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If you are running a business in Georgia (the country, not the U.S state) Value Added Tax (VAT) can be a game-changer for your business, affecting everything from your profit margins to how you price your products and services.
Whether you're a local entrepreneur or an international company expanding into the Georgian market, understanding the intricacies of VAT is crucial. This guide will give you full understanding of the tools you need to navigate the Georgian VAT landscape with confidence.
Understanding VAT in Georgia
VAT is a Value-Added tax with a standard rate of 18 % and applied to the sale of goods and services at each stage of production and distribution. In Georgia, the VAT is applicable to most commercial transactions within the country. This tax is ultimately borne by the end consumer, but businesses are responsible for collecting and remitting VAT to the government.
This means that if you purchase an item for 100 GEL, 18 GEL of that price is VAT collected by the business and remitted to the government.
What is VAT in Georgia (country)?
VAT in Georgia, Tbilisi is a type of indirect tax that is charged on the value added to goods and services at each stage of production or distribution. Unlike sales tax, which is only charged at the point of sale to the final consumer, VAT is levied at multiple points in the supply chain.
Each business in the supply chain collects VAT on its sales and pays VAT on its purchases, effectively passing the tax burden down the chain until it reaches the end consumer.
The Importance of VAT for Businesses
VAT compliance is not just a legal obligation For businesses, but also a strategic financial management. Proper VAT management can impact cash flow, pricing, and profitability. Understanding when and how VAT applies to your business transactions ensures that you remain compliant and avoid potential penalties.
What is a VAT Rate in Georgia?
In Georgia, the standard VAT rate is 18%. This rate applies to most goods and services supplied within the country. There are no lower VAT rates in Georgia, making it relatively straightforward compared to countries with multiple VAT rates. However, certain transactions and sectors may qualify for VAT exemptions, which we'll explore later in this guide.
VAT Registration: How to get vat in Georgia
VAT Registration for Companies in Georgia
Navigating the VAT registration process in Georgia is crucial for businesses, whether you're starting new operations or expanding. Here's a detailed guide to help you understand when and how to register for VAT, both voluntarily and mandatorily.
When is VAT Registration Mandatory?
Exceeding the Turnover Threshold: If your business's VAT-taxable transactions exceed 100,000 GEL within any continuous 12-month period, you are required to register for VAT. This threshold ensures that VAT obligations are tied to the scale of business activity, minimizing the burden on smaller businesses.
Special Business Activities: Companies involved in producing or importing excisable goods must register for VAT, regardless of turnover. Additionally, businesses undergoing significant reorganization must also comply with VAT registration requirements.
Voluntary VAT Registration
Choice to Register: If your business operates in Georgia and has a turnover below the 100,000 GEL threshold, you can still choose to register for VAT voluntarily. This can be a strategic decision to reclaim VAT on business expenses or to align with larger clients who prefer working with VAT-registered suppliers.
Applicability: Voluntary registration is also an option for businesses trading excisable goods or for those that engage in short-term high-value activities. Even a single transaction worth 100,000 GEL or more in a day qualifies your business for VAT registration.
Benefits of Being a VAT Payer
You might wonder why a business would choose to register for VAT if it's not required. Here’s why:
Tax Deductions: According to the Georgian Tax Code, some business activities are exempt from VAT, but with the right to deduct. This means you can claim back any VAT paid on purchases made under your business name.
Financial Advantages: Being a VAT-registered business can enhance your credibility with suppliers and customers, and align you with larger companies that prefer dealing with VAT-registered entities.
Who Can Register as a VAT Payer?
Several types of business entities can register for VAT in Georgia, including:
Natural Persons and Individual Entrepreneurs: Individuals operating a business.
Limited liability companies and LLCs with Virtual Zone Status: Limited liability companies, especially those in the tech sector. (you also can check our blog on How to open an LLC business in Georgia).
IEs with Small Business Status: Individual entrepreneurs classified under the small business category.
Note: If you are thinking opening a company in Georgia here is a full guide on How to Register Company (LLC) in Country Georgia
Compulsory VAT Registration
Turnover Threshold: If your business performs economic activities that accumulate a VAT taxable turnover exceeding 100,000 GEL within any continuous 12-month period, VAT registration is mandatory. This applies regardless of whether the activities are continuous or sporadic.
Special Cases: Companies involved in producing or importing excisable goods, or those undergoing significant reorganizations, must also register for VAT. This ensures compliance and proper tax handling of all transactions.
New Regulations for 2024
Common Ownership: Starting in 2024, companies with shared ownership must consider their combined turnover for VAT registration. If multiple companies under the same owner collectively exceed the 100,000 GEL threshold within a 12-month period, each must register for VAT, even if individually they do not meet the threshold.
Universal Compliance: Under the new legislation, all companies must register for VAT if they meet the combined threshold. This rule is crucial for both local and foreign investors with multiple business interests in Georgia.
VAT Calculation and Shelf Pricing
Transaction Value: VAT in Georgia is calculated based on the market value of the goods or services sold. This ensures that VAT is fairly applied according to the actual worth of the transaction.
Inclusion in Shelf Price: For consumer transparency, VAT must be included in the shelf price of goods sold in Georgia. This means the price displayed to customers already includes VAT, simplifying the purchasing process and compliance.
VAT on Temporary Imports
Monthly Rate: For goods temporarily imported into Georgia, a VAT rate of 0.54% is applied monthly. This rate is calculated on the taxable amount for each month the goods are stored in the country, ensuring that temporary imports are taxed appropriately.
Reverse VAT for Foreign Purchases
Reverse VAT Rules: Businesses in Georgia purchasing goods or services from non-Georgian entities are subject to reverse VAT. This mechanism charges VAT at the standard rate of 18%, reflecting the VAT that would have been applicable if the transaction occurred within Georgia.
2021 Amendments: The reverse VAT rules were updated in 2021. Businesses registered in Georgia that make purchases from abroad must comply with these updated regulations to ensure they are taxed correctly.
Reverse Charge on Payroll Services: If a Georgian company receives payroll services from a foreign provider, the reverse charge mechanism may apply. In this case, the Georgian company is responsible for accounting for the VAT on the service, rather than the foreign provider.
Understanding Excise Tax in Georgia
Excise tax is a specific duty levied on certain goods produced within Georgia or imported into the country. This tax is designed to regulate the consumption of particular items and is typically calculated based on the quantity or characteristics of the goods, such as volume, weight, or alcohol concentration. Let’s dive into the essentials of excise tax in Georgia and what you need to know to stay compliant.
How is Excise Tax Calculated?
Excise tax rates in Georgia vary depending on the type of goods. Here’s a breakdown of how these taxes are typically calculated:
Quantity-Based Calculation: For many products, excise tax is assessed based on their physical attributes:
Alcoholic Beverages: Taxed by volume and alcohol concentration.
Natural Gas and Oil Products: Based on volume or weight.
Tobacco Products: Taxed per unit or weight.
Vehicle Specifics: Automobiles are taxed according to engine capacity and the age of the vehicle, excluding sport and classic cars. The excise rate for vehicles can range significantly.
Sales Price: For some tobacco goods, excise tax might be calculated based on their sales price.
The rates can range widely, from as low as GEL 0.08 per unit to as high as GEL 800 per unit, depending on the specific good.
Goods Subject to Excise Tax
In Georgia, excise tax applies to the following categories of goods:
Alcoholic Drinks: Including all types of spirits, wines, and beers.
Condensed Natural Gas: Excluding gas supplied through pipelines.
Oil Distillates: Various refined oil products.
Crude Oil Derivatives: Products made from crude oil processing.
Tobacco Products: Cigarettes, cigars, and other tobacco items.
Automobiles: Vehicles taxed based on engine size and age.
Exports of excisable goods benefit from an exemption, meaning they are not subject to excise tax when sold outside Georgia. This exemption also allows for the crediting of the tax.
Excise Tax on Services
Beyond goods, certain services are also subject to excise tax in Georgia, specifically the termination of international calls in both mobile and fixed networks.
Mobile Network Call Termination: GEL 0.15 per minute.
Fixed Network Call Termination: GEL 0.08 per minute.
These rates apply based on the duration of the call, adding an extra layer of taxation for telecommunications services involving international calls.
The VAT Registration Process
Registering for VAT in Georgia involves several steps. The process is designed to be efficient and can often be completed online through the Georgian Revenue Service (GRS) portal.
Step-by-Step Guide to VAT Registration
Prepare Documentation: Gather all necessary documents, including the company's registration details, business activity descriptions, and financial records.
Complete the Application Form: Access the VAT registration form on the RS portal and provide detailed information about your business.
Submit the Application: Once the form is completed, submit it through the RS portal. You will receive a confirmation of receipt.
Review by GRS: The RS will review your application and may request additional information or documents to verify your eligibility.
Receive VAT Certificate: If your application is approved, you will receive a VAT registration certificate and a Tax Identification Number (TIN).
Required Documents
Company registration documents
Financial statements or records
Description of business activities
Application form from the GRS portal
Special Considerations for Non-Qualified VAT Payers
Georgia introduced the concept of “non-qualified VAT payer” in 2021 to address concerns about VAT fraud and abuse. This status applies to newly registered VAT payers and businesses that have not conducted taxable transactions in the past 12 months.
What is a Non-Qualified VAT Payer?
A non-qualified VAT payer is a business that is registered for VAT but is not allowed to issue or receive tax invoices necessary for VAT recovery until it gains “qualified” status. This measure helps ensure that only legitimate businesses benefit from VAT registration.
Transitioning to a Qualified VAT Payer
To transition from a non-qualified to a qualified VAT payer, a business must demonstrate its legitimate intention to engage in taxable activities. The GRS will conduct an analysis, which may include interviews, document checks, and office visits, to verify the business’s operations. If approved, the business will be granted full VAT payer status, allowing it to issue and receive tax invoices.
VAT Compliance for Small and Micro-Businesses in Georgia
Thinking of starting a small business in Georgia? Whether you're launching a boutique, a tech startup, or any other small enterprise, understanding VAT requirements is crucial. Here’s what you need to know to navigate the VAT landscape as a small or micro-business in Georgia.
Requirements for Small Businesses
If you're establishing a company classified as a small business in Georgia, several key requirements must be met:
Definition of a Small Business: According to Article 88 of the Georgian Tax Code, a small business is defined as a company with a maximum gross income of 100,000 GEL during a financial year.
VAT Liability: When your small business reaches the point where it must pay VAT, registration is required under Article 157 of the Tax Code. This registration is a legal obligation once your business transactions fall within VAT thresholds.
Inventory and Accounting Obligations
Inventory Registration: As of 2024, any company liable for VAT must register its inventory balance. This registration should reflect the inventory available at the time the company becomes VAT-liable.
Accounting Practices: Article 91 of the Tax Code specifies that small businesses must maintain their accounts in accordance with legal stipulations. Proper accounting is essential when your business applies for VAT registration, ensuring accurate records and compliance. You can check our service page on tax accounting & bookkeeping services in Georgia.
Micro-Business Status
Micro-businesses enjoy certain benefits, but there are specific rules:
Definition of a Micro-Business: Per Article 88, a micro-business is a smaller entity with annual income below 500,000 GEL. Different tax rates apply depending on whether the income is below or above this threshold.
Exclusion from VAT: If a micro-business undergoes VAT registration, it can no longer retain its micro-business status. This rule is designed to keep the benefits of micro-business designation exclusive to truly small enterprises.
Annual Tax Obligations
Filing Deadlines: According to Article 93 of the Tax Code, both small and micro-businesses must complete their tax obligations for the financial year by April 1 of the following year. This includes submitting all necessary tax returns, such as VAT returns if applicable. (
Closure of Business: If your business ceases operations, you must file the final tax returns within 30 working days of closing. This requirement ensures all financial activities are properly accounted for before dissolution.
Determining the Place of Supply for VAT Purposes
Understanding the place of supply rules is critical for determining whether a transaction is subject to Georgian VAT. The place of supply rules vary depending on whether the transaction involves goods or services and whether it is business-to-business (B2B) or business-to-consumer (B2C).
Goods
The place of supply for goods is generally determined by the location of the goods at the time of transfer. If goods are located in Georgia upon transfer, or if their shipment originates in Georgia, they are considered supplied within Georgia and are subject to Georgian VAT.
Services
The place of supply for services depends on the nature of the service and the relationship between the supplier and the recipient.
B2B Supplies
For B2B supplies, the place of supply is typically where the recipient of the service is established. This means that if a Georgian business provides services to another business located outside Georgia, the place of supply is the recipient's country, and Georgian VAT does not apply.
B2C Supplies
For B2C supplies, the place of supply is usually where the supplier is established. However, certain services, such as telecommunications, electronically supplied services, and consulting, are taxed based on the location of the recipient.
Special Rules for Specific Services
Special rules apply to services related to immovable property, transportation, catering, and leisure activities. For example, services related to real estate are taxed at the location of the property, while transportation services are taxed where the journey begins.
Note: Tax residency does not automatically determine VAT liability. A non-resident individual or company can still be liable for VAT on certain transactions in Georgia.
VAT Compliance and Reporting
Compliance with VAT regulations involves regular reporting and payment obligations. Understanding these requirements is essential for maintaining good standing with the tax authorities.
Filing VAT Returns
VAT-registered businesses must file monthly VAT returns detailing their taxable transactions and the VAT collected. These returns must be submitted to the GRS by the 15th day of the month following the reporting period.
How to File VAT Returns
Collect Transaction Data: Gather all invoices and records of taxable transactions for the reporting period.
Calculate VAT Payable: Determine the total VAT collected on sales and the VAT paid on purchases.
Submit the Return: Use the GRS portal to submit your VAT return. Ensure all information is accurate and complete.
Pay VAT Due: Any VAT payable must be paid to the GRS by the 15th of the following month.
VAT Invoicing Requirements
Businesses must issue VAT invoices for their taxable transactions. These invoices must be provided to customers within 30 days of the transaction and must be uploaded to the GRS portal.
Essential Elements of a VAT Invoice
The seller's and buyer's details
A unique invoice number
The date of the transaction
A description of the goods or services supplied
The VAT amount and the total amount payable
Georgia VAT Refunds and Credits
Businesses can claim refunds for VAT paid on purchases if they meet certain conditions. Georgia VAT refunds are available when the VAT paid exceeds the VAT collected, and businesses must apply for these refunds through the GRS portal.
How to Claim VAT Refunds
Complete the Refund Form: Fill out the VAT refund application on the GRS portal.
Submit Supporting Documents: Provide invoices and records to support your claim.
Review and Approval: The GRS will review your application and approve or reject it based on the submitted information.
Receive the Refund: Approved refunds will be credited to your account or issued as a payment by the GRS.
VAT Exemptions and Special Cases
Navigating VAT Exemptions and Non-VAT-able Activities in Georgia
Understanding how VAT exemptions and non-VAT-able activities work in Georgia is crucial for businesses operating within and outside the country. Here’s a comprehensive guide to help you make sense of when VAT applies and when it doesn’t.
Exempt Without the Right of Deduction (Articles 170, 171 of the TCG)
In certain cases, businesses in Georgia are not required to charge VAT on their sales, but they also cannot reclaim VAT on their purchases. These exemptions cover specific sectors and types of transactions:
Medical Services: Healthcare services provided by medical professionals or institutions are VAT-exempt.
Educational Services: Courses and training offered by accredited educational institutions do not attract VAT.
Financial Services: This includes loans, interest, and banking services. (if you don’t have Georgian bank account, here is a guide how to open bank account remotely)
Land Sales: Transactions involving land (excluding buildings) are exempt from VAT.
Financial Operations: General financial transactions fall under this exemption.
These are just a few examples, and the full list of exempt activities can be found in Articles 170 and 171 of the Tax Code of Georgia (TCG).
Note: companies with Virtual Zone status in Georgia are exempt from VAT (Value Added Tax) on services or products provided to foreign non-resident clients outside Georgia. However, this exemption does not apply to services or products provided to the local Georgian market.
Voluntary VAT Registration for Exempt Activities
Even if your business activities fall under the "exempt without the right of deduction" category, you have the option to apply for VAT registration. By becoming a VAT payer, you can reclaim VAT on purchases related to these activities, provided you choose to go through the registration process.
Non VAT-able Transactions
Some transactions are inherently non VAT-able, meaning VAT doesn’t apply based on the nature or location of the activity. Here’s how it works:
Domestic Services and Products: Generally, providing services and selling products within Georgia are VAT-able activities. However, if the delivery location is outside Georgia, no VAT is charged.
International Business Operations: If a Georgian business buys products in one foreign country and sells them in another, these transactions aren’t subject to Georgian VAT. For example, purchasing goods in Poland and selling them in Ukraine are outside the scope of Georgian VAT. Such transactions wouldn’t count towards your VAT-able turnover in Georgia, potentially exempting you from VAT registration even if your total turnover exceeds 100,000 GEL.
Foreign Services: Services rendered from Georgia to clients abroad are also non VAT-able. For instance, if you offer consulting services to a Ukrainian company, whether online or by visiting Ukraine, these services are considered provided outside Georgia and are not subject to Georgian VAT.
Digital and Automated Services: Services provided over the internet with minimal human intervention are non VAT-able if the recipient is outside Georgia. This includes automated digital services that rely on technology for delivery.
Specific Examples and Clarifications
Example 1: Selling Products to Foreign Countries
If your Georgian business buys products in Poland and sells them in Ukraine, these activities do not incur Georgian VAT. The operations occur outside Georgia and thus do not count towards your VAT-able turnover in Georgia.
Example 2: Providing Services to Foreign Clients
Suppose you provide consulting services to a client in Ukraine, whether through travel or electronically. These services are considered rendered in Ukraine and are not subject to Georgian VAT. However, you can still reclaim VAT on any related expenses incurred in Georgia.
Special Note on Crypto Assets
According to the Georgian Ministry of Finance’s Public Decision # 201, transactions involving the exchange or transfer of ownership of crypto assets in national or foreign currency are not subject to VAT. This is a crucial point for businesses dealing in digital currencies and related technologies.
Reverse-Charge VAT
The reverse-charge mechanism applies to services provided by non-resident entities to Georgian VAT payers. Under this system, the recipient of the service is responsible for reporting and paying the VAT, rather than the supplier.
Applying the Reverse-Charge Mechanism
Identify Reverse-Charge Transactions: Determine which services from non-residents are subject to the reverse charge.
Calculate Reverse-Charge VAT: Calculate the VAT based on the value of the service received.
Report and Pay VAT: Include the reverse-charge VAT in your monthly VAT return and pay the amount due to the GRS.
Tax Category | Rate | Tax Base | Reporting Period | Key Points & Exemptions |
Value Added Tax (VAT) | 18% | Turnover | Monthly | Applies to goods/services within Georgia. |
Reverse VAT | 18% | Compensation for non-resident services | Monthly | Specific services deemed as rendered in Georgia. |
VAT for Digital Services and Foreign Businesses
Foreign digital service providers, pay attention! If you don’t have a permanent establishment or habitual residence in Georgia but still offer digital services to Georgian residents, you’re required to declare and pay VAT in Georgia.
What Counts as a Digital Service Rendered in Georgia?
Your digital services are subject to Georgian VAT if any of these conditions are met:
Financial Institutions: The account used to pay for your services is with a Georgian financial institution or processed through a Georgian electronic financial operator.
Service Recipient’s Location: Your customer is physically located in Georgia when receiving the service.
IP Address: The device used to access your service has a Georgian IP address.
Phone Code: The phone number used for purchasing or paying for the service is registered in Georgia.
These criteria ensure that any digital service connected to Georgia is taxed appropriately under local laws.
Note: For individuals, foreign-sourced income is subject to income tax in Georgia, and in some cases, it may also be subject to VAT if it is related to goods or services consumed in Georgia.
VAT Calculation and Payment
Since October 1, 2021, foreign digital businesses have been required to calculate and pay VAT on services provided to individuals in Georgia. The obligation kicks in as soon as one of the qualifying conditions is met.
Quarterly Reporting and Payment Schedule
Compliance involves regular reporting and timely payment:
Reporting Periods: VAT returns must be submitted quarterly, by the 20th day of the month following the end of each quarter. The periods are:
1st Quarter: January 1 - March 31
2nd Quarter: April 1 - June 30
3rd Quarter: July 1 - September 30
4th Quarter: October 1 - December 31
Payment Deadlines: Payments are due by the end of the month following each reporting period. For example, for services provided in the first quarter, the VAT payment is due by April 30.
Accepted Currencies: You can pay in US Dollars (USD), Euros (EUR), or Georgian Lari (GEL), offering flexibility for international transactions.
Additional Tips for VAT Success
Keep Meticulous Records: Maintain detailed records of all your transactions, including invoices, receipts, and payment records. This will simplify the VAT reporting process and help you avoid errors.
Seek Professional Guidance: If you're unsure about any aspect of VAT, don't hesitate to consult with a tax advisor or accountant specializing in Georgian tax law. They can provide expert advice tailored to your specific situation.
By understanding the nuances of Georgian VAT and following best practices, you can ensure your business operates smoothly and efficiently while complying with all tax regulations.
Quick Facts - VAT Registration in Georgia
Topic | Details |
VAT Registration Services | Yes, our specialists offer VAT registration assistance. |
Standard VAT Rate | 18% |
Lower VAT Rates | Not applicable |
Who Needs VAT Registration | Entities with income from goods/services sales in Georgia, importers, non-residents trading goods in Georgia without local VAT registration. |
Time Frame for Registration | Within a day for online procedures. |
VAT for Real Estate Transactions | 18% |
VAT Exemptions | Financial services, oil/gas operations, some medical/educational services, tourist services for foreigners. |
Filing Period | Monthly |
VAT Returns Support | Yes |
VAT Refund | Automatic for overestimated amounts, or via form with the Revenue Service. |
Local Tax Agent Required | No |
VAT Collection Authority | Georgian Revenue Service |
Documents for VAT Registration | Application form, registration date, reasons for registration, company documents, voluntary or mandatory registration (mandatory if taxable turnover reaches GEL 100,000 in 12 months). |
VAT Number Format | 9 digits for legal entities and non-residents, 11 digits for taxable Georgian companies. |
VAT De-registration Situations | Liquidation, death of individual, non-performance of business (insufficient taxable amount). |
Threshold for Mandatory VAT Registration | Taxable turnover of GEL 100,000 in 12 months. |
VAT Exempt Goods | Certain medical products/services, certain education services, financial services, etc. |
VAT Obligations for Foreign Online Businesses | Mandatory for online businesses registered or operating in Georgia, including non-resident companies since 2021. |
VAT Exempt Companies | Micro-businesses |
Annual Tax Obligations | Small and micro-businesses must file by April 1 of the following year. Final returns due within 30 working days of closure. |
Tax Legislation | Georgian Tax Code |
Digital Services VAT | Mandatory for digital services providers since 2021, including non-residents. Place of supply determined by recipient location, IP address, financial transaction operator location, or telephone code. |
Types of Digital Services Charged with VAT | Telecommunication, broadcasting, electronically supplied services. |
Currencies for VAT Payment | GEL, EUR, USD |
VAT Registration Method | Online |
VAT Deduction Eligibility | Activities regulated under Article 172 of the Georgia Tax Code. |
VAT Calculation Time | At the moment of supply, in most cases. |
Other Business Taxes | Customs duty, excise tax, corporate tax, property tax. |
Type of VAT | Indirect tax, charged at various stages of production/sale. |
Take the Next Step
Are you ready to take control of your VAT obligations and unlock the full potential of your business in Georgia? Don't navigate the complex world of VAT alone. Contact our team of experienced tax professionals for personalized guidance and support. We'll help you streamline your VAT processes, maximize your deductions, and minimize your tax burden. Get in touch today and let us be your trusted partner in VAT compliance.
Frequently Asked Questions (FAQs)
How do I pay VAT in Georgia?
To pay VAT in Georgia, you must file the VAT Return using Form №III-035, which pertains to Digital Services. Once you've submitted this form, the payment process begins. The deadline to pay VAT is the last day of the month following the end of your reporting period.