Benefits of tax residence in Georgia
Georgia attracts foreigners with low tax rates. The country has signed 57 treaties with other states on the avoidance of double taxation. It does not tax income from foreign sources. To receive all these benefits, you need to be a tax resident of Georgia. Also, the status allows you to work in the country and open a business. We’ll tell you what benefits a taxpayer receives if the country of his tax residence is Georgia and how to get this status.
What is Georgian tax residency?
There are two types of residence in the country: tax and legal. The latter is a residence permit or the right to stay for a certain period in the country. A foreigner can be a tax resident, but not a legal and vice versa, or be both at the same time. Tax residency is the obligation of a foreign citizen to pay taxes in that country.
Tax rates for tax residents of Georgia
- Individuals pay 20% personal income tax (only on Georgian source income);
- Individual Entrepreneurs with the status of a small business – 1%;
- Individual entrepreneurs with the status of a microbusiness are exempt from paying taxes;
- VAT on local transactions – 18% (0% for the payments from abroad);
- Corporate income tax for legal entities – 15% (0% for virtual zone companies);
- Tax on dividends — 5%;
- Tax on Georgian real estate – 1%;
- Contributions to the Pension Fund – 2%.
How is the source of income determined (Georgian source or Foreign source)?
Recall that income from foreign sources is not taxed in Georgia. But not all income that a non-resident receives abroad is foreign. Which ones are related to the foreign source income is determined by the Tax Code.
Foreign source income is passive income earned abroad. For example:
- Royalties, dividends, interest on deposits, profits from the rental of real estate, income from capital gains (including trading in securities of non-Georgian origin), income from trading cryptocurrencies – any activity that does not require active physical participation and presence taxpayer.
- If a foreigner receives active income in one of the countries participating in the double taxation treaty, then the Georgian tax authorities will not tax his income.
But if such an agreement is not signed, then the best way to optimize taxation is to register in Georgia as an individual entrepreneur and receive the status of a small business. In this case, a non-passive income from foreign countries will be subject to a 1% tax in Georgia. This rule does not include income from wages.
Georgian legislation refers with their country of residence the income received during physical presence in the country. for example, payment from a foreign client or employer, if an agreement on the absence of double taxation has not been concluded the income received by a person physically being present in Georgia, is taxed in Georgia.
Georgian tax residence has a lot of advantages. In addition to the mentioned low tax rates and double taxation agreements with many countries, foreigners find it easier to open a bank account. The fact is that in Georgia over time it becomes more and more difficult to open it. Tax residency solves this problem and simplifies the procedure.
How can a foreign citizen become a tax resident of Georgia?
A foreign citizen can become a tax resident of Georgia if:
- He has spent at least 183 days in the country
or - He is a High Net Worth Individual
. Let’s consider both ways of acquiring a new tax status in more detail.
183 days rule to obtain tax residency in Georgia
Obtaining the status of a tax resident based on the results of staying 183 days in the country
If a foreigner has spent a total of at least 183 days in the country over the past 12 months (whether during a tax or calendar year), he automatically becomes a tax resident for a year, in accordance with Article 34 of the Tax Code. This does not depend on the type of visa on which the foreigner entered the country, and also on whether he receives income from a Georgian or foreign source.
Not all non-residents are aware of this, but those who plan to stay in the country further should consider using their new status to reduce the tax burden and avoid double taxation.
Automatic acquisition of tax resident status does not deprive a foreigner of the same status in another country. Therefore, it is worth taking care of changing it in advance so as not to be due in both countries at once. For example, at the end of the tax year, you can cancel your previous status. A taxpayer can apply for a certificate of Georgian tax residency. This document will help him revoke his status in other countries.
After a foreigner has stayed in Georgia for 183 days and received the status of a tax resident, the fiscal legislation obliges him/her to submit an annual income declaration by March 31 of the year following the year of acquiring a new status (Article 153 of the Tax Code).
To file it, you first need to register with the tax office and get a Tax ID. After that, you can fill out and submit the declaration online. It is important to remember that Georgian tax legislation (Article 274 of the Tax Code) provides for penalties for failure to provide or late provision of a document:
- Submission with a delay of up to 2 months – 5% of the amount of taxes;
- Over 2 months – 10%.
And for late payment of taxes, you will have to pay a penalty – 0.05% per day (18.25% per year).
Obtaining tax residency as a High Net Worth Individual
HNWI (High Net Worth Individual) in Georgia is a category of individuals whose property value exceeds 3 million Lari (approximately 1 million 150 thousand dollars). Or their annual income exceeds 200,000 Lari (about $77,000) over the past three years, excluding the year in which they applied for tax residency.
To become a tax resident of Georgia, a wealthy person must meet the requirements of the state individual program. To do this, in addition to high income or property, he/she needs:
- Have a residence permit in Georgia;
- or a source of income in Georgia, which brings him at least 25 thousand Lari a year (slightly more than 9.5 thousand dollars)
From May 2023, additional requirements for wealthy individuals came into force. In addition to the above, they must also own property in the amount of $500,000 directly in Georgia. (This can be movable or immovable property, shares, bonds, or just money in a Georgian bank account)
And if in the case of staying in the country for 183 days, it is not necessary to specifically apply to the tax authorities to get a tax residency. HMWI should submit an application and other documents and then go through the procedure for obtaining tax residency.
How can a HNWI become a tax resident of Georgia?
To become a Georgian tax resident, a foreigner needs:
1. Get a residence permit in Georgia.
A foreigner must have a legal residence permit in the country or have an income from a Georgian source of at least 25 thousand lari. If it is not possible to declare such income, then the foreigner must apply for a residence permit.
2. Submit documents for obtaining tax residency.
After obtaining a residence permit, a foreigner must submit an application for tax resident status to the tax office along with documents confirming his wealth. If the application is considered positively, then the status of a tax resident will be assigned to a foreigner within 7 weeks. And if you are not so lucky, the tax office will request additional information that will need to be provided within 30 days.
3. Renew your tax residency status once a year.
The procedure for submitting documents described above to a foreigner must be repeated every calendar year.
Who benefits from the HNWI program?
The state program is suitable for people who cannot spend enough time in Georgia, but who want to avoid taxation in their country of citizenship. These include digital nomads, freelancers, startups, expats.
At first glance, it may seem that in the case of obtaining Georgian tax residence, a foreigner can travel and work around the world or live in the country of his citizenship and pay low taxes in Georgia. But it’s not that straightforward. Tax liabilities arise for various reasons. In some countries, these include business management, physical presence, and other reasons. Therefore, before staying in the state and, for example, working remotely, study its tax laws.
Summing up
If a foreigner plans to stay in Georgia for more than 183 days or seeks to obtain tax resident status as a High Net Worth Individual, then the first thing he needs to do is to check if his country of citizenship has an agreement with Georgia on the absence of double taxation. If not, then it is better to immediately register with the tax service as an individual entrepreneur with the status of a small business in order to reduce the tax burden.
For this purpose, many freelancers, digital nomads and entrepreneurs who want to take their business to the international arena and work in a country with a stable economy and a loyal tax policy seek to obtain Georgia tax residency.