Open your LLC (Limited Liability Company) in Georgia (country) and benefit from a 0% corporate income tax on all reinvested profits. Only pay 20% tax on dividends that the company pays out to a natural person.
In this article, we cover the most important considerations regarding opening an LLC in Georgia: taxes, employees, and more. Plus, learn how to open a Georgian LLC as a foreigner with our free step-by-step checklist.
- About Georgian LLCs
- Requirements for opening an LLC in Georgia
- Taxes For LLCs
- What are the Articles of Organization?
- How Long Does it Take To Form An LLC?
- How Do I Pay Myself From My LLC?
- What can be expensed within an LLC?
- If services are received by a business in Georgia from a business outside the country, will VAT be due?
- Free Checklist: Register An LLC in Georgia
About Georgian LLCs
In Georgia there are many different types of business structures; one of the most popular is an LLC, largely due to the lower risk of having limited liability. Compared to a sole proprietorship, operating an LLC is less risky and compared to a corporation, it is easier to set up and manage.
Key Benefits of an LLC:
- Limited Liability means you will not be personally liable for debts if the company goes bankrupt or is sued.
- Zero capital investment required to open an LLC.
- One or more directors can own an LLC.
- Directors do not have to be Georgian residents or even visit Georgia to open an LLC.
- Employees can be from Georgia or elsewhere.
- Company profits are not taxed until they are distributed to shareholders (and not taxed at all when distributed to a Georgian entity which is a parent company of the LLC).
- Some IT sector LLCs can qualify for the virtual zone (0% VAT, 0% Corporate Tax, 5% Dividend Withholding Tax).
- You won’t qualify for a special tax status like the Small Business Status (1% tax on gross turnover).
- Accounting / bookkeeping requirements are slightly more complicated than for Individual Entrepreneurs with Small Business Status.
Key Tax Information:
- 0% Corporate Income Tax on profits that are reinvested or remain in the company
- 15% Corporate Income Tax – at time of distribution of profits
- 5% Personal Dividend Tax – at time of distribution of profits
- 0% Dividend Tax when distributed to other legal entities in Georgia
- 20% tax on employee salaries (If employees are Georgian residents, additional 2%+2% for pensions)
- 18% VAT if gross VATable turnover exceeds 100,000 GEL in any 12 month period
Is an LLC the right option for you? See our comparison article on the types of businesses you can open in Georgia.
For now, let’s take a more in depth look at some of these key considerations.
Having an LLC is less risky than being a sole proprietor (Individual Entrepreneur) because the owners of an LLC are not personally liable for their company’s debts or liabilities.
Forming an LLC allows you to protect your personal assets in case your business is sued or files for bankruptcy.
Usually, this is the main factor when entrepreneurs are making a decision about their business and choosing between a sole proprietorship or an LLC. Here is an example for comparison:
An LLC files for bankruptcy and has to pay debts of 500,000 GEL. The LLC has only 200,000 GEL in its bank account, no other funds, and owned equipment worth 100,000 GEL. From the calculations, it is clear that there is a shortfall of 200,000 GEL. The owners of an LLC will not have to pay the 200,000 GEL from their personal funds or assets, as their liability is limited to the assets that the LLC owns.
Now let’s imagine the same situation with an Individual Entrepreneur. The Individual Entrepreneur would have to pay 200,000 GEL from their own personal money or assets, such as property or land.
Zero Capital Required
Unlike some other countries, Georgia does not require you to lay down any capital in order to open your LLC.
Owners & Employees
The company owners do not have to be residents of Georgia – or even have visited Georgia. An LLC can be owned by 1 or more owners/directors.
Employees can be from any country, not just Georgia. Non-Georgian residents will normally be taxed at 20% of their net income. For Georgian residents, you will also pay an additional 2%+2% pension contribution. This tax must be withheld by the LLC and paid on behalf of the employees.
Important Note: Independent contractors may be taxed differently depending on a number of factors, including the country in which they are based. VAT may or may not be due on invoices for services provided by contractors abroad. Please book a free consultation with us so we can assess your individual case.
Requirements for opening an LLC in Georgia
Once you make the decision that an LLC is the most beneficial business structure for you, the next step is to prepare for the business registration process.
In Georgia, to set up a legal entity you need to go to the Justice Hall and submit the required documents & information.
In order to apply in person, you need the following documents/information:
- Your main business activity, defined.
- Passports of the owners/directors.
- Company charter (bi-lingual charter in Georgian and a language which all company directors speak).
- Legal Address: A permanent (owned) Georgian address – not a property you rent. The owner of the property must be present, or you must bring a power of attorney for them.
- A Georgian phone number.
- An email address.
If you do not have a legal address, or a bi-lingual company charter, we can help you with that.
If you wish to apply without having to attend the appointments or even be in Georgia, this is possible if:
- You grant your representative a power of attorney.
- You provide notarized copies of the passports for all company directors.
How easy is it to open a company from abroad?
Opening an LLC without coming to Georgia is certainly possible and we can help you do so. If you will also need a local business bank account opened in Georgia, this can be tricky if you are not physically present. It is not impossible, but banks have become much more wary of foreign-owned, Georgian companies.
If you are reading articles saying it is easy to open a business bank account while not in Georgia, those articles are now out of date. Be wary of paying anyone up front for account opening if they tell you it is easy.
If you use our LLC registration service we will provide you a consult on factors that will affect the likely success or failure of your bank account opening, based on your individual situation, prior to offering our account opening service. You can also discuss the bank account in your initial free consultation.
If you will not need a Georgian bank account, you can also use online banks like Transferwise, in conjunction with your Georgian LLC. A Georgian bank account is required to pay your taxes but the bills can be paid by a representative.
Ready to open an LLC in Georgia? Get a free consultation with one of our fluent Bi-lingual tax advisers.
Or download our free business registration checklist here.
If you are still not sure an LLC is for you, read more on taxes for LLCs and some frequently asked questions below. Or check out our article comparing Georgian Business Types.
Taxes For LLCs
Learn about which taxes would be due if you operate an LLC in Georgia.
Corporate Income Tax – 0% / 15%
Since 2017, retained profits are no longer taxable until they are distributed. This means that no tax is applied to any funds that are either reinvested, or remain within the company.
Aside from that, the Corporate Income Tax rate is 15% and it applies to 4 different categories of business activities:
- Profit distribution
- Costs incurred that are not related to economic activity
- Free of charge distributions
- Over the limit representative expenses
There are 20 types of taxable operations nestled within these 4 categories.
Distribution of dividends between Georgian legal entities and distribution of dividends received from a foreign enterprise are not subject to corporate income tax; however, depending on the country of a foreign enterprise, there might be exceptions.
The exact details of most of the 20 operations are very specific and dependent on the exact nature of your business. We can talk through your precise business needs at a free consultation online via zoom, or in person.
Personal Income Tax – 20%
Depending on the size and nature of your business, you may or may not have employees. If you are the only one working in the company and you pay yourself dividends, then you do not have to pay Personal Income Tax – just the corporate tax and dividend tax where required.
Once you start hiring people, you need to transfer 20% of their salaries (tax withholding) to the Georgian Government. For Georgian resident employees there is also the additional 2%+2% for their contribution into the compulsory pension fund (this is 2% on salary fund, and 2% on gross salary).
Taking dividends, rather than a salary, can continue regardless of how many employees the company takes on.
VAT – 18%
If you carry out an economic activity where the gross amount of VAT taxable turnover during any continuous 12 calendar months exceeds 100,000 GEL, then you need to immediately register your business as a VAT taxpayer. The VAT tax rate in Georgia is 18%.
You can also become a VAT taxpayer voluntarily, before the 100,000 GEL threshold. Certain business activities are exempt from VAT with or without deduction; depending on your specific case, you might have the benefits of not paying VAT, but when purchasing services or products from other VAT taxpayers, you are able to get that VAT returned.
Read our full guide to Georgian VAT here.
When to file declarations and pay taxes
An LLC submits Personal Income Tax and Corporate Income Tax declarations by the 15th of each month. Income Tax should be paid at the time when salaries are paid. An LLC needs to pay Corporate Income Tax before the 15th of each month. Often, if there are no dividends distributed in a month, corporate income tax is submitted as zero.
If the company is a VAT taxpayer, the deadline for VAT tax declaration is the 15th of each month. The monthly payment should be made before the deadline.
Declarations are submitted on www.rs.ge from your electronic page. Access to this portal requires SMS authentication from your Georgian phone number. Payment of taxes must be made from a Georgian bank account. We can handle your tax declarations and submission of tax payment – Get a free consultation so we can assess your business needs.
What are the Articles of Organization?
The Articles of Organization (charter) is the legal document you submit to the Justice Hall. This document contains information related to your LLC, such as your LLC’s name and address, its main business activities, information about its directors, and the permission they have.
How Long Does it Take To Form An LLC?
It is technically possible to register an LLC in less than 6 hours using the express service. The standard procedure takes about 24 to 36 hours.
Following the successful completion of this, you then have to connect that business registration to the Revenue Service. Both of these steps have to be completed in-person so you also need to decide if you will register yourself, or via a representative with a Power of Attorney.
Of course, getting your documents prepared, including the company charter, will add to the overall timeline.
For this reason we typically suggest allowing 3 to 5 business days for the full process. With a Power of Attorney, if sending from abroad, you need to provide an apostilled copy of the PoA document along with your passport. You should factor in the time to arrange that and to courier it to your representative in Georgia. We can provide you the necessary PoA document for you to get apostilled wherever you are.
Once the registration is complete and paid for, there are no future annual fees and no need to renew your registration. Accounting is required monthly, unless you have nothing to declare.
Note: There should be no mistakes or incomplete information in your application. If there is an error, you have 30 days to correct it and submit everything again. A small fee is charged for every re-submission. So it is essential that the Georgian language version of your charter is accurately translated. Mistakes as simple as an incorrect Georgian spelling of the name of a company director will lead to re-submission being required.
Using the generic charter available at the Justice Hall is very risky and could leave your company exposed. We create your custom company charter for you, provide an accurate translation and assist start to finish with the registration process. This can be done remotely by our team (with your Power of Attorney), or you can attend in person. Contact us for a free consultation.
How Do I Pay Myself From My LLC?
You can pay yourself in different ways; below are the most common ones:
You can take a salary like any other employee in the company. In that case, you would pay 20% income tax and 2%+2% to the Pension fund if you are legal resident in Georgia.
Usually, owners of the company get dividends from an LLC. Dividends are taxed at 5% on a personal level. But also remember, whenever dividends are distributed, the company has to calculate Corporate Income Tax on its profit tax, too. This would include the 15% corporate tax. So the tax would be 19.25% (after adjustment) for any business type that pays corporate taxes. You do not need to make the 2%+2% pension contribution when taking dividends.
While the Georgian legislator doesn’t require an LLC to have any starting capital, its shareholders have the right to provide the entity with capital. Following that, the LLC’s capital can be reduced back to any level (including zero), and these transactions are not subject to any taxation.
You can give your LLC a loan and later pay yourself back. To do so, you must pay yourself interest at the market level. Interest is taxed at 10% income tax.
What can be expensed within an LLC?
Depending on your type of business, you might have different kinds of expenses:
All expenses that you incur to operate and produce goods or provide services should be tax-deductible (GTC Article 105).
Businesses typically have direct costs, the ones that you incur to produce and sell products or provide services, as well as indirect costs, like marketing expenses.
A capital asset is something tangible that you purchase which will be used for more than 1 year in your business. A laptop, car, property, etc.
According to the tax code, purchases of capital assets that cost more than 1,000 GEL (GTC Article 111, 112) should be expensed into an LLC gradually over a number of years. This process is called depreciation. In Georgia, buildings are typically depreciated at 5%. Cars, computers, and other electronic devices at 20%.
However, the IFRS rules which changed in 2017 superseded the tax code, and these are the rules that can be followed by most LLCs today.
With new IFRS rules, companies can choose their own inside policies. Either they can use depreciation or expense the whole amount of a capital purchase at once. Whatever they choose, they need to be consistent over the number of years they depreciate, for example, 20% per year over 5 years. Not 20% one year, 30% the next, and 10% the next (GTC Article 111, 112).
IFRS also does not give any importance to the 1,000 GEL threshold, rather it depends on the purpose of the item itself. An item might cost 500 GEL, and still be considered a capital asset and subject to depreciation. Or it may cost 10,000 GEL, but be a consumable item that would not be considered a capital item at all.
VAT: At the point of buying an asset, if you are a VAT taxpayer and buying from another VAT taxpayer, you can later claim the 18% of the total amount back from your tax bill.
Other types of expenses
- Interest Expenses
- Representative expenses
As a business you might have representative expenses as well.
Expenses that are for the purposes of economic activity can be expensed into an LLC. This includes entertainment expenses too (“expenses incurred by a person within the scope of economic activity”) (GTC Article 8, 33) such as:
- Expenses (for juices, mineral waters, soft drinks, tea, coffee, breakfast, lunch, dinner, and banquets) related to events (presentations, receptions) arranged on behalf of a person;
- Expenses for excursions, cultural, and entertainment events;
- Souvenir costs;
- Guest service costs, including:
4.1 Consular service (visa processing and extension) costs;
4.2 Costs of meeting and departure at an airport (VIP Hall service);
4.3 Transportation costs;
4.4 Hotel service (reservation, accommodation) costs;
4.5 Costs related to receptions and parties (juices, mineral waters, soft drinks, tea, coffee, breakfast, lunch, dinner, and banquets).
This can apply to yourself and to clients or potential clients.
Imagine you have guests who are potential customers and coming from foreign countries. You decided to pay all the costs for those guests. Guests need to get visas, buy flights, and book hotels. Money spent on consular service (visa processing and extension), transportation, and hotel costs can be expensed into an LLC.
If services are received by a business in Georgia from a business outside the country, will VAT be due?
Reverse-charge VAT often applies to services provided to Georgian taxpayers by a non-resident entity. For more specific information and exceptions, read our article on understanding Georgian VAT, or contact our ExpatHub experts.
Free Checklist: Register An LLC in Georgia
Ready to open an LLC in Georgia? Get a free consultation with one of our fluent bi-lingual tax advisers.
Or download our free business registration checklist below: