In this article, you will learn about the most important considerations related to VAT in Georgia (the country) and how it affects your business and finances.
Key Information About VAT In Georgia:
- The Value Added Tax (VAT) rate is 18%.
- Your business must register for and pay VAT once VAT-able transactions exceed 100,000 GEL during any continuous 12-month period.
- Certain businesses might voluntarily register as VAT payers because of specific benefits provided by the Georgian Government.
- Some industry sectors are exempt from charging VAT on the sale of products and services but may also choose to register voluntarily in order to be able to claim the VAT back on purchases.
- Natural persons, Individual Entrepreneurs, IEs with Small Business Status, LLCs, LLCs with Virtual Zone Status, and any legal business structures are able to register as VAT payers. Notably, however, a natural person with Micro Business Status is not eligible to register as a VAT payer.
- Georgian businesses that provide services directly to foreign-based businesses are not liable to charge VAT on these transactions. Furthermore, certain types of services provided to foreign-based customers are not classified as VAT-able transactions.
- Georgian businesses that buy services from foreign companies are required to declare and pay VAT every month on these service purchases. This process is known as reverse charge VAT. If you are VAT registered then you will declare purchases but the VAT owed will be zero.
Note: 2,5 GEL = 1 USD approx.
What is VAT?
VAT is a consumption tax that applies to the sale of products and services in the territory of Georgia as well as the import of goods. The VAT rate is 18%.
A Georgian business does not have to charge VAT on their sales unless the VAT-able transactions of the business exceed 100,000 GEL during any continuous 12-month period, or the business voluntarily decides to register as a VAT payer at the Revenue Service of Georgia. VAT must be charged on all products and services that qualify as VAT-able, once the business is registered.
Who is a VAT payer?
A VAT payer is a person or legal entity carrying out an economic activity in the territory of Georgia and is registered for VAT at the Revenue Service of Georgia.
Once your 12-month turnover hits 100,000 GEL for the first time it is mandatory to register immediately. If your turnover in any 12-month period is less than 100,000 GEL registration for VAT can be voluntary.
You might ask why someone would want to pay additional taxes.
In some cases, certain businesses might benefit from being registered as VAT payers.
According to the Georgian Tax Code, there are business activities exempt from VAT with or without the right of deduction. If your activities are exempt, and you have the right to deduct, then you can claim back any VAT which was paid on items purchased under the name of your business.
Once your VAT-able operations hit the 100,000 GEL threshold, you need to register at the Revenue Service immediately, start submitting monthly VAT declarations, and pay the corresponding tax.
Natural persons, Individual Entrepreneurs, IEs with Small Business status, LLCs, LLCs with Virtual Zone status, and any other legal business structures are able to register as VAT payers. A natural person with Micro Business status is not eligible to register as a VAT payer.
Which operations are VAT-able?
In this section, we’ll look at what is and what is not taxable by VAT.
Business activities that are considered as VAT-able
There are 3 different types of business operations/activities that are considered as VAT-able:
- Supply of goods in the territory of Georgia
- Provision of services in the territory of Georgia
- Import of goods
The sale of goods and services is subject to VAT if it is considered to be carried out in the territory of Georgia. This is exactly why it is crucial for VAT to define the place of supply of goods and services. Later in the article, we will discuss the provision of services electronically.
If you are supplying services to businesses based outside the territory of Georgia, most of those transactions are not VAT-able. Furthermore, if you are supplying services to foreign-based customers, some of those transactions are not VAT-able either.
VAT-able business activity can be exempt with or without the right of deduction.
Exempt with right of deduction (Article 172 of TCG)
Certain VAT-registered businesses can claim back VAT on their business purchases as well as be exempt from charging VAT on the sale of goods and services if they are engaged in one of the following:
- Export and re-export
- Providing services or products to diplomats and family members of diplomats
- Provision of services/goods to organizations that operate in Georgia within the scope of an international agreement that exempts these services from VAT.
- Tourist service packages provided to foreign tourists
- Delivery of books
- the supply of certain products by pharmaceutical companies
Note: this list mentions the most common business activities, not all of them. You can find the full list in Article 172 of TCG.
Exempt without the right of deduction (Articles 170, 171 of TCG)
In these cases, businesses cannot claim back VAT on their business purchases but are not required to charge VAT at the point of sale.
- Medical services
- Providing education services by an accredited educational institution
- Loan, interest, bank services
- Land (without any building)
- Financial operations
Note: this list mentions the most common business activities, not all of them. You can find the full list in Articles 170 and 171 of TCG.
A business whose activities are exempt without the right of deduction can submit an application, become a VAT payer, and get VAT returns if the business wishes so.
Non VAT-able
As already mentioned, providing services and products inside the country of Georgia is a VAT-able business activity. However, if the place of the delivery is identified as outside Georgia, there will be no VAT added.
- Georgian VAT payers might provide services abroad or goods (although please note that this is different from export).
If a Georgian VAT payer buys flight tickets, travels abroad, and conducts a business activity such as consultation, training, or any other service, that service will not be VAT-able.
If services are electronically rendered from Georgia to a client based in a foreign country, this will not be taxed by VAT either. The service is deemed as rendered electronically if:
- The service is provided via the Internet or electronic network;
- The provision of services is mainly automatic and involves minimal human intervention;
- Services cannot be provided without information technology.
Here are some examples regarding VAT in some specific cases:
Example 1: Selling products to a foreign country (different from export, which is transporting goods from Georgia to another country)
If your business buys products in Poland and sells them in Ukraine, it is not going to be taxed at 18% in Georgia, because the transactions/business activities happen outside Georgia. These sorts of transactions would also not be considered part of your total VAT-able business turnover. So if most of your business operations take place outside Georgia, and as a result, the income is not counted towards your VAT-able turnover, you may end up not even needing to register for VAT, even when your total gross turnover exceeds 100,000 GEL.
You may, of course, be required to pay local taxes in one or both of the countries where the goods are purchased or sold.
Example 2: Selling services to clients based in foreign countries
Whether you provided consulting services to a business in Ukraine electronically or by traveling there, such service is deemed as rendered in the territory of Ukraine, and Georgian VAT is not due.
However, unlike products, you can claim back any VAT you incurred in order to offer your service. In other words, If you provide marketing consultation services, you are not taxed at 18% VAT, but you can still get tax back for the products and services you have purchased from other VAT payers in Georgia in the process of providing said service.
Supply of crypto assets
According to the Public Decision of the Minister of Finance of Georgia #201, the exchange of crypto assets in national or foreign currency and transfer of ownership to them is not a VAT-able transaction.
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If you are not sure which of these VAT conditions may apply to your business, didn’t see your type of operation listed above, or just need help understanding your VAT obligations in general, we offer a free consultation with one of our expert tax advisers to help you figure out your Georgian tax situation.
Our accountants can remove all the stress of figuring out your VAT, by doing it for you. Ask about our monthly accounting packages for businesses of all sizes, during your consultation.
Invoicing
A registered VAT payer must issue a tax invoice on its VAT-able transactions to the customers within 30 calendar days of the request. The invoice should be uploaded on the taxpayer’s portal on www.rs.ge.
How to calculate and pay your monthly VAT bill
Calculate, declare, and pay the amount before the 15th of each month.
- VAT-registered businesses can deduct the amount of VAT they have paid to other VAT payers on purchases for their business activities, from the total VAT they have collected through sales of their own products and services.
- Submit a VAT return to the online portal for each reporting period, no later than the 15th day of the following month of this period and pay VAT at the same time.
- The business is then obliged to pay VAT for each reporting period no later than the 15th day of the following month of this period.
- If you sell to VAT payers, you might have to upload your special VAT invoices to the portal. If you buy from another VAT payer, you need to request a VAT invoice from them in order to claim back that VAT. Without having the special invoice, you cannot deduct VAT.
VAT declarations consist of two parts:
- VAT-able turnover
- VAT returnable
If you need help with managing and filing VAT declarations, check out our monthly accounting packages.
NOTE: VAT payers cannot claim back VAT on representative expenses.
Can VAT in Georgia be claimed on all purchases made by a VAT-registered business?
If the business you are purchasing the service/product from is not registered as a VAT payer, then you cannot claim back the VAT. Both of you, buyer and seller, should be registered for VAT. If this is the case, then you should be able to claim VAT, aside from specific cases where you do not have the right to deduct.
Reverse-charge VAT
Reverse VAT is uncommon in most countries. In Georgia however, it is a real consideration that could be adding 18% to your transactions with foreign service providers (Article 161 of TCG).
Georgian residents who buy services from abroad should report and pay reverse-charge VAT. We have a separate article that explains this in more detail here as well as a basic summary below.
The reverse charge is the amount of VAT you would have paid on that service if you had bought it in Georgia instead. You have to include that amount on the total VAT you are going to pay, and also on the total amount of VAT you are going to reclaim in that same month. Consequently, you don’t pay anything extra if you are a registered VAT payer with the right to deduct.
You will have to handle reverse VAT if any of the following apply:
- Non-resident person/entity provides you services
- Non-resident person/entity provides services or products created as a result of service via the Internet (this would include SaaS – Software as a service – things like Zoom, and Shopify).
You can charge and return VAT at the same time if you are a VAT payer or if you are registered as a VAT payer and you are exempt with the right to deduct. If you are exempt without the right of deduction, you will need to pay the reverse VAT.
If you are not VAT registered, then you must declare and pay the reverse VAT.
All declarations can be done through the RS portal.
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