Resident enterprises are subject to corporate income tax (CIT) on worldwide income.
Non-resident enterprises carrying out economic activities in Georgia through a permanent establishment (PE) are subject to CIT with respect to its Georgian-source income.
The CIT rate is a flat 15%.
Non-resident enterprises earning income from Georgian sources, other than through a PE, are subject to withholding taxes (WHTs) (see the Withholding taxes section for more information).
New CIT system
From 1 January 2017, Georgia has switched to a new CIT system. The new system represents the adoption of the Estonian model of CIT to the Georgian tax system. As such, retained profits are no longer taxable until they are distributed. The new regime is not aimed to exempt the profits from taxation but is designed to defer the taxation moment. Consequently, taxpayers no longer need to determine taxable gross income and allowable deductions in order to arrive at the taxable profits, but rather a standard CIT rate of 15% is applicable to the grossed-up value of the following transactions:
- Profit distribution.
- Costs incurred not related to economic activity.
- Free of charge distributions.
- Over limit representative expenses.
Note that commercial banks, credit unions, insurance companies, microfinance organisations, and loan providers will be affected by the new CIT regime after 1 January 2023.
Distributed profit encompasses distribution of profits by an enterprise to its partner as a dividend in a monetary or non-monetary form.
Distribution of dividends between Georgian legal entities and distribution of dividends received from a foreign enterprise (except for a person registered in a country with preferential tax treatment) are not subject to CIT.
Distributed profit of a PE of a non-resident enterprise shall be a deemed distribution of profits attributable to the PE for its activities. A PE shall be allotted a profit it might have gained as an independent enterprise conducting the same or similar activity and being in the same or similar conditions.
Costs incurred not related to economic activity
Costs not related to economic activity shall be:
- Non-documented expenses.
- Expenses, the purpose 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 (i.e. 24%).
Certain transactions are deemed as non-business expenses, which, inter alia, include:
- Payments for acquisition of shares/interest of a non-resident enterprise or contributions made in the capital of a non-resident enterprise.
- Granting of a loan to a natural person or a non-resident.
Certain transaction with persons registered in the countries with preferential tax regimes are also subject to immediate taxation of CIT. Among them are:
- Provision of loans to such persons.
- Purchase of debt securities issued by such persons.
- Payment of contractual penalties and fines to such persons.
- Payment of advances to such persons.
- Acquisition of debt claim towards such persons.
- Loss derived as a result of transferring the right of claim to such entities.
- Loss incurred from waiving the claim receivable from such entities.
The main purpose of the listed taxable objects is to mitigate hidden distribution of profit without taxation. That said, the tax law requires taxation of such cash outflow, which may be embodied with profit distribution, though in turn it allows one to claim back the paid CIT when the cash is returned. Specifically, the Georgian tax code sets that companies have the right to credit the CIT paid previously in the following cases:
- When compensation is received as a result of supply of debt securities.
- When compensation is received from supply of shares or transfer of right of claim.
- When issued loan/paid advances is fully or partially returned (in proportion of returned amount).
- When goods/services are received in exchange for the paid advances.
- When security of issued loan from the third party is cancelled.
Free of charge delivery of goods/services and/or transfer of funds
Free of charge delivery of goods/services and transfer of funds will be subject to CIT. Additionally, shortage of inventory and/or fixed assets will be considered as free of charge supply at the moment of its revealing and will be taxed accordingly by CIT.
Representative expenses exceeding the specific limit will be subject to CIT. The limit determined for these purposes is 1% of the company’s total revenues derived or expenses incurred in the previous calendar year, whichever is greater.
Old CIT system
Commercial banks, credit unions, insurance companies, microfinance organisations, and loan providers are continuing to operate under the old CIT system until 1 January 2023.
Under the old system, CIT in Georgia is applied to taxable profit at a rate of 15%. Taxable profit is defined as gross income minus deductible expenses.
Local income taxes
There are no regional or local income taxes imposed on the profit of legal entities.