If you’d like to pay significantly less tax, here is one good solution: Move your business and/or tax residency to a country with lower tax rates.
This article outlines why Georgia (Country) is a great option for your tax residency and/or business. Also included, an essential list of the steps to move your taxes here efficiently, legally and with minimal tax leakage.
Who Should Plan To Move Their Taxes To Georgia (Country)?
- Anyone who would benefit from the Georgian tax rates (From 0% to 20% flat) listed in full below. Whether they will live in Georgia or not.
- Anyone who will spend more than 183 days in Georgia in any 12 month period, and hence automatically become a tax resident here anyway (Plan your move from day 1 or before arriving, not after the 183 days already elapsed, or you may be liable for higher back taxes).
- Anyone who operates a foreign company and intends to actively manage that company remotely from Georgia.
Reducing your tax liability is certainly not just for multi-millionaires with offshore accounts. No matter your income, if the taxes you pay are higher than you’d like, and especially if the benefits and services you receive don’t correspond to the amount of money you pay into the tax system, then moving your tax residency could be the solution.
But it is also easy to make assumptions about unfamiliar tax systems, and make mistakes that seem to be saving you tax but are actually illegal and may result in back taxes, fines and penalties later on.
- Taxes as low as 0%, and typically never more than 20% flat (+ 2% pension, for legal permanent residents only).
- Low cost of living. Up and coming destination. Simplified bureaucracy. Minimal regulations.
- Very easy to open a business here (in-person or remotely), often within 2 working days. One time fee, no annual renewals.
- High Net Worth Tax Residency Program allows you to become a tax resident and benefit from Georgian taxation rates without actually living here (in some cases).
Moving tax residency can save you huge amounts of money. But messing up the process can lead to many problems like double taxation, unexpected VAT and much more. So, read our step by step guide to discover the best way to move taxes.
- Why Move Your Taxes To Georgia?
- Summary Of Typical Georgian Tax Rates
- Foreign Earned Income Exemption
- Living in Georgia & Tax Residency Via Physical Presence
- Tax Residency Without Living In Georgia
- Steps For Moving Your Taxes To Georgia The Right Way
- 1. Plan Your Tax Residency Dates
- 2. Plan Your Exit From Your Previous Country Of Tax Residency
- 3. Choose Your Business Type
- 4. Register At The Right Time & Move Your Business / Remote Income
- 5. Understand Additional Georgian Tax Liabilities
NOTE: We are writing based on Georgian legislation. To confirm details for your taxes in other countries, please contact a local adviser from those countries.
Why Move Your Taxes To Georgia?
If you currently pay more than 20% in tax, and want taxes as low as 1% (or even 0% in limited cases), then you are likely going to have an improved tax situation in Georgia.
Summary Of Typical Georgian Tax Rates
1 USD = ~3 GEL
- Micro Business Status (turnover < 30,000 GEL). You pay 0% Tax.
- Individual Entrepreneur with Small Business status (turnover <500,000 GEL) You pay 1% flat on turnover.
- Individual Entrepreneur not qualifying for small business status (consultants, for example). Pay 20% flat on net income.
- Employee or natural person who has not registered any business in Georgia. Pay 20% flat on gross income.
- LLC (Limited Liability Company). Pay 15% corporate tax. 5% personal dividend tax. Only taxed at the time of distribution. Otherwise, 0% on funds reinvested or held within the company, or re-invested into other companies owned by the company.
- Virtual Zone Company, 0% Corporate tax, 5% dividend tax, 0% VAT. Special tax rates just for very specific IT businesses with clients outside Georgia.
- International Company Status. 5% Profit Tax, 0% dividends, only 5% salary tax. For IT & Maritime companies (or companies with divisions in those fields) looking to base their offices in Georgia and have staff here.
- VAT 18%. Mandatory if turnover exceeds 100,000 GEL. Otherwise, optional to register. No VAT on most foreign income (products/services you sell abroad, exceptions apply).
- Reverse VAT (18%) on purchases of most products & services from abroad. Registering for VAT allows claiming this back in most instances.
- In addition to the above, Georgian legal residents (ie. those with a resident permit / citizenship) will also pay 2% pension contribution if they receive a salary. Business owners without a salary can elect to pay the 2% (optional).
NOTE: Exceptions apply on who can qualify for each of these above tax rates.
Additional info about these tax rates are listed below in item 3 – choose your business type.
If these tax rates and the other information above sound appealing, why not book a free tax consultation with one of our experts and they can give you personalized advice on how your current taxes could be reduced by leveraging the Georgian tax system.
Book an online (via Zoom) appointment, or meet us in person in Tbilisi. All our consultants are fluent in English.
Or, if you’d like to learn more about Georgian tax residency in general, keep reading…
Foreign Earned Income Exemption
There is a pervasive internet rumor going around that “all foreign income in Georgia is tax free”. In fact, a lot of firms sell Georgia as an amazing tax haven based almost solely on the ambiguity of the phrase “foreign source income”.
The main reason this myth exists is that in the tax code (Article 82.u) it is stated that “income (including gain) received by a resident natural person, which does not belong to Georgian source income;” is tax exempt.
The key confusion is that actually almost all your foreign income, as a tax resident physically operating in Georgia, is “Georgian source income” not foreign source – because if you are working from a laptop for a foreign company or managing your foreign business, you are earning Georgian source income, in most cases.
So, the phrase you’ll see posted by countless firms that “Foreign source income is tax exempt in Georgia” is technically true, but their error by omission is in not clarifying that a typical foreign business owner / remote worker based in Georgia doesn’t earn foreign source income, they earn Georgian income, as defined by the tax code (Article 104 – Georgian source income).
Exceptions that would be exempt, would be certain types of royalties, interest, dividend income (but be careful with dividends originating from your own foreign company) and a few other things.
I’ve written on this at length if you’d like to understand why this myth exists and exactly why it is a myth, as well as which types of income remitted from abroad are, and are not, exempt.
The good news though, is that even without the income exemption, Georgia’s tax rates are still incredibly enticing! And if you have foreign income that is exempt, that is even better.
Living in Georgia & Tax Residency Via Physical Presence
Tax residency is automatic in Georgia once you spend 183 days here in any rolling 12 month period.
You don’t need to apply for tax residency per se. You’ll already have it after this time. But you are obliged, if you have any tax liability in Georgia, to register and declare no later than March 31st of the year following the year you became a tax resident. The burden and liability is mandatory for you to act on your automatic tax residency once it triggers.
In practice, you should not wait until after tax residency triggers to act, instead you should plan your tax residency carefully to minimize taxes.
The 183-day requirement is non-consecutive, so you can travel as much as you want, but as long as you are physically in Georgia for 183 days in any rolling 12 month period, tax residency will trigger.
Then you can apply for a certificate saying you were a tax resident in the year it was triggered. This can be used as proof to help you revoke tax residency elsewhere and potentially to protect you against tax claims in other countries you traveled to or used to be tax resident in.
A legal resident of Georgia who lives and pays taxes elsewhere may have no tax liability in Georgia.
Conversely, a tourist on a tourist visa, for example, with no legal residency, will always become a tax resident automatically after 183 days, just by staying in Georgia on the tourist visa. But will not have legal residency.
Living In Georgia
The level of freedom, relatively simple bureaucracy and minimal licensing laws make Georgia a bit “wild west”. This way of living doesn’t work for everyone. But if getting things done and not getting bogged down in endless red tape appeals to you and you can accept that road safety and a few other developing country quirks are not at an international standard, then Georgia has a level of rustic charm and convenience (as well as fiber optic internet) that those of us looking to escape an over-regulated life are often drawn to.
Crime is low. The cost of living is very low and you can have a comfortable and fun time here on a salary over $1,500 USD per month. Many expats live off less. Tbilisi, the capital of Georgia, has a cost of living approx 70% lower than Atlanta, Georgia in the USA.
There is a lot more to Georgia than just the cost of living. Take a look at our general Georgia FAQs to get a better sense of expat life here.
Tax Residency Without Living In Georgia
If you want to get tax residency without actually living in Georgia…
The High Net Worth Individual Georgian Tax Residency program is a unique opportunity for those with an income over 200,000 GEL (~$65,000 USD) for the last 3 years OR personal assets in excess of 3 Million GEL (~$1M USD) to claim tax residency in Georgia without even having to step foot in the country.
- Become a tax resident, normally within 7 working days.
- Apply remotely or from within Georgia
- Get a certificate from the tax department showing you are a tax resident for the whole year.
- You must complete the application process before the end of the year in which you wish to become tax resident.
- Bypass the standard 183 day physical presence test detailed above.
It should be noted that although Georgia will class you as a tax resident, if you also trigger tax residency somewhere else (where you actually live, for example) then there is no guarantee that the second country will accept you are a tax resident of Georgia. So this is not as foolproof a method as the 183 day tax residency option. But it can be useful for persons in certain specific situations.
Learn more about the High Net Worth Individual program.
Steps For Moving Your Taxes To Georgia The Right Way
The number one mistake most people moving their taxes to Georgia make is not understanding how tax residency or the tax system works here. Simply arriving and living/working here (because you legally can work here on the tourist visa waiver stamp) and then thinking they can just sort out their taxes by the end of the tax year, without issue.
But actually, almost all of these types of cases lead to a lot of legal headaches and paying higher taxes than they needed to.
The best way to minimize taxes is to know the steps in advance and follow them.
It’s also essential to be aware of one common tax myth:
“I paid taxes back home, so why would I owe taxes in Georgia?”
Though it may be true in some cases that having already paid tax will be enough to protect you from being taxed or having to file in Georgia, this may only be true if:
- There is a double taxation agreement (DTA) between Georgia and the country you currently pay tax.
- AND the type of income you earned qualifies within that DTA (not all income does).
BUT if you were physically present and performing the work in Georgia, and you are a tax resident by law in Georgia (183 days presence test), both countries may have a claim to tax you.
For a full understanding of why planning things early is essential, read this article.
For what to do to get things right, read below.
1. Plan Your Tax Residency Dates
Typically the biggest mistakes, financially, foreigners make when trying to move their tax residency to Georgia stem from arrival dates.
As mentioned above, Georgian tax residency is automatic after 183 days physically of being present in the country in any rolling 12 month period.
You will become a tax resident of the year on which that 183rd day falls. That residency will apply retroactively for the whole of that year.
Arrive July 1st 2021. Stay 183 days. You become tax resident on Dec 31st 2021 and are resident for the whole of 2021. In the worst case, you may owe taxes to Georgia on every single dollar you earned since January 1st 2021. Even in the best case, typically on all income since July 1st. On the plus side, you may be able to avoid all taxes from another country, since January 2021, and just pay tax in Georgia. That depends on where you are from and a whole host of other factors that are worth discussing with a professional tax adviser.
But, for this to all work out well, you also need to have acted on the below steps, otherwise, instead of avoiding taxes, you may be taxed on the same income twice.
Arrive July 2nd 2021. Stay 183 Days. Become Tax resident on January 1st 2022. And you can then apply for a tax residency certificate to prove you are a tax resident for the whole year of 2022, even if you leave shortly after and don’t return in 2022 at all.
With this option, in most cases, you would then have from July 2nd until the end of the year to plan the rest of the steps below, while still living in Georgia. With example 1, you would instead have needed to act on all the below steps either before arriving, or immediately after arriving, to get the best tax outcome.
Making the best plan for you
1) Know before you arrive in Georgia which year you will automatically become a tax resident.
2) Plan your arrival date around when you want to become a tax resident, rather than becoming one by accident like so many foreigner do.
3a) If you will follow example 1, then pre-plan your tax liabilities and even consider getting your Georgian business registered remotely before arriving. We can handle remote registrations.
3b) If you follow example 2, you can work on registering your business and moving your income to Georgia prior to the start of the new tax year.
An alternative to the 183 day automatic tax residency is getting instant tax residency with the high net worth program. Then you can get tax residency without needing to be here that many days and, in some cases, without even needing to enter the country.
2. Plan Your Exit From Your Previous Country Of Tax Residency
Just because Georgia grants you tax residency, doesn’t mean your home country will automatically stop expecting you to file and pay taxes.
In order to avoid double taxation, missed filings and a whole host of other potentially costly mistakes, you need to consult with an adviser in your current country of tax residency to learn about your options for divorcing your current tax residency.
If you are not 100% sure where your current country of tax residency is, read this.
1) Check if your current country has an active double taxation agreement with Georgia. If not (for example, the USA, Canada, Australia) then you’ll definitely be open to double taxation if working in Georgia while still paying tax in another country. In which case, planning your dates is even more essential.
2) Confirm your options for revoking your tax residency by talking to a local adviser back home. Some countries, like the USA, have no way to revoke but instead offer foreign earned income exclusions or foreign tax credits. As a small business owner, this may not completely remove your tax liability.
3) Be aware of the dates of the tax year. In the UK, the tax year runs from April to April. In Georgia, it is equivalent to the calendar year. This leads to some overlap. The exact outcome of which can be complicated and worth discussing with a tax adviser.
3. Choose Your Business Type
Many foreigners arrive here thinking they can just continue to run their old business but pay taxes in Georgia. It is rarely that simple and that poor assumption typically results in a more complicated and expensive tax situation than would be needed.
Fortunately, registering a business in Georgia as a foreigner is surprisingly easy and can normally be done in just a couple of days, either remotely, or on a tourist visa while in Georgia.
There are quite a few options, but the most popular 3 for foreigners are:
Individual Entrepreneur (IE) With Small Business Status (1% Tax rate)
For freelancers and other small businesses with a high turnover, low expenses model, unless you need additional liability protection (see LLC below) the 1% tax rate is an incredible option. Here’s the summary:
- Business turnover of less than 500,000 GEL (approx $165,000 USD) annually
- 1% to 3% tax on gross turnover, depending on total turnover. (For Georgian legal residents, you can pay a voluntary contribution of 2%+2% towards pensions)
- VAT of 18% if your VAT taxable turnover exceeds 100,000 GEL in any 12 month period. Read More About VAT. Below 100,000 GEL you may voluntarily register to avoid reverse VAT on business purchases.
- You are the sole director (individual) of the business. Though you can have employees.
- Your business activity must not be on the list of prohibited business activities
Read our full guide for individual entrepreneurs and small/micro business status and learn how to register as an IE with small business status.
NOTE: If you get individual entrepreneur status but do not qualify and apply for small business status, then you will not get the 1% tax rate. See below.
Natural Person / Employee / IE Without Special Status
By default, if you fail to register a business type, you will likely be classified as a natural person and taxed at 20% flat on gross income, as any regular employee would be in Georgia.
If your company has a high turnover, then the inability to deduct expenses would mean your taxes could theoretically exceed your annual profit. Not good! Which is another reason why registering your business correctly is so important.
If you are an employee being paid a gross salary, the natural person status would be normal.
If you are a contractor/entrepreneur but do not qualify for the small business status (1%) then registering as an IE will mean you pay 20% on net income, having the right to deduct your expenses.
LLCs (Limited Liability Company)
- 15% Corporate tax – at time of distribution
- 5% Personal dividend tax – at time of distribution
- 0% Dividend tax when distributed to other legal entities in Georgia
- 20% tax on employee salaries (If employees are Georgian residents, an additional 2%+2% for pensions)
- VAT of 18% if gross VAT Taxable turnover exceeds 100,000 GEL in any 12 month period. Read More About VAT.
For a more in-depth summary of options for your business and income in Georgia, read our full summary of business types in Georgia.
4. Register At The Right Time & Move Your Business / Remote Income
Your goal is to minimize your tax leakage during the transition period to Georgia. Avoid double taxation and unexpected taxes. This can be complicated and there is no single answer on the best way to do it.
The below information explains some additional considerations to help you decide when the “right time” to make the switch could be.
If you have a remote income from an employer where tax is withheld at source abroad, you could still be liable to also pay Georgian tax on the same gross salary. Double taxation agreements (DTAs) do not always protect you from this.
As a natural person, you can pay 20% on any gross salary that is liable for tax in Georgia, by March 31st of the year following the year you became a Georgian tax resident. We can help you file in Georgia and advise which of your income is liable so you don’t overpay or underpay.
If you are being paid a salary where tax has already been withheld by your foreign employer, then you need to discuss removing that withholding tax so you are not being taxed on the income at source. The ability to avoid withholding tax can also involve making specific declarations to your tax authority abroad in order to qualify. For this, contact a tax adviser in the country your employer is based.
If you manage a foreign enterprise (any legal business entity such as an LLC, corporation etc.) remotely from within Georgia, that foreign enterprise could be liable to pay tax in Georgia even before you as an individual become a tax resident here. This is because, if you manage your business from Georgia, you can trigger Permanent Establishment (Tax Code Article 29). In this situation, your foreign business would be treated as a Georgian taxpaying entity and taxed as such. You could also be fined and back taxed for any months you were operating in Georgia prior to registering the business.
So, until you register your business in Georgia and ensure your revenue flows into your Georgian business rather than you foreign business, you risk both being taxed as a natural person on your personal income (20% flat) and/or paying the 15%+5% tax on business profit. If you are still being taxed in the country where your foreign enterprise is located, then double tax is a real possibility.
If closing your foreign business is not practical then it’s essential you consult with a Georgian tax adviser to establish what your exact tax liability will be in Georgia on your foreign business.
Or if you need help with registering your new business or bank accounts in Georgia, book a free consultation.
Businesses that are not legal entities
Sole proprietorships that are not legal entities would not be affected by Permanent Establishment rules. But all tax liable parts of your gross income earned while physically in Georgia, would be taxed at 20% flat in Georgia, potentially for the whole tax year in which you became a tax resident. Gross income (turnover) – not net income – as expenses cannot be deducted if you are not a registered business in Georgia.
For this reason, getting registered as an Individual entrepreneur at the right time is essential. When is the right time? This also comes down to your unique situation. Here is an oversimplified example:
- If you will become a tax resident in the current year, you should register immediately, or as soon as you arrive in Georgia, or before you arrive in Georgia.
- If you will become a tax resident in the year following today, you should register no later than December of the current year, so that your registration comes into effect on January 1st next year.
This is only a guideline and your best option may differ.
In all circumstances above, you are advised to discuss your unique situation with both a local Georgian Tax adviser and with an adviser from the country where you currently pay tax.
5. Understand Additional Georgian Tax Liabilities
In addition to income tax, profit tax and dividend tax, you may have some additional taxes to consider. Here is a non exhaustive list of the ones that typically affect foreigners in Georgia:
- VAT. If your company has a VATable turnover above 100,000 GEL annually, you must register and charge VAT to all customers (businesses and individuals) based in Georgia. VAT requirements on sales of products and services to foreign businesses and consumers abroad vary. (From 2021 B2C sales are normally VATable, B2B sales often not VATable but there are exceptions)
- Reverse VAT. Products and services purchased by your company from abroad are typically liable for reverse VAT. If Georgian VAT is not already charged at source, then you must declare all purchases in your monthly VAT declarations online – even if you’re not VAT-registered. Reverse VAT can effectively equal 0 if you are a VAT registered company. So under most circumstances where your income is not VATable (foreign clients) but your expenses are VATable, then registering for VAT is the best solution. Read the full details on VAT here.
- Property tax. Which can apply to property you own personally or property purchased by your company. It can also apply to cars.
Want to check exactly which other taxes might affect you and your business? We can go through your liabilities at a free consultation.
What If I Already Arrived In Georgia?
I’ve been in Georgia less than 183 days
- You could leave Georgia before you hit the 183 day mark. Then your tax liabilities would revert back to wherever you currently pay tax. If you are a digital nomad who has been country hopping to avoid taxes, you should read more about that.
- If you intend to stay and will hit 183 days in the current calendar year, then you should explore your options immediately to minimize taxes for future months of the current year.
- If you will hit 183 days in the next calendar year, you should explore your options and plan to register your business no later than December of the current year.
For all of these cases we can quickly and efficiently help you select the best option – Book a free no obligation consultation in Tbilisi or online via Zoom
I’ve been in Georgia more than 183 days
- Seek advice immediately. The longer you leave it, the messier and more expensive your taxes are likely to become. We can help you figure out your best options at a free consultation.
- You are required by law to file a Georgian tax declaration by March 31st of the year following the year you hit the 183 day mark. Depending on where else you will have paid tax for the relevant tax year and if that country has a DTA with Georgia, income that was already taxed may or may not need to be declared and taxed in Georgia.
Do I Need A Legal Residency Permit To Be A Tax Resident Or Open A Business In Georgia?
No. Any foreigner can open a Georgian business, either remotely or while here on the standard tourist visa.
Tax residency is automatic after 183 days in any 12 month period and has no relation to the type of visa you are on. It is determined via physical presence within the borders of Georgia. Or by a special status, like the high net worth program.
Learn more about the difference between legal residency & tax residency.