Briefly, questions over royalty or income tax

Briefly, questions over royalty or income tax

If:

  1. you composed a book, developed software or are an owner of the right to use models, trademarks or other intellectual property and;
  2. your books are published and sold, videos are watched on YouTube, and the number of downloaded tracks exceeds all expectations – namely, third parties use your intellectual property,
  3. and you have received income for the right to use intellectual property (royalty);

then you probably think if you are required to pay tax for such income? In which country and in what amount?

Let’s look into tax code of Georgia.

Royalty is subject to income tax if:

  1. Your intellectual property is used in the territory of Georgia by
    • Tax resident of Georgia (e.g. TBC bank pays you for the usage of your video in its commercial);
    • Permanent establishment of a foreign company or a natural person (though, royalty is paid or not by parent company) (e.g. local office of Coca Cola in Georgia uses your painting in a poster, whereas you receive a royalty from the central office in Atlanta)
  2. Your intellectual property is used out of the territory of Georgia by
    • tax resident of Georgia, who does not have permanent establishment in that country where royalty is used (e.g. TBC bank not having a permanent establishment in Germany pays you royalty to use your video in its commercial determined for German market)

Tax rate

  1. Resident of Georgia is obliged to pay income tax – 20% of the full amount of royalty
  2. Non-resident of Georgia is obliged to pay income tax – 5% of the total amount of royalty
The whole truth about the income tax for foreigners in Georgia. Part 1

Tax payment process

If income tax must be paid from the payable amount of royalty, then it is withheld at the source of the payment and is paid to the budget by royalty’s payer (withholding agent).

Royalty is not taxable in Georgia if the creations of your mind:

  • are used in Georgia by the non-resident foreign company or natural person not having permanent establishment (e.g. Apple published your picture on its Georgian version web-page);
  • are used abroad by the non-resident foreign company or natural person (e.g. Amazon sells t-shirts worldwide and pays you royalty for design);
  • are used abroad by the permanent establishment of Georgian resident (e.g. Italian office of Borjomi (Georgian company) uses your music in its local commercial);