Free Industrial Zones (FIZs) are special geographical areas in Georgia where businesses can benefit from preferential treatment and highly attractive regulatory incentives. Companies registered in these zones receive significant tax advantages, provided that they meet the qualifying criteria. However, since the creation of the special FIZ regime in 2007, there has been a lot of debate in the market about who can actually benefit from the status and what activities are permitted under it.
In this article, we will review the regulatory framework for FIZ enterprises (tax incentives and legal requirements). We will also address common misconceptions that have caused confusion among misinformed investors and taxpayers for over a decade.
A General Definition and Existing FIZs
A Free Industrial Zone, as a legal concept, was introduced back in 2007. It is a special territorial unit located in Georgia designated for specific types of economic activity. Tax, legal, and administrative provisions that apply to businesses in these Zones are heavily modified.
Everything is regulated by the Law of Georgia on Free Industrial Zones. The program aims to attract foreign investment through significant tax breaks.
As of 2025, Georgia has four established FIZs that are currently operational:
Poti Free Industrial Zone
The Poti FIZ is the oldest and largest free industrial zone in Georgia. It was established in 2008, and it is the most substantial in terms of economic activity. The zone covers 300 hectares near the Black Sea port and serves as a strategic gateway for international trade. It currently hosts more than 100 companies. The zone’s proximity to shipping routes is key to import and export processes. These play an important role in the everyday operations of a FIZ enterprise.
Tbilisi Free Industrial Zone
Tbilisi Free Zone is a Free Industrial Zone (FIZ) located in Georgia’s capital, Tbilisi. It currently hosts around 150 registered companies across a wide range of business sectors. Established in 2015, the zone covers approximately 17 hectares. Thanks to its proximity to Tbilisi International Airport and the city center, the Free Zone benefits from access to roughly 80% of Georgia’s skilled labor pool. The zone was organized by BitFury Group, a leading blockchain technology company.
Kutaisi Free Industrial Zones
Kutaisi (Georgia’s second-largest city) hosts two operational FIZs:
- Kutaisi Free Zone: Established in 2009 and spread across 27 hectares, managed by Georgian International Holding
- Hualing Kutaisi Free Industrial Zone: Operational since 2015, covering 36 hectares, developed by the Hualing Group with government support
Several additional FIZs are in various stages of development. This includes the Kulevi Free Industrial Zone (focused on oil refinery operations) and the Sagarejo Free Zone. However, these have faced delays and are not yet fully operational.
Tax Benefits
The tax incentives offered to FIZ enterprises are quite extensive.
For starters, FIZ enterprises are fully exempt from the standard 15% corporate income tax and the 5% dividend withholding tax on distributed profits earned from permitted activities conducted within the zone.
FIZ enterprises also get significant VAT breaks, namely:
- Import of foreign goods into the FIZ is exempt from the 18% VAT
- Operations conducted within the FIZ are not subject to VAT
- Goods produced in the FIZ and imported into mainland Georgia are exempt from import tax but subject to VAT
All property located within the FIZ territory is exempt from the 1% corporate property tax that normally applies to ordinary Georgian businesses.
Furthermore:
- Import of foreign goods into the FIZ is exempt from import tax
- Export of goods produced in the FIZ is exempt from export duties
- Import of goods from mainland Georgia into the FIZ is treated as an export operation and therefore tax-exempt
- Interest payments from FIZ enterprises are exempt from the 5% interest withholding tax
- FIZ enterprises are not required to act as tax agents for local employee salaries (though employees must still declare and pay personal income tax)
The 4% Transaction Rule
When a FIZ enterprise transacts with a Georgian (mainland) company, a special 4% tax applies. When selling goods to Georgian companies, the tax is levied on the invoice value. However, when the goods are purchased from mainland companies, the taxable base is the market value of the goods.
The Core Purpose of a FIZ Enterprise
FIZ status is fundamentally designed for industrial enterprises that produce and export physical goods. This is what many businesses have been getting wrong for a long time. FIZ is not for service companies or even international trading operations.
The law explicitly states that FIZs exist to facilitate the manufacture, processing, or production of goods primarily for export. The point behind the tax benefits is to encourage and support the import of raw materials, manufacturing or processing activities, and export of finished products.
The Service Restriction
One of the most misunderstood aspects of FIZ legislation is the limitations on service-based transactions.
According to the Tax Code of Georgia, a FIZ enterprise is prohibited from purchasing services from mainland companies (save for some exceptions, which mostly include services essential for business operations, such as security, transport, telecommunications, financial services, etc.), as well as providing services to Georgian mainland companies or individuals.
The most important aspect of FIZ restrictions, though, relates to the provision of services by FIZ enterprises to other persons. The Tax Code states that FIZ entities cannot provide any services to mainland persons, and the government may determine types of services that can be provided to non-residents. However, no such list has been officially adopted.
Revenue Service’s 2022 Methodical Instruction on FIZ Enterprises explicitly states: “considering that the Government of Georgia has not defined the types of services that a FIZ enterprise may provide to non-residents, such service provision should not be considered a permitted activity in the free industrial zone.”
This means that service provision by FIZ enterprises to resident or non-resident clients does not currently qualify for tax benefits, despite what many advisors might suggest.
The Trading Company Clarification
Another significant point of confusion has emerged around international trading companies operating from FIZs. The Revenue Service has taken a firm stance on this issue as well.
According to the Methodical Instruction, the following scenario does not qualify for FIZ tax benefits:
A FIZ enterprise purchases goods from outside Georgia and subsequently sells those same goods to buyers outside Georgia, without placing the goods under the free zone customs procedure.
The Revenue Service’s assessment clearly states:
“Considering that the FIZ enterprise does not place goods under the free zone procedure, does not physically bring goods into the free industrial zone, and does not remove goods from the zone, its activity cannot be considered a permitted activity in the free industrial zone, and therefore the distribution of profits from such activity will not be eligible for the profit tax benefit.”
Ideal Use Cases for FIZ Status
Given the restrictions, it is important to outline the types of businesses that would actually be well-suited for FIZ operations. These would mostly include manufacturing operations such as electronics assembly, food processing, pharmaceutical production, textile manufacturing, etc., as well as logistics and distribution operations, provided all the appropriate conditions are met and proper customs procedures are followed.
Georgia is also actively promoting renewable energy development, and FIZ status can be particularly beneficial for activities such as solar panel assembly operations, wind turbine component manufacturing, energy storage system production, and other green technology equipment manufacturing.
Practical Considerations
It’s worth noting that some FIZ companies have observed difficulties in obtaining banking services from Georgian commercial banks. Due to the regulatory environment and bank compliance requirements, some FIZ companies have faced challenges opening or maintaining corporate accounts. This is particularly so if their business model appears focused on tax optimization rather than actual industrial activity.
Furthermore, FIZ enterprises must obtain activity licenses from the zone administrator. The way these licenses work differs between FIZs, but they are generally activity-specific (general or special licenses), and they must be renewed periodically. Costs range between $4,000 and $15,000, depending on the scope, and require demonstration of genuine operational plans.
FIZ operations also require physical presence in the zone (office, warehouse, or manufacturing facility), rental of land or buildings from the zone administrator, and compliance with zone regulations.
Conclusion
Georgia’s Free Industrial Zones offer substantial tax benefits to the right businesses, particularly manufacturers, processors, and exporters of physical goods. However, FIZ status is not for everyone. The legislation is specifically designed to encourage industrial production and export activity, not to serve as an offshore services platform or paper trading vehicle.
How ExpatHub Can Help
As always with complex tax matters, consulting with qualified Georgian tax advisors and legal counsel before making structural decisions is essential. The Revenue Service has made clear through its methodical guidance that it will scrutinize FIZ entities to make sure they’re genuinely engaged in the industrial activities the zones were created to promote.
