Tax Residency Georgia
Georgia has become popular tax friendly jurisdiction for many international entrepreneurs, businessmen, digital nomads, and regional investors due to its business-friendly environment, easy of doing business, low corporate taxation, friendly immigration policies, and easy residence procedures.
The concept of tax residence is recognised in Georgia. Residency is defined by the Tax Code of Georgia (TCG) as follows: “during the entire current tax year, an individual shall be recognized as a resident of Georgia if they were ‘actually present’ in the territory of Georgia for 183 days or more in any continuous calendar 12-month period ending in this tax year, or was in the Georgian state service abroad during the tax year“. For employees that are non-registered taxpayers (that is, individuals who have a separate tax identity and registration for complying with tax regulations), the employer acts as the tax agent and withholds personal income tax at source at the flat rate of 20%. In various cases, certain exemptions can be granted to the employee under specific tax treaties.
Tax resident employees
Why is tax residency important?
The most important benefit of becoming Georgia’s tax resident and refusing residency in other jurisdiction is to prevent yourself from being taxed in other countries due to tax residency or withholding taxation at source.
The only tax payable is personal income tax at the flat rate of 20%. The employer will act as the tax agent, withholding 20% of the personal income tax at source. Tax returns are filed on a monthly basis, not later than the 15th day of a month following the accounting month, file a tax return to a tax authority on the amounts paid as remuneration, and taxes withheld during the accounting month. No obligation vests with an employee who is a non-registered taxpayer to pay personal income tax. If the employee is a registered taxpayer (which happens rarely, for example, in cases when the employee also pursues certain economic activities), the obligation of paying personal income tax rests on the employee. This obligation is completed annually and no later than 1 April of the year following a tax year, tax returns shall be filed with a tax authority.
Non-tax resident employees
Non-residents are taxed only on their Georgian-sourced income
An exception exists in relation to certain tax treaties. If the respective tax treaty provides an exemption from the payment of local tax, the non-tax resident employee will need to provide the tax residence certificate of the country with which Georgia concluded the relevant tax treaty on avoidance of double taxation.
Tax resident business
A Georgian enterprise is defined as one which has its place of management or place of activity in Georgia.
Non-tax resident business
A Georgian enterprise shall be an enterprise whose place of business and/or management is based in Georgia.
There is a general understanding that all enterprises that are not local are considered as foreign enterprises. Enterprises with a permanent establishment and branch offices in Georgia are viewed as representative offices of foreign enterprises that pay local taxes only to the extent of income received from Georgian sources.
In the case economic activity of the entity is wholly or partly carried on in Georgia you have to register that business with the Georgian authorities, otherwise, you may be breaking the law, and even owe back taxes and fines. There are several forms of business registration in Georgia, one of them being a permanent establishment.
Permanent Establishment (Georgian Tax Code Article 29) rules in the Georgian Tax Code mean that Foreign Enterprises physically operated/managed in Georgia can be considered a taxpaying entity in Georgia and be taxed at a comparable level to an equivalent Georgian enterprise.
If you own a foreign business that is registered as a legal entity anywhere other than Georgia, but you as the owner/director are physically present in Georgia and operate/manage your business from here, you may owe taxes in Georgia as if your enterprise was a Georgian enterprise.
Potentially, even enterprises with multiple directors, if 1 or more of the directors manage the enterprise from Georgia. It depends.
It might affect you When it could be clearly shown that you are actively managing your business within Georgia’s borders in a fixed/consistent way. If management from Georgia is taking place, the law allows for the prosecution at any time, so there is a level of nuance as to when you may have a problem.
Why Foreign Enterprises Could Be Taxed In Georgia?
The reason this could happen is because, by Georgian law, the place of management of the business has a direct effect on where that business is seen to be based.
If your Permanent Establishment for your business can clearly be seen as being in Georgia, because you operate and manage the business from Georgia on a consistent basis, then said business could be considered as a Georgian enterprisefor tax purposes.
If that is the case, and you likely have not taken any steps to legally register that business in Georgia up until this point, you have effectively been operating an unregistered business. You could be liable to back-register the business to the date on which you first triggered Permanent Establishment, pay fines for not registering in a timely manner, and pay back taxes for that entire period.
How The Tax Code Confirms This Problem
If you are thinking at this point that this argument seems a little far-fetched, I can answer your scepticism with evidence from the tax code:
Article 29 – Permanent establishment
1. A permanent establishment of a foreign enterprise or of a non-resident natural person in Georgia is a fixed place of business through which the economic activity of the entity is wholly or partly carried on in Georgia, including the activity of an authorised agent, except as provided for by the sixth, ninth and twelfth paragraphs of this article.
2. The following shall be treated as equal to a permanent establishment:
a) a construction site, installation or construction project and the controlling activities related to them;
b) Installation or constructions, drilling rig or vessels used for prospecting minerals, and the controlling activities related to them;
c) a permanent base where a non-resident natural person carries on economic activity;
d) a place of management, branch, representative office, department, bureau, office, agency, workshop, mine or quarry or any other place of extraction of natural resources, or any other subunit or any other place of business of a foreign enterprise.
The most important words in these sections are “Fixed place of business” and “a place of management”.
If you arrive to Georgia and create a fixed place of business – which could include setting up a home office at your AirBnB or renting office space, then you are creating a permanent establishment for your foreign enterprise and are opening yourself up to be considered as operating a business in Georgia.
The looser term “a place of management” could be applied to any fixed place from which you manage the business, such as if you get a monthly coworking subscription. In our experience, if “a place of management” is multiple cafes, occasionally your kitchen table, or even answering emails on the bus, then it is very rare for such cases to be pursued. But, it can still happen.
Cases in which you have clearly set up an office of any kind where work is consistently done for a prolonged period – these sorts of cases have often been pursued by the tax authorities.
The strangest thing is, if you’ve been operating your business in Georgia for some time, but still paying taxes in the country where your business is based, you’ll likely find that if you’d just moved your business immediately, the taxes you’d be paying in Georgia may have been less than your taxes elsewhere.
So, if you have the intention to stay in Georgia and not just be here briefly as a tourist, you’d be better off investigating your Georgian tax options and making an educated decision once you know your possible choices.
Are you working remotely online from Georgia (country)?
If so, you may be liable for taxation by the Georgian Revenue Service. Your tax liability involves a LOT of factors, not just whether or not you are a legal tax resident here.
Whether you just arrived with the Remotely From Georgia permit, or if you have been here for much longer, there are considerations that might be relevant to you. In this article I will quickly summarize the main issues and applicable resources.
Tax liability is different from Tax residency. Even if you do not become a tax resident, because you happen to leave before the 183 Day automatic tax residency threshold, you may still have tax liability if you earned income while being physically in Georgia.
Having tax residency and paying taxes elsewhere does not necessarily shield you from Georgian tax liability. In cases where there’s no Double Taxation Agreement between Georgia and your other country of tax residency, such as the USA, Australia, South Africa, and some others, your taxes paid elsewhere have no impact on your Georgian tax liability.
The Remotely from Georgia program is not a work visa. It merely provides the right to enter Georgia during COVID. Anyone arriving in Georgia using this permit (unless they are a travel partner of the principal applicant, from a country that does require a visa), is actually here on the 365 day visa free entry program, which allows you to work here without restrictions, as it has for many years. The key difference is, you announced your income to the government in your application. Those arriving without the permit did not. Either way, neither the permit nor the visa exempt you from tax liability in Georgia.
Georgia is not unique in having tax liability for those who work remotely while visiting – this is actually true in almost all countries on Earth (including Thailand and other popular remote work destinations). It is just poorly enforced. Most digital nomads just break visa laws (by working on a tourist visa) as well as by evading local tax.
Double taxation agreements (DTAs) may protect you in some cases, but your obligation to file a Georgian tax return likely still exists. It should be noted that DTA rules vary, and the level of protection may not be anywhere close to what you’d assume. You should check these agreements carefully, or in some cases, check if the current country where you pay tax even has one with Georgia.
Some types of income are exempt if falling under the specific definition of foreign-source income. However, “foreign-source” almost never includes income earned through active work while on the territory of Georgia (such as working from your laptop). Read about what types of income would have zero tax liability in Georgia and which are tax liable here.
Some countries offer tax credits or other types of programs which allow you to offset the taxes you will pay in Georgia against the taxes you will pay at home. If you are from the USA, we have a detailed guide on options for reducing your US tax burden while living in Georgia.
Operating a foreign business (legal entity) from within Georgia without being registered can incur a number of additional tax and legal obligations and may incur fines and back taxes if you do not register it in a timely manner.
If you are an employee of a foreign company working on the territory of Georgia, you are normally liable to declare and pay 20% tax on your income, unless a DTA protects you from this. This applies even if you do not spend 183 days in Georgia. If a DTA is in place with your other country of tax residency, in cases where you do spend more than 183 days in Georgia, often DTAs will no longer protect you against Georgian tax liability. But, those same agreements may allow you to not pay taxes, or to get a rebate on taxes paid, in your previous country of tax residency. If coming from a high tax country, you could make significant savings by becoming a Georgian tax resident.
Setting up a Georgian business can significantly reduce your Georgian tax burden (from 20% on gross income, to as low as 0%). Freelancers and contractors can mostly get the 1% tax rate but you do have to register for it, and it does not apply retroactively, so you should seek to register immediately after arriving in most cases.
Qualifying for Georgian tax residency can help you reduce or eliminate taxation elsewhere if the correct steps are taken.
The decisions you need to make will be determined by the length of your stay, the nature of your income, and the way it is earned:
Will you stay less than 183 days?
If you will only be in Georgia for a short time, these options can help you minimize your Georgian Taxes.
Business owners / Self Employed
You may owe taxes in Georgia but the effort to set up a business here temporarily is often more work than it is worth. It will depend on the nature of your income.
If operating a foreign business, it is advisable to:
Avoid any actions that could cause the business to trigger Permanent Establishment (PE). See additional note below.
Avoid setting up a fixed home office space or renting a regular office space. Stick to cafes and casual coworking spaces.
Avoid publicly posting that you are operating your business from Georgia.
As long as you don’t trigger Permanent Establishment, which is unlikely in this time frame if you don’t set up a fixed place of business, then you’d only be liable for tax on personal income.
If possible, avoid distributing dividends from your business to your personal accounts, or paying yourself a salary while here. Then you will not be receiving income while in Georgia, and thus avoid liability. If that is not practical, see below:
Employed Persons (& Other Personal Income Considerations)
If you get paid a salary, then as an employee working from the territory of Georgia, you could be liable to pay the same 20% tax on gross salary that any other employed person working in Georgia is.
If you already pay tax elsewhere, a Double Taxation Agreement (DTA) may protect you from paying any tax at all, but it depends, and you must read the conditions carefully to be sure.
If no DTA exists for you (such as in the case of the USA, Australia, NZ, and many others), investigating foreign tax credits might be your best option to offset the tax you pay elsewhere.
When it comes to individuals who:
- Will be in Georgia less than 183 days
- And have no plans to return to Georgia in future
- And have/will pay taxes in full in another country for the relevant year
- And are on a moderate or low income
The likelihood of enforcement is very low. But it’s good to be aware that it is still technically tax evasion in some cases, and it’s important to understand your options.
If, however, you own a large company, and/or have a high income, and will actively work remotely while in Georgia, enforcement is economically viable for the Revenue Service and hence more likely to happen, and you should consult a Georgian tax adviser before arriving.
Will you stay 183 to 365 days?
If you’ll be staying for most of the year, you will definitely become a tax resident automatically after 183 days. You are required to register with the RS and file a declaration before March 31st of the year following when you became a tax resident.
By becoming a tax resident you open some possibilities of using that status to reduce or eliminate your tax liabilities elsewhere. As taxes in Georgia are as low as 0% and rarely higher than 20% flat on gross income, for many people coming here, their tax situation will be improved.
Your options depend entirely on the tax laws of the country in which you are currently paying tax. From some countries it’s relatively easy to exit the tax system. Others like the UK and Australia are trickier, and some, like the USA, you can only exit by renouncing your citizenship. However, the USA offers a number of programs like FEIE (Foreign-Earned Income Exclusion) and FTC (Foreign Tax Credits) that can offer relief. If staying more than a year, this relief can be improved – see below.
In some cases, double taxation agreements may mean that the country where you are actually a tax resident (Georgia in this case), is the one that taxes you first, or possibly the only one that taxes you. Once again, this varies a lot and you should speak to both a Georgian adviser and an adviser from your home country.
If you think you are not a tax resident anywhere right now, you’ll want to read this article.
If you plan to stay in Georgia more than 183 days, you should explore your tax options immediately (preferably before even arriving) as you can apply for additional benefits, such as the 0% or 1% tax regime. However, these programs cannot be applied retroactively, so the longer you stay here without registering, the higher your taxes for the year will likely be.
What about income I earned at the start of the tax year, before I first came to Georgia?
Typically, even if the income was earned while you were physically outside the borders of Georgia, it could still be taxable. It depends on if:
- In the relevant year you were considered a tax resident of Georgia. If yes, then liability is much more likely. If no, then it is highly unlikely.
- And, if the income earned before arriving has not been taxed elsewhere (if not already taxed, more likely to have liability in Georgia, but it could still have liability even if already taxed elsewhere).
There are a lot of factors, so it’s best to get legal advice for your unique case.
What about income I earned after coming to Georgia but before registering my business?
If your personal income was generated through active work (remote or not) while physically in Georgia (regardless of the original source of the income or where it was remitted), or is in any other way considered Georgian source income, it would be liable under the flat 20% gross personal income tax and you would be considered a “natural person” by the RS.
If the legal entity you own/manage/represent etc. had profits during the time you actively worked on it while in Georgia, those profits could be subject to a corporate tax of 15%.
What legal trouble could I face if I leave Georgia without filing a tax return?
If you earned zero taxable income while in Georgia, it’s no problem at all, and you don’t have to file.
If you did earn income, you may be liable to file and you must choose how to proceed. Opening an RS account remotely can be tricky, so it’s best to do that before you leave. If you already left, you’d need to get a power of attorney and apostilled passport sent to a representative in Georgia in order to open the account. Then you can file online, as long as you have a Georgian phone number which can receive SMS messages from the RS login system.
Will Georgia stop you at the airport and try to tax you when you depart?
Being that tax declarations are due by March 31st of the year following the tax year in which you have tax liability, it seems unlikely, unless you were here for more than 1 year. There has been no history of this happening, but there was also no remote work permit until August 2020, and the government was not previously in a financial crisis caused by a pandemic.
So, all we can comment on is the tax law, not on if and how it will be enforced.
If, after filing and leaving Georgia, your RS account remains and you don’t file again in future, as long as your Georgian Tax liability is zero, then the maximum fine for not filing is… zero.
Many foreigners, especially freelancers, come to Georgia each month, thinking that the income that they earn from overseas is tax-free “because of Georgia’s territorial tax system.” This is not the case.
The statement that foreign-sourced income is tax-free is technically accurate, based on Article 82 (Tax exemption) from the tax code:
“Income (including gain) received by a resident natural person, which does not belong to Georgian source income,” (GTC Article 82 (1)(u)).
The problem stems from the fact that most foreign income (with limited exceptions) earned while you are in Georgia is not considered as foreign-sourced.
If you earn your income as a result of performing any sort of activities while you’re located within the territory of Georgia, it is almost always considered Georgian-sourced, not foreign-sourced, and unless a separate business structure is in place (more about that below), it’s subject to a 20% Personal Income Tax rate.
I invite everyone to read the whole of Article 104 of the Georgian Tax Code, which clearly specifies what is and isn’t considered Georgia-sourced income; the short version is this:
- Virtually any income that originates from actual work or services that you provide while being located in Georgia is not foreign-sourced and is subject to taxation (Article 104 (1)(c.g) & (1)(q));
- Passive income originating from abroad (royalties, dividends, etc.) is generally tax-free, but note that in the case of dividends originating from a foreign company that is owned or managed (Article 27 & 28) by you while you are physically in Georgia, Permanent Establishment rules may kick in (Article 29), making the income subject to Corporate Income Tax & Dividend Tax in Georgia.
A related myth is that funds which are not remitted to Georgia and are kept in a foreign bank account are not taxed. That’s also untrue, and Article 104 (1)(q)(2) of the Tax Code, in fact, clearly states the following:
“In determining the source of income specified in the first paragraph of this article, the place of receipt of the amount of income shall not be taken into account.”
Note that while there are rare exceptions, none of the above is subject to different interpretations or “opinions”. The law is extremely clear, and I extend an open invitation to anyone claiming otherwise to substantiate their claims on the basis of the legislation. Contact us.
So, if you have:
- Income from foreign clients
- Income earned from your foreign employer (If not already taxed at source, and/or there is no double taxation agreement between Georgia and your employer’s country)
- Dividends from a foreign company you actively manage
- Any other sort of foreign income that is not 100% passive (like royalties)
You should urgently assess your tax options and liabilities.