Taxation in Georgia
Georgia’s taxation framework is a complex system that plays a vital role in the country’s economic strategy, striking a balance between generating revenue and promoting growth and investment. This system includes various taxes, each subject to a detailed array of regulations and rates. For businesses, investors, and individuals, a thorough understanding of this environment is crucial for effective financial management and adherence to regulations.
Taxation system
Georgia’s taxation system aims to harmonize with domestic financial policies and international commitments, presenting a well-organized but flexible method for taxation. It may include a mix of uniform rates, progressive structures, and specific exemptions, which align with the nation’s economic goals and social aims. Grasping the complexities of these tax mechanisms is essential for enhancing financial results, maintaining compliance, and taking advantage of opportunities within the legal parameters.
Capital gains tax
In Georgia, capital gains are incorporated into the general income tax framework. The state utilizes a flat income tax rate, which has recently been lowered to 5.49% for the majority of taxpayers. Nevertheless, tax rates may differ based on income levels, with higher rates applicable to certain brackets. Capital gains are not assessed separately; instead, they are part of the total income reported on a taxpayer’s state income tax return. This tax treatment is uniform for both short-term and long-term gains, contrasting with federal tax laws where different rates may apply to long-term gains. Gains from selling assets like real estate, investments, or other properties are taxed in this manner, with various exemptions available to decrease the taxable amount. The tax system in Georgia aims to align with federal tax filings, ensuring that state taxes correspond with federal regulations while still providing specific state provisions and exemptions.
Corporate taxation
In Georgia, the corporate tax rate is set at 15%. This tax, known as corporate income tax (CIT) or profit tax, is levied on distributed profits. Companies that are residents and permanent establishments (PEs) of non-resident entities face taxation on their distributed profits, expenses unrelated to economic activities, and free provisions of goods or services. The tax framework does not impose annual profit taxes; rather, taxation occurs solely when profits are distributed. Specific regulations govern profits generated from oil and gas operations.
Personal income taxation
In Georgia, the personal income tax (PIT) rate varies between 5% and 20%, based on the nature of the income. Employment wages, self-employment earnings, and the majority of other income types face a uniform tax rate of 20%. Income earned from renting out residential properties for housing is taxed at a lower rate of 5%. Dividends and interest have final withholding tax rates of 5%, while royalties are taxed at a rate of 20%. Capital gains are typically taxed at the 20% rate unless they qualify for an exemption.
Dividend taxation
In Georgia, the tax rate on dividends is set at 5%. This rate applies to dividends disbursed by Georgian resident companies to both resident and non-resident individuals, which are subject to a final withholding tax. Dividends exchanged between Georgian companies are typically exempt from additional taxation, except for those paid from profits generated during the period from 2008 to 2016. The tax framework is designed to prevent double taxation on dividends through relevant treaties, meaning that dividends that have already been taxed are not subject to further corporate tax.
Property tax
In Georgia, the property tax rate differs based on the property’s location and its value. For businesses, the tax rate cannot exceed 1% of the average residual value of fixed assets, investment properties, and other real estate holdings. Local authorities set individual property tax rates according to income levels and family circumstances. The market value of the property generally serves as the tax base, and the tax system encompasses both land and buildings.
Inheritance taxation
In Georgia, inheritance tax is typically governed by income tax regulations, and the rates applied can differ depending on the relationship between the individuals and the value of the inherited assets. Inheritances from first- and second-degree relatives are completely exempt from personal income tax. For third- and fourth-degree relatives, inheritances are taxed at a rate of 0% for amounts up to GEL 150,000. Any inheritance exceeding this limit may incur standard income tax rates, which can reach as high as 20%.
International taxation
In Georgia, the international tax framework is applicable to residents as well as non-residents. Residents are liable for taxes on all their global income, whereas non-residents are taxed solely on income that originates from Georgia. The tax rates differ according to the income type: dividends and interest are taxed at 5%, whereas royalties and some other payments might incur a tax rate of 20%. Non-residents could face withholding tax on certain payments, and tax treaties might alleviate or completely remove their tax obligations.
Cryptocurrency taxation
In Georgia, individual traders do not pay any tax on cryptocurrency income, according to the 2019 ruling by the Ministry of Finance that classifies this income as not sourced in the country. In contrast, if a legal entity engages in trading, the income is subject to a 15% corporate income tax, along with an additional 5% tax on personal dividends when profits are distributed. Legal entities holding cryptocurrency are not subject to an annual profit tax in Georgia, with taxation occurring solely during the distribution of profits.
VAT system
In Georgia, the standard VAT rate is set at 18%. It is levied on the sale of goods and services as well as on the importation of goods considered to occur within the country. Some transactions, including exports and particular financial dealings and real estate transactions, are exempt from VAT. The VAT framework also provides for reverse charge mechanisms for certain acquisitions. Companies that generate more than GEL 100,000 in annual revenue must register for VAT.
Our taxation solutions
In a continually changing tax landscape, having expert advice is essential. Our firm provides a range of specialized tax solutions aimed at addressing the varied requirements of individuals, corporations, and investors in Georgia. Our services are crafted to manage the intricacies of the tax code, reduce liabilities, and guarantee complete compliance with regulations.
- Personal tax advisory: Tailored advice to minimize tax exposure while ensuring legal compliance.
- Corporate tax strategy: Comprehensive planning to maximize tax efficiency and leverage incentives.
- Capital gains optimization: Expert guidance to manage and reduce taxes on capital gains.
- International tax planning: Advanced strategies for optimizing cross-border tax outcomes.
- Cryptocurrency advisory: Compliant tax strategies for both individual and corporate crypto activities.
- Inheritance and estate planning: Strategic planning for efficient wealth transfer and reduced inheritance taxes.
- VAT compliance: Full-service support for VAT registration, reporting, and optimization.
Book a consultation
In the intricate realm of taxation, seeking professional guidance can greatly impact your outcomes. Reach out to us now to arrange a meeting with our tax specialists. We will collaborate with you to create a customized tax plan that meets your goals and guarantees complete adherence to Georgia’s regulatory framework.
Disclaimer
Tax laws and regulations are frequently updated and can differ according to personal situations. The information shared here serves as general guidance and may not represent the latest updates. It is strongly advised to seek the expertise of a qualified tax professional for tailored and current advice related to your specific circumstances.