Setting up a company and obtaining residency in Georgia
Georgia is a former Soviet Republic, located on the border between Europe and Asia, on the east cost of the Black Sea. It shares borders with Russia to the north, Turkey and Armenia to the south, and Azerbaijan to the southeast. It has a population of just over 3.7 million inhabitants, half of which live in Tbilisi, its capital. Its official language is Georgian and its legal tender currency is the Georgian Lari (GEL).
This small country is located in a strategic trading area at the crossroads of Asia and Europe, and is a very attractive destination to live, do business, or both. The cost of living is considerably low, the process for obtaining a residence permit is simple and achievable, and it can be considered an entrepreneur-friendly country due to its reduced tax burden and ease of starting a business.
Georgia is also an interesting passport option. Georgian citizens have visa-free access to 113 countries around the world, including the EU Schengen states. And it is technically possible to be granted a citizenship after being a resident for less than one year through a special presidential decree; we’ve met several clients who have done just that.
Georgia is ranked in the World Economic Forum’s 2017-2018 Global Competitiveness Report as 9th best globally in terms of government regulation burden, 8th best for total tax rate, 7th for the number of procedures to start a business, 6th for the time it takes to start a business, 4th for trade tariffs, and 1st for its inflation rate (2.1% in 2018). Not bad, for a country largely off the radar for most mere mortals.
Obtaining tax-free residency is also possible, provided that no local-source income is earned. Regarding companies, three days should be enough for incorporate and profits may be tax-free if they are not distributed. There are also several tax-free business areas.
These reasons, and many more explained below, make for a good case for considering Georgia as a place to incorporate a company, invest and/or obtain residency. This article will explain some of the key points for obtaining visas, residence permits and citizenship, and the factors that make this country a destination to consider to invest in and/or start a business.
Residency in Georgia
Georgia is one of the most open countries in the world. Citizens of 98 countries, listed below, may reside or work in Georgia for a period of no more than one year without needing to obtain any kind of visa or residence permit. This is actually fairly unique in the world and goes to show Georgia’s progressive policy towards immigration.
People from these countries can live and work up to 1 year in Georgia without a visa:
EU States*, Albania, Andorra, Antigua and Barbuda, Argentina, Armenia, Australia*, Azerbaijan, Bahamas, Bahrain*, Barbados, Belarus, Belize, Bosnia & Herzegovina, Botswana, Brazil, British Dependent Territories*, British Overseas Territories*, Brunei, Canada*, Chile (90 days), Colombia, Costa Rica, Denmark Territories*, Dominican Republic, Ecuador, El Salvador, French Republic Territories*, Holy See, Honduras, Iceland*, Israel*, Iran (45 days), Japan*, Jordan, Kazakhstan, Kuwait*, Kyrgyzstan, Lebanon, Liechtenstein*, Malaysia, Mauritius, Mexico, Moldova, Monaco, Montenegro, Netherlands Territories*, New Zealand*, Norway*, Oman*, Panama, Qatar*, Russia, Saint Vincent and Grenadines, San Marino, Saudi Arabia*, Serbia, Seychelles, Singapore, South Africa, South Korea, Switzerland*, Tajikistan, Thailand, Turkey, Turkmenistan, Ukraine, United Arab Emirates*, United States of America*, Uruguay (90 days) and Uzbekistan.
It should also be noted that citizens of the European Union or Turkey do not even need a passport to enter the country; their national ID card is enough for entry.
During the one year period that foreigners are allowed to stay, they may look for a job or start an economic activity, which will allow them to apply for a residence permit.
Other citizens exempt from visa are nationals of Iran, Chile, and Uruguay, who may enter the country for a period of 45, 90 and 180 days respectively.
Citizens of other countries that want to visit Georgia for the purpose of tourism or doing business, must apply for a visa (C) of 30/90 days to enter the country. They can do so online using the E-visa portal or through a Georgian embassy or consulate, depending on the type of visa and the country of origin of the applicant.
Residence Permits in Georgia
Obtaining residency in Georgia is relatively easy. Once a person gets a job, makes an investment, or starts an economic activity, he or she can submit an application for a residence permit to any authorized representative, territorial office of the Public Service Development Agency, branch of the Public Service Center or Community Center or apply online through the Public Service Agency (https://services.sda.gov.ge). The application and required documents can be submitted in Georgian, English and/or Russian.
Additionally, Flag Theory offers some very competitively-priced packages that include all of the bureaucratic procedures and fee payments for incorporating a company or investing in real estate, along with the application for permanent or temporary residence permits that such investments allow for. These will be discussed further below.
There are several types of residence permits, but the focus here will be on three: the temporary, the investment, and the permanent residence permits:
- Temporary Residence Permit: This is issued to people who are going to carry out business or work, both for their own account and for others. The applicant must certify a minimum 6 month employment contract with a minimum salary of GEL 1,000 per month in a Georgian company with an annual turnover of at least GEL 50,000 for each foreigner employed, or an annual turnover of at least USD 20,000 for a company incorporated by themselves. People who have registered a company in Georgia will also need to place USD 5,000 in the company account prior to the application for temporary residency. In the case of nationals of non-visa-free countries, possession of a D1 / D2 immigration visa will be required. The fees will vary depending on the issuing term of the permit. The application can also be made remotely through a Power of Attorney (PoA).
- Investment Residence Permit: An indefinite, Investment residence permit is issued to a foreign national (and his/her spouse and dependents) that has invested at least USD 300,000 in the country, in accordance with the Georgia Law on Promotion and Investment Guarantees. A document certifying the investment and criminal record report will be required for the application.
- Permanent Residence Permit: A foreign citizen who has a spouse or father or mother of a Georgia citizen or who has resided legally on the territory with a temporary residence permit for 6 years (except for studies, medical treatment or diplomatic issues), may apply for a permanent residence permit. A document certifying the applicant’s legal income will be required.
Applying for Georgian citizenship
As has already been mentioned, getting the Georgian passport has become considerably attractive. Following an agreement between the EU and Georgia that came into force in 2017, Georgian citizens will be able to travel to the member states of the Schengen area without having to apply for a visa. n addition, Georgia nationals have visa-free access to much of Latin America, Malaysia, and Indonesia, among others.
In addition to citizenship through blood ties, a foreigner can apply for citizenship in Georgia if they meet the following requirements:
- Georgian citizenship according to the ordinary procedure: Possession of a job or real estate or develop business activities or possession of shares in a national company, 10 years of legal and uninterrupted residency, knowing the language, Georgian history fundamentals, and the general principles of law.
- Georgian citizenship according to the simplified procedure: Spouse of a Georgian citizen who has resided legally and uninterruptedly in the country for 5 years. As in the previous case, knowledge of the language, history and general principles of Georgian law is required.
- Georgian citizenship as an exception: A foreign citizen may apply for foreign citizenship as an exception, to be granted by the President of Georgia under Article 12 (2) of the Constitution, if the foreigner has special merit before Georgia or the issuance of their citizenship is a State interest or of significant benefit to the Georgian economy. At least two reference letters from natural or legal persons registered in Georgia will be required.
When Georgian citizenship is granted to a foreigner, he or she must relinquish their previous citizenship unless it has been explicitly granted as an exception by the President of Georgia.
Setting up a company in Georgia
Doing Business in Georgia
Incorporating a company in Georgia may be an attractive option for several reasons:
To begin with, it is located in a strategic area bordering Asia and Europe, with a developed infrastructure. It is an important distribution hub between both continents, and also has a good trade relationship with practically all countries, including the European Union, the United States, China, Turkey, and Iran. It is part of the World Trade Organization, has free trade agreements with the EU and the EFTA countries, Russia, and other countries of Eastern and Central Europe. This provides access to a market of over 900 million people without any duty tariff restrictions, and a system of generalized preference with US, Canada, Japan, Norway, and Switzerland. In addition, Georgia has signed bilateral investment agreements with 32 countries.
Foreigners can own a company in full, without requiring any kind of visa or permit, and incorporation is relatively simple. As has been mentioned before, Georgia ranks 7th globally in terms of ease of starting a business, and 6th in the time it takes to do so. There is a one-stop shop for both tax and state purposes.
There are no restrictions on the purchase of real estate by foreigners, including agricultural land.
Taxes in Georgia
Taxes are considerably low in Georgia, The World Economic Forum’s Global Competitiveness Report listed Georgia as the 8th lowest-tax economy.
Georgia taxes legal entities on their worldwide income, but a tax credit may be available for foreign tax paid up to the income tax assessed in Georgia.
Companies registered in Georgia are subject to a 15% flat corporate tax on their actual and deemed distributed profit. This means that profits retained and reinvested in the company are not subject to taxation.
Payments to residents and non-residents on interests, dividends, and royalties are subject to a final withholding tax of 5%. Payments on technical or professional fees are subject to a 10% withholding tax. If a recipient is a resident company of a considered tax-haven, a 15% withholding tax may apply
Dividends in the hands of the recipient from both resident and non-resident entities are not deemed to be profit distribution and therefore not taxable unless they are from a considered tax-haven jurisdiction. Capital Gains are included in corporate income tax base.
Regarding anti-avoidance rules, Georgia has a comprehensive transfer pricing regulation, where transactions between related companies (both resident and non-resident) should be made at fair market value and documentation should be maintained and submitted to tax authorities under request. There are no thin capitalization and controlled foreign companies (CFC) rules.
There is a progressive real property tax, which may not exceed 1% of the average residual value of fixed assets, investment property, uninstalled equipment and construction in progress.
There are no payroll, capital and stamp duties, transfer, social security, wealth or inheritance taxes.
It is possible to use the accelerated depreciation of capital assets with the total deduction during the first year and the remainder of losses for tax purposes on the profits of the companies for 10 years. At 1.5%, Georgia’s average duty tariff rate is the lowest of all WTO countries, as well as having the free trade agreements mentioned above. The value-added rate is 18%.
In addition, there are attractive tax incentives in the so-called Free Industrial Zones (FIZ). Companies located in the FIZs, which may be foreign, are exempt from corporation tax, import and export tax, dividend taxes, VAT and property tax. The combination of a quick and simple registration process and the strategic location of these zones results in a very favorable environment for incorporation. The only applicable tax is 4% on transactions between free industrial zones and the rest of the territory. There are four FIZ zones, located in the ports of Poti, Kutaisi, Hualing, and Tbilisi. These are operated by private companies, and the investor must rent a parcel to these operators.
Regarding individual taxation, a tax resident is a natural person who resides for at least 183 days in Georgian territory. Tax residents are only taxed on their Georgian-source income. This means that income earned abroad is not subject to Georgian taxation.
The flat tax rate is 20%, although dividends, interest income is taxed at a 5% final withholding tax on a source and not included in the personal tax base. Rental income from residential properties is also subject to a reduced 5% tax rate, provided that no deductions are taken from this income. Capital Gains are usually subject to the standard income tax rate, but an exemption may apply for gains on the sale of real property, if it has been held at least two years. Gains on the sale of a residential property with an attached land plot are subject to a reduced tax rate of 5%.
Individuals owning real estate are subject to a real property tax ranging from 0.8% to 1% on the property market value. However, households with annual income below GEL 40,000 (≈USD 16,500) are exempted and those with annual income between GEL 40,000 and GEL 100,000 (≈USD 41,200) are subject to a reduced tax rate ranging from 0.05% and 0.2% on the property’s market value.
For the latest tax rates and policies, visit the website of the Revenue Service of Georgia.
Banking in Georgia
Opening a bank account in Georgia can be a good chance to diversify your finances. Foreigners are welcome at all banks and the opening process is quick and simple, no minimum deposit is required, nor any kind of documents; all that is needed is a valid passport.
Georgian Banks usually offer the possibility to open an account in USD, EUR and GEL and the fees applied to its exchange rates are small (about 0.10-0.15%), as well as considerably reduced rates for banking services such as transfers.
Currently, interest rates on bank deposits are highly attractive for both short and long-term: up to 10% for long-term deposits in local currency, and 3.5% for deposits in Euros or US dollars.
Flag Theory now offers the option to open a Georgian bank account, and to incorporate a company, remotely, using a Power of Attorney. Please get in contact with us directly for more information on this option.
With regard to the exchange of bank information, Georgia participates in the FACTA, but is not committed to the OECD’s Automatic Exchange Of Information (AEOI), nor has concluded any TIEa agreement.
Georgia has comparatively liberal immigration policies, and the process for obtaining residency in the country is relatively straightforward. Incorporating a company or accrediting a professional activity, and/or demonstrating sufficient means of subsistence may be enough to obtain a temporary permit. By making a US$300,000 investment, an individual may qualify for an indefinite, Investment residence permit, which can be converted to a permanent residence permit after 5 years.
Establishing tax residency in Georgia may be quite interesting due to its territorial tax system regarding personal income; it’s possible to have a tax-free residency, provided that no Georgian-source income is accrued. Although local-source income is taxed at 20%, dividends and interests are only taxed at source at a withholding final tax rate of 5% and do not include a personal income tax base, while rental income is also subject to a reduced 5% tax rate.
Georgia is a business-friendly country. Incorporation is painless with a fast and simple business registration process. It boasts a low tax-burden, where your reinvested profits could be tax-free, those distributed are taxed at 15%, and foreign-source dividends received are not subject to taxation. It could also be an interesting place for banking; it is easy to open a bank account and banks are currently paying handsome yields on deposits.
In short, its fast incorporation, low-tax regime, easy banking, together with its strategic location, low labor, and living costs and an easy and accessible residence permit, make Georgia a jurisdiction to consider for living in, and diversifying your business and personal finances.
More information and how we can help you
We are at your service to resolve any doubts you may have and to start your Incorporation or Immigration process in Georgia. Contact us or check how we can help you by analyzing your case in detail to offer you the best and more convenient personal and corporate internationalization options, according to your situation, needs, and priorities.
This article should not be construed as legal, tax or investment advice. Flag Theory has access to a global network of qualified attorneys and accountants who can give you the proper advice for your specific circumstances. Contact us for further information.