Georgian tax residency, affiliate income – freelancer vs. company

[Limelight]

Hey everyone, just looking for options to optimize my taxes legally. I'm sure there are others in a similar situation, so maybe this helps someone.

My situation:

• Solo affiliate marketer, most income comes from US, some from Europe (mostly Amazon)
• EU passport holder
• Currently putting all money on TW / Revolut (I know it’s not sustainable)

I was looking at Georgia for obtaining tax residency, and from what I’ve understood I have two options available to me:

1. Set up a “Virtual IT Zone” company + reside in Georgia – 5% tax on dividends, ~1500 EUR setup, ~500 EUR/year maintenance
2. Skip the company and receive money on my personal account, freelancer-style – 0% tax because it’s foreign income (Amazon asks for a TIN to remove the U.S. withholding tax, but I can give them my personal Georgian one)

I don’t mind living in Georgia for a while to build up that initial capital base, so being there 183 days of the year is not an issue.

So here are the questions:

1. Is the second non-LLC option even viable? It just seems too good to be true, as everyone seems to have companies around here. Usually paying out dividends is cheaper than paying social/income tax with salary, but not in this case?
2. Will I be able to legally send the money out of Georgia to a bank account in my home country? There is a double taxation treaty in place, and in this case the income would be fully legal, declared and taxed with 0% in Georgia. Shouldn’t be a problem, right? Just don’t want to keep all of my money in EMIs and Georgian banks.
3. Is there anything else I’m overlooking? Any reason not to go for Georgia?

Thanks in advance.

Sorry if this is better suited for the paid mentorship group. I’ll probably buy a month’s membership anyway, just thought I’d post this here first.

 

[khinkali]

Is the second non-LLC option even viable?
If your business is managed offshore and your work is done offshore then you have passive income from a non Georgian source and not taxable in Georgia. If you're doing the work in Georgia and running the business from Georgia then I would expect that to be taxable. If your affiliate income is based on assets outside Georgia (you have web sites, apps, etc) then maybe you have some passive income from your property and also do some taxable work. I think you would benefit from an experienced advisor who understands how the laws are applied in practice.

Will I be able to legally send the money out of Georgia to a bank account in my home country?
This really depends on the home country. Some EU countries have quite strict rules on leaving their tax base.

Is there anything else I’m overlooking?
Virtual zone is for companies that export IT services. IT services are " study, support, development, design, production and introduction of computer information systems, as a result of which software products are obtained". An experienced advisor might be able to help navigate the application of the rules to see if this can somehow be applied to your affiliate work.

In your shoes I would book an Airbnb for a month once flights are running and see how much you like it here. If you're going to live somewhere for 50%+ of the year, it ought to be somewhere you like. Depending on your income and lifestyle, living costs might make as much difference as tax rates.

 

[Limelight]

Thanks for the info, you kinda nailed it because my income is "passive" since it's generated by a website, but of course I'm still putting in work in managing that website. I'll take your advice and consult.

Looked up my country's tax rules and it should be doable. I'll consult with a lawyer, but it's not one of those hardcore counties e.g. Norway that want to tax you after you leave.

So my first step is to confirm whether the Virtual IT zone company is even viable in my situation. Thanks for helping.

 

[cyprus123]

Georgia is a great choice for obtaining tax residency. If a virtual zone company or maybe registration as an individual entrepreneur is the best choice for you can be only advised with more information on the nature of your business and some numbers.

 

[GrumpyMess]

If your business is managed offshore and your work is done offshore then you have passive income from a non Georgian source and not taxable in Georgia. If you're doing the work in Georgia and running the business from Georgia then I would expect that to be taxable.

There is a clear indication that the money from a non Georgian source is not taxed with no difference where the work was performed. It makes no sense otherwise. I'd like to clarify this question with a tax layer anyway.

 

[khinkali]

@GrumpyMess it's great that you have clear indication. Problem solved.

The "makes no sense otherwise" comment is intriguing. Most countries would consider profits from exports of goods and services to come under their tax remit (although Georgia does have some exemption if you deliver services through a PE). I'm just working from the English version of the tax code of Georgia. Article 104 explains what Georgian source income is.

I very much agree with clarifying with a tax lawyer. One of the great things about Georgia is that you can also hire the tax office to give you non binding or even binding advice. It's surprisingly inexpensive.

 

[Limelight]

Actually maybe no tax lawyer needed for this particular question, it's pretty clear what their stance would be from the document you linked to:

"For the purposes of this Section, Georgian source income shall be [...] income earned from the delivery of services in Georgia. For this purpose, unless otherwise provided by this article, services shall be deemed to be
delivered in Georgia, if [...] a service provider and a service recipient are in different states and the service provider is a Georgian resident, except where the service provider
delivers services through its permanent establishment in another country that confirms the fact that the service provider has delivered services in another country (other than in Georgia)."

Gotta keep digging.

 

[JustAnotherNomad]

Exactly. It still amazes me that so many people seem to falsely believe that territorial tax means that you can avoid tax by registering an offshore company. In most (all?) countries with territorial taxation, any work performed inside that country will still count as local income, no matter how you billed the customer and no matter where the customer is located. But of course, many countries may not enforce their own laws because their grateful for the money expats bring into the country.

I also wonder what taxes would need to be paid if you only register a company in another country, but there is no PE (office). Say you register a company in the Seychelles. Would you be able to receive dividends tax free in Georgia, even though there is no PE in the Seychelles? But I guess the question is irrelevant anyway because Georgia probably doesn’t care.

 

[Limelight]

I also wonder what taxes would need to be paid if you only register a company in another country, but there is no PE (office). Say you register a company in the Seychelles. Would you be able to receive dividends tax free in Georgia, even though there is no PE in the Seychelles? But I guess the question is irrelevant anyway because Georgia probably doesn’t care.

If they caught that and you failed to prove that the company is not being managed from Georgia, they'd just treat it as a Georgian company and tax the dividends as such, no? Either the 5% dividend tax, or 15% corporate income tax, but either way it's not that bad of a worst case scenario.

But as you said, that probably won't happen. Actually curious if someone has experience with this on this forum.

 

[GrumpyMess]

Article 104 explains what Georgian source income is.

I have missed this article, it is so comprehensive so the Georgian territorial taxation regime is a joke. I have treated an "Article 166 – Place of service delivery", but it seems that it is not applicable here.

 

[JustAnotherNomad]

I don’t think it’s a joke. The list of Georgian source income is simply very long and detailed, but I don’t think anything there is surprising. That’s simply how territorial taxation usually works. Other countries would have used a shorter and more vague wording, that’s all.
It is only in certain parts of the internet that people believe they can move to a country with territorial taxation, form a company somewhere else and never pay taxes again.

 

[khinkali]

@GrumpyMess article 166 relates to VAT. I am no tax lawyer and I'm about to make some gross over-simplifications, but if we were to take a very vague overview of tax systems around the world then VAT tends to follow "place of service delivery" which is often (but not always) where the customer is.

Income taxes tend to (but not always and certainly not only) relate to where the work is done. This is key to territorial taxation. If you are tax resident in Georgia and you go and do some work in a tax free country, you don't typically pay Georgian tax on that income. I can't think of any EU country that still does this in a permanent way, though there are some temporary schemes (e.g. PT, IT).

Georgia also doesn't tax non Georgian source capital gains, but as @JustAnotherNomad has been trying to point out in several threads, just because you funnel the cash through an offshore shell company doesn't mean that you didn't do taxable work where you actually did the work (service provision, management, whatever).

 

[Limelight]

It is only in certain parts of the internet that people believe they can move to a country with territorial taxation, form a company somewhere else and never pay taxes again.

We all have to start learning somewhere, right? Which setup did you end up going with for your company/residency, if you don't mind me asking? Your info is on point and you've obviously done your research.

 

[JustAnotherNomad]

My situation is a bit different since I’m a nomad. Georgia would probably work just fine for me.
But in general, I would prefer countries without income tax (like the UAE) because you simply avoid all questions about where the income was earned.
But if you don’t like living in such a place, it’s not a good option of course.
Also countries like Thailand, Panama or Georgia don’t seem to enforce their own tax code. In some other thread, someone reported living in Thailand on a student visa (which it is very easy to be approved for, even cooking classes could count as studying) and living tax free on dividend payments from an offshore company. Though officially they aren’t allowed to work in Thailand. ;-)
There are many options, I just think it’s a good idea to understand when you are in line with the law and when you are doing something that isn’t allowed, but where the rules aren’t enforced.

 

[Limelight]

There are many options, I just think it’s a good idea to understand when you are in line with the law and when you are doing something that isn’t allowed, but where the rules aren’t enforced.

Yeah that's important bit - knowing the risks and what the potential worst-case scenario is. And how to mitigate all of that.

My situation is a bit different since I’m a nomad.

I'm a nomad as well, not forever, but I plan to be for the next 3-5 years. The whole reason for starting this thread is that I might have a six-figure web asset sale coming up, so... if I have options to legally optimize taxes, why not live somewhere for 6 months and save a good chunk of money in the process.

Georgia seems the most livable from all the options, as it's low-cost and I can speak Russian. I like the vibe, nice food too. But... I'm not so sure I want to push that large transaction through Georgia hoping that they won't apply their tax law on me. Especially since I want to move the money out of the country as well.

living in Thailand on a student visa (which it is very easy to be approved for, even cooking classes could count as studying) and living tax free on dividend payments from an offshore company.

It's not only about receiving the dividends and not declaring them, but being able to actually do something with that money down the road - e.g. buy real estate in your home country and such. I don't know what that guy's exact setup is, but if he went and tried to buy a flat with all that money in another country, I'm sure that the taxman would have questions.

EDIT: Actually, would they? If the guy was a tax resident in Thailand when receiving the dividends, then it's on Thailand that they didn't tax the money, and he should be in the clear if he decides to move it elsewhere.

 

[JustAnotherNomad]

It wouldn’t be an issue to receive the dividends tax free in Thailand since Thailand has territorial taxation. What isn’t allowed is working from Thailand for your offshore company and paying yourself through dividends.
It should work with other countries like Georgia as well.

But with the sale of shares, you should always check the rules regarding exit tax. If your original country of residency has exit tax, then there is a high probability that you won’t be able to avoid it by moving to a different country. You should probably talk to a tax lawyer in your home country to find out if exit tax (or other laws) can be an issue.

 

[lage]

Hey everyone, just looking for options to optimize my taxes legally. I'm sure there are others in a similar situation, so maybe this helps someone.

My situation:

• Solo affiliate marketer, most income comes from US, some from Europe (mostly Amazon)
• EU passport holder
• Currently putting all money on TW / Revolut (I know it’s not sustainable)

I was looking at Georgia for obtaining tax residency, and from what I’ve understood I have two options available to me:

1. Set up a “Virtual IT Zone” company + reside in Georgia – 5% tax on dividends, ~1500 EUR setup, ~500 EUR/year maintenance
2. Skip the company and receive money on my personal account, freelancer-style – 0% tax because it’s foreign income (Amazon asks for a TIN to remove the U.S. withholding tax, but I can give them my personal Georgian one)

I don’t mind living in Georgia for a while to build up that initial capital base, so being there 183 days of the year is not an issue.

So here are the questions:

1. Is the second non-LLC option even viable? It just seems too good to be true, as everyone seems to have companies around here. Usually paying out dividends is cheaper than paying social/income tax with salary, but not in this case?
2. Will I be able to legally send the money out of Georgia to a bank account in my home country? There is a double taxation treaty in place, and in this case the income would be fully legal, declared and taxed with 0% in Georgia. Shouldn’t be a problem, right? Just don’t want to keep all of my money in EMIs and Georgian banks.
3. Is there anything else I’m overlooking? Any reason not to go for Georgia?

Thanks in advance.

Sorry if this is better suited for the paid mentorship group. I’ll probably buy a month’s membership anyway, just thought I’d post this here first.

Neither option actually works for you: VZP status is not applicable to marketing service. Active income (e.g. from marketing services) is not considered as goreigh source income and is not exempted from personal income tax in Georgia. You have an option of 1% personal income tax which you need to analyze well before applying.

Some definition of what type of incomes are really considered as foreign source income form Georgian tax (tax exemption) purposes: Territorial taxation for individuals in Georgia - TPsolution