In this article, you will learn about the most important considerations related to VAT in Georgia and how it affects your business and finances.
Key Information About VAT In Georgia:
- VAT tax rate is 18%
- Your business must register for and pay VAT once VAT taxable transactions exceed 100,000 GEL during any continuous 12 month period
- Certain businesses might voluntarily register as a VAT taxpayer because of specific benefits provided by the Georgian Government
- Some industry sectors are exempt from charging VAT on products and services but may also choose to register voluntarily in order to be able to claim VAT back on purchases.
- Individual Entrepreneur, IE with Small business status, LLC, LLC with virtual zone status and any legal business structures are able to register as a VAT taxpayer. A natural person with Micro Business Status is not eligible to register for VAT.
- Companies that provide certain types of products/services directly to foreign clients may not be liable to pay VAT on those transactions.
- Companies that buy certain products and services from foreign companies are required to declare and pay VAT every month on those purchases. This process is known as reverse VAT. If you are VAT registered then you will declare purchases but the VAT owed will be zero.
Note: 3 GEL = 1 USD approx.
What is VAT?
VAT is a tax that applies to commercial activities involving the distribution of goods and the provision of services. In Georgia, the VAT tax rate is 18%.
The seller (Individual Entrepreneur or legal entity) does not have to charge VAT on their sales unless the annual VAT taxable transactions of the business exceed 100,000 GEL during any continuous 12 month period, or the business voluntarily decides to register at the revenue service. VAT must be charged on all products and services which qualify as VAT taxable, once the company is registered.
Who is a VAT taxpayer?
A VAT taxpayer is someone who is registered at the revenue service as a VAT taxpayer.
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 would someone want to pay additional taxes?
In some cases, certain businesses and IEs (individual entrepreneurs) might benefit from being a VAT taxpayer.
According to the Georgian tax code, there are business activities exempt from VAT with or without the right of deduction. In case, your activities are exempt with the right to deduct, you are able to claim back VAT whenever you purchase items under the name of your business.
Once your VAT taxable operations hit the 100,000 GEL threshold, you need to register at the revenue service office immediately, start submitting monthly VAT declarations and paying those taxes.
Individual Entrepreneur, IEs with Small business status, LLCs, LLCs with virtual zone status and any other legal business structures are able to register as a VAT taxpayer. A natural person with Micro Business Status is not eligible to register for VAT.
Which operations are VAT taxable?
In this section we’ll look at what is and what is not VAT taxable.
Business activities that are taxed at 18%
There are 7 different types of business operations/activities that should be taxed at 18%.
- Supply of goods and services that are considered as carried out in the territory of Georgia (including barter, and/or gratuitous supplies) within economic activities. If products or services are sold outside Georgia, VAT does not apply.
- Transfer of ownership on goods/services in exchange for a share in legal entity/ partnership.
- Use of goods/services purchased with VAT for non-economic activity (except where a legal person under public law supplies goods and/or delivers services to the State and/or to local self-governments free of charge), if the payer has deducted VAT with respect to the goods/services
- If VAT registration is revoked – the balance of goods, for which the taxpayer has obtained a deduction
- The use of buildings or structures of one’s own production as a fixed asset
(There are some exceptions and details)
- Renovation expenses during the return of fixed assets to the lessor in the event of expiry or early termination of a lease agreement. (Doesn’t apply to legal entities operating under Estonian Model; most of the LLCs would not pay VAT for renovation)
- Other (Barter, Delivery to an interdependent person/entity, supply of goods or services by a taxpayer to its employees without compensation)
The most common business operation is supplying goods and services to the clients. Selling goods and services is subject to VAT taxation if it is considered to be carried out in the territory of Georgia. This is exactly why it is crucial for VAT taxation to define the place of supply of goods and services. Later in the article, we will discuss more about providing services electronically.
If you will be supplying good and services to clients or consumers outside the territory of Georgia, many of those transactions are VAT exempt, and changes to the legislation are coming into force in 2021, so if you have international transactions, you should familiarise yourself with the change in certain exemptions – explained here.
VAT Taxable business activity can be exempt with or without right of deduction.
Note: this list mentions the most common business activities, not all of them.
Exempt with right of deduction (168 4, 5)
Companies can claim back VAT incurred prior to point of sale (input VAT) as well as being exempt from charging VAT on their goods and services at point of sale.
- Export and re-export
- Providing services or products to diplomats and family members of diplomats
- Tourist service packages provided to foreign tourists
- Delivery of books
- the supply of certain products by pharmaceutical companies
Exempt without right of deduction (168, 1. 2. 3)
In these cases, companies cannot claim back VAT incurred prior to point of sale (input VAT) of their products and services, but are not required to charge VAT at point of sale.
- Medical services
- Providing education services by an accredited educational institution
- loan, interest, bank services
- Land (without any building)
A business whose activities are exempt without the right of deduction can submit an application, become a VAT taxpayer and get VAT returns if the business wishes so.
As it was already mentioned, providing services and supplies inside the Country of Georgia is a Taxable business activity. However, if the place of the delivery is identified as outside Georgia, there will be no VAT added.
- Providing services or products to foreign countries are non-taxable transactions.
Georgian VAT taxpayers might provide services abroad or goods (Different from export).
If a Georgian tax resident buys flights, travels abroad and conducts a business activity such as consultation, training or any other service, that service will not be VAT Taxable.
If services are provided electronically from Georgia to a foreign country, this will not be taxed either. See detailed list of Services that are not taxed. (Article 166 D; Manual 1190)
|Services that are provided electronically to Foreign countries from Georgia:|
|Delivery of consulting, legal, accounting, engineering and other similar services, also processing and delivery of data and information|
|Transfer of patents, licenses, trademarks, copyrights or other similar intangible assets;|
|A telecommunication, radio and television broadcasting service|
|Radio and television services|
|Services provided electronically : a) supply of a website, web-hosting, remote maintenance of software and hardware; b) delivery of software support and appropriate updating; c) supply of images, texts and information to ensure access to databases; d) supply of music, films and games (including gambling games), broadcasting and covering political, cultural, art, sports, scientific and entertaining programs; e) delivery of remote teaching.|
Note that from 2021, new VAT rules have come into force and have changed a little regarding supply to clients and consumers based outside Georgia, some of the most relevant updates are explained here.
At the same time, if you provide services electronically, but didn’t find your business activity in the list above, you may still be able to qualify. In that case you should satisfy all the three following conditions (Commandment N996, 49 1):
- 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 of the VAT situation for 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 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 as part of your total VAT taxable business turnover. So if much of your business is foreign and hence not calculated in your VAT taxable turnover, you may end not even needing to register for VAT, even when your total gross turnover exceeds 100,000 GEL.
Whether you manage the company from Georgia, or remotely from elsewhere, you are exempt without right of deduction.
You may of course be due to pay local taxes in one or both of the countries where the goods are purchased or sold.
Example 2: Selling services to foreign countries
Whether you provided consulting services to Ukraine electronically or by traveling in Ukraine, according to Article 166, Ukraine counts as a receiver of the service Georgian VAT is not due..
However, unlike with 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% of VAT but you can still get tax back for the products and services you have purchased from other VAT taxpayers in Georgia in the process of providing said service.
Supply of crypto assets
According to Georgian Government Decision 201, Exchange of crypto assets in national or foreign currency and transfer of ownership of it is not a VAT taxable transaction.
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.
A registered VAT payer must issue a tax invoice on its VAT taxable transactions to the customers within 30 calendar days of the request. The invoice should be uploaded on the taxpayers tax portal on www.rs.ge.
How to calculate and pay your monthly VAT tax bill
Calculate, declare and pay the amount before the 15th of each month.
- VAT-registered businesses must deduct the amount of VAT they have paid to other VAT taxpayers 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 to 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 taxpayers, you need to upload your special VAT invoices to the portal. If you buy from another VAT taxpayer, you need to request a VAT invoice from them in order to claim back that VAT. Without having the special invoice you can’t deduct VAT.
VAT declarations consists of two parts:
- VAT taxable turnover
- VAT Returnable.
If you need help with managing and filing VAT declarations, check out our monthly accounting packages.
NOTE: VAT taxpayers can’t get VAT refund for money spent on representative expenses.
Can VAT in Georgia be claimed on all purchases made by a VAT registered business?
Aside from specific cases where you do not have the right to deduct, as discussed above, also if the business you are purchasing from is not registered as a VAT taxpayer, you can’t claim. Both of you, buyer and seller should be VAT taxpayers.
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 providers. (Tax Code Article 176)
Georgian residents who are buying goods or services from abroad should report and pay reverse-charge VAT. We have a separate article that explains this in more detail here, or 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 of VAT you are going to pay, but also to the amount of VAT you are going to reclaim in that month, meaning you don’t pay anything extra if you are a registered VAT Taxpayer 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 within the territory of Georgia (Article 166)
- Non-resident person/entity provides services, or products created as a result of a service, via the internet. (This would include SaaS – Software as a service – things like Zoom, shopify)
You can charge and return VAT at the same time if you are VAT taxpayer or registered as a VAT Taxpayer, but you are exempt with the right to deduct. If you are exempt without the right of deduction (Information above), you will need to pay the reverse VAT.
If you are not VAT registered, then you must declare and pay the VAT.
All declarations can be done through the RS portal.
Ready to remove your VAT headaches? Let our expert accountants take the stress out of your monthly VAT. Get a free consultation, get your tax questions answered and find out how we can help.