A Limited Liability Company (LLC) is the most popular form of business organization in Georgia (and perhaps the world). There are approximately 82,000 LLCs in Georgia today, a number that continues to grow at a startling pace. While the popularity of the LLC can be explained by low taxes and ease of registration, we shouldn’t lose sight of the fact that to make it work properly, in full compliance with the law, a bit of elbow grease is in order.
This article is dedicated to four of the most common mistakes people make when opening a company in Georgia, mistakes that can fly under the radar until the Revenue Service has noticed them and levied penalties or the resulting expenses begin to affect your financial standing. These tips will save you time, gray hair, and, of course, capital.
No. 1: Not taking legal address seriously
According to the Law on Entrepreneurs, every business in Georgia is required to have a legal address, even those working without a physical presence in the country. Without an address, your company simply won’t be registered with the House of Justice.
The mistake is that many consider this requirement to be a formality and turn to a casual address rental service, the purveyors of which abound in expat communities online or in the direct vicinity of the House of Justice. All work without a contract, and your company ends up getting registered in someone’s apartment, effectively robbing you of legal control.
Associated risks include:
- A private individual gaining access to your business correspondence, threating confidentiality and your defense against corporate espionage.
- Susceptibility to blackmail in the form of an additional fee to keep your address, essentially guaranteeing unforeseen expenses.
- The individual at the address where your company is registered can revoke it at any time for whatever reason, and you have no control and may not even know if it has happened. This is probably the worst scenario, because the lack of an address for an LLC can lead to fines from regulators or the annulment and complete shutdown of operations.
The optimal solution: find a registered agent. You won’t necessarily have to rent an office. Many agents can provide a virtual legal address, for which they will conclude a formal contract with you, deliver all your correspondence in a timely manner, and maintain complete confidentiality. Agents can also provide other forms of legal support if needed.
No. 2: Underestimating your accounting obligations
There are many ways a business can benefit from being in Georgia, some of which allow you to reduce your taxes to as low as 0%. For example, almost all companies are exempt from corporate tax before distributing profits, and participants in a virtual or free industrial zone are exempt even after.
This doesn’t exempt your LLC from accounting, however. All companies are obliged to submit the necessary documentation to regulators on time or face penalties. Documentation includes:
- Monthly and annual tax returns (including zero returns)
- Annual financial and non-financial (management) reports
- Primary accounting on the movement of money, goods, and services, kept on a daily basis to justify operations in the event of a request from the tax authorities
- Other documents depending on the sphere of business, such as those, for example, related to compliance with the law on protection of personal data of clients or AML/CFT policies. Find more about accounting here.
Assessing the pitfalls of Georgian accounting can be difficult, especially if you lack experience with it, so you might want to consider entrusting the work to a local employee or outsourcing agency.
The second is usually much cheaper than hiring in-house staff, and the services of a specialist to file basic documents can be obtained for as low as USD 500 per month. By comparison, many IT companies can spend some USD 10,000 a month on specialized software alone.
No. 3: Not seeking advice before opening a business account in a Georgian bank
The Georgian banking system is one of the most developed, reliable, technologically advanced, and convenient in Eastern and Central Europe (check out our discussion on the topic of the best bank in this article). There are two things you’ll want to keep in mind, though:
- First, foreign founders opening a corporate account will be subjected to a thorough KYC (Know Your Customer) procedure at the bank requiring a full set of documents. If there is more than one founder, each will be examined.
- Second, even if the documents are in order, but your presence in Georgia is nominal, i.e., no local office or employees, the probability that the bank rejects you is high. Not everyone offering a service to help you open a bank account will tell you this ahead of time.
The mistake here is that entrepreneurs think they need to open a corporate account in Georgia to conduct business and waste a lot of time and effort to this end. The truth is that the Georgian Revenue Service allows for entrepreneurs to use an account in a foreign bank (provided that bank is not subject to sanctions). LLCs can also avail themselves of the many fintech services that exists, many a good option for Georgian businesses and compliance procedures.
To avoid this mistake, consult with a local accountant or legal agency before trying to open an account in a Georgian bank. They will examine your situation and help you find the solution best suited to your business. What you need to work with counterparties within Georgia will differ from what you need to carry out cross-border payments.
No. 4: Relying on local payment gateways
This issue is a logical continuation of the previous point. Many foreign founders set up a company in Georgia with a focus on international activities and plan to accept payments for their services on their website or mobile app from customers around the world.
Easier said than done. A simple corporate account will not be enough. You will need to connect a gateway to your website, i.e., a payment service that will act as an intermediary between your customers and the bank where you have an account.
The first part of the problem is that this will require additional KYC. The second part is that even if local payment gateways (e.g., TBC Pay or BoG Payments) are successfully connected, they may be limited in what they can do, accepting payments in Georgian national currency only or only from local bank cards, for example, making them of little use for global e-commerce.
There are only a few international solutions that are really well suited to Georgian global e-commerce businesses (e.g., TazaPay or PAYZE). So once again, we would advise enlisting the help of a lawyer with experience in cross-border transfers. This will make it much easier for you to set up your payment infrastructure.
Of course, these are not the only mistakes out there. It is always possible to make a mistake when drawing up statutory documents, choose the wrong activity code for an LLC, or completely miss an important certification.
The specialists at PB Services can help you avoid these problems. Get help registering your business, opening a bank account, outsourcing accounting, and more. Schedule a free consultation to map out your own plan of action.
Why an LLC in Georgia is a great option for a startup
Listing the things in this article should by no means be understood as wanting to discourage you from registering a business in Georgia. On the contrary, an LLC offers many upsides:
- The ability to open a business remotely by power of attorney (without having to visit Georgia in person)
- Fast registration with a minimal number of documents: one visit to the House of Justice is often enough
- The ability to register a company with only one founder, either an individual or a legal entity. The founder’s home country is completely irrelevant
- No minimum capital requirements
- No restrictions on the number of directors
The many tax optimization tools available to LLCs should also be noted, from preferential regimes to double taxation agreements signed between Georgia and 58 countries. The main thing is to open your business in accordance with the law so you can direct your efforts to scaling and growing profits.