The Winds of Change are blowing in the Georgian IT industry thanks to new legislation adopted by the Georgian government on October 8, 2020, granting significant tax exemptions to International Companies in Georgia.
As a result of the speed with which the new legislation was adopted, a number of international IT companies have already begun to move, including EPAM SYSTEMS, FLAT ROCK TECHNOLOGY, FlashGrid Inc., Exactpro Systems Limited and Amindsolutions among others. This means that the big international players in the IT industry have already opened their offices in Georgia and are gradually increasing the role of this office in their business.
In this article, we’ll talk about the tax incentives available and who qualifies, explain benefit limitations, and try to walk you through the whole process.
What program are we talking about exactly?
First of all, the program shouldn’t be confused with other incentive programs offered to IT companies in Georgia – virtual zone companies in particular.
The program we’re talking about is called the International Company.
On October 8, 2020, changes were made to existing tax legislation for the purpose of attracting IT companies and Resolution No. 619 was issued, clarifying certain conditions and the procedure for obtaining benefits previously enshrined in the Tax Code.
Despite the situation in the country with the pandemic, the Georgian government is doing everything it can to create conditions favorable to foreign companies. The introduction of new tax incentives for companies with international status is a part of this.
International Company status in Georgia is available to legal entities working in information technology.
International company status is granted for an indefinite period and can also be canceled.
What tax incentives accompany international company status?
For sake of comparison, we’ve contrasted the benefits enjoyed by a regular company with those provided to companies with international status.
A regular company pays the following taxes in Georgia:
- Corporate income tax – 15% after the distribution of profits (if the profit is reinvested or remains on the company’s account, then the tax is 0%)
- 5% tax on dividends after the distribution of profits (if the profit is reinvested or remains on the company’s account, then the tax is 0%)
- 18% VAT (though if your customers are located outside Georgia, no VAT is paid on this transaction, and VAT is 0% for you)
- Personal income tax 20% – from the gross salary of employees. Paid by the company.
- 4% pension contribution – from the gross salary of employees who are residents of Georgia
- 1 % property tax
A company with international status pays the following taxes:
- Corporate income tax – 5% after the distribution of profits (if the profit is reinvested or remains on the company’s account, then the tax is 0%)
- 0% tax on dividends
- 0% VAT (though if your customers are located outside Georgia, no VAT is paid on this transaction, and VAT is 0% for you)
- Personal income tax 5% – from the gross salary of employees. Paid by the company.
- 4% pension contribution – from the gross salary of employees who are residents of Georgia
- 0 % property tax
There are also other costs that should be taken into consideration. Following spending in Georgia, further decreases the profit base, from where the profit tax of 5% is calculated.:
- Salaries paid to Georgian citizens.
- Expenses for research, design, and development work carried out in Georgia.
For example:
- Your company’s profit for this year is USD 100,000.
- You paid USD 15,000 in salary to Georgian staff.
- You spent USD 30,000 on research, design, and development work carried out in Georgia.
In this case, you’ll be paying 5% on USD 55,000 (100,000 – 15,000 – 30,000 = 55,000)
What are the requirements for international status?
Certain types of activity qualify for International Company status under the resolution.
1. An IT company seeking international status must:
Either
- be working in Georgia for at least two years
OR
- be a subsidiary of a company registered abroad and has, likewise, been working in Georgia for at least two years (in IT)
OR
- be a foreign-owned (at least 51%) Georgian company working in information technology for at least two years; if it is necessary to combine the shares of more than one company to obtain the 51% controlling stake, the requirement for 2 years of experience shall apply to all of the companies included in the majority stake
2. A legal entity granted International Company status may provide the following IT services:
- software releases
- computer game development
- software development
- computer programming, consulting, and IT related activities
- computer asset management
- the production and/or supply of a digital product, including software support and delivery of version updates
- website development
- web hosting, remote maintenance of software and hardware;
- software and related updates
- provision of images, text, and other information necessary for accessing databases;
- remote system administration
- online delivery of allocated memory
- accessing or downloading software (including purchasing/accounting software or anti-virus software) and subsequent updates
- programs for blocking banner ads
- Downloadable drivers, such as software that connects computers to peripheral devices (such as a printer)
- automatic online installation of filters on websites
- automatic online installation of firewalls (firewalls)
3. Receiving income
A company that has been granted international company status can receive also other income from activities not related to the status. However, it should not account for more than 2% of total income from main activity (for which the status was grated) during the calendar year.
What’s the procedure for attaining international status?
To attain International Company status, you must:
- Register your company
- Rent an office for your company
- Collect documents (there is, in fact, no set list of documents) that confirm that the founder of the Georgian company has at least two years of experience in IT. Some documents that work include contracts, intellectual property rights, invoices, or bank statements. Supporting documents not bound by confidentiality agreements are also good.
- Register with the Revenue Service ( https://www.rs.ge/ ) to submit an application online.
Documents you will need include:
- forms bearing information about what activity the company will engage in to qualify for international company status;
- documents confirming the location of the company within Georgia;
- information about employee numbers;
- documents confirming that the parent company possesses the experience required for international company status.
The Georgian Revenue Service holds the documents for 10 days, after which they are passed on to the Ministry of Finance, where the final decision is made. In all, the entire process takes approximately a month.
How can we help?
A professional approach can help smooth out the registration process. It’s a bit easier to registering an individual than a foreign branch or subsidiary. In any case, our team’s many years of experience are put to use to register your company.
We help you analyze the documentation used to obtain international company status and advise on how to demonstrate the required two years of experience in IT to qualify for the tax benefits.
We can help you find IT professionals in Georgia. Although staff can come from anywhere, hiring local staff can simplify operations and reduce costs. We’ve worked with BTU, KIU and other IT-centered schools for some time now and can help you fill junior and senior positions.
Our team of accountants can provide you with a full range of accounting and financial reporting services. Services align with international standards and Georgian legislation.
We also work with lawyers capable of getting your employees to Georgia, arranging work visas and tax registration, and drafting employment contracts in accordance with Georgian legislation among other things.
We can help you find an office. Both in high-quality class A offices, as well as in offices of relatively low categories B and C. As well as general co-working spaces.
Our experience and capabilities extend beyond these tasks.
For these tasks or others you might need help with, drop us a line or to book a free consultation here.
