Taxation of companies in the virtual zone of Georgia

One of the most attractive aspects of the virtual zone of Georgia is the preferential taxation system for companies focused on exporting IT services.

The main advantage is a zero corporate tax rate on profits earned from providing IT services or selling IT products to foreign clients located outside of Georgia. This means that if your IT company develops software or provides other IT services for foreign customers, the profit from these activities will not be subject to corporate tax in Georgia.

Similarly, exports of IT services by companies with virtual zone status are exempt from value added tax (VAT). The standard VAT rate in Georgia is 18%, so this exemption represents a significant reduction in the tax burden for IT service exporters.

Dividend tax for non-residents is also very attractive. When dividends are paid to non-resident shareholders (both individuals and legal entities), a tax rate of only 5% is applied. This tax is paid by the company at the moment of dividend payment to the state budget. It is noteworthy that if the company's income is distributed not in the form of standard dividends, but in another way provided by the legislation, the payment of this 5% tax in Georgia can be excluded.

The peculiarities of taxation when working with residents of Georgia should be taken into account. As a rule, companies with the status of a virtual zone are not intended for doing business with local clients. However, if a company with such status starts working with Georgian clients and receiving income from them, this income will be subject to standard Georgian taxes: corporate tax at the rate of 15% and VAT at the rate of 18%. In some cases, doing a significant amount of business with local clients may even result in the loss of virtual zone status.

Despite the exemption from VAT on export transactions, companies with virtual zone status have the right to voluntarily register as a VAT payer in Georgia. This may be beneficial when a company purchases goods or services from other VAT payers in Georgia and wants to be able to recover the VAT paid.

For clarity, the main tax rates for companies in the virtual zone of Georgia are presented in the table below: