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Virtual Zone Company Liqudation in Georgia > Goverment (Revenue Services) are not allowing it due to Virtual zone paid taxes?

nowheretobe

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Apr 20, 2020
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Hello everyone,

I have a Georgian (Country) company which I want to get rid of. It was a virtual zone company and we paid taxes of 5%. We had a tax advisor we pay monthly for his services during our operations.

I don't want to have loose ends, even if I won't go to Georgia again in my life, I don't want a company I left behind there under my name.

To close the company, I applied for liquaditon with PoA due to Corona and around 2 months after I apply, I got a negative reply. Letter was mentioning something about the taxs but it wasn't really making sense and clear what they wanted from us.

So I asked my contact in Georgia, and he went to talk with Revenue Services. Around 4-5 weeks later he went there, he told me that we should pay 15% more tax (the difference between we paid and normal rates) because our virtual zone status is "really" virtual zone and services we provided was not out of Georgia. However, he did not provide any documents regarding this request so far.

I have doubts about this, I'm a bit sceptical about the request from RS, since I didn't get any kind of information before and this is just what person in Georgia telling me. I don't want to jump to conclusions but could this be a scam from my tax advisor? Or Georgian goverment being strict on us regarding this? I don't really understand since this was not a problem right until we wanted to liqudiate the company.

I'd appreciate your experiences or suggestions.

Thanks
 
Virtual Zone is for "studying, supporting, developing, designing, producing and introducing computer information systems, as a result of which software products are obtained" and has tax exemption for "profit (distribution of profit) earned from the supply of information technologies outside Georgia developed by a legal entity of a virtual zone". See the Tax Code of Georgia.

Many blogs etc. misrepresented this as "if you're billing outside Georgia then it's tax free", but it's more like an IP Box than a Free Zone.

Additionally, a recent blog post by a tax consultant and former RS auditor claims that the RS are suddenly requiring that the IP was "developed on Georgian territory". I can see their point, but they've decided to apply this retrospectively (maybe 2 to 3 years) which reduces my confidence in Georgia as a business friendly jurisdiction. I can't help but wonder if reinterpretation of the tax code is related to the change of tone from senior politicians about international businesses in Georgia.

I'm no lawyer or tax export but this is my personal interpretation:
  • Old question: Were you billing offshore entities, for IT technologies developed by the VZE?
  • New question: Were you billing offshore entities, for IT technologies developed by the VZE in Georgia?
 

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