Cryptocurrency in Georgia: a favorable direction for cryptocurrencies with tax benefits

Taxation of income received by Georgian companies and individual entrepreneurs in cryptocurrency has a number of features:

• Income tax for companies: Profit received by a company from the sale of cryptocurrency is subject to corporate tax. The income tax rate in Georgia is 15%, but the so-called “Estonian model” of taxation is in effect. This means that the tax is paid not on annual profits, but only at the time of their distribution, for example, when paying dividends. Dividends themselves are also taxed at the source of payment at a rate of 5%. This taxation system is attractive for companies working with cryptocurrency, since it allows reinvesting profits in business development without immediately paying taxes.
• Personal income tax for individual entrepreneurs: Income received by an individual entrepreneur from cryptocurrency transactions will likely be subject to personal income tax. The standard rate of this tax is 20%. However, for individual entrepreneurs, a preferential tax regime for small businesses may be available, which provides for the payment of 1% or 3% of turnover depending on its size. It should be noted that some sources indicate possible limitations on the application of this regime to income from “currency transactions,” which may include cryptocurrency trading. This issue requires further clarification.
• Value Added Tax (VAT): Transactions on the sale of cryptocurrency, i.e. its exchange for national or foreign currency, are exempt from VAT for both legal entities and individuals. However, goods and services purchased for cryptocurrency are subject to VAT in accordance with the standard procedure in force in Georgia (currently 18%). Services for the provision of computing power for cryptocurrency mining are also not subject to VAT when exported outside Georgia, while the provision of such services within the country is subject to VAT. VAT exemption for cryptocurrency-to-fiat transactions is an important benefit for businesses accepting crypto payments, as it reduces the tax burden when converting received funds.
• Income declaration: Income received in cryptocurrency must be declared in Georgian lari at the market rate set on the date of receipt of funds. For tax purposes, it is essential to keep accurate records of all cryptocurrency transactions, including dates, amounts, exchange rates, and identify counterparties. There are specialized services and software that can help in accounting and preparing tax reports on cryptocurrency transactions. Compliance with the requirements for accounting and declaring cryptocurrency income is mandatory to avoid problems with tax authorities.

Official clarifications from the tax authorities of Georgia

The main official clarification on the taxation of cryptocurrencies in Georgia at the moment is the public decision of the Ministry of Finance of Georgia dated June 28, 2019, No. 201. This document explains the main principles of taxation of cryptocurrency transactions, including exemption from income tax for individuals when selling cryptocurrency and exemption from VAT for transactions on its exchange for fiat money. The decision also touches upon the issues of taxation of cryptocurrency mining activities. Given the dynamic development of legislation in the field of cryptocurrencies, it is recommended to monitor possible new official clarifications and guidelines from the Tax Service of Georgia.