Georgian Virtual Zone – general information

Georgia is becoming an increasingly well-known place for doing business internationally. One of its attractive factors include the Virtual Zone, offering new opportunities for IT companies. Now, what exactly is the so-called “virtual zone”? 

Virtual Zone is the permit to operate business activities for IT companies, no matter the size or specific field of their IT services. The Virtual Zone offers benefits such as: 0% corporate tax, 0% VAT, 5% capital gains tax on dividends and no yearly license payments.

Georgia has proven itself to be a country where the legal system is business-friendly, company registration is straightforward, bank account openings are fast, corruption is absent, and privacy is at the highest level. It is worth noting that 2 years ago Georgia has committed to the global automatic exchange of financial account information and common reporting standard (CRS) regarding bank accounts on a global level.

How to set up a company in Georgian Virtual Zone?

In the virtual zone, a company may be set up or bought in 1 day. The company does not need to pay a license fee, and receives a 0% tax on company profit and 0% VAT. However, it is worth remembering that a certain rule applies – which is the fact that business may not be run within Georgia, thus the customers mustn’t be local. It is not required to hire employees in Georgia, nor to appoint a local executive.

In more details, the tax advantages of a company with the virtual zone status are being exempted from the following: taxes on the revenue earned by supplying their products beyond Georgia, Value-Added Tax or Vat on products delivered outside Georgia, export duties on the products, minimal taxes and duties on earnings made inside Georgia. The income is exempt from an 18% VAT and the 15% corporate income tax, as long as the company supplies their products only to customers outside the territory of Georgia. The tax benefits only apply for clients you serve who are based outside of Georgia (clients in Georgia will be taxed at a regular non virtual zone rate).

Dividend payments

In the case of a dividend payment (to an individual or a shareholder who is a non-resident legal entity), the only Georgian dividend tax payable is 5% and is paid by the company to the state budget at the time of the dividend payment. Dividends paid in Georgia to a Georgian shareholder will not be included in the tax base of such person, if dividends are paid to a foreign shareholder, the taxation of such shareholder in his country of tax residence will be analyzed taking into account the provisions of the relevant country’s Double Taxation Agreement with Georgia (if any). If the income of the virtual zone entity is not distributed in the form of standard dividends, but otherwise prescribed by law, then the 5% withholding tax in Georgia will not be paid and there will be no taxes in Georgia. All expenses on income earned by supplying information technology products outside or within Georgia will be deducted from the gross income according to the share of the profits from deliveries on its territory.

Now how does one qualify for the Virtual Zone tax status?

You must be an IT company that registered your business in Georgia. You need to have somewhat of an economic substance in Georgia (e.g. a local office with Georgian employees), and have access to a Georgian bank account and phone number.

If you already know that you indeed qualify for the VZ tax status, you’re probably wondering how to apply for one.

The most common legal form of the company in Georgia is Limited Liability Company (LLC), which usually takes 1 business day for the registration and no minimum capital required. Once the registration process is complete, its IT activity is defined on the company’s articles of association, the company can apply for Virtual Zone status. There is no minimal time period during which a company must be active in the IT sector. The average time of receiving the status is within 10 days. After submission of the application, the Status is granted by the local authority by law and the applicant will receive an electronic certificate to confirm that the status is granted. The Status of the Virtual Zone is permanent. After getting Virtual Zone Person status, the company is ready to be enjoy considerable tax benefits.

The status issued by the tax authorities to the IT Company shall not be taken back if the company meets the main demands for the supply of its IT services abroad.