During 2017, Georgia implemented the new corporate income taxation system adopted in 2016; introduced changes in its tax code and grew its network of double tax treaties. Irina Lopatina of Eurofast Global explores the implications.
The new system of corporate tax which we reported on in last year's edition of World Tax became effective as of January 1 2017. The new regime taxes profits only upon distribution and exempts reinvested earnings. The tax rate of 15% has remained unchanged.
Income subject to taxation under the new rules includes distributed profits (with certain exceptions), expenses and other payments which do not relate to economic activities, representative expenses, free of charge supply of goods and services or transfer of funds.
The above rules will not apply to banks and certain other financial institutions until 2019.
With the July 2017 amendments to the criminal and tax codes, tax evasion is now deemed to be a criminal offence in cases when the amount of tax evaded exceeds GEL 100,000 ($42,000). The amended tax code also stipulates that a tax audit's statute of limitation can be extended for another year in cases when an entity's loss has been carried forward for three or more years. Additionally, the changes introduce a VAT exemption with 0% credit for the supply of air freight services and aviation works performed in the territory of Georgia.
The double tax treaty signed with the Republic of Korea in March 2016 entered into force in November 2016 and applies as of January 1 2017. The treaty is based on the OECD model and stipulates a 5% (assuming at least 10% participation) or 10% withholding tax rate (in all other cases) on dividends, as well as 10% withholding tax rate on interest and royalties.
Furthermore, Georgia increased its double tax treaty portfolio to a count of 54 countries when the agreement signed with Liechtenstein in May 2015 entered into force on December 21 2016 and became effective as of the beginning of 2017. The treaty includes provisions for zero-rated withholding tax. All types of income (dividends, interest and royalties) beneficially owned by a resident of one state will be deemed to be only taxable in that state, with no withholding tax imposed in the other state (from which they are being paid).
Recently, Georgia also signed double tax agreements with Kyrgyzstan and Iceland.
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|Corporate Income Tax||15%|
|Capital Gains Tax||15%|
|Net Operating Losses (years)|
|Royalties from, for example, patents, know-how||10%|
|Branch Remittance Tax||0%||N/A|