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