In recent years, Georgia has gained recognition as one of the world’s top destinations for business and investment. This reputation is partly due to the ease of doing business here. However, the thing that truly draws foreign investment is Georgia’s vast array of attractive tax incentives. In this article, we explore the tax benefits for investors in Georgia.
Many of our readers are familiar with Georgia’s popular tax regimes—such as the Small Business Status, Virtual Zone Status, International Company Status, and Free Industrial Zones, to name a few. However, for individuals, perhaps the most impactful yet often overlooked feature of our tax system isn’t a specific regime, but rather a fundamental principle underlying the entire system.
The personal taxation system in Georgia operates on the principle of exclusively taxing Georgian-sourced income while exempting foreign-sourced income. This means that, whether you are a Georgian tax resident or not, Georgia will only claim taxes on Georgian-sourced income.
You might be wondering what qualifies as Georgian-sourced income. Article 104 of the Tax Code of Georgia provides a comprehensive list of incomes that are classified as such. It is important to note that the term “foreign-sourced income” is never to be interpreted literally and does not mean that any income from abroad is tax-free. You can read more about this common misconception in our article about foreign income.
Continue reading to explore Georgia’s tax benefits for international income earned by individuals. We will primarily focus on types of income derived from various investments such as foreign stocks, securities, movable/immovable property, and cryptocurrency.
Income from Selling Stocks
Capital gains earned by individuals from the sale of shares in foreign companies are generally classified as foreign-sourced and are not subject to taxation in Georgia. Moreover, as of this moment, Georgian tax authorities do not differentiate between active and passive stock trading. Therefore, whether you have long-term investments in foreign stocks through exchange platforms or day trade as your main activity, you will not create taxable income in Georgia.
The only scenario where income from the sale of foreign shares would be classified as Georgian-sourced is if the shares in question are of a foreign enterprise more than 50% of the asset value of which is directly or indirectly derived from immovable property located in Georgia.
The above-mentioned rules may lead you to believe that Georgia taxes gains/income derived from publicly listed Georgian stocks. In many cases, this is not true.
Georgia offers a full income tax exemption on capital gains from the sale of shares in Georgian companies if the ownership period exceeds two years unless the shares in question “were used in economic activity during the ownership period”. While the Tax Code does not explicitly define what constitutes using stocks in economic activity, it is clear that being a passive shareholder—simply receiving dividends from owning stocks in a Georgian enterprise—does not count. Thus, passive shareholders of a Georgian enterprise remain eligible for the income tax exemption.
Furthermore, regardless of the holding period, gains derived from the sale of publicly listed Georgian stocks are also tax-free, as long as the shares in question are listed on stock exchanges recognized by the National Bank of Georgia.
Dividends
Dividend income earned by individuals owning shares in foreign companies is also fully tax-exempt. Dividends are classified as Georgian-sourced income—and thus subject to a 5% withholding tax—only when they are received from a Georgian enterprise. Therefore, you can passively invest in foreign enterprises and receive dividends while residing in Georgia without incurring any tax liabilities herein.
Income from Crypto
Georgia is a crypto-friendly country with favorable conditions for crypto investors. In 2019, the Ministry of Finance of Georgia issued a Public Decision addressing the tax liabilities related to income generated from the sale of crypto assets.
The public decision explains that “crypto assets have no physical form, are not deposited in any financial institution, and it is typically impossible to identify the issuer. Additionally, it is practically impossible to determine the location where the transaction occurs, as the exchange takes place in a virtual space among members of a virtual community. Therefore, the transaction should be considered as occurring outside Georgia, and the corresponding income is deemed to be derived from a non-Georgian source.”
Therefore, income from the sale of crypto assets is considered non-taxable for non-resident individuals and is exempt from taxation for resident individuals. The outcome is the same regardless of your tax residency status in Georgia—you simply do not pay taxes on your capital gains from crypto assets.
Income from Real Estate
Georgia also provides favorable treatment for real estate investors. Suppose you have invested in real estate located outside the territory of Georgia and receive rental income from it. In that case, this income is considered foreign-sourced and is not taxable in Georgia. Similarly, capital gains derived from the sale of foreign-located real estate are exempt from taxation in Georgia.
Investing in Georgian real estate can also be an attractive option. Georgia offers a full income tax exemption on capital gains from the sale of Georgian real estate if the ownership period exceeds two years. If you sell the residential property before the two-year mark, instead of the full 20% tax rate, you only need to pay 5% on your capital gains.
If you decide to rent out your Georgian real estate, you can benefit from a 5% rental income tax on your gross rental income if the property is rented to an individual for residential use. For example, you can run an Airbnb business using a property in Georgia and enjoy a favorable 5% tax rate on your gross rental income.
Income from Movable Property
If you sell movable property that you own outside of Georgia, the resulting income will not be classified as Georgian-sourced. However, for movable property located/registered in Georgia, you are subject to taxation only if the ownership period is less than two years.
Additionally, Georgia provides special treatment for capital gains derived from the sale of cars within its territory. You receive a full income tax exemption if you sell your car in Georgia and have owned it for more than six months.
Income from Securities
The taxation of income from securities is not regulated by the Tax Code. To address this issue, the Ministry of Finance of Georgia issued a Public Decision that regulates the taxation of income derived from securities.
According to this decision, income derived from the provision of securities is deemed Georgian-sourced if one of the following conditions is met:
- The securities confirm the right of their owner to a share in the capital of a Georgian resident legal entity.
- The securities confirm the right of their owner to a share in the capital of a legal entity where 50% of the asset value is directly or indirectly created by the value of immovable property located in Georgia.
If none of the above conditions are met, capital gains derived from the securities are considered foreign-sourced, therefore they constitute non-taxable income in Georgia.
Moreover, if you anticipate receiving dividends or interest while holding securities, such income will be classified as Georgian-sourced income only if the payer of dividends/interests is a Georgian resident individual or entity.
Capital gains/interest received from Georgian securities are also tax-exempt in Georgia.
Interest Received from Georgian Licensed Financial Institutions
If you hold a term deposit in a licensed Georgian financial institution (e.g., Bank of Georgia, TBC) and receive periodic interest payments, although this income is classified as Georgian-sourced since the payer is a Georgian tax resident entity, the tax code of Georgia offers full income tax exemption on this type of income.
Interest and Royalties
Georgia adopts a similar approach to the taxation of interest and royalty income. The rule is straightforward – such incomes are classified as Georgian-sourced only if the payer of interest/royalties is a Georgian tax resident (legal entity or an individual).
Accessing the Tax Regime
The most convenient way to benefit from the tax advantages on your foreign (and in some cases, Georgian) investments is to become a Georgian tax resident before realizing your gains. This approach minimizes the possibility of being subject to taxation in your previous country of tax residence.
Georgian Tax Residency
The conventional method of acquiring tax residency in Georgia is by spending 183 days or more in any rolling twelve calendar-month period within the territory of Georgia. Upon reaching the 183rd day, you will be considered a tax resident of Georgia for the calendar year in which that 183rd day occurs.
If living in Georgia for six months a year doesn’t align with your lifestyle, you can still become a Georgian tax resident without even spending a day in Georgia. You can do this by applying for the HNWI tax residency program. This program is primarily suitable for individuals leading a digital nomad lifestyle.
To qualify for the HNWI program, you must fulfill the following criteria:
High Net Worth Status
You can do this by either:
- Proving that your property value exceeds 3 million GEL, including assets in Georgia valued at 500,000 USD.
- Showing that your annual income for the last three years exceeds 200,000 GEL, along with owning Georgian assets valued at 500,000 USD.
Ties to Georgia
You can demonstrate your connection to the country by:
- Becoming a legal resident of Georgia, OR
- Proving receipt of Georgian-sourced income in excess of 25,000 GEL in the tax year prior to the year of application.
For more detailed information about the program, please refer to our article about HNWI tax residency.
In conclusion, Georgia presents a favorable landscape for investors seeking beneficial tax regimes. Whether you’re interested in stocks, crypto, real estate, or other types of investment, Georgia has a lot to offer you in terms of attractive tax exemptions and benefits.
