General Principles of Taxation of Cross-Border Transactions in Georgia

December 09, 2014

In the last decade, not withstanding certain slowdowns, Georgia has experienced a steady increase in foreign investment and economic growth. The increase in foreign investment and economic growth has been accompanied by an increase in cross-border activities on the part of Georgian companies and an influx of non-Georgian nationals into Georgia for entrepreneurial or work purposes. These economic trends have heightened interest in the Georgian tax implications of cross-border activities. Georgian legislators have recognized this and introduced a number of new tax regulations to facilitate and better organize such inflows of foreign direct investments.

These tax regulations, introduced in Georgia in recent years, have pursued two major goals. The first is boosting investor interest in Georgia by simplifying the Georgian tax system and introducing tax concessions. Some of these legislative incentives have been successful, while some have yet to yield the desired results.

The second goal of the Georgian tax policy was the prevention of abusive tax practices and the collection of more revenue from increased economic activities. This led to the introduction of special anti-tax avoidance rules, such as thin capitalization and transfer pricing rules. However, inevitably and as is the case in a number of countries, the first goal of simplifying the tax system and making it more attractive to foreign investors created tension with the second goal of preventing abusive tax practices and collecting more revenues.

Pursuit of the noted two goals has resulted in a relatively simple tax system. However, foreign investors must give careful consideration when choosing a business model before entering the Georgian market in light of the tax regulations. This article provides a brief overview of the key tax issues which foreign investors or individuals in Georgia for business purposes usually have to consider.