Georgia - Low cost setup with individual entrepreneur scheme

[orangekangaroo]

Georgia has the individual entrepreneur scheme which is very interesting for startups. This is handy before you start venturing out in more expensive offshore structures.

Up to 166K euros, the individual entrepreneur will get taxed 1% on turnover, plus there is the 4% obligatory amount you have to set aside for an individual pension account. Above 166K euros, the tax goes to 3%. You will not have limited liability though. If you want that you should have an LLC/LLP outside Georgia and bill your services to that entity.

You will get tax residency in Georgia even if you do not decide to reside there.

However, if you stay the 6 months you will have protection from the many double tax treaties if other countries start claiming your residence. If you stay less than you will need to show proof to other countries that your domicile is in Georgia. Proof via rent, insurance and other stuff to show that your centre of life is in Georgia.

I think this setup is great, better than a Romania Micro company which has 3% tax and has the EU vat scheme compliance burden.

Why go the complicated and difficult route with the Croatia DN visa when you have Giorgia here that gives lots of visitors a 365 tourist visa.

 

[ahassanmaly]

Georgia has the individual entrepreneur scheme which is very interesting for startups. This is handy before you start venturing out in more expensive offshore structures.

Up to 166K euros, the individual entrepreneur will get taxed 1% on turnover, plus there is the 4% obligatory amount you have to set aside for an individual pension account. Above 166K euros, the tax goes to 3%. You will not have limited liability though. If you want that you should have an LLC/LLP outside Georgia and bill your services to that entity.

You will get tax residency in Georgia even if you do not decide to reside there.

However, if you stay the 6 months you will have protection from the many double tax treaties if other countries start claiming your residence. If you stay less than you will need to show proof to other countries that your domicile is in Georgia. Proof via rent, insurance and other stuff to show that your centre of life is in Georgia.

I think this setup is great, better than a Romania Micro company which has 3% tax and has the EU vat scheme compliance burden.

Why go the complicated and difficult route with the Croatia DN visa when you have Giorgia here that gives lots of visitors a 365 tourist visa.

Hello
Where can i find more info on this ? Do u know any lawyers or offices who would do the set up remotely ?

 

[sonato]

Sounds not bad, but maybe in real live it isn't that easy!

 

[orangekangaroo]

Hello
Where can i find more info on this ? Do u know any lawyers or offices who would do the set up remotely ?

I dont want to promote here, a quick Google search and you will find some. Also registration gives you the right to fly to Georgia now, with an 8 day Quarantine. But you have to get pre approval.

 

[orangekangaroo]

Sounds not bad, but maybe in real live it isn't that easy!

Ranks high on my setup list. I will let you know.

 

[MrYellow]

How about Georgia free zone and pay 0% ? I prefer the 0% variant

 

[orangekangaroo]

There are 2 types of freezones, one is the freezones that are great for trading or production and there is 0% tax. The other is the virtual IT zone. This is free of corp tax, but there is a 5% Dividend tax. This can be reduced to 2.65% if you use Cyprus non-dom structure with the DTA in place between Cyprus and Georgia. But requires expensive setup.

I think the 1% tax on turnover for Individual Entrepreneurs is a steal, this is up to 166K euro. As a couple, you can double this.

 

[brescape]

Interesting OrangeKangaroo
I have a UK limited from which I pay myself in dividend, and I would like to look into Georgia as my personal residency. Given you already looked into this, do you hace an opinion if Georgia could be a good option

- Which of the two schemes is more appropriate for me, and how much would I pay tax on dividends from such UK entity.
- Would the UK entity be considered as Georgian PE and therefore be subject to CIT in Georgia?

 

[orangekangaroo]

Interesting OrangeKangaroo
I have a UK limited from which I pay myself in dividend, and I would like to look into Georgia as my personal residency. Given you already looked into this, do you hace an opinion if Georgia could be a good option

- Which of the two schemes is more appropriate for me, and how much would I pay tax on dividends from such UK entity.
- Would the UK entity be considered as Georgian PE and therefore be subject to CIT in Georgia?

The way I would set it up is bill your UK LTD for hours that you use via the Georgia Individual Entrepreneur. You bill the UK ltd to the maximum so there is no profit left. It means you don't pay UK tax or goergia tax on it. All you pay is 1% on turnover via Individual Entrepreneur. You may want to have this checked with Georgia if can be done.

 

[iamafrog]

You may want to have this checked with Georgia if can be done.

how?

 

[brescape]

Well, really you can only invoice following the principle of arm's length, what you are proposing is going to send you straight to jail, so yes, you are going to be able to shift some profit to your Georgian entity, but you are going always to have a profit from UK company that still you would have a profit in the UK company, and possibly to have to pay dividend from it.

So yes, my questions stand, if anybody want to have a stab at it.

 

[orangekangaroo]

Then you use the LLP option which is tax transparent so there is no profit shifting from a UK point of few. What is done in Georgia is shift something that is a PE and taxed differently to the IE scheme. This is some question that I have still outstanding. I will need the LLP for PayPal & Stripe plus offer some legal protection, which I do not get with the IE scheme.

If this does not fly, I will use Romanian Micro Company as it will give me PayPal/Stripe plus limited liability for 3% turnover up to 1 mil euro or 1% of you employ someone.

 

[brescape]

My UK company is established for many years and I cannot easily change it, as there are many the contract signed with customers. If I woudl start today, and knowing I would not be based in UK anymore, I would have done different choices, but it is, what it is now.
Anyway, thank you for you advices, did you manage to find somebody reliable from a Georgian tax planning, banking and company incorporation point for view? I remember contradictory report on old post.

 

[LoveMyLife]

orangekangaroo, the problem is in details again.. I understand, many people thing, details are not important. And that is mistake...

To be able to use a geogrian sole proprietor effectively, you have to be a tax resident of Georgia. There are just a few ways if you are a foreigner:

- Stay at least 183 days within every 12 months in Georgia on any visa

- Have a valid residence permit and stay in Georgia for 183 days of any calendar year

- Have a valid residence permit and be registered as a tax resident based on HNWI scheme

If you just register as a sole proprietor in Georgia but you are not a tax resident of georgia, you are considered just non resident sole prorietor. Just registering as a sole proprietor will not make you a georgian tax resident. And your foreign income will not be taxed in Georgia.

Problem is, if you are not a tax resident of Georgia, Double tax treaty between United Kingdom and Georgia is not applicable. Double tax treaty can be used just in case if person is a tax resident of both countries.

So, if you will UK LTD company, it will be income sourced in the UK and which shall be paid to a non treaty country and 35 % withholding tax will be used.
If you will use a structure with UK LLP, this income will be just considered a taxable income in a country where you are a real tax resident as a personal income.

It is not as easy as it can look just when googling. You have to read a double tax treaties and you have to read a local law.

The setup which you advice here works just in case if you are able to spend a lot of time in Georgia, or if you are a hign net wealth individual.

 

[LoveMyLife]

Interesting OrangeKangaroo
I have a UK limited from which I pay myself in dividend, and I would like to look into Georgia as my personal residency. Given you already looked into this, do you hace an opinion if Georgia could be a good option

- Which of the two schemes is more appropriate for me, and how much would I pay tax on dividends from such UK entity.
- Would the UK entity be considered as Georgian PE and therefore be subject to CIT in Georgia?

If UK LTD is considered to be a Georgian tax resident, there is no problem. Georgia taxes on non resident entities profits which are sourced in Georgia only. But Georgia does not have strong CFS rules now. So your UK LTD will be not considered a georgian tax resident.

If you will be a georgian tax resident, whan means to be a HNWI or live there at least 6 of each 12 months, your UK LTD will pay a standard corporate tax in UK and dividends will be paid to you tax free. In case if you will be a real georgian tax resident, it will be better to invoice your UK LYD by you as freelancer and pay a sole proprietor tax in Georgia.

Problem is, that if you as the only owner of the UK company will bill your company as a sole proprietor, there is a transfer pricing documentation needed. This is not cheap nor easy to have. So be prepared for a problems ih transfer pricing documentation creation. I do not say to be impossible. It is possible, but not as easy as many people expect. Combination with LLP will work very similar. But you will need it just for optimization of income which is sourced in the UK only.

 

[orangekangaroo]

orangekangaroo, the problem is in details again.. I understand, many people thing, details are not important. And that is mistake...

To be able to use a geogrian sole proprietor effectively, you have to be a tax resident of Georgia. There are just a few ways if you are a foreigner:

- Stay at least 183 days within every 12 months in Georgia on any visa

- Have a valid residence permit and stay in Georgia for 183 days of any calendar year

- Have a valid residence permit and be registered as a tax resident based on HNWI scheme

If you just register as a sole proprietor in Georgia but you are not a tax resident of georgia, you are considered just non resident sole prorietor. Just registering as a sole proprietor will not make you a georgian tax resident. And your foreign income will not be taxed in Georgia.

Problem is, if you are not a tax resident of Georgia, Double tax treaty between United Kingdom and Georgia is not applicable. Double tax treaty can be used just in case if person is a tax resident of both countries.

So, if you will UK LTD company, it will be income sourced in the UK and which shall be paid to a non treaty country and 35 % withholding tax will be used.
If you will use a structure with UK LLP, this income will be just considered a taxable income in a country where you are a real tax resident as a personal income.

It is not as easy as it can look just when googling. You have to read a double tax treaties and you have to read a local law.

The setup which you advice here works just in case if you are able to spend a lot of time in Georgia, or if you are a hign net wealth individual.

For all my intentions I intend to be tax resident in Georgia.

 

[orangekangaroo]

If UK LTD is considered to be a Georgian tax resident, there is no problem. Georgia taxes on non resident entities profits which are sourced in Georgia only. But Georgia does not have strong CFS rules now. So your UK LTD will be not considered a georgian tax resident.

It is not the CFC rules it is the PE rules you have to worry about.

 

[brescape]

Thank you LoveMyLife, that was useful insight

Although both OrangeKangaroo and myself are looking at moving our residence in Georgia, one thing is not clear about your comment:

So, if you will UK LTD company, it will be income sourced in the UK and which shall be paid to a non treaty country and 35 % withholding tax will be used.
If you will use a structure with UK LLP, this income will be just considered a taxable income in a country where you are a real tax resident as a personal income.

The corportae income tax in UK is 19% and there is no dividend withholding (you pay tax on dividend where you are tax resident as individual).
Where is 35% coming from?
I am really actually interested because if (due to restrictions, etc) fail to become tax resident this year, then we may be expose in this sense

Also, in case you become resident because you spend there "6 of each 12 months", in which year you are resident. For example let's say you spend in Georgia from 1 October 2020 to 1 May 2021 (7 months in 12, 3 in 2020, 4 in 2021), will you be tax resident in both 2020 and 2021 or only 2021?

 

[LoveMyLife]

Thank you LoveMyLife, that was useful insight

Although both OrangeKangaroo and myself are looking at moving our residence in Georgia, one thing is not clear about your comment:



The corportae income tax in UK is 19% and there is no dividend withholding (you pay tax on dividend where you are tax resident as individual).
Where is 35% coming from?
I am really actually interested because if (due to restrictions, etc) fail to become tax resident this year, then we may be expose in this sense

Also, in case you become resident because you spend there "6 of each 12 months", in which year you are resident. For example let's say you spend in Georgia from 1 October 2020 to 1 May 2021 (7 months in 12, 3 in 2020, 4 in 2021), will you be tax resident in both 2020 and 2021 or only 2021?

35 % withholding tax is if dividend is paid to a non UK foreign resident from a country wchich does not have a DD Treaty with UK.

You are considered tax resident for a year, where you fulfilled a conditions of beeing a tax resident for a full year. Som in the case with dates which you wrote, person is not fulfilling a conditions to be a tax resident for all the year, if person does not stay in a country from jun to december.

 

[brescape]

35 % withholding tax is if dividend is paid to a non UK foreign resident from a country wchich does not have a DD Treaty with UK.

No, that seems not correct, there is no withholding tax on dividend regardless of the country you are , and regardless if you have DTT with UK.
There is witholding on Interest & Royalties, but not on dividends.:

Dividends
There is no requirement to deduct WHT from dividends. Therefore, dividends may always be paid gross, regardless of the terms of the applicable DTT.

Source: United Kingdom - Corporate - Withholding taxes