Georgia IT Zone

[D0naldDuck]

Hi guys, does anyone has knowledge regarding the Georgian tax laws? The IT zone benefits sound quite good but I wonder how long they will grant them and whether its a good idea to build a 5+ year setup on that IT zone. Do they have any legal regulations that grant the IT zone benefits? If so, how easy can they be changed/removed?

Best regards

 

[JonnyStekkino]

From what I know the IT Virtual zone has been around since quite some time in Georgia.
I opened an IT Virtual Zone company around 1 years ago, obtaining the license has been quite easy I would say.

 

[sergeylim88]

what about the taxes there in georgia? can you give us some more information?

 

[uplana]

I opened an IT Virtual Zone company around 1 years ago, obtaining the license has been quite easy I would say.

Can some explain in a summary what this is about, do we need to move there or can we get tax benefits from it remote?

 

[JonnyStekkino]

Can some explain in a summary what this is about, do we need to move there or can we get tax benefits from it remote?

Technically it's possible to do it remotely, local banks are the issues if you mind to open an account with one of them.

To get approved you just need to prove that you work in the IT field, usually a contract with a client it's enough.

Benefits are huge.
- 0% ICT
- 5% dividends
- no VAT
- no license costs

 

[sergeylim88]

is it still possible to use local banks?
does paypal, wise... work?

 

[JohnLocke]

Doing it remote will still not free you from your local tax authorities. I believe, they will tax you from any income of such an setup! If someone prove me wrong I'm all ear.

 

[Risehigh]

Doing it remote will still not free you from your local tax authorities. I believe, they will tax you from any income of such an setup! If someone prove me wrong I'm all ear.

Most likely yeah, since you need apostille in your local country to form one
Also georgia is cracking down a little on it companies without substance/products produced in the it zone in specific.
Also always consindering that they join crs in 23/24 (lets ssee) its a nice short term bet/vehicle.

 

[JonnyStekkino]

is it still possible to use local banks?
does paypal, wise... work?

Wise easly opened an account to my IT Virtual Zone company, but didn't used it yet.

 

[kkein]

About this, does anyone have any news? I was told that to benefit from the virtual zone, the company needs to have local employees, is that possible? And what happens if the ubo residing abroad decides to not pay the related corporate tax when issuing dividends (and dissolve the company)?
@khinkali do you know?

 

[khinkali]

@kkein it's more than just having local employees. The IT property must have been developed on Georgian soil. The UBO doesn't matter, it's where the work was done.

This is not a crazy rule and I think it is in line with similar "IP Box" type regimes in other places. People got angry because this interpretation appeared suddenly and was backdated three years. I don't know what the outcome was for people caught up in it.

I also don't know if you can dissolve a company after distributing dividends that should have been taxed. I would go to a Georgian tax auditor for the specifics.

 

[kkein]

@kkein it's more than just having local employees. The IT property must have been developed on Georgian soil. The UBO doesn't matter, it's where the work was done.

This is not a crazy rule and I think it is in line with similar "IP Box" type regimes in other places. People got angry because this interpretation appeared suddenly and was backdated three years. I don't know what the outcome was for people caught up in it.

I also don't know if you can dissolve a company after distributing dividends that should have been taxed. I would go to a Georgian tax auditor for the specifics.

Thanks for the clarification, i think it helps a lot.
My next question is: what happens if people who got angry and who aren't resident in Georgia, simply decide to not pay?
After they get the money out of the company, can they simply stop doing their biz with the Georgian VZE, and incorporate elsewhere?

 

[khinkali]

After they get the money out of the company, can they simply stop doing their biz with the Georgian VZE, and incorporate elsewhere?

I guess this comes down to where they are; whether the Revenue Service would get cooperation from the authorities in the other country.

 

[kkein]

Wise easly opened an account to my IT Virtual Zone company, but didn't used it yet.

Do you have local employees? or are you able to enforce the 0% CIT somehow else?

 

[Ilia Kekutia]

Do you have local employees? or are you able to enforce the 0% CIT somehow else?

A new instruction was published in January of this year by the Revenue Service of Georgia, according to which local employees are no longer needed if you are an IT engineer and you manage the work yourself. The main criteria is to carry out IT activities from the territory of Georgia. You can read the entire instruction in English with examples here.

 

[boy20hki]

A new instruction was published in January of this year by the Revenue Service of Georgia, according to which local employees are no longer needed if you are an IT engineer and you manage the work yourself. The main criteria is to carry out IT activities from the territory of Georgia. You can read the entire instruction in English with examples here.

So if UBO resides outside of Georgia (non Georgia tax resident) but hires a Georgia-based staff (with some IT/software development experience & passable salary) to make the software, would this be okay? I see the new 2023 regulation asks for proof/list of 3 year IT work portfolio of founders which make it harder to apply ...

 

[JonnyStekkino]

So if UBO resides outside of Georgia (non Georgia tax resident) but hires a Georgia-based staff (with some IT/software development experience & passable salary) to make the software, would this be okay? I see the new 2023 regulation asks for proof/list of 3 year IT work portfolio of founders which make it harder to apply ...

Banks will most likely not open your business accounts.. I had fights for over 1 year in Georgia when I were living there (apartment contract, office contract, more than 3 local emplyees) and still had issues because I were not Georgian resident. Without considering the poor georgian support to international payment gateways.

In my opinion 1000 times better to go with a setup in Dubai.. will save you mental health and time.

 

[boy20hki]

Banks will most likely not open your business accounts.. I had fights for over 1 year in Georgia when I were living there (apartment contract, office contract, more than 3 local emplyees) and still had issues because I were not Georgian resident. Without considering the poor georgian support to international payment gateways.

In my opinion 1000 times better to go with a setup in Dubai.. will save you mental health and time.

Hi thanks for your input


-UBO does not live in Georgia (non tax resident)

This article was posted 2 years ago by a blogger, which sounds like same story with you. So in the end after fighting, did you manage to open company account with them, having local staff with you?

https://offshorecitizen.net/banking/why-is-georgia-no-longer-good-for-business/

If you’re not a Georgian resident you will have a very hard time opening a bank account for a company.

The new rule they introduced was that you need to have operations in Georgia, which many people didn’t mind.

Setting up an office and hiring locals aren’t expensive at all, so this wasn’t an issue.

But then they got even tougher, and even if you had a local company that was operating in Georgia, but you are not a Georgian resident and you didn’t have a Georgian resident director you wouldn’t be able to bank with ease.

-UBO lives there as Georgia tax resident, then either
+register for Individual Entrepreneur (Sole Proprietor, Solopreneur) with Small Business Status (to get 1% total turnover tax) OR
+set up a Virtual Zone (if main business is software development and delivery, to get 0% CIT & 5% dividend tax).

Out of the two, I think for choosing the Individual Entrepreneur (practically sole trader and not really a LLC/business entity) is much easier option to do: easier paperwork and less hassle with banking, and you can save a lot of taxable money. Just have a cheap US LLC with business account with Mercury/Wise or US street bank (if UBO can travel to US), then send to your personal bank account (either at your home country or a EMI), then from that offshore personal account wire money to your Georgian personal account .Georgian bank is quite easy with personal account in that aspect, as long as you don't swift wire frequently and only wire from a personal account of your name. Just keep the wired amount small to cover living cost & expense, which reduces the amount liable to be taxed with 1%. Your main money is in US LLC bank account. Georgia does not know or really have the ability to enforce the PE rule.

Georgia seems very affordable to live in and attractive for beginner nomad with not huge income, and I think with the above simple setup with US LLC, one can live in Georgia for a while, earning money and paying super little tax (like 1% of total amount you wire just enough to cover living cost there, not your real turnover) as long as one uses personal bank account transaction and stay under radar with incoming wire from abroad. If the country tax and legal system is not consistent and does not have resource to enforce, why bother with complicated setup and paperwork?

I have to agreee with you Georgia payment gateway can be issue, Stripe does not work there and it is not EU country so limited options for EMI.

If one wants legit corporate structure with banking (esp when biz is scaling up like millions per year), yes Dubai UAE company is the only sustainable way to go. No tax on profit or dividend. Those tax scheme like Georgia VZC or Romani micro company if done correctly as law, still have to pay dividends tax 5-8% which could get big when scaling..

Hi thanks for your input


-UBO does not live in Georgia (non tax resident)

This article was posted 2 years ago by a blogger, which sounds like same story with you. So in the end after fighting, did you manage to open company account with them, having local staff with you?

https://offshorecitizen.net/banking/why-is-georgia-no-longer-good-for-business/


-UBO lives there as Georgia tax resident, then either
+register for Individual Entrepreneur (Sole Proprietor, Solopreneur) with Small Business Status (to get 1% total turnover tax) OR
+set up a Virtual Zone (if main business is software development and delivery, to get 0% CIT & 5% dividend tax).

Out of the two, I think for choosing the Individual Entrepreneur (practically sole trader and not really a LLC/business entity) is much easier option to do: easier paperwork and less hassle with banking, and you can save a lot of taxable money. Just have a cheap US LLC with business account with Mercury/Wise or US street bank (if UBO can travel to US), then send to your personal bank account (either at your home country or a EMI), then from that offshore personal account wire money to your Georgian personal account .Georgian bank is quite easy with personal account in that aspect, as long as you don't swift wire frequently and only wire from a personal account of your name. Just keep the wired amount small to cover living cost & expense, which reduces the amount liable to be taxed with 1%. Your main money is in US LLC bank account. Georgia does not know or really have the ability to enforce the PE rule.

Georgia seems very affordable to live in and attractive for beginner nomad with not huge income, and I think with the above simple setup with US LLC, one can live in Georgia for a while, earning money and paying super little tax (like 1% of total amount you wire just enough to cover living cost there, not your real turnover) as long as one uses personal bank account transaction and stay under radar with incoming wire from abroad. If the country tax and legal system is not consistent and does not have resource to enforce, why bother with complicated setup and paperwork?

I have to agreee with you Georgia payment gateway can be issue, Stripe does not work there and it is not EU country so limited options for EMI.

If one wants legit corporate structure with banking (esp when biz is scaling up like millions per year), yes Dubai UAE company is the only sustainable way to go. No tax on profit or dividend. Those tax scheme like Georgia VZC or Romani micro company if done correctly as law, still have to pay dividends tax 5-8% which could get big when scaling..

like for non Georgian tax resident UBO, how complex it is to maintain a Georgian company from outside Gerogia... Even one manages to open a company bank account there for Imagine suddenly the Georgian bank closes the account one day demands you to fly there and gets cash out. It could be a deal breaker for many....Not to mention many people here complain about strict KYC with international wire transfers even small amount they ask for invoice etc...