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  • Service: Tax, Global Mobility Services
  • Type: Regulatory update, Survey report
  • Date: 1/4/2014

Income Tax 

Taxation of international executives
Tax returns and compliance
Tax rates
Residence rules
Termination of residence
Economic employer approach
Types of taxable compensation
Tax-exempt income
Expatriate concessions
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation


Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?


31 March. If this date falls on a Saturday or Sunday, then the due date is the following Monday.


What is the tax year-end?


31 December.


What are the compliance requirements for tax returns in Georgia?


Residents


An employer shall present tax returns according to the amounts of salaries and taxes paid and withheld according to a reporting month on a monthly basis (until the 15th day of the month following the reporting month).


Within the same deadlines the employer is obliged to present to the tax agency, and also to send to the employee upon his/her request, a statement reflecting the registration number of that person, his/her name, living address, the total amount of income, and the total amount of tax withheld during the reporting period.


The employees have no obligation to file a tax return regarding their remuneration which is taxable at the source of Georgia. However, an employee may file a tax return in order to claim a refund or recalculation of the tax withheld from remuneration; this may be the case, for example, when the employee has the right on tax concessions.


Tax returns are required to be filed by a resident individual having income not taxed at the source of payment in Georgia.


Non-residents


Compliance requirements for tax returns of non-residents employment income are the same as for resident employees (please see above).


Tax returns are required to be filed by non-residents having income from a Georgian source that is not subject to tax at the source of payment.


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Tax rates

What are the current income tax rates for residents and non-residents in Georgia?


Residents


Type of income Tax rate (Percent) Taxable through withholding (W)/Filing tax return (R)
Employment 20 W
Interest from Georgian source 5 W
Dividends from Georgian source 5 W
Taxable income of entrepreneur individuals 20 R
Rent/royalty 20 W

Non-residents


Type of income Tax rate (Percent) Taxable through withholding (W)/Filing tax return (R)
Employment 20 W
Dividends 5 W
Interest 5 W
International traffic, international telecommunication 10 W
Other payments (except of sale of property) 10 W
Service payments (including interest) to a nonresident in the list of offshore countries 15 W
Taxable income of individuals through his/her permanent establishment 20 R

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Residence rules

For the purposes of taxation, how is an individual defined as a resident of Georgia?


Residency is defined by the tax code of Georgia as follows.


  • During the entire current tax year, an individual shall be recognized as a resident of Georgia if he/she was actually present on the territory of Georgia for 183 days or more in any continuous calendar 12-month period ending in this tax year, or was in the Georgian state service abroad during the tax year.
  • Actually present shall be considered as the time of actual presence on the territory of Georgia during which a person has been on the territory of Georgia, as well as the time period which he/she has spent outside the territory of Georgia specifically for the purposes of medical treatment, vacation, business trip, or study. Time during which a person was in Georgia is not considered as a time of actual presence on the territory of Georgia if he/she stayed:
    1. as a person having diplomatic or consulate status or as a family member of such person
    2. as a staff member of an international organization under Georgian international agreements, or as a person who is in the state service of a foreign country, and/or a family member of such a person, except citizens of Georgia
    3. exclusively for moving from one foreign country to another through the territory of Georgia or
    4. only for medical treatment or resting purposes.

A day of presence in Georgia is considered any day during which a person actually stayed on the territory of Georgia, regardless of the duration of this stay.


The status of residence or non-residence is established for each tax period. Moreover, days, according to which the person was considered a resident during the previous tax period, shall not be considered while establishing residency for the following tax period.


An individual is regarded as a non-resident of Georgia if he/she does not comply with the criteria established for residency.


Irrespective of the above-mentioned criteria established for residency, Georgian residency may be granted:


  • to a high net worth individual according to the rule and the conditions prescribed by the Ministers of Finance and Justice of Georgia.
  • to Georgian citizen, if it is impossible to identify the residency of this individual for any country and the individual appeals to the Georgian tax authorities

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.


No.


What if the assignee enters the country before their assignment begins?


No special implications.


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Termination of residence

Are there any tax compliance requirements when leaving Georgia?


No special implications.


What if the assignee comes back for a trip after residency has terminated?


No special implications.


Communication between immigration and taxation authorities


Do the immigration authorities in Georgia provide information to the local taxation authorities regarding when a person enters or leaves Georgia?


This does not happen automatically; the tax authorities may request to provide relevant information on a case-to-case basis.


Filing requirements


Will an assignee have a filing requirement in the host country after they leave the country and repatriate?


No, if the Georgian sourced income is taxed at the source of payment


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Economic employer approach1

Do the taxation authorities in Georgia adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Georgia considering the adoption of this interpretation of economic employer in the future?


No. However, the tax authorities can apply the substance over form principle.


De minimus number of days2


Are there a de minimus number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?


No.


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Types of taxable compensation

What categories are subject to income tax in general situations?


  • income from employment (wages, salaries)
  • income from economic activities, including:
    1. dividends
    2. interest (except of interest from deposits)
    3. income earned from financial leasing, usufruct, lease, rent, or any similar activity
    4. royalties.
  • other income not related to economic activities.

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Tax-exempt income

Are there any areas of income that are exempt from taxation in Georgia? If so, please provide a general definition of these areas.


Overseas income of resident individuals (that is income derived not from the source of Georgia) is exempt from income tax.


Furthermore, several types of income are exempt from income tax, including the following.


  • Income from employment of a non-resident employee of diplomatic or equalized organizations located on the territory of Georgia.
  • Income from employment of a non-resident employee provided that the employee spends less than 31 days in a calendar year in Georgia and the expenses on salaries are not attributable to the permanent establishment in Georgia.
  • Grant, state pension, state compensation, state academic stipends, cumulative, and repayable pension from non-state pension scheme equal to payments made, state scholarship, and assistance assigned by the state budget, autonomous republic, or local budgets.
  • Monetary and other type of rewards, received by sportsmen and their trainers for being a prize winner in the Olympic Games and World and European Championships.
  • Alimony.
  • The value of property received on the basis of divorce.
  • The value of property received gratuitously or by inheritance in the course of a tax year by I and II level legatee.
  • The value of property up to GEL150,000 received gratuitously or by inheritance in the course of a tax year by III and IV level legatee.
  • The value of property received gratuitously up to GEL1,000 in the course of a tax year.
  • The surplus (that is the excess of revenue above cost) received by an individual from the sale of a dwelling belonging to him/her for more than a two-year period (in the case of a sale of a car, Tax Code of Georgia (TCG) establishes more than a six-month period).
  • The surplus (that is the excess of revenue above cost) received by an individual from the sale of asset belonging to him/her for more than a two-year period, to the extent that it was not used in economic activity (mere holding of shares/securities for the purposes to receive dividends/interest is not considered as they were used in economic activity).

Besides, for certain individuals the TCG provides some exemptions/allowances for income tax, for example a taxable income of the following individuals shall not be subject to income tax, up to GEL3,000 in the course of a calendar year.


  • A person with a limited capacity (invalids) from childhood.
  • Single mothers.
  • A person who adopted a child, within one year from adoption.
  • A person who has obtained a guardianship for bringing up a child.

An individual with a micro business status is exempt from income tax.


There is a special regulation regarding business travel expenses for employees residing (with the working place) in Georgia; the remuneration for these expenses is not considered as salary up to the certain threshold and accordingly is not taxed. Particularly, the compensation consists of a daily allowance3, remuneration for actual cost of transportation, and hotel expenses4.


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Expatriate concessions

Are there any concessions made for expatriates in Georgia?


There are no concessions for expatriates in Georgia, except those indicated earlier.


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Salary earned from working abroad

Is salary earned from working abroad taxed in Georgia? If so, how?


Residents are taxed on worldwide income. However, overseas income of resident individuals is exempt from the income tax. Non-residents are taxed only on Georgian-sourced employment income.


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Taxation of investment income and capital gains

Are investment income and capital gains taxed in Georgia? If so, how?


Capital gains


  • The surplus (that is the excess of revenue above cost) received by an individual from the sale of residence belonging to him/her for more than a two-year period (in the case of a sale of a car, TCG establishes more than a six-month period) is exempted from income tax.
  • The surplus (that is the excess of revenue above cost) received by an individual from the sale of asset belonging to him/her for more than a two-year period, to the extent that it was not used in economic activity is exempt from income tax.

In cases when the abovementioned assets are sold within a two-year (six-month) period, the income tax rate should be applied. Tax should be paid and a tax return presented by 1 April of the following year.


Dividends, interest, and rental income


Dividends


Dividends arising from a Georgian source and paid to the individual are taxed at the source of payment at the rate of 5 percent. The payer as a tax agent is obliged to withhold the tax and pay it to the state budget at the moment of payment of the income; dividends so taxed are not subject to further taxation, provided that this income is not related to the permanent establishment of a non-resident on the territory of Georgia.


Interest


Interest arising from a Georgian source and paid to the individual is taxed at the source of payment at the rate of 5 percent. The payer as a tax agent is obliged to withhold the tax and pay it to the state budget at the moment of payment of the income; interest so taxed is not subject to further taxation. It should be noted that interest paid by licensed financial institutions to individuals is not subject to neither withholding tax nor further taxation.


Rental income


The income is subject to income tax at the rate of 20 percent. For non-residents' income, which is subject to withholding by tax agents, a 10 percent tax rate applies.


Gains from stock option exercises


Residency status Taxable at:
Grant Vest Exercise
Resident N Y Y
Non-resident N Y Y
Other (if applicable) N/A N/A N/A

Generally, any compensation or in-kind benefit of an individual received as a result of an employment is considered as employment income. The value of in-kind benefits in the majority of cases (including abovementioned) is determined as the market value of the benefit less any amount paid by the employee.


Foreign exchange gains and losses


Since the taxable income of an individual in the majority of cases is calculated on a cash basis, it is not applicable.


Principal residence gains and losses


See Capital Gains.


Capital losses


Losses arising upon the sale of property by individual are compensated from proceeds received upon the sale of such property. If the losses cannot be compensated in the year in which they took place, they can not be carried forward, unless the individual is an entrepreneur and the asset has been used in its business activities, in this case the loss carried forward period is five years.


Personal use items


Not applicable.


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Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Georgia? If so, please discuss?


Not applicable.


Are there capital gains tax exceptions in Georgia? If so, please discuss?


Pre-CGT assets


Not applicable.


Deemed disposal and acquisition


Not applicable.


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General deductions from income

What are the general deductions from income allowed in Georgia?


Generally, all expenses related to the receipt of gross income are allowed to be deducted from the gross income. However, there are some exceptions, which set a certain limit or do not permit at all deductibility for particular expenses. Exceptions include the following.


  • Some kinds of limitations are imposed on the deductions of representation expenses, interest charges, losses of previous years, capital expenditures, and so on.
  • The following are not deductible from the gross income:
    1. the expenses related to the receipt of income exempt from income tax
    2. entertainment expenses
    3. income tax paid on the territory of Georgia and other countries
    4. penalties paid or payable to the budget
    5. expenses related to receipt of wages.

Furthermore as a rule, expenses not related to economic activity are not deductible from the gross income.


Individual whose employment income in a calendar year does not exceed GEL 6,000 (approximately USD3,390) is entitled to make deduction of GEL1,800 (approximately USD1,017) from employment income and claim a tax refund by means of filing a tax return to the Georgian tax authorities.


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Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Georgia?


Current year reimbursement (cash basis) is the normal method of recognizing tax reimbursements paid by the employer.


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Calculation of estimates/prepayments/withholding

How are estimates/prepayments/withholding of tax handled in Georgia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.


PAYE withholding system is applied to employment income with no deductions for employee expenses.


When are estimates/prepayments/withholding of tax due in Georgia? For example: monthly, annually, both, and so on.


The employer is obliged to transfer the tax withheld to the budget upon making the payment to the employee; in case of payment in-kind, the deadline is the last day of the appropriate month.


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Relief for foreign taxes

Is there any Relief for Foreign Taxes in Georgia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?


According to the domestic tax legislation, there is no relief for foreign taxes in Georgia. In specific cases the DDT’s respective provisions may be applied.


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General tax credits

What are the general tax credits that may be claimed in Georgia? Please list below.


Not applicable.


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Sample tax calculation

This calculation assumes a married taxpayer resident in Georgia with two children whose three-year assignment begins 1 January 2012 and ends 31 December 2014. The taxpayer’s base salary is USD100,000 and the calculation covers three years.


2012
USD

2013
USD

2014
USD

Salary

100,000

100,000

100,000

Bonus

20,000

20,000

20,000

Cost-of-living allowance

10,000

10,000

10,000

Housing allowance

12,000

12,000

12,000

Company car

6,000

6,000

6,000

Moving expense reimbursement

20,000

0

20,000

Home leave

0

5,000

0

Education allowance

3,000

3,000

3,000

Interest income from non-local sources

6,000

6,000

6,000


Exchange rate used for calculation: USD1.00 = GEL1.775


Other assumptions


  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Georgia.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income


Year ended 2012
GEL
2013
GEL
2014
GEL
Days in Georgia during year 366 365 365
Earned income subject to income tax
Salary 177,000 177,000 177,000
Bonus 35,400 35,400 35,400
Cost-of-living allowance 17,700 17,700 17,700
Net housing allowance 21,240 21,240 21,240
Company car6 32,391 32,302 32,302
Moving expense reimbursement 35,400 0 35,400
Home leave 0 8,850 0
Education allowance 5,310 5,310 5,310
Total earned income 2324,441 297,802 324,352
Other income/interest 10,620 10,620 10,620
Total income 335,061 308,422 334,972
Deductions 0 0 0
Total taxable income 335,061 308,422 334,972

Calculation of tax liability


2012
GEL
2013
GEL
2014
GEL
Taxable income as above 335,061 308,422 334,972
Exempted income (interest) 10,620 10,620 10,620
Georgian tax thereon 64,888 59,560 64,870
Less: 0 0 0
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Georgian tax 64,888 59,560 64,870



1Certain tax authorities adopt an “economic employer” approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the “economic employer” and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.


2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the “economic employer” approach.


3It is GEL15 per day within the territory of Georgia, as for outside of Georgia it varies from country (city) to country (city).


4It is compensated on actual cost incurred within the territory of Georgia, as for outside of Georgia compensation varies from country (city) to country (city).


5NBG exchange rate as of 25 January 2014 was as USD1.00 = GEL1.77.


6The usage of company cars by an employee for personal reasons is taxed at the rate of 0.1 percent of the carrying amount indicated in the financial statement at the beginning of the year for each day of usage. Hereby KPMG in Georgia assumes that the carrying amount for the company car at the beginning of the each year is GEL88,500 (≈USD50,000) by ignoring accumulated depreciation; accordingly taxable income for the 2013 and 2014 (for the use of company car for 365 days) will be - 365*0.1 percent* 88,500 = GEL32,302, similarly, for the year 2012 = GEL 29,646.



© 2014 KPMG Georgia LLC, a company incorporated under the Laws of Georgia, a part of KPMG Europe LLP group, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity

 

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Taxation of international executives