Setting up a company in Georgia is becoming more and more popular among my clients although it is still one of the most underestimated countries in the world. What distinguishes Georgia as a business location? What are the advantages of setting up a company in Georgia? Which are the most uncomplicated types of companies? I will answer these and other questions in this article.
Company formation Georgia: The location
The small country of Georgia, a former Soviet Union country on the Black Sea, has about 4 million inhabitants, 69,700 m² of land area and common borders with Russia, Azerbaijan, Armenia and Turkey. The capital of Georgia is Tbilisi with one third of the total population. The official currency is the Georgian Lari (GEL).
Especially its location between Asia and Europe makes Georgia very important for trade purposes. However, it is also a very attractive place to live or do business. The cost of living here is significantly lower compared to Germany or Switzerland. A residence permit is relatively easy to obtain. Also, the lowered tax burden and the ease of setting up a company made Georgia an extremely business-friendly country. The business languages are English, Russian and German.
A free trade agreement (FTA) with Georgia was signed on June 27, 2016, at the EFTA ministerial meeting in Bern, Switzerland, and entered into force for Switzerland on May 1, 2018. An Association Agreement with the EU has been in force in Georgia for some time.
Georgia is now undergoing a digital revolution similar to the pioneering Estonia. Drive-through counters at government offices and hundreds of terminals for the payment of public services testify to this.
Let’s now take a look at four straightforward and interesting types of companies in Georgia.
The Georgian LLC
The Georgian corporation is referred to as an LLC (Limited Liability Company). However, the Georgian LLC is a regular corporation and should not be confused with a partnership with pass-through taxation as in the United States. This means that limited partners own shares in a Georgian LLC and can distribute dividends. It is not necessary to pay in a share capital to establish the company.
This is where taxation comes in, similar to the Estonian system. In 2018, Georgia became the second country to introduce downstream taxation, which makes economic sense. Here, tax is only levied on dividend distributions. At 15%, this is lower than the 20% in Estonia.
All income is tax free as long as it remains in the company
Operating expenses can be paid tax-free, but must make sense and be documented. Loans and other expenses are taxed when issued. When repaid in full, the tax is paid back. For the most part, the tax system is very similar to Estonia. Only the taxation of 15% on dividend distribution is slightly lower. However, as in Estonia, dividends from subsidiaries are not taxed. As Georgia is not a member of the EU and the double taxation treaties are still a bit behind, this company location is not suitable for a holding structure at the moment.
The Virtual Zone
The so-called Virtual Zone in Georgia is very interesting for many online entrepreneurs. This is a kind of tax exemption for regular companies, especially for IT services. In my experience, the Georgian tax administration is relatively open about the definition of information technology.
In the past, I and my team have already successfully managed to get foundation applications from the following areas:
- IT consulting
- Sale of digital products
- Freelance professions related to IT
- Web hosting, domains, etc.
- Exploitation of other intellectual property rights
- E-commerce solutions
- Outsourcing agencies related to IT
The “Virtual Zones” in Georgia are interesting because the tax treatment is different from the downstream taxation of regular corporations. “Virtual Zone Companies” are completely tax free on their profits outside Georgia. Only domestic profits are subject to the usual 15% on dividends. Companies accepted as tax-exempt IT companies receive an extra license attesting to this tax exemption.
Despite the general corporate tax exemption, a withholding tax of 5% applies in the case of Virtual Zones, which is however refundable in some cases thanks to existing DTAs. This is the case, for example, if you are tax resident in Cyprus or the Emirates. Thanks to the DTAs of these countries with Georgia, the 5% withholding tax can be reclaimed upon distribution. Thus, an IT company in Georgia is completely tax free for Cyprus non-doms.
Company formation Georgia: Individual Entrepreneur
Especially for freelancers of all kinds, it is usually more advisable to take advantage of Georgia’s small business regulation up to a certain income threshold. Despite Georgia’s status as a poor emerging market, the small business regulation is very generous with a threshold of 500,000 GEL or 5 employees.
This amounts to just under EUR 166,000. At this level, the top tax rate in Germany has long since been three times higher. Georgia taxes such small businesses only with 1% on the total turnover. Since no deductions can be made, there is no need for bookkeeping and thus a large part of the administrative work.
If the total turnover exceeds 500,000 GEL, the tax for self-employed persons increases to only 3%. And up to a turnover of about 10’000 EUR, one is considered a micro-entrepreneur and pays no tax at all. However, it should be noted that since the beginning of 2019, one is obliged to save 4% of the turnover at the end of the year in an individual pension account for retirement. In my view, this is a sensible and funded system compared to the West with the usual pay-as-you-go or rather snowball system.
The small business regulation is about self-employment without limited liability. Regulated professions like pilots or lawyers as well as consulting activities are excluded. However, the good thing is that you can register Individual Entrepreneur even as a foreigner without tax residence in Georgia.
Company formation Georgia: International Financial License (IFC)
If you are planning to eavesdrop your own broker, crypto coin or fund, Georgia can be very interesting. With the IFC (International Financial Center) license, not only complete tax exemption for financial service providers beckons, but also a comparably simple procedure for applying for a license without a large capital outlay.
The IFC license is a regular LLC, which can then offer tax-exempt financial services with the certificate of the responsible ministry, similar to the Virtual Zone. Whether as a broker, asset manager or investment advisor. A maximum of 10% of the worldwide turnover may be generated in Georgia. Otherwise there are no restrictions. Of course, the usual compliance of business subject to licensing and corresponding bookkeeping and accounting requirements. However, this is very unbureaucratic in Georgia.
In addition to the usual documents for a foundation, a utility bill, a description of the project and a short curriculum vitae are also required. In addition, the general terms and conditions, data protection rules, business plan, anti-money laundering procedures and certain internal guidelines must be submitted for approval of the license.
My team can professionally guide you through the entire start-up process and license application on site, including other services such as co-branding credit card programs. We also have on-site capabilities in establishing a FinTech online bank or a full-service bank.
The advantages of establishing a company in Georgia
- Only 15% corporate income tax (tax-free for some models)
- No trade tax
- Any taxes are only due when the profit is distributed
- No taxes are paid in the Free Zone
- Business expenses can be deducted without any problems
- Advance tax payments are not required
- Bank accounts can be opened without personal presence
- Share capital is not required
- Service also available in German and Russian