Doing Business in Georgia

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Georgia is one of the world’s fastest growing economies and in the region is leading location for global investment. As a result of innovative reforms implemented in Georgia, the World Bank rated Georgia as 11th country in the world in 2010 and as 8th country in the world in 2013 for ease of doing business. In 2006 and in 2008, the World Bank named Georgia the top reformer in the world.

However there are a number of issues which you must consider when you are looking to set up your business in Georgia. This document takes you through some of the common questions we come across and gives you practical information about the issues you need to consider.  

What type of Business Structure should we use?

There are advantages and disadvantages to all of them, and there is no one correct answer, it’s all dependent on your specific business circumstances and needs. A brief overview of the main structures is below:

  • Joint Stock Company (JSC) is a legal entity having capital divided into certain number and types of shares defined by the company charter. A JSC’s liability to creditors is limited only by its property. Shareholders are not liable for the company’s liabilities. Capital of a JSC can be any amount. A JSC is entitled to issue ordinary and preferred shares if the company charter does not provide otherwise. An annual shareholders’ meeting must be held within 2 months after the preparation of the balance sheet to consider the annual results and other issues, if company charter does not provide otherwise. A shareholders’ meeting is not required if decisions are made by a shareholder who owns more than 75% of the capital of the company
  • Limited Liability Company (LLC) is a legal entity whose liability to creditors is limited to its property. Partners (founders) are not liable for company’s liabilities. Capital of a LLC can be specified in any amount. The capital of an LLC is divided into shares. A Partners’ meeting must be held to consider the annual results and other issues. An LLC can be founded by one person.
  • General Partnership (GP) is a legal entity where two or more persons carry out entrepreneurial activities jointly under a single entity name. Partners are jointly liable to creditors with all their property. The liability of a partner is not limited.
  • Limited Partnership (LP) is a legal entity where two or more persons carry out entrepreneurial activities under a single entity name. The liability of some partners (Limited

Partners) to creditors is limited to a certain warranty amount, while the liability of other partners i.e. full partners (General Partners), is not limited. Partners of an LP can be both legal entities and individuals. Partners with limited liability (Limited Partners) are not allowed to participate in the management of the LP.

  • Cooperative (Co-op) is a legal entity where its members carry out entrepreneurial activity mostly in agricultural or labour sectors. It is more oriented to satisfy the interests of its members, rather than to generate profits. A Co-op’s liability to creditors is limited to its property. A general meeting must be held at least once a year to consider the annual results and other issues.
  • Individual Enterprise (IE) — is not a legal entity under Georgian company law. An IE is personally liable to creditors
  • Branch Office (BO) is the structural sub-unit of a business entity and is not a separate legal entity.

How much Corporation Tax will the business pay?

Current Corporation Tax rates in Georgia are:

  Tax rate (%)

 Taxable profit (£)

Standard rate

15

Any profit

Tax rate for Free Industrial Zone Company

Exempt

Any profit

Tax rate for International Financial Company

Exempt

Any profit

Carry forward of losses is possible for 5 years or 10 years. In the latter case, statute of limitation increases from 4 to 11 years. Carry back of losses is not possible.

Foreign companies are generally subject to Georgian tax on income generated in Georgia. This Georgian source income is taxed by applying either a regular taxation scheme (i.e. applicable to Georgian companies, that is 15% of a taxable income) if it is earned through a permanent establishment of a foreign company in Georgia, or is subject to withholding taxation if it is not earned through a permanent establishment.  Withholding taxation rates on income received from Georgian source are the following:

Payment of dividends

5%

Payment of interest

5%

Payment of royalty

5%

Payment of income from international transport or international communications

10%

Payment of income from oil and gas operations

4%

Payment of salary

20%

Payment of rent

20%

Payments of other Georgian source income to non-residents not connected to their PE in Georgia

10%

Paid interest and paid other Georgian source income to offshore companies

15%

Same rates apply for non-resident individuals on their Georgian source income.

Double taxation treaties may reduce the tax rates. Currently Georgia has effective double taxation treaties with 52 countries.

(NB: Rates above are for the tax year to 31 December 2015)

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