In early July, most customers of the Booking.com online accommodation system and other foreign services owned by companies not registered in Georgia received a notification asking them to report their tax status.
What is the reason for this and what tax consequences it can entail, we investigate in this article.
It is known that income received from services rendered on the territory of Georgia is subject to value added tax. These services also include services for the delivery of real estate for rent. The payer of the tax is a company, an individual entrepreneur and, in some cases, an individual (Articles 156, 157 and 158 of the Tax Code of Georgia).
Foreign companies providing services in Georgia were not required to register and obtain the status of VAT payers in Georgia.
In this connection:
− If a foreign company provided services to a Georgian company or individual entrepreneur – a taxpayer on the territory of Georgia, the recipient of the service (let’s call him “resident of Georgia”) was obliged to act as a tax agent, charge 18% VAT on the amount of remuneration paid to the foreign customer, and then pay VAT to the budget in the reverse taxation procedure (Article 161 of the Tax Code of Georgia (before 01.01.2021 – Article 176). If the recipient of the service (resident of Georgia) was a VAT payer, he could immediately declare the amount of tax charged for the foreign customer for deduction. the amount of VAT was not actually paid to the budget; VAT was of a “paper work”.
− If a foreign company provided services to an individual who was NOT registered in Georgia as an entrepreneur, then such a customer, a resident of Georgia, did NOT act as a tax agent, VAT on the remuneration paid abroad was NOT accrued or paid.
Since July 1, 2021, the situation with respect to the amounts of remuneration paid by residents of Georgia who are individuals (not entrepreneurs) to foreign customers has changed – following global practice, Georgia obliged foreign companies to pay VAT on income received in Georgia. For such companies, there is a separate procedure for filing a declaration and paying taxes once a quarter. A separate page for such taxpayers has appeared on the website of the tax service (https://nr.rs.ge).
That is why Booking took care to find out the status of the customer of its services in Georgia:
1). For Georgian companies and individual entrepreneurs, VAT payers, nothing will change. They will continue to charge VAT on a reverse tax basis, and Booking will relieve itself of tax obligations.
2). For individual customers, Booking can increase its remuneration by the amount of VAT, which it will now be obliged to pay to the Georgian budget on its own.
Georgia is a tourist country and many citizens and foreigners buy real estate here for the purpose of renting out. Perhaps the booking tax will require the owners to reconsider the previously established practice, and to attract travel companies for renting out apartments, whose activities are exempt from VAT. In any case, we advise our clients and readers to pay attention to the service commission when placing housing on Booking, and we will keep you informed of the further development of the situation.
Just Advisors offers a business tax planning service for legal entities and citizens. Read more about the service at the link