Why set up a company and get residency in Georgia
Georgia is a tiny ex-Soviet country bathed by the Black Sea, with 4 million inhabitants and 69,700 sq. m., shares borders with Russia, Turkey, Azerbaijan, and Armenia. Its capital is Tbilisi and it accounts for a third of the total country population. Its official currency is the Georgian Lari (GEL).
This small piece of land is located in a trade strategic area between 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 we could consider it an entrepreneur-friendly country due to its reduced tax burden and ease of starting a business.
Georgian’s is an interesting passport option. Georgian citizens will have visa-free access to the Schengen states as of March 28, 2017. And it is technically possible to be granted a citizenship after being a resident for less than one year under a special decree; we’ve met several clients who have done just that.
Georgia is considered by the World Economic Forum as the ninth economy with the lowest taxes. Get a tax free residency is 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 business tax-free areas. In the Doing Business 2016 ranking, it scored 24th, above Switzerland, Holland or Germany. It also ranked third, sixth and seventh in the categories of ease to register a property, ease of starting a business and loan access, respectively. Not bad, for an unknown country by half of the mortals.
For these and other reasons explained below, I will dissect the key points for obtaining visas, residence permits and citizenship, and the key factors that make this country a destination to consider to invest and/or start a business.
Residency in Georgia
Georgia is one of the most open countries in the world, citizens of 94 countries, which I list 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.
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*, Colombia, Costa Rica, Denmark Territories*, Dominican Republic, Ecuador, El Salvador, French Republic Territories*, Holy See, Honduras, Iceland*, Israel*, Japan*, 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*and Uzbekistan.
In addition, citizens possessing a valid visa or residence permit from 50 of the above-mentioned countries (*) are also exempt from visas. It should be noted that citizens of the European Union or Turkey, do not even need a passport to enter the country, their ID national card would be enough.
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 it online from 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 should request the residence permit to any authorized representative, territorial office of the Public Service Development Agency, a 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.
There are several types of residence permits, but I will focus on three – the work, the investment, and the permanent residence permits:
- Work Residence Permit: This is issued to people who are going to carry out business or work, both for own account and for others. The applicant must certify the employment and/or business activity (e.g. employment contract, or in the case of independent professionals a document certifying professional activity or education), or a bank statement that the applicant possesses at least twice the average subsistence cost applicable in Georgia per month, for the duration of the permit (mandatory for self-employed). 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, which can be 10 days (GEL 410 ≈ USD 150), 20 days (GEL 330 ≈ USD 120) or 30 days (GEL 210 ≈ USD 77).
- Investment Residence Permit: An indefinite residence permit is issued to a foreign national (and his/her spouse and dependents) who has invested at least GEL 300,000 (≈USD 110,000) in the country, in accordance with the Georgia Law on Promotion and Investment Guarantees. A document certifying investment and a written recommendation of a member of the Government of Georgia or of three citizens of Georgia empowered to represent a business subject operating in Georgia shall be required. The permit is issued in 20 days (GEL 300 ≈ USD 110) or 30 (GEL 180 ≈ USD 67).
- 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.
Apply for Georgian citizenship
As I have already commented, getting the Georgian passport has become considerably attractive. Following the agreement between the EU and Georgia, Georgian citizens will be able to accede to the member states of the Schengen area without having to apply for a visa. The agreement will enter into force on March 28, 2017. In addition, Georgia nationals have visa-free to much of Latin America, Malaysia, and Indonesia, among others. More information at passports.io/georgia.
In addition to blood ties reasons, 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, 5 years of legal and uninterrupted residency, know 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 2 years. As in the previous case, it requires knowledge of the language, history and general principles of Georgian law.
- 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 his citizenship is a State interest. 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 refuse his previous citizenship unless it has been granted as an exception by the President of Georgia.
Set 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 900 million people without any duty tariff restriction, 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 its registration is relatively simple. As we mentioned before, Georgia ranks sixth in doing business ease of starting a business ranking. 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 ninth lowest-tax economy.
Georgia taxes legal entities on their worldwide income, but it may be available a tax credit 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, where 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 rules (CFC).
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. Its average duty tariff rate is the lowest of all WTO countries, being 1.5%, in addition to 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 FIZ, which may be foreign, are exempt from corporation tax, import and export tax, dividend taxes, VAT and property tax, together with a quick and simple registration process and the strategic location of these zones creates 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 port 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 dividend, 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 income standard tax rate, but an exemption may apply from 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 is 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 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, you only need 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 11% for long-term deposits in local currency, and 6% for deposits in Euros or US dollars.
Normally, it is not possible to open remotely a bank account in Georgia, so the assistance of the holder or a legal representative will be required. Anyway, once the account is opened, most Georgian banks offer an acceptable online banking service so you can control the account remotely without any problems.
With regard to the exchange of bank information, Georgia participates in the FACTA, but is not committed in the OECD’s Automatic Exchange Of Information (AEOI), nor has concluded any TIEa agreement.
Georgia has quite liberal immigration policies, being straightforward to get the residency there. Incorporating a company or accrediting a professional activity and sufficient means of subsistence may be enough to get a temporary permit. Making a US$ 110,000 investment, an individual may qualify for an indefinite one.
Getting tax residency in Georgia may be quite interesting due to its territorial tax system regarding personal income, being 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 of 5% and not included in personal income tax base, and 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. 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 to live and diversify 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 to analyze 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.