Even if you are not VAT registered and don’t intend to be, some of these rules affect all business owners operating in Georgia.
- ALL purchases by a Georgian business of products and services from any non-Georgia foreign business are subject to VAT Reverse Charge (also known as “reverse charge VAT”) of 18%, which must be filed on your monthly tax declarations whether you are VAT registered or not. (Want to avoid being liable for paying this VAT? Full details below.)
- All B2B (business to business) transactions between a Georgian business and a non-Georgian business located outside Georgia are now entirely VAT exempt.
- The list of exemptions for B2C transactions between a Georgian business and a non-Georgian individual (consumer) located outside Georgia have changed. See the full list below.
- There are many other changes but most are quite technical in nature and apply to very few of the typical cases that expats have with their Georgian businesses.
- You’ll find some example case studies at the end of this article.
Reverse Charge VAT
In 2020, many purchases your Georgian business would make from foreign companies (such as digital subscriptions services, contractor work, etc.) were liable to both report and pay 18% VAT in Georgia. This is known as reverse charge VAT (aka: reverse VAT). It must be declared, whether your business is VAT registered or not. Previously, this reverse charge applied to most, but not all types of purchases.
As of 1st January 2021, there are no longer exemptions. Now, ALL purchases from a foreign business must be declared on a VAT declaration to the Revenue Service, with 18% reverse charge assessed.
How to avoid paying reverse VAT
Though you are still required to declare all reverse VATable transactions, you can simultaneously claim them back and effectively reduce your reverse-VAT payments to zero, simply by being VAT registered.
If you generate more than 100k GEL of VATable turnover in any 12 month period, you are already required to register for VAT. For many businesses based in Georgia, which have exclusively foreign clients (B2B), their typical VAT turnover may be zero, and hence they have not considered registering for VAT.
However, as those B2B transactions are VAT exempt anyway, choosing not to register for VAT means that you leave yourself open to reverse VAT payments on all business purchases, as well as regular VAT on local purchases in Georgia. You could instead be claiming back all that purchase VAT, while still not owing any VAT on the international products and services you sell.
If you also sell services / products in Georgia, or if you are selling to non-exempt B2C consumers (see below), then your decision is more complicated. If not, registering for VAT is a no-brainer.
If you still aren’t sure what would be best for you, or if you need help with your VAT registration or with your monthly reverse-VAT declarations, you can get a free consultation from one of our experts at ExpatHub.
B2B (Business To Business) Transactions
Whenever the service recipient is a VATable person, the place of supply shall be the location where said recipient is based (GTC Article 162.1.3.a).
The term “VATable person” means any person independently carrying out any type of economic activity at any location, regardless of the purpose and the result of said activity (GTC Article 158.1).
In 2020, most B2B transactions between a Georgian business and businesses outside Georgia were VAT exempt, but now, in 2021, ALL of these types of transactions are VAT exempt.
You will not need to charge VAT on any products or services your business supplies to foreign businesses who could be defined as VATable persons.
B2C (Business To Consumer) Transactions
The list of VAT exempt transactions between a Georgian business and their foreign consumers has changed. There are now more exemptions than there were in 2020.
Whenever a service recipient is a non-VATable person (individual consumer, not a business) and the service is electronically rendered (as defined below), the place of supply shall be the location where the recipient is based (GTC Article 162.1.14.c).
Hence, if you are VAT registered (mandatory when your VATable turnover exceeds 100k GEL), then you do not need to charge VAT, as long as these exemptions apply to the types of transactions you make.
Which activities are considered electronically rendered? (GTC Article 157.p):
Electronic services – services provided via the Internet or electronic network, the delivery of which is substantially automated, requires minimal human intervention and its delivery is impossible without information technology between them:
- a) digital product delivery, including software support and delivery of an updated version;
- b) website delivery;
- c) web hosting, remote maintenance of software and hardware;
- d) software and related updates;
- e) providing images, text, and information to ensure access to the database;
- f) supply of music, film, and games (including gambling);
- g) broadcasting and delivery of political, cultural, artistic, sports, scientific, and entertainment programs;
- h) provision of distance learning;
- i) other types of services defined by the order of the Minister of Finance of Georgia.
In addition to electronically rendered services, there is a very long list of other types of activities that could be considered VAT exempt. These are discussed in articles 170 to 172 of the Georgian Tax Code. At time of writing, the English version of these articles has not yet been fully updated, so it’s best to use the Georgian version and google translate. If you’re still unsure, discuss the new rules with a tax adviser.
- Incorporated Software Developer
- Registered as a Georgian LLC.
- Provides programming services to clients (B2B) outside Georgia.
- Clients are all businesses (VATable persons).
- 50% of clients are from the United States, all of whom are VAT registered companies.
- 50% of clients are from EU countries. Some of them are VAT-registered, others are not.
Because all of the clients are VATable persons, and services are digitally rendered, the fact that some of them are not VAT registered is irrelevant in this discussion. There would be no VAT to apply to any of these transactions.
- Freelance Language Teacher
- Registered as an Individual Entrepreneur.
- Teaches English via Skype.
- Clients are all individuals (not VATable persons).
- Clients are from all around the world.
- None of the clients are VAT-registered.
Whenever the service recipient is a non-VATable person and the service is electronically rendered, the place of supply shall be the location where the recipient is based (GTC Article 162.1.14.c). Thus, these types of services provided to individuals outside the territory of Georgia should not be VATable in Georgia. They might incur VAT from the country in which they are supplied and you should check the rules on this with a local adviser.
Also, in GTC Article 157.p.h., you will find that the “provision of distance learning” is exempt.
- Digital Products Provider
- Registered as a Georgian LLC.
- Provides digital/downloadable products (for example, Excel templates).
- Sales are automatic through their website.
- Clients are from all around the world.
- Some are individuals (non-VATable persons), some are businesses (VATable persons).
- Some of the businesses are VAT-registered.
Provision of digital products falls under the definition of electronically rendered services (GTC Article 157.p.a). As with case studies 1 & 2 above, the non VATable persons are taxed based on the country of the recipient, not the supplier. The same is true of the VATable clients.
Need help with your VAT registration, accounting, or any other tax issues? Get your questions answered at a free consultation with one of our expert advisers. Online via zoom, or in-person in Tbilisi.