Georgia - Low cost setup with individual entrepreneur scheme

[orangekangaroo]

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?

From what I understood the rules to be in your example it would be 2021 only. Georgia uses the rolling 183 rule of a year. As soon as it is triggered you will be liable to pay tax for that tax year. In this case, you are taxed for the whole year of 2021.

 

[brescape]

Thank you

Here is an interesting article about eligibility of 1% small business rule:

1% personal income tax applicable in Georgia What to know and consider?

however, that is not as simple as it sounds.

forbes.ge

and about the residency rules:

https://forbes.ge/blogs/tax-residency-rule-in-georgia-and-importance-of-being-georgian-tax-resident/

 

[orangekangaroo]

Nice links. Thx. I am having a meeting next week with a Georgian tax consultant to discuss my setup.

 

[sonato]

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.

how and where will you setup banking for your Georgia company?

 

[orangekangaroo]

how and where will you setup banking for your Georgia company?

If I go ahead most likely with a Georgian Bank. Should be easy as I will be resident and have a locally registered business.

 

[iamafrog]

If I become a Georgian resident which country is best to have a LLC to pay to myself in dividends?

 

[orangekangaroo]

If I become a Georgian resident which country is best to have a LLC to pay to myself in dividends?

LLCs do not pay dividend, but pay income which will be taxed in the country you are resident.

 

[iamafrog]

LLCs do not pay dividend, but pay income which will be taxed in the country you are resident.

Okay sorry for that mistake because i'm a complete noob. But then, if i live 183 days in Georgia and become a tax resident in georgia, as far as i'm reading I won't pay income taxes. Will I?

 

[orangekangaroo]

Okay sorry for that mistake because i'm a complete noob. But then, if i live 183 days in Georgia and become a tax resident in georgia, as far as i'm reading I won't pay income taxes. Will I?

Sorry, but if you manage a US LLC when you are tax resident in Georgia, it will be seen as a Permanent Establishment and be subject to tax. However, Georgia does have the Individual Entrepreneur scheme at 1% tax on turnover up to 500K GEL. That could be interesting.

 

[iamafrog]

Georgia does have the Individual Entrepreneur scheme at 1% tax on turnover up to 500K GEL. That could be interesting.

It is! but that would mean that I have to create a company in Georgia, or is it like being a freelance over there? (Do you have any link to read on this?)

Edit: I mean will i do business as a physical person or will I manage a juridical person (A company or any other kind of entity)?

 

[orangekangaroo]

The individual entrepreneur is not a separate legal entity. This has become a major obstruction for me. I do not want to be personally liable for business transactions. Next, the idea of using an LLC/LLP abroad only works if you set it up as a payment processing company. The payment company will have to charge and make a small profit. This profit will be taxed as a PE in Georgia at 20% personal income tax.

Whatever assets you have in your LLP / LLC will have to be transferred to the Individual Entrepreneur setup. These assets have to be transferred at market value and trigger a profit at the LLP for which you pay 20% tax as a PE in Georgia.

So the Georgia Individual Entrepreneur setup is good for those that:

• Don't mind personal liability
• Software developers, writers, graphic designers and other freelancers that do not offer consultancy, if you provide consultancy you will be taxed as a normal Georgia corporate (15% when distributed, 5% divi tax).
• Some reverse VAT admin plus withholding taxes depending on who you are dealing with.
• Ideal low-cost setup for starters.

If you do go for it, make sure you register ASAP as any work done before will be taxed at 20%.

I got all the info from a tax consultant in Georgia.

 

[iamafrog]

I see but i don't understand why the LLC/LLP abroad has to be a Payment Processor. As long as in the other country the income of that LLC/LLP generated outside the country is not taxed, it should work... for instance what if you create a LLC/LLP which is dedicated to trading crypto and real estate?

 

[orangekangaroo]

I see but i don't understand why the LLC/LLP abroad has to be a Payment Processor. As long as in the other country the income of that LLC/LLP generated outside the country is not taxed, it should work... for instance what if you create a LLC/LLP which is dedicated to trading crypto and real estate?

Sorry, but I have an online business and I need LLP/LLC for Paypal & stripe. I also need a legal entity for the business and do not want to be personally liable. Real estate (outside Georgia) should be fine as is passive and territorial tax, crypto is capital gains and there is no capital gains in Georgia.

 

[brescape]

Hi Orange Kangaroo
I have a Limited Company in uk, that does software development. It needs to stay as it is, as it has a number of contract with existing customer.

I was thinking to create a Georgian 5% software company and become tax resident in Georgia

- Limited company in UK invoicing, let's say 100
- Georgian Software company that invoice to the UK, let's say 30 (arm's length principle) to the UK


So
- UK, profit 70 (on which it pays UK corporate tax). I can nominate local directors in UK to avoid estabilishing PE in georgia
- Georgian profit 30, it pays Georgian corporate tax (5%)
- UK ltd pays dividend to me (70- uk CIT), individual tax resident in georgia. I think this should be tax exempt
- Georgian company pays dividend to me (30 - ge CIT) , individual tax resident in georgia. I think this should be tax exempt

Would this work?
Also, can you drop me a PM with the contact of your tax advisor, the fact that he understand what a PE is, is a good start.

 

[orangekangaroo]

I can't PM you, however now that you ask, use expathub.ge . You can get a 30 minute consultation for free, and it is very professional. You would qualify for the Virtual Freezone company as well by the sounds of it. If your construction works I don't know.

 

[dissident]

Georgia tax regime for small businesses with 1% and 3% taxes respectively is only applicable to certain types of businesses. You cannot for instance do consulting services of any kind and pay 1% tax, in that case, you will be liable to pay 20%.
Georgian law is often complex and has many ambiguities, be careful with that. The best advice is to hire a local lawyer that knows the law in detail. Some international focused lawyers don't know the details of this and will deliberately tell you that you can actually pay 1% with no problem no matter what your business is, and that's totally false. I saw this claimed in many websites trying to attract foreign investors into Georgia. Don't fall into this trap. Georgia is an optimal jurisdiction in many cases, but things are not that simple as it looks like in the surface.

 

[ska]

Which is the best place to open a company in UE for having payment gateways? Which type of company??
I already have a Small Business Status in Georgia where I pay 1% of taxes as a physical person.

I would like to have low taxes on that company and low fees for open and managing it... As I'm just a digital nomad.
The UE company should be good also in the future even if I will travel the world and I will change my residency in Thailand, Malesia, etc...

 

[boomy]

Which is the best place to open a company in UE for having payment gateways? Which type of company??

you mean EU right ?

I already have a Small Business Status in Georgia where I pay 1% of taxes as a physical person.

but you can't get a merchant account or other payment processing for your business?

Take a look in the resource section or the guide in mentor group there you have your solution:

https://www.offshorecorptalk.com/threads/the-recipe-to-get-an-offshore-business-up-running-%E2%80%93-tried-tested-providers.33487/

 

[Brace]

Sorry, but if you manage a US LLC when you are tax resident in Georgia, it will be seen as a Permanent Establishment and be subject to tax. However, Georgia does have the Individual Entrepreneur scheme at 1% tax on turnover up to 500K GEL. That could be interesting.

If georgia considers your US LLC as a permanent establishment and taxes you 15% corporate tax, will you as an individual also become subject to personal income tax 20%? In that case the US LLC becomes worthless, and the tax free plan falls apart

 

[boomy]

If georgia considers your US LLC as a permanent establishment and taxes you 15% corporate tax, will you as an individual also become subject to personal income tax 20%? In that case the US LLC becomes worthless, and the tax free plan falls apart

agree, it is not worth it unless you build with substance.