May 20th 2023

When it comes to establishing an international technology or maritime company, finding the right location is crucial. Companies seek places that offer favorable tax policies, access to a skilled workforce, and a supportive business environment. In recent years, Georgia, a country nestled at the crossroads of Europe and Asia, has emerged as an attractive destination for such companies. With its Special Economic Status (SES) and generous tax breaks, Georgia is actively enticing international businesses to set up their operations within its borders. In this blog post, we'll explore the benefits of Georgia's SES for international technology and maritime companies and explain how to qualify for the International Business Companies (IBC) status.

Georgia's SES provides a range of tax incentives for companies in the IT and maritime sectors. By basing their operations in Georgia, these companies can take advantage of the following tax benefits:

Companies operating within the SES are subject to a significantly reduced corporate tax rate of just 5%. This rate is considerably lower than the standard 15% corporate tax levied in Georgia.

While the standard dividends tax in Georgia is 5%, companies with the SES status are exempt
and subject to 0% dividends tax. This exemption provides substantial savings for businesses and their shareholders.

The SES offers a reduced tax withholding rate of only 5% on employee salaries, compared to the standard 20% rate in Georgia. Additionally, employees who are legal residents of Georgia benefit from the standard 2%+2% pension contributions.

Companies within the SES can reinvest their profits incurring 0% tax liabilities. This favorable policy encourages businesses to reinvest and expand their operations within Georgia.

The SES also provides a 0% property tax regime (excluding land) for international companies using properties for their permitted activities. This exemption further contributes to the cost-effectiveness of establishing operations in Georgia.

The IBC status is a special tax status available to certain types of companies operating in Georgia's IT and maritime sectors.
To be eligible for IBC status, your company must meet the following criteria:

1. Revenue Generation: At least 98% of your company's annual revenue should stem from activities within the qualifying IT or maritime sectors specified in the legislation.

2. Operational Experience: The applying company must be a Georgian enterprise or a foreign enterprise operating in the relevant sectors for a minimum of 2 years.

• Alternatively, the company can represent a foreign (non-resident) enterprise that has operated in the relevant sectors for more than 2 years.
• Another option is to have a Georgian enterprise (the applicant) owned by another enterprise (parent) – either Georgian or non-resident. The parent company should have 2+ years of experience in the qualifying sectors and own more than 50% of the Georgian enterprise.

3. The Georgian enterprise cannot be established in a free industrial zone.

4. Physical Substance in Georgia: The Georgian enterprise must have a physical presence in Georgia and carry out income-generating activities within the country. This requirement ensures that companies contribute to the local economy and create employment opportunities.

Value Added Tax (VAT) Considerations

While companies with IBC status are subject to Georgia's typical VAT rules, certain exemptions may apply, depending on the nature of your business. If your clients are based outside of Georgia, you may be eligible for VAT exemptions, particularly if your products or services are exclusively B2B. It's advisable to consult with a Georgian tax adviser to navigate the complex VAT regulations and determine the best approach for your specific circumstances.

Maintaining IBC Status and Revocation

Once granted, IBC status remains active as long as the company adheres to the requirements and operates within the parameters of the status. Failure to comply with the regulations or generating revenue from non-permitted activities can result in revocation. The Ministry of Finance has the authority to initiate a review of a company's status, and if violations are found, the revocation process can take place within 10 working days.

Conclusion

Georgia's Special Economic Status and International Business Company (IBC) status present a compelling proposition for international technology and maritime companies. The combination of attractive tax breaks, access to a skilled local workforce, and a supportive business environment makes Georgia an appealing destination for business expansion. By taking advantage of the SES's benefits and meeting the criteria for IBC status, companies can position themselves strategically and thrive in Georgia's vibrant and growing technology sector. To explore your eligibility and initiate the application process, consider consulting with GIC for a free consultation tailored to your business needs here below ⬇️