The whole truth about the income tax for foreigners in Georgia. Part 1

The whole truth about the income tax for foreigners in Georgia. Part 1

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There are a lot of visitors in Georgia and not all of them are tourists. Here, you can meet many freelancers, including IT-smartest people, designers and photographers being amazing in their style and creativity. Many expats live and work in Georgia. Are they obliged to pay income tax received in Georgia? What are the tax rate and deadlines for paying it? How are tax liabilities in Georgia related to tax liabilities in a country of citizenship? Is the income tax rate different for local residents and foreigners? – Let’s understand.

As the article will focus on foreigners, we are going immediately make an explanation that foreigners (as well as Georgian citizens) are divided into 2 categories for taxation purposes:

  • Georgian resident – a natural person who has actually stayed in the territory of Georgia for 183 or more days in any continuous 12-calendar-month period (citizen of Georgia, alien, stateless person and residence permit does not matter);
  • Non-resident – a person who is not a resident;
Obtaining a residence permit in Georgia
Obtaining Georgian Citizenship

The general rule is the following: any income received by a natural person from the Georgian source is subject to income tax.

If the person performs work under a labor contract or provides service/work in the territory of Georgia, income earned from the performance of work under the labor contract or delivery of services/work will be considered as Georgian source income. The definition of work can include anything, such as making furniture or psychological counseling on Skype, marketing research Zanzibar’s markets or developing software for Apple. A significant fact is that you carry out activity in Georgia.

Revenue Service of Georgia deems that even if you use only a personal laptop for work and the process of creating a product is happened in your head or in the virtual world, you still provide service in Georgia because you are physically here and are using electricity or communication means.

Does a form of getting income matter?

No, it does not matter. Income received on a bank account or in cash is subject to taxation. This also applies to payments made through PayPal and similar payment systems as well as to income received on your accounts in the international banks. Indeed, such payments are extremely difficult to be tracked by tax authorities.

What happens if the customer is abroad?

In this case, the costumer’s location is not important for income tax purposes. The client can be Georgian company or natural person, a branch of a foreign enterprise, alien being in Georgia as well as foreign company, a key factor is only that you deliver service/work in the territory of Georgia.

Tax rate and taxable income:

  1. Natural person – Georgia’s tax resident pays income tax in the amounts to 20% of the received taxable income.
  2. Non-resident natural person’s income is subject to taxation at the following rates:
    • salaries – at the rate of 20%
    • other paid amounts – at the rate of 10%
  3. Natural person having registered as an individual entrepreneur (business entity) pays income tax amounting to 20%. Taxable income is the difference between the total income earned during a calendar year and deductions (such as purchasing some materials, utility services’ payments, a fee for rent and so on) for that period.
  4. If individual entrepreneur is granted to the status of a small business, income tax is reduced up to 1% of the total sum of income (until gross income received from the economic activities exceeds GEL 500 000)
IE - with the status of a small business VS virtual zone person. 
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Who has to pay income tax – the Contractor or the Client?

  1. EI calculates and pays tax independently but the contractor EI can impose this obligation on the client. 
  2. Income tax from the salary or other types of income is withheld at source by the client (if a contractor is natural person and the client a resident business entity)

You should remember:

  • If your employer is (a) non-resident (which does have a permanent establishment in Georgia) or Free Industrial Zone Enterprise, you have to calculate and pay income tax to the budget of Georgia.
  • IE having the status of a small business is entitled not to withhold income tax at a source if the paid amount to the employees or hired freelancers does not exceed 6000 GEL.
  • If you hire a person who holds a micro-business status under a labor or service agreement, the following options are possible:
    • you hire such a person just like a micro businessman – in this case, salary or payment is not subject to taxation but the paid amount cannot be deducted from gross income for tax purposes. The micro businessman includes the amount received in the total income (limited income is 30 000 GEL);
    • you hire a person as an individual, not as a micro businessman – in this case, salary or payment is subject to income tax whereas paid amount can be deducted from gross income for tax purposes. The micro businessman does not include the amount received in the total income.
  •   While concluding a contract, pay attention to the amount of payment indicated and keep taxes in mind.    

When and who is obliged to submit income tax declaration? When is the deadline for payment?

  1. IE is obliged to submit income tax declaration annually until 1 April of a year following the reporting year and pay tax to the budget up to that date;
  2. IE with the status of a small business is obliged to submit income tax declaration and pay tax to the budget not later than the 15th day of a month following the accounting month;

The responsibility for the failure to deliver the declarations and pay taxes:

The Revenue Service of Georgia does not still thoroughly monitor taxpayer individuals. However, liability for violation of tax law is determined by the law in the following way:

  • Fine amounts to 50 GEL for the failure to deliver the declaration;
  • Fine amounts to 50% of the unpaid amount for non-payment of a tax;
  • Penalty interest accounts for 0.06% of the unpaid amount for each day of overdue payment.

The necessity of paying taxes in the country of tax resident depends on Double Taxation Avoidance Treaty. Currently, 56 Treaties on the” Avoidance of Double Taxation and the Prevention of Fiscal Evasion” are in force. However, such an agreement is not concluded between Georgia and Russia. Therefore, income received in Georgia is subject to taxation at a 13% rate in Russia.

There is good news – income (including salary, gain, royalty, and dividend) received by a resident natural person of Georgia which does not belong to Georgian source income is not taxable in Georgia.