· Gains from the sale of assets
· Income received as a result of the restriction or closing of an entrepreneurial activity
· Income from the sale of shares in an enterprise
· Income in the form of insurance payments paid under agreements for the insurance or reinsurance risk in Georgia.
In addition to monetary wages, benefits are considered wage income and are taxable as part of gross income. Generally, benefits are included in income at the market price at the moment of receipt, reduced by any portion of the benefit paid by the employee. These include: use of an automobile for private service; gifts of goods or gratuitous performance of services; educational assistance to the employee or dependents; and employee expenses reimbursed by the employer.
Table 1.4.1.1 shows income tax rates. Income tax on dividends, interest payments, and payments to non-residents are withheld at the source of payment and are subject to different rates. Dividends and interest payments are taxed at the rate of 10 percent. Dividends and interest payments received by physical persons, taxed at the source of payment, are not subject to additional taxation. Further, taxes paid on the first 3,000 GEL of combined interest and dividends may be applied to reduce the taxpayer’s tax liability, assuming adequate documentation of the tax payment is provided.
Table 1.4.1.1: Income Tax Rates
| Amount of taxable income during the tax year | Tax rate |
| Up to 200 GEL | 12% of the taxable income |
| 201 to 350 GEL | 24 GEL + 15% of the amount in excess of 200 GEL |
| 351 to 600 GEL | 46.5 GEL + 17% of the amount in excess of 350 GEL |
| More than 600 GEL | 89 GEL + 20% of the amount in excess of 600 GEL |
Source: Tax Code.
Tax agents who withhold tax at the source of payment are required to:
· Transfer the tax to the budget when making payments to physical persons;
· When paying wages, issue to the physical person receiving the income (at his or her request) a statement with the person’s name, amount and type of income paid, and amount of tax withheld; and
· Within 30 days of the end of the tax year, present to the tax agencies and, if requested, to the person paid, a statement containing the person’s registration number, total income, and total amount of tax withheld during the year.
Physical person entrepreneurs and individual enterprises are required to submit income tax payments in three instalments, based on their income tax liability for the previous year. Instalments are applied against the taxpayer’s actual liability. Payments may be reduced if income in the current year is expected to be at least 30 percent less than income in the previous year. Taxpayers with no income from the previous year must make payments based on actual income during the previous quarter.
Tax payers[3] are required to submit returns before April 1st of the year following the reporting year. Before the income tax return due date, taxpayers may apply to the tax authorities for an extension of time to submit their returns. Taxpayers who cease entrepreneurial activity must submit a tax return within 30 days of the cessation of activities.
Profit Tax. Profit taxes must be paid by Georgian entities and foreign entities with permanent establishments in Georgia. Foreign entities that do not have permanent establishment presence in Georgia are taxed via a withholding tax at the source of payment, as stated above. Enterprises are defined as:
· Legal persons established according to the legislation of Georgia
· Corporations, companies, firms, and other entities established pursuant to the legislation of foreign states
· Branches and other separate units that are structural units of the entities indicated in the first bullet and that have their own balance sheet and a separate settlement or other account.
Georgian and foreign enterprises are distinguished by place of activity and management. A Georgian enterprise has its place of activity or management within the territory of Georgia, whereas a foreign enterprise has its place of activity or management outside the territory of Georgia. If there is more than one place of management or activity, or the place of management and activity do not coincide, then the predominant location should be used to determine the place of activity or management.
Individual enterprises and physical person entrepreneurs are subject to income tax (or presumptive tax), not profit tax. Branches and other units of an enterprise do not pay profit tax separately, but aggregate profit with the main enterprise, which pays the full profit tax.
Georgian enterprises are taxed on gross income, which includes all income regardless of its source or place of payment, less allowable deductions. The profit tax is a flat rate of 20 percent. Foreign enterprises are also subject to profit tax, the extent to which depends on whether the foreign enterprise is connected to a permanent establishment.
Foreign enterprises that conduct economic activity through a permanent establishment are subject to profit tax on gross income, less deductions, from Georgian sources connected to the permanent establishment. Foreign enterprises that do not conduct economic activities through a permanent establishment must pay profit tax on gross income from Georgian sources (no deductions are allowed), and the tax is withheld at the source of payment. However, non-resident taxpayers (including foreign enterprises) who receive certain types of income (e.g., insurance payments, royalties, management fees, income from works or services) may file a return and claim deductions as if this income was connected to a permanent establishment. The withholding rates for certain types of income are as follows:
· Dividend and interest payments—10 percent
· Insurance proceeds—4 percent
· Telecommunication and transportation services, shipments, and oil and gas transactions—4 percent
· Royalties, management fees, income from performing work or rendering services (except income earned as wages), income from leasing movable property, income from management, financial, and insurance services—10 percent
· Certain oil and gas profits—10 percent.
Foreign enterprises receiving profits from the sale of some stocks, assets, and property not connected to their permanent establishment must pay profit tax, with allowable deductions, on the income from these sales. Annex D provides a listing of profit tax exemptions as well as allowable deductions from gross income.
Table 1.4.1.2 summarizes the asset categories into which fixed assets subject to depreciation are grouped.
Table 1.4.1.2: Summary of Asset Categories
| Group | Types of Fixed Assets | Percentage Depreciation |
| 1 | Passenger automobiles, automobile and tractor equipment for use on roads, special instruments, miscellaneous accessories, computers, peripherals and equipment for data processing and storage. | 20 |
| 2 | Automotive transport, trucks, buses, special automobiles and trailers, machines and equipment for all sectors of industry and the foundry industry, forging and pressing equipment, electronic equipment, construction equipment, agricultural machines and equipment, office furniture. | 15 |
| 3 | Railway, sea, and river transport vehicles; power machines and equipment; turbine equipment; electric motors and diesel generators; electricity transmission and communication facilities; pipelines. | 8 |
| 4 | Buildings and structures | 7 |
| 5 | Assets subject to depreciation not included in other groups. | 10 |
Source: Tax Code.
Buildings and structures are each depreciated separately, whereas the other asset groups are depreciated using the balance of the asset group at the end of the tax year. The balance of the asset group is adjusted for purchases, sales, and repairs. The maximum deduction for repair expenses is 5 percent of the balance of each asset group. Any repairs that exceed 5 percent are added to the balance of the asset group and depreciated as such.
Physical persons who incur a loss in a tax year (i.e., deductions exceed gross income) and who are not connected to employment may not deduct such losses from employment income, but may carry forward and deduct the loss from non-wage income for a period up to 5 years after the tax year in which the net loss occurred. Legal persons who incur a loss in a tax year may carry forward and deduct losses from profit for a period of up to 5 years after the tax year in which the net loss occurred.
Tax credits are subtracted directly from the tax liability. There is a tax credit against Georgian taxes for income and profit taxes paid outside of Georgia, as long as the credit does not exceed the amount of tax charged in Georgia.
A taxpayer may record income and expenses under either the cash basis method or accrual basis method of accounting, but must use the same method for both accounting and tax purposes, and must use the same method throughout the tax year. A physical person must keep records using the accrual basis method for income from entrepreneurial activity.
Profit taxes must be paid in three installments based on the profit tax liability of the previous year. These are:
· Before May 15th: 30 percent of the previous year’s tax liability
· Before August 15th: 30 percent of the previous year’s tax liability
· Before November 15th: 40 percent of the previous year’s tax liability.
Taxpayers who have no taxable income in the previous year make payments according to the actual income of the previous quarter.
Installment payments may be reduced if current year income is expected to be at least 30 percent less than income of the previous year. Permission of the head of the tax agency, requested 1 month before the date of payment is required to do so. Resident legal persons and nonresident legal persons who have income from a Georgian source that is not taxed at the source of payment must submit a tax return before April 1st of the year following the year of the reporting year to the tax agency at the place of registration. Before the due date of a profit tax return, the taxpayer may apply to a tax body for an extension of time to submit the return.
Profit taxpayers who cease their entrepreneurial activity in Georgia must submit an income tax return to the tax agency within 30 days of ceasing activities. Legal persons who decide to liquidate must immediately notify the tax service in writing of their plans to liquidate and must file a profit tax return within 15 days of the decision to liquidate.
Value Added Tax. Value added tax (VAT) is collected at every stage of production and distribution. Persons or enterprises with annual taxable turnover less than 24,000 GEL per year are not required to register with the tax authority and pay VAT, although they may.
An enterprise charges VAT on its sales and pays VAT to the suppliers of materials and providers of services it receives. The enterprise then accounts to the tax department for the difference between the tax that it charged on its sales and the tax that it paid on the goods and services supplied to it. This difference usually results in a net payment to the budget, but in some circumstances it can result in a credit to the enterprise.
An enterprise registered for VAT that carries out a taxable transaction is required to prepare and issue a tax invoice to the person who receives goods or services. VAT invoices are purchased from respective regional tax offices at a cost of 0.18 GEL per invoice. The purchaser is given two copies of the invoice and both the seller and the purchaser must submit one copy to their local tax agencies for control purposes. Buyers and sellers are required to submit VAT declarations every month, no later than the 15th of the month following the reporting period. The total VAT an enterprise pays to the budget each month is the total VAT charged on its outputs (sales) less the total (allowable) VAT paid on its inputs (purchases) during that month. VAT paid on inputs can be credited against VAT paid on outputs if inputs are used for economic activities (offset for charities, entertainment, representative expenses are not allowed) and the enterprise has an invoice of paid VAT. VAT paid on exempt goods or on automobiles cannot be offset. If the input tax exceeds the output tax, the enterprise receives a credit for the excess. VAT on taxable imports is levied and collected by customs agencies.
The VAT rate in Georgia is 20 percent. A zero percent rate applies to exports and the categories of goods and services identified below. Annex D provides a list of VAT exemptions.
Exemption means that producers or suppliers of exempt goods and services do not charge VAT on their output, but cannot claim a credit on the VAT paid on inputs used to produce the exempt output.
Social Taxes. Social taxes include both social and employment taxes and are imposed on monetary and non-monetary wages and other forms of compensation paid to employees, as well as on income earned by physical person entrepreneurs from their economic activities. The social tax rates are summarized in Table 1.4.1.3.
Table 1.4.1.3: Social Tax Rates
| Taxpayers | Taxes Paid by Employers and Entrepreneurs | Taxes Paid by Employees | |
| Social Tax | Employment Tax | Social security Tax | |
| Physical person entrepreneurs and legal persons who pay wages to employees. Physical person entrepreneurs and legal persons who pay physical persons for services. | 27%; not less than 16 GEL per month | 1% | |
| Physical persons who receive remuneration as employees or on a contract basis. | 1% | ||
| Physical person entrepreneurs. | 27%, not less than 16 GEL per month | 1% | |
| Physical persons who carry out non-entrepreneurial economic activities in Georgia. | 27%, not less than 16 GEL per month | 1% | |
Source: Tax Code.
Social taxes must be paid by:
· Physical person entrepreneurs and legal persons who make wage payments to employees working in Georgia or who make payments to physical person who render services in Georgia
· Physical persons receiving remuneration from employment or the performance of services
· Physical person entrepreneurs who conduct entrepreneurial activity in Georgia
· Physical persons who perform non-entrepreneurial activity in Georgia, including lawyers, doctors, notaries, and other professions.
For public organizations of disabled persons as well as enterprises that have a workforce of 70 percent or more disabled persons and pensioners, the 27 percent tax rate is reduced to 10 percent.
Employers who pay wages to employees or to individuals performing services must remit social taxes to the tax administration at the time that wages are paid. Employees’ social taxes are withheld and remitted along with the employer’s social tax payment. Employers are required to submit their social tax returns before the 15th day following the reporting month.
Physical person entrepreneurs and physical persons who carry out economic activities classified as non-entrepreneurial (under the Law on Entrepreneurs) must remit social taxes along with their income taxes. The social tax return must be submitted along with the income tax return.
Excise Taxes. Excise taxes are levied on specific excisable goods produced in Georgia or imported into Georgia. Unless exempted, all physical and legal persons who produce excisable goods on the territory of Georgia or who import excisable goods must pay excise taxes. Exports of excisable goods are taxed at a zero rate.
Several products are exempt from excise taxes, including:
· Alcoholic beverages produced by a physical person for personal consumption
· The import of 2 litres of alcoholic beverages and 200 cigarettes by a physical person for personal consumption
· The transit and temporary import of excisable goods into the customs territory of Georgia
· The re-export of excisable goods
· The import of automobiles and tires for humanitarian aid during a natural disaster
· Aviation fuel to be supplied on board for international flights
· Import or supply of oil products necessary to carry out oil and gas transactions (specified by the oil and gas law of Georgia).