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According to the amendments to the Labor Code of Georgia, companies will have to register the working hours of employees

According to the Labor Code, from March 1, all employers operating in Georgia will have an accurate record of working hours performed by employees.Working time accounting form is a monthly document for recording working hours (working hours) of employees, which includes data recorded in written and / or electronic form about the hours worked by employees. The information is reflected in the working time accounting form once, at the end of each month and / or periodically, throughout the month. The working time registration form, as a monthly document, completed and signed in the form of a final written and / or electronic document, is kept for 1 year with the employer or a structural subdivision / person designated by him / her.

What data should be recorded in the working time accounting form:

  1. In the column “Name of the organization” – the full name of the organization / institution;
  2. In the column “Structural unit” – the structural unit / division / subdivision of the organization, such as department, service, division, etc. Full name (if any);
  3. In the column “Date of drawing up” – the date of drawing up the working time registration form by the responsible person;
  4. In the column “Reporting period (from, to)” – the dates of the beginning and end of the reporting period;
  5. In the column “Identification code” – a unique and permanent identification number assigned in accordance with the legislation of Georgia;
  6. In column 1 – serial number;
  7. In column 2 – surname, name, position of the employee (specialty, profession);
  8. In column 3 – Personal number or table number, if any;
  9. In columns 4 and 6 – during the reporting period / month, the notes on the announcement / non-announcement of the job according to the dates in the first and second half of the month, respectively;
  10. In columns 5 and 7 – the sum of hours worked in the first and second half of the respective month;
  11. In column 8 – Total number of days worked during the month;
  12. In column 9 – The total number of hours worked during the month;
  13. In column 10 – Total number of hours worked overtime during the month;
  14. In column 11 – The total number of hours worked at night during the month (Period from 22.00 to 6.00)
  15. In column 12 -Total number of hours worked during the month of rest, on weekends;
  16. In column 13- The total number of hours worked during the month from 10-12 graphs, including remotely worked hours;
  17. In column 14 – Total number of days of temporary disability during the month, including period of maternity leave (stay on hospital sheet);
  18. In column 15 – The total number of days of paid leave during the month, including the period of paid leave for child care;
  19. In column 16 – Total number of days of unpaid leave, including period of unpaid leave for child care;
  20. In column 17 – Total number of missed days / hours during the month, different from other columns 14-16;
  21. In column 18 – The total number of days of rest during the month;
  22. In the column “Responsible person” – the position and signature of the person responsible for the production / filling of the working time registration form determined by the employer;
  23. In the column “Head of organization / structural subdivision” – position, signature and date of the head of the organization / structural unit.
  24. If the head of the organization / structural unit and the person responsible for filling it are the same person, the working time registration form shall be confirmed by the signature of the head of the organization / structural unit.
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Important things about tax residence of Georgia you must know

Tax residence (also known as fiscal residency, residence for tax purposes, or other, similar terms) is an important concept for all tax payers living and working abroad. It determines how you are treated with regard to taxation in a particular country.

According to the article 34.2 of Tax Code of Georgia, A Georgian resident for the entire current tax year shall be a natural person who has actually stayed in the territory of Georgia for 183 or more days in any continuous 12-calendar-month period ending in that tax year, or a natural person who was in a foreign country in the public service of Georgia during that tax year.

The 183 day rule seems straightforward, but there are many nuances to consider when tracking your days. It’s advantageous to better-understand this rule and some of the details around establishing residency and being prepared for state residency audits.

Here are the top things to help residents determine whether they should declare themselves residents or nonresidents for tax purposes:

  1. Georgia can consider you a resident, even if your permanent home is elsewhere

Fundamental to the 183 day rule, however, is the fact that country to which you frequently travel may consider you a resident, despite your domicile being elsewhere. For example, you may consider your full-time home to be in Germany. You grew up in the Germany and your kids go to school there, but frequently travel in Georgia and found yourself in Georgia — anywhere in Georgia — 183 days last year. That means that Georgia will come knocking to claim its full share of all your income in taxes, despite your home is in Germany.

  1. Any amount of time can count as a day

According to the article 34.5 of Tax Code of Georgia, The day of actual stay in the territory of Georgia shall be the day, during which a natural person stayed in Georgia irrespective of the length of the stay. When it comes to determining residency, any amount of time spent in Georgia counts as a day. So, spending five minutes in Georgia is equal to spending a whole day

  1. Don’t forget about your “why”

In Georgia the state wants to know the exact amount of time you spend here but they also put significant focus on why you spend time there. In fact, the purpose of time spent in Georgia may have more weight in determining legal residency than the actual number of days spent. To classify as a nonresident, an individual has to prove that they were in the Georgia for less than 183 days and that their purpose for being in the state was temporary. More precisely, according to the article 34.4 of Tax Code of Georgia, The time of actual stay in the territory of Georgia shall not include the time, during which a natural person stayed in Georgia:

  1. a) as a person having a diplomatic or consular status or as a family member of such person;
  2. b) as an employee of an international organisation acting under an international agreement of Georgia or as a person in the public service of a foreign country in Georgia or as a family member of such person, other than Georgian citizens;
  3. c) when moving from one foreign country to another via the territory of Georgia;
  4. d) for treatment or leisure.

Article 34.3 of Tax Code of Georgia says that the time of actual stay in the territory of Georgia shall be the time, during which a natural person stayed in Georgia, as well as the time he/she spent outside Georgia specifically for treatment, leisure, business trip or education.

  1. Each TERM has its meaning

Article 34.3 of Tax Code of Georgia says that “A Georgian resident for the entire current tax year shall be a natural person who has actually stayed in the territory of Georgia for 183 or more days in any continuous 12-calendar-month period ending in that tax year.

“For the entire current tax year” means that for one day of a calendar year a person meets criteria provided by the definition above, he/she is considered as a tax resident for all calendar year long. So, one-day residency equals to residency for an entire calendar year.

Any continuous 12-calendar-month” means that we do not count 183 days within a calendar year (January-December) but – during 12 consecutive months (5th March-4th February; 10th October-9th September, etc…)

It is also important the law does not require the 183 days to be successive. A person can leave the country and come back, counting 183 days within 12 months will still continue.

  1. The number of days is used only once

The status of a resident or of a non-resident is established for each tax period. At the same time, the days, according to which the natural person was deemed as a resident in the previous tax period, shall not be taken into account in establishing the status of residency in the following tax periods.

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Residence Permit

What is Residence Permit?

Residence Permit is one of main grounds for a foreigner for his/her entry into Georgia and legal stay. Based upon the appropriate grounds, Residence Permit shall be issued to a foreigner with the right of temporary or permanent residence.

Residence permit authorizes the right of a foreign citizen to enter and stay in Georgia or transit the territory of Georgia during the term of validity of residence permit. It also authorizes a holder to invite another foreigner to Georgia.

To obtain a residence permit, a foreign citizen must either personally or via authorized representative apply to any territorial office of the Public Service development agency, branch of the Public Service Hall or Community Centre, or apply online via the distance service of the Public Service development agency: https://services.sda.gov.ge. an application and enclosed documents submitted to authorized entities must be in Georgian.

 

Temporary Residence Permit types

 

Georgia issues the following residence permits:

  • Work residence permit – is issued in accordance with the rule prescribed by law to exercise the entrepreneurial or labour activities in Georgia;
  • Educational residence permit – is issued for the purpose of study at any educational facility authorized in Georgia;
  • Residence permit with the purpose of family   reunification – is issued to family members of a foreigner holder of Residence Permit;

Note: While issuing a residence permit with the purpose of family reunification, the following persons are deemed as family members: a spouse, parent, child of a foreigner having residence permit in Georgia, or accordingly short-term residence permit, as well as a minor, incapable or disabled, being his/her dependent or under custody.

  • Residence permit of a former citizen of Georgia – is issued to a foreigner whose Georgian citizenship has been terminated;
  • Residence permit of a stateless person – is issued to a person whose status of a stateless person was established in Georgia;
  • Investment residence permit –  is issued to a foreign citizen who invested at least  USD 300 000 equivalent in GEL in Georgia. this provision is prescribed in the Law of Georgia on Promotion and Guarantees of investment. in such cases, residence permits are also issued to the investor’s family members, which include a spouse, underage dependent and/or fully dependent incapacitated person;
  • Temporary residence permit – is issued to a foreigner who has been awarded a status of a victim subject to the law of Georgia “On Elimination of Domestic Violence, Protection and Support of Victims of Domestic Violence”;
  • Short term residence permit – is issued to a foreigner and his/her family members, if the foreigner  owns a real estate (except for agricultural land) in accordance with the regulations prescribed by law of Georgia, the price of which exceeds USD 100 000 equivalent in GEL.
  • Special Residence Permit – is issued to:
  1.          a) A foreigner, when there is a reasonable assumption that s/he may be a victim (suffered) of trafficking;
  2.          b) A foreigner, when the written initiative regarding issuance of a temporary residence permit is presented by a                   member of the Georgian government;
  3.          c) A foreigner who could not be deported and accordingly temporary identification card has been issued and 5                   years have passed from issuance of the temporary identification card;
  4.          d) A foreigner holding a status of compatriot.

 

Permanent Residence Permit Types

The following types of a residence permit with the right to permanent residence are issued in Georgia:

  • Permanent residence permit – is issued to a spouse, child, parent of a Georgian citizen. The permanent residence permit shall be issued to a foreigner, residing in Georgia based upon a temporary residence permit for the past 6 years. This term does not include the period of residing in Georgia for the purpose of study or medical treatment and of working at diplomatic or equal representations;

Note: While issuing the permanent residence permit, a spouse, parent and child of a Georgian citizen are considered as family members.

  • Perpetual residence permit – shall be issued to a foreigner and members or his/her family, who made the investment amounted to at least USD 300,000 equivalent in GEL in Georgia, and who has received investment resident permit who can prove annual turnover of at least USD 50,000 equivalent in GEL in the first year of entrepreneurial activity in Georgia, annual turnover of at least USD 100,000 equivalent in GEL in the second year, and equivalent to USD 120,000 equivalent in GEL the third, fourth and fifth years, or to the  foreigner and members or his/her family, who has received resident permit based on ownership rights on the real property the value of which is  at lease USD 300,000 equivalent in GEL, who has the inverstment residence permit 5 years from acquisition of property rights on this real property.

Note: While issuing the investment residence permit, a spouse, parent and minor child of a foreigner holding an investment residence permit and incapable or disabled person being his/her full dependent are deemed as family members.

  • Residence permit of a stateless person – shall be issued to a person whose status of a stateless person was established in Georgia.

Note: Residence permit with the right of permanent residence is issued to a stateless person, if his/her Georgian citizenship has been terminated in the manner of withdrawal from citizenship of Georgia or s/he has permanently resided in Georgia as of March 31, 1993 , has not been deregistered but has not been considered as a citizen of Georgia.

 

A foreigner must apply for Residence Permit to the agency  40 calendar days prior to expiration of the term for his/her legal stay on the territory of Georgia.

 

Qualified legal assistance of Legal Team of FSG will help you to avoid pitfalls and maximize your chances of success in getting Residence permit. Our lawyers’ effort to draft essential documents and communicate with government agencies can be very valuable in the process of obtaining residence card.

Please contact us for evaluation of your case.

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Taxation in Georgia – Value-Added Tax (VAT)

VAT

A value-added tax (VAT) known in some countries as a goods and services tax (GST), is a type of tax that is assessed incrementally. It is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer. VAT is a consumption tax placed on a product/service whenever value is added at each stage of the supply chain, from production to the point of sale. VAT is an indirect tax, thus by and large end-users of good and services bear costs on it.

 

VAT payer

A payer of value-added tax shall be:

  • A person registered as a VAT payer;
  • A person required to be registered as a VAT payer;
  • A person carrying out import or temporary admission of goods into Georgia, only with respect to such import or temporary admission, without the registration requirement;
  • A non-resident (other than a Georgian citizen natural person) that provides services in Georgia without VAT registration and without a permanent establishment of a non-resident registered with the tax authorities in Georgia, only with respect to these services and shall be subject to reverse charge.

 

Mandatory registration

A person who is engaged in economic activity and whose aggregate amount of VAT-taxable transactions carried out during any continuous 12 calendar months exceeds GEL 100 000) shall

  • apply to a tax authority for VAT registration within not later than two business days from the day when the aggregate amount of a taxable transaction exceeds GEL 100 000;
  • Be regarded as a VAT payer from the moment of executing the taxable transaction (including this transaction), according to which the aggregate amount of the taxable transaction exceeds GEL 100 000.

A person who produces excisable goods in Georgia shall apply to a tax authority for VAT registration before the supply of excisable goods.

A person importing excisable goods into Georgia, except where the import of excisable goods into Georgia is exempt from VAT, shall apply to a tax authority for VAT registration before the supply of excisable goods in Georgia.

 

Voluntary Registration

A person may voluntarily register as a VAT payer. The person shall be deemed as a VAT payer from the day of filing an application with a tax authority, but not later than the deadline set for mandatory registration.

 

Object of Taxation

An object of taxation with VAT shall be a taxable transaction, Importation, Export, Re-export, Temporary admission.

A taxable transactions include:

  • supply of goods and/or services that is considered as carried out in the territory of Georgia;

*note: Goods are considered to be supplied in Georgia if they are transferred in or their shipment originates in Georgia. Services generally are considered to be supplied in Georgia if they are performed in Georgia. However, special rules apply for services relating to immovable property and certain services provided to non-residents.

  • Use of VAT taxable goods/services for non-economic purposes, if taxpayer has obtained a VAT credit for these goods/services;
  • Upon cancellation of VAT registration, the balance of goods for which taxpayer has obtained a VAT credit;
  • Transfer of ownership on goods/services in exchange for share in legal entity/partnership.

 

VAT rates:

The VAT rate applicable in Georgia is 18%, referred to as the standard rate, which is applied to most goods/services.

VAT deduction

A deduction for VAT shall be the right of a person registered as a VAT payer to reduce the amount of VAT payable, based on the deduction documents obtained, except for the cases provided for by this Section. A deductible VAT amount shall be the amount of VAT that has been paid or is payable as per deduction documents, including on the balance of inventory holdings available at the moment of entry into force of VAT registration. VAT shall be deducted only if goods and/or services are used or will be used in taxable transactions other than taxable transactions exempt without the right to deduct, in re-export and/or export of goods, for delivering services outside the territory of Georgia.

Exemptions:

VAT exempt supplies are those VAT taxable supplies that are specifically exempt from VAT taxation. VAT exempt supplies may be either with the right of deduction or without it.

Having Transactions exempt from VAT taxation with the right of deduction, a taxpayer has the right to credit input VAT in full against output VAT assessed on taxable transactions. For example, a taxpayer has local sales that are subject to VAT taxation at 18%. At the same time, the taxpayer exports goods outside Georgia, which is an exempt transaction. However, the exemption does not limit the right of the taxpayer to credit input VAT. Thus, the taxpayer offsets input VAT in full against VAT payable on local sales.

As for transactions exempt from VAT taxation without the right of deduction, having such transactions, a taxpayer does not have a right to credit input VAT related with such transactions against output VAT assessed on taxable transactions. For example, a taxpayer has local sales that are subject to VAT taxation at 18%. At the same time, the taxpayer has a financial transaction that is an exempt transaction. Thus, the taxpayer is not allowed to credit input VAT up to the amount attributable to such exempt transaction. On the other hand, the taxpayer offsets input VAT attributable to taxable transactions.

Some transactions exempt from VAT taxation with the right of deduction:

  • export/re-export of goods;
  • transportation of goods placed in export, re-export, external processing or transit operations, and supply of related services;
  • supply of Georgian goods for sale in a duty free zone;
  • supply of goods and/or food services in a duty free zone;
  • organized foreign tours into Georgia by tour operators and the supply of tourist packages by the latter;
  • supply of goods/services intended for the official use of foreign diplomatic and equal representative offices, as well as for personal use of staff of such agencies (or their family members);
  • transportation of passengers and luggage and supply of related services, provided that either departure or destination point is located outside Georgia;

 

Some transactions exempt from VAT taxation without the right of deduction:

  • conduct of financial operations and/or supply of financial services;
  • import and/or supply of certain medicines, passenger cars, publications and mass media and baby products;
  • supply of educational and medical services;
  • supply of land plots;
  • supply of shares (not attached with the property) in partnership, except receiving the property in individual ownership in exchange for the shares;

etc.

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Taxation in Georgia – Profit tax

The information mentioned in the article is in accordence with the tax code of Georgia (consolidated version 15/07/2020)  

While natural persons have to pay income tax, companies are liable to profit tax (or “corporate income tax”) in Georgia. From 1 January 2017, Georgia has switched to a new CIT (corporate income tax) system. Georgian government considered the Estonian 16 year experience with different corporate model as one of the potential ways forward and adopted changes to the country’s tax laws to introduce a new system of levying income tax on business. The changes fundamentally reformed the profit tax regime for Georgian companies and permanent establishments of nonresident companies. The profit tax regime, under which companies are subject to tax on their annual taxable profits, is changed to a system where tax has to be paid only if corporate profits are distributed, similar to the system adopted by Estonia.

Tax payer

Profit tax payer is:

  • Resident enterprise;
  • Non-resident enterprise carrying out the business in Georgia through permanent institution and/or receiving income from the source of Georgia.

 

Object of profit taxation

The object of profit taxation of a resident enterprise and of a non-resident enterprise conducting business in Georgia through a permanent establishment (on the basis of the activity of its permanent establishment, disbursements made/expenses paid by the non-resident enterprise, or the permanent establishment) shall be:

  1. a) Distributed profit;
  2. b) Costs incurred or other payments not related to economic activity;
  3. c) Free delivery of goods/services and/or transfer of funds;
  4. d) Representation expenses paid in excess of a limited amount determined under the tax code of Georgia.

 

Tax rate

The profit tax rate is 15%, but the amount subject to profit taxation shall be calculated by dividing the sum of a disbursement made/expense paid according to the object of taxation by 0.85.

 

Distributed profit

Distributed profit is a profit distributed by an enterprise to its partner as a dividend in a monetary or non-monetary form. Under the tax code of Georgia the following items also should be treated as profit distributions:

  • Any operation performed by an enterprise with a related party (who is not subject to profit tax) if the price of a transaction concluded between them is different from its market price and their relation affects the outcome of the transaction;
  • Conduct of a controlled transaction if the established conditions for the transaction fail to satisfy the market principle;
  • Any operation performed by an enterprise with a person exempt from income tax/profit tax (except for a budget organisation, the Legal Entity under Public Law – the Deposit Insurance Agency and the National Bank of Georgia) if the price of a transaction concluded between them is different from its market price.

 

Costs incurred or other payments not related to economic activity

The law provides a list of expenses that are not be considered to be related to economic activities, which are treated as deemed profit distributions, and the key categories of such expenses are the following:

  • Costs that are not documented;
  • Costs the purpose of payment of which is not to gain profit, income or compensation;
  • The interest paid for a credit (loan) above the annual interest rate established by the Minister of Finance of Georgia;
  • Costs paid by a person (except for a special trade company) for purchasing foreign goods from a special trade company in the amount exceeding the customs value of the goods, except for the costs not related to payments to the special trade company.
  • Payments made to purchase debt securities issued by a person registered in a country with preferential tax treatment, as well as by a person exempt from profit tax;
  • Contractual penalties and/or other fines paid to a person registered in a country with preferential tax treatment, as well as to a person exempt from profit tax which were incurred on the basis of contractual relations;
  • Advance payments to a person registered in a country with preferential tax treatment, as well as to a person exempt from profit tax;
  • Granting of a loan to a person registered in a country with preferential tax treatment, as well as to a person exempt from profit tax and/or payments made to purchase a claim against that person.;
  • Loss incurred due to the transfer of the right to claim to and/or the denial of the right to claim for a person registered in a country with preferential tax treatment, as well as a person exempt from profit tax;
  • A contribution made to the capital of a non-resident, as well as of a person exempt from profit tax, and/or a payment made to purchase a share/equity (except for a share/equity placed on a foreign recognised stock exchange);
  • Granting of a loan to a natural person or a non-resident (except for the purchase of loan securities placed on a foreign recognised stock exchange).
  • Securing of a loan obtained by a partner natural person or a partner non-resident from a third person with the funds deposited to a bank account. In such a case, the sum of an object of profit taxation shall be the amount of funds deposited to the bank account for securing the loan.

 

Free delivery of goods/services and/or transfer of funds

According to the law, a supply of goods/ services that is not made for the purpose of deriving profit, income or compensation are considered to be a gratuitous supply that is subject to tax as a deemed profit distribution. A shortage of inventory or fixed assets also are deemed to be a gratuitous supply of such goods at the time when the shortage is identified.

The following cases of free delivery of goods/services and/or transfer of funds shall not be subject to profit taxation:

  • A donation made to a charity organisation during a calendar year not exceeding 10 % of the net profit gained by the organisation during a previous calendar year;
  • Free delivery of goods or services, or transfer of funds that are taxed at source;
  • Free delivery of goods or services, and/or transfer of funds to the state, a municipality or a legal entity under public law;
  • Free provision of immovable property to a charitable organisation if the property recipient organisation does charitable work in relation to persons with disabilities from childhood and/or persons with severe and persistent disabilities for at least three previous calendar years.

 

Representation expenses

The amount of representation expenses to be incurred during a calendar year shall be limited to 1 % of the income gained during a previous calendar year, and to 1 % of the expenses incurred if the expenses exceed the income gained.

The amount of representation expenses incurred during the calendar year of an enterprise establishment shall be limited to 1 % of the expenses incurred before the end of the current calendar year.

Links to main legislative acts of Georgia:

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Taxation in Georgia – Income Tax

There are only six taxes in Georgia, of which five (Personal Income Tax, Corporate Income Tax, Value Added Tax, Excise Tax and Import Tax) are nationwide, and one (Property Tax) is a local tax. There are no capital gains, inheritance, wealth, property transfer, social, branch remittance, or other taxes imposed in Georgia.

 

PIT

Personal income tax (PIT) is a tax levied on the income of individuals. Individuals who are tax residents in Georgia pay PIT on their worldwide income, whereas tax non-residents pay PIT only on their Georgian source income, subject to double taxation treaty relief. Notably, although foreign source income of tax residents is subject to PIT taxation, it is specifically exempted from taxation as outlined below. Thus, effectively both tax residents and non-residents of Georgia pay PIT on their Georgian source income. In this regard it is crucial for individuals to define income generated from the source in Georgia. Although the rules to define place of income are complicated, a general principle is that if activities of an individual to generate income are carried out in Georgia, that respective income will be sourced therein.

Income taxpayer is:

  • Resident natural person;
  • Non-resident natural person.

Residency

Individuals are considered tax residents in Georgia for the whole tax year if they are actually present in Georgia for 183 or more cumulative days in any period of 12 consecutive calendar months ending in the subject tax year, or are in the Georgian State Service abroad during the subject tax year.

Taxable income

For Georgian personal income tax purposes, total income comprises any income received in any form and/or from any activity, that is divided into the following categories:

  • Income from employment
  • Income from economic activities
  • Other income not related to employment and economic activities.

Income from employment includes all remuneration received from employment, including cash and benefits in kind. Benefits in kind are included in employment income at their market price reduced by any payments made by employee to employer for those benefits. Taxable benefits may include Life and/or health insurance plans paid by the employer, Private use of an employer owned car, Gift from the employer etc.

Income Tax rates

A natural person’s (regardless of his/her residence) taxable income shall be taxed at the rate of 20%, unless otherwise provided for by the Tax Code of Georgia.

Incomes subjecting to taxation at the source of payment are taxed:

  • Salary – 20%
  • Dividends – 5%
  • Rates – 5%
  • Royalties – 20%
  • As a result of renting out the residential space to an organization, legal or a natural person for residential purposes – 5%
  • Surplus income gained by a natural person from the provision of a residential apartment (house) and of the land attached to it, or from the provision of a vehicle – 5%
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