Just because you arrived in Georgia on a tourist visa, doesn’t mean you can avoid being a tax resident. After 183 days tax residency begins automatically (Tax Code Article 34 (2)).
Time to figure out your options, and the potential benefits of Georgian tax residency.
So, Corona happened, well, is still happening, and a lot of people have inadvertently, or on purpose, spent longer in Georgia than expected.
If you’ve hit the 6 month mark (183 Days) within any 12 month period, you are legally a tax resident. It’s not a matter of opinion or preference, it’s a legal fact (Tax Code Article 34 (2)).
If you are planning on leaving soon, you might be choosing to ignore that legality and hope the tax department doesn’t have the time or interest to track you down.
But, if you are planning to stay longer, it might be time to:
- Take advantage of your automatic status to lower your current annual tax bill
- Get registered as soon as possible to avoid double taxation in your current country of tax residence
- Minimize taxes for the rest of this tax year
You should also be aware that triggering Georgian tax residency does NOT mean that your previous tax residency would automatically cancel. In most cases, it doesn’t, and double taxation is a very real thing. Learn more about double taxation issues below.
Disclaimer: This article is for information only and we take no responsibility or liability for your tax choices based on this information. Please see our website Terms of Service for more information. For personalized tax advice, get a free 30 minute consultation from one of our professional tax advisers.
Some Relevant Facts About Your Tax Situation In Georgia
This is a non-exhaustive list of considerations that may affect your situation if you have been here for more than 6 months.
Georgia’s Tax Residency Rule
If you’ve spent 183 days or more in Georgia, within any 12 month period, you are a legal tax resident of Georgia, automatically. (Source: Article 34 (2. A), Georgian Tax Code)
No matter what type of visa you arrived on, or if you have been working receiving income from a Georgian source or an international source (foreign income) – Note: Most “foreign” income that is earned while physically present in Georgia is actually considered Georgian source income, due to the work being performed in Georgia, and can be taxed. There are exceptions but not as many as most people tend to think.
The 12 month period does not have to be the tax or calendar year, it is any 12 month period.
You are likely still a tax resident elsewhere until you cancel that status
Becoming an automatic tax resident in Georgia, does not mean you have automatically renounced your tax status in your previous country. You would have to take action to do so. There is normally a deadline, after each tax year ends, in order to revoke previous tax status. So it’s worth urgently checking that deadline before you get caught being taxed in two countries.
For countries like the USA, you are not able to revoke your tax status but are able to benefit from certain expat tax rules. Contact your USA tax adviser for help on this.
One of the first things you should do is check if your current country of tax residency has a double taxation agreement with Georgia.
If so, you may be able to avoid being taxed on the same income twice. However, you may have to submit tax returns in both countries, pay the tax and then claim back tax relief afterwards.
If your country does not have a double taxation agreement, you may be liable to pay tax on as much as 100% of your income in both countries, with no tax refund afterwards. A possible solution to this is to divorce yourself from your previous country of tax residence, before the annual deadline, so you will only be a tax resident in Georgia.
Because you have been in Georgia for more than 183 days, there is no legal recourse to remove yourself as a tax resident here. Your only solution at this point is if your previous country has a double taxation agreement with Georgia, or if, because you were not physically present in your previous country for the required amount of time, you have the right to retroactively revoke your tax residence for the current or previous tax year.
We can help you with your Georgian tax issues but for tax questions about other countries you should consult with a tax adviser from those countries.
Declaration Filing For New Tax Residency
You automatically became a tax resident in Georgia, after being present for 183 in any rolling 12 month period. Because of this you are required by law to file an annual tax declaration with the revenue service by March 31st of the year following the tax year you became a tax resident. (Tax Code, Article 153)
In order to file a tax return, you must register with the revenue service and get a tax ID. Then file your declaration online. You can also apply for a tax residency certificate which you can use as evidence when revoking your tax residency in other countries.
So, if you hit 183 days in December 2019, you would need to file a tax return for all income earned in 2019 by March 31st 2020 (The tax year in Georgia runs from January 1st to December 31st).
If you hit 183 days in January 2020, you would need to file by March 31st 2021.
In some cases, especially if your home country has a double taxation agreement with Georgia, your tax residency in Georgia may shield you from some or all taxes in your previous country of tax residency. In other cases, you may be due to pay certain taxes in both countries.
By simply filing your declaration, you will not retroactively receive any special tax benefits (such as the 1% on turnover freelancer/individual tax rate, or the 0% corporate income tax and 0% VAT for Virtual Zone companies). You will instead pay 20% flat tax rate on your total net income from that year, with some possible exceptions.
To benefit from these special tax regimes, and avoid any illegal business activity from operating your business within Georgia, you must act now.
Fines For Not Filing
There is a fine for a tax resident not filing tax declarations by March 31st (Tax Code, Article 274); if you are late up to 2 months you pay an extra 5% of the amount you were due to pay and if you are late by more than 2 months your fine will be 10% on top of the original tax due.
Not paying your taxes before the deadline, means you will pay the interest rate of 0.05% per day (18.25%p.a.) of the unpaid tax amount from April 1st. (Tax Code Article 274, 4)
The statute of limitations in Georgia is 3 years. Meaning, failure to make a declaration could result in back taxes for up to 3 years, and 18.25%p.a. interest on all taxes you are assessed to owe from missed declarations.
Work Performed Outside Georgia May Or May Not Be Taxed
Tax is due on income earned while working in Georgia in that tax year. If you manage a business or work remotely, while being physically present in Georgia, and that work led to income of any sort, whether the money arrived to Georgia, or not, that would be considered Georgian income and liable for tax.
If the work was done whilst not being physically present in Georgia, you may not be liable to pay tax on that income, but it depends (Tax Code 82 and 104). Some accountants advise that all income earned while not physically present in Georgia, and which was remitted to a bank account outside Georgia, is tax free for tax residents of Georgia…
However there are many nuances within the tax code relating to this issue and we are not able to provide an answer that simple. You should be wary of anyone providing a yes/no answer on this topic without them first learning about your income in detail.
One question to consider is, has/will the income in question be declared or taxed elsewhere? If No, then there is a strong possibility that Georgia will be legally able to tax that income if you are a tax resident here. Even if the answer is yes, if the country in question does not have a double taxation agreement with Georgia, then Georgia may also want to tax that same income.
So, will your foreign sourced income be liable for tax in Georgia? It’s best to double-check your exact situation with a tax adviser.
Dividends vs Active Work
If you received dividends from a company that you take no active part in working for or managing (ie. silent partner, shareholder etc) and you performed no active work while in Georgia, you would most likely not be taxed on that income. (Tax Code, Article 130)
The same applies for any income generated from securities (stocks, bonds, etc.)
For any foreign or local income that you actively worked to generate while being physically present in Georgia, you would pay a flat 20%.
Tiered Tax vs Flat Tax
If you are from a country with tiered tax rates, the flat 20% might see you paying less tax than you would elsewhere. But it should be noted, there is no tax free allowance threshold in Georgia, so you pay the 20% from the first dollar (or lari) you earn. For high earners, this flat 20% tax rate, no matter your income, could offer a massive reduction in overall taxation for the year.
If your business has already generated more than 100,000 GEL in turnover in the tax year you became a tax resident, you may be subject to charge 18% VAT on historic transactions from that year. This can sometimes apply to foreign revenue as well as domestic.
Don’t assume all your foreign revenue is exempt. NOTE: Some types of businesses are exempt from VAT, including package tour companies, some education sector businesses, certain foreign service exporters, and others. (Tax Code, Article 156 &157, chapter XXIII)
So, if you intend to stay in Georgia, you may be advised to register with the Revenue Service sooner rather than later. Especially if you could be eligible for a tax rate lower than the standard flat 20% (ie. Freelancers / Small Business Individual Entrepreneurs can benefit from the 1% tax rate), or if the tax rate in your current country of tax residency is higher than 20%.
You can also consider opening an LLC (limited Liability Company) if you don’t qualify as an Individual Entrepreneur, or you’d like the added securite of limited liability.
Either way, if you have been here 183 days in a 12 month period, you are legally required to register as a taxpayer in Georgia. We can help you do this, as well as strategize the best way to reduce your tax bill during this transition and move your legal entity here, if that would be beneficial to you.
Need help or advice? Get a free, confidential, consultation (online or in person) with one of our expert tax advisers.
Should I be working in Georgia / paying tax while on a tourist visa?
Georgia is one of very few countries in the world that allows you to legally work without restrictions on the standard entry visa. It’s clearly stated on the government visa website that if you qualify, the standard visa or visa waiver allows you “to enter, reside, work and study in Georgia without the necessity to obtain either visa or residence permit”. You can also easily open a business in Georgia.
It’s easy to assume that because Georgia offers a 1 year visa, that this means there must be some special tax exemption if on the tourist visa. However, this is wishful thinking. The Georgian tax code is clear, 183 days in any rolling 12-month period and you are a tax resident and legally obliged to pay your taxes here.
There is nothing illegal about being a tax resident in Georgia when you are here legally as a tourist. But you are actually breaking Georgian law by not submitting a tax return in any calendar year that you’ve triggered tax residency for.
Will I be in trouble for registering late?
As long as you submit an annual tax declaration by March 31st of the following year, you are 100% legal in Georgia and will not be fined. However, you will be subject to back taxes for net income and possibly for VAT, and these may end up being much higher than they would be if you just register immediately.
Plus, although the deadline here for registering your tax status may be March 31st, it may be sooner in other countries, so if you need to renounce your tax status elsewhere, you should look into the deadlines for that urgently.
Will the government ignore my tax status because of the Corona Crisis?
Very unlikely, though we can’t say for sure yet. At time of writing, no announcements have been made to suggest the government has any intention to forgive foreigners who stayed more than 6 months in Georgia. Though returning to your home country was made more difficult, options to return home, including charter flights, were made available and often encouraged at the start of the crisis, and limited flights have been continuously available, if complicated.
While getting home would have been tricky, it was not impossible in most cases.
So there is simply no reason for Georgia to grant a special status to those on a tourist visa who stayed longer than expected.
Need to make the best decision for your taxes in Georgia? As it always depends on your exact personal and business situation, get a free, confidential, consultation (online or in person) with one of our expert tax advisers.