic chance of being accepted into the virtual zone.
In case of doubt you can always just try to make the record. If you have valid reasoning regarding the focus on IT, you can generally talk to the Georgian financial administration.
Georgia’s “virtual zones” are so fiscally interesting because the tax treatment is different from the deferred taxation of regular capital companies. “Virtual Zone Companies” are completely exempt from tax on earnings from outside Georgia. Only on domestic income does the usual 15% apply, upon distribution of dividends.
Virtual Zone Companies get an extra licence (certificate) that accredits this tax-exemption.
Despite general corporation tax exemption, in the case of virtual zones a 5% withholding tax is levied, but in some cases it is reimbursed thanks to existing double taxation agreements.
This is especially happens if we have a tax domicile in Cyprus or in the Arab Emirates. Thanks to the double taxation agreements these countries have with Georgia, you can request a refund of the 5% withholding tax upon distribution of the profits.
This type of company in Georgia is therefore very interesting for non-doms with residence in Cyprus, who would be totally tax-free. However, they would have to present accounts and balance sheets.
By using companies in Georgia’s virtual free zone from countries with high taxes, normally 5% of the withholding tax can be offset by double taxation agreements with the country-specific capital gains tax.
Here, too, the advantage of the location in Georgia, with low wage and labour costs, makes setting up a company with substance relatively simple.
Good flight connections to Tbilisi and Kutaisi to central Europe also contribute to this.
Even though the virtual free zone is restricted to companies that can prove they are related in some way to IT, Virtual Zone Companies are an interesting alternative to well-reputed tax havens, such as the UAE free trade zones or companies in Hong-Kong.
Many online business owners, who have until now used these good but more expensive options, do not struggle to prove that their business is in some way related to IT. Georgia may be an interesting alternative for them.
Especially in terms of costs, Georgia’s IT zone is well ahead of a free trade zone in the emirate of Ras al-Jaima.
So, for the complete incorporation package the registering costs are just €1,690 and the annual costs are €900. In case of setting up at a distance, an extra €250 is added (+€50 for each partner) with the same requirements as in a regular LLC.
You can also hire someone to do your accounting for €150 a month, if you like.
Paying 1% gross income tax as an individual entrepreneur with revenues below €166,000
Both types of company, the LLC and the Virtual Zone Company, can allow the owner to request tax residency in Georgia.
However, for freelancers of all kind, below a certain income band, it is generally wiser to get residency in Georgia by registering as a small individual business owner.
Georgia offers an extraordinarily simple residence that is easy to access for those who are starting out and who therefore do not have many resources. However, this residence requires a certain minimum length of stay in the country.
Despite Georgia’s status as a poor, developing, country, the regulation for small businesses, with a threshold of 500,000 Laris, has been calculated quite generously.
We’re talking about nothing less than €166,000, a limit above which, in other countries like Germany, for example, the maximum tax rate would be applied.
Be that as it may, below this half a million Laris, in Georgia you won’t have to pay more than 1% gross income tax.
The big advantage is that, as nothing can be deducted, it is not necessary to present accounts, i.e. you save an extra €150 a month (which is how much it would cost to have an accountant in Georgia).
Above €166,000 the gross income tax for freelancers rises to 3%.
However, below €10,000, so-called micro-companies do not have to pay any tax at all.
Be that as it may, from the start of 2019 onwards, you will have to comply with the obligation to keep 4% of the sales volume at the end of the year in an individual pension account as a retirement provision.
This is a system of actual coverage that is in principle reasonable, rather than the usual distribution system in Western countries (a system that, were it offered by a private company, would have long since been condemned as a pyramid scheme).
It is important to bear in mind that this way of business does not limit the liability of the owner (who is in this sense effectively a freelancer) and that there are certain professions for which you cannot use it (that of a pilot or a lawyer, for example).
You can also register as an individual entrepreneur without residing in Georgia.
If you want to get your tax residence in Georgia, the individual business owner option is the most convenient one, as it lets you get a work permit and a TIN very easily.
Banking in Georgia: business accounts for companies
In today’s hyper-regulated world, it is going to get increasingly difficult to open and use bank accounts complication-free. Fortunately, Georgia is an exception.
Since banks do not have the technical capacity for it, the CRS currently does not apply there, i.e., for the moment, there will be no exchange of information from Georgia.
The requirements for opening accounts in Georgia are much fewer compared to the international norm. It is generally enough just with your passport. You do not need a utility bill, TINs and so on.
Georgia’s biggest banks are modern, trustworthy and offer good services. Tax Free Today can mediate to open private accounts in TBC Bank and Bank of Georgia, as a general rule, irrespective of domicile.
At the moment, we can only help you with business accounts for Georgian companies and these are included if you set up the company through us.
Much like what happens with private accounts, company accounts offer the following advantages:
- Multi-currency account in EUR, GBP, USD, GEL
- Own IBAN and online banking in English.
- Platinum Visa, MasterCard Gold, Maex Platinum (upon prior request)
- Private banking with a competent contact person
- Openness to transactions with crypto-currencies
- There is no exchange of information
- High interest rates (up to 5% in USD, over 10% in GEL)
Deferred taxation with Georgian LLCs and certain double taxation agreements are an interesting vehicle for accumulating and managing your wealth tax-free.
Because the trade register is public and the reputation is acceptable, it is generally also possible to obtain business accounts for Georgian companies in the SEPA (for example, with the usual online banks) or worldwide.
International Financial Licences in Georgia
If you’ve long planned on launching your own crypto-currency, fund, FinTech or broker, Georgia can also be interesting.
The International Finance Centre (IFC) offers financial service providers in Georgia full tax-exemption, as well as a comparatively simpler licence application procedure that does not require large capital outlays.
This is a common LLC that, however, thanks to the certificate of the competent ministry, can offer tax-free financial services in a similar way to the virtual zone, whether as a broker, asset manager or investment advisor.
The Georgian banks that we’ve mentioned are reliable and offer all services, as well as adhering to the SWIFT/IBAN system. It is also important to mention their openness to crypto-currencies. Thus, with an IFC licence you can also create your own currency or launch an ICO.
In Georgia you can earn up to 10% of the world’s income. Apart from that, there are no restrictions.
The usual requirements obviously apply for businesses that require licences, the corresponding accounting and drawing up of balance sheets, which operates in Georgia in a very unbureaucratic way, anyway.
Georgia is the only jurisdiction in the world (that we know of) where the entire process can be carried out totally remotely.
For incorporation of the company you need, as well as a certified and apostilled photocopy of your passport and power of attorney, a utility bill, a description of the object of the business and a brief CV. However, no type of financial qualification or work experience is required.
To authorise the licence you just have to present the usual documents, including the General Terms and Conditions, data protection regulations, the business plan, the anti-money laundering procedure and certain internal regulations.
Our partners can professionally assist you for the entire process of incorporation and the licence application on site, and offer other services such as connection to software licences and credit card issuers.
If you plan on setting up an online FinTech bank, a bank offering all services, there are also good options in Georgia. However, these sectors do not operate using an IFC licence, but require a more expensive licence with more stringent requirements.
If you are interest in the IFC licence or any of the other ones set out here, write to us.
What else does Georgia offer for business owners?
As you can see, Georgia has a lot to offer.
Whether it’s an easy-to-open private account in the biggest bank in Georgia, one of the four options for companies set out here or even residence in a country with territorial taxation that can be relatively easily obtained, we will gladly support you in any of these procedures in situ at our office, with anything you might need in this fantastic country, which also stands out for its warm and welcoming people, delicious cuisine and beautiful nature.
If you want to come and see it in person, we invite you to visit us there to perform the formalities, which will speed up the respective processes and reduce your expenses.
Of course, you are also invited to see our 15,000 walnut trees in Kakheti and invest in our project or get excited about other rural business opportunities in Georgia.
If you need anything, please email us at email@example.com. We would be delighted to help you.
P.S. A Tax Free Today knowledge trip to Georgia will be organised from the 7th to 11th of April. More info at firstname.lastname@example.org