Tuesday, October 20, 2020

Georgian IT LLC and how to go tax-free with it

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Georgian IT LLC and how to go tax-free with it

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Autor

Philipp Burger

Treuhänder mit eidg. Fachausweis Steuerexperte

The trend of location-independent working becomes more and more popular with time. The reasons for that are a lot: More freedom and independence, to work whenever or wherever you want. When the one is not hooked with one place there is more time to travel and be with the family. These are just a few reasons which show positive sides of location-independent working. And which sectors are suitable for it? Yes, the IT sector! In this article, I will reveal the way how to establish a tax-free company in Georgia, more certainly, a Georgian IT LLC.

Georgian tax-free IT LLC

Every location-independent company earns money in some form related to the internet. Many don’t know: In Georgia, there are special licenses to legally free the company from the tax burden. One of these licenses refers to the IT sector.

For those who offer approved IT services the downstream corporation tax and sales tax are set to 0%.  Thus, it is possible to work tax-free with Georgian IT LLC. you need to pay only a withholding tax of 5%. However, this 5% of withholding tax is charged only on the distribution of dividends. Also, if the person is not registered as ‘Tax Resident’ in Georgia and you pay a salary then there is no need to pay 20% income tax.

Since 2019 the new regulations are enforced which contains that non-taxable employees, including the managing director, are charged to pay into the pension insurance. The employee and employer each pay 2% and 2%, then the Georgian government takes another 2% from the salary. Thus, the tax burden for LLC, more specifically, the managing director is only 4%.

Still, this 4% burden could be avoided easily. The oblige to pay for pension insurance applies only to employees, not to the self-employed. Which means, that businessman with a sole proprietorship is not charged.

The definition of IT LLC in Georgia

First of all, it is important to know what is acknowledged as IT by Georgian revenue office. Because every provided service needs to be approved from tax authorities first to have advantages of tax-free LLC.

One positive note, though: Generally, anything related to IT is acceptable! Still, if there are some questions, you could take advice from a competent counsellor. During the last company establishment process of the customer, I indicated several IT activities which are popular among independent entrepreneur in the online area. 

There is a list of them:

  • Webdesign
  • Social Media Marketing and Management
  • Search Engine Optimization (SEO) / Search Engine Advertising (SEA) / Search Engine Marketing (SEM)
  • E-Commerce Solutions and Marketing
  • Online Marketing, Digital Product Development (for example, E-books, video courses, Webinars, podcasts.)
  • Web Developing for Basic, Private und Professional Customers
  • Programming of software, apps and games

first and foremost, the acceptance of online production makes IT LLC interesting for location-independent entrepreneurs. So, most of them work in this field.

After tax office approves the LLC receives a license with a certificate number. Afterwards, the company is allowed to carry out the approved IT services tax-free.

How can I establish Georgian IT LLC?

There are two alternatives to establish IT LLC in Georgia.

Alternative 1 – On site

You travel to Georgia and meet one of my company’s employee. In advance, All the necessary papers and documents are prepared.  You go with my employee to the commercial register in Tbilisi and register your IT LLC. The company with being recorded in the commercial register within 24 hours. The next day, again you go with my employee to the Bank of your choice where will be opened the company’s bank account. Here, also, it takes only 24 hours to get MasterCard/Visa Card or E-Banking for the company. If you wish, you can open a private account too. Therefore, the whole process lasts only for 2 or 3 days. 

After establishment, my employee will assist in the process when the desired IT services are approved by the tax office.  Then you receive the license and will be able to operate tax-free.

Alternative 2 – Remote

You are not willing or you can’t travel to Georgia? It’s not a problem. We will send you relevant power of attorney. You need to sign it and have it certified by a notary which must include an apostille. Also, certified passport and you can leave the rest of the work on me and my team.  After we receive the original documents with apostille, the process of the establishment will take 2 to 3 days including opening Bank account.

If you are not willing to give away power of attorney, you can also appoint a nominee director, whom we are also glad to offer. This way it everything will be handled on-site without power of attorney. 

IMPORTANT: The application process for IT-Status take a little bit longer. The company establishment is done in 2 to 3 days. However, It could take 1 to 2 weeks the tax office to accept the IT status.

Summary

  • Corporate income tax: 0% if IT is approved, otherwise 15%
  • Sales Tax:  0% if IT is approved, otherwise tax-free up to 100,000 GEL per year, afterwards 18%
  • Company form: LLC (to be compared with GmbH)
  • International recognition: Georgian LLC is recognized internationally without any obstacles
  • Bank accounts: possible for the LLC as well as for private individuals residence is not required
  • Withholding tax: 5% but only on the distribution of dividends
  • Share capital: no share capital required
  • Shareholder: at least one person (does not have to be resident in Georgia)
  • Accounting obligation: there is an accounting obligation
  • Administrative costs: very low
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