IT Company Status vs. Virtual Zone Status: Which 0% or 5% Tax Regime is Best for Your Tech Company?
- Jan 5
- 9 min read
Table of contents
TL;DR. Which Regime Is Best for Your Tech Company
Introduction. Why Most Tech Founders Choose the Wrong Tax Regime in Georgia
A Reality Check. These Two Regimes Are Not Competing Incentives
What Virtual Zone Status Actually Is
What IT (International Company) Status Actually Is
How Banks See These Two Regimes
Comparison Table. Virtual Zone vs IT Company Status
The Real Cost Difference
Edge Cases, Switching Regimes, Audits, and Crypto Reality
Switching from Virtual Zone to IT Company Status. Yes, It’s Possible
Crypto and Web3 Companies
Banking Stability. Why Regime Choice Matters Long After Approval
Founder Decision Checklist. Which Regime Fits Your Company?
Frequently asked questions (FAQs)
TL;DR. Which Regime Is Best for Your Tech Company
Virtual Zone is best if:
you export software
you have low payroll
you reinvest profits
you distribute dividends rarely
IT Company Status is best if:
you employ people
payroll is a major cost
you run outsourcing or staff augmentation
you want banking stability at scale
The wrong choice does not hurt immediately.It hurts once you grow.
Introduction. Why Most Tech Founders Choose the Wrong Tax Regime in Georgia
Georgia is often marketed as a “low-tax tech hub,” but that framing causes more confusion than clarity.
Founders usually arrive with one question.“Should I go for the 0% Virtual Zone or the 5% IT Company Status?”
On paper, the answer seems obvious. Zero beats five.In reality, that logic fails fast once payroll, dividends, banking, and compliance enter the picture.
Virtual Zone Status and IT (International Company) Status were created for different types of tech businesses. They are not substitutes. They solve different cost structures, and banks treat them differently.
This is why many software companies, IT outsourcing firms, and Web3 teams end up restructuring a year later. The regime looked perfect on day one. It broke under scale.
This guide exists to prevent that mistake.
A Reality Check. These Two Regimes Are Not Competing Incentives
Virtual Zone and IT Company Status are often compared because both reduce taxes. That’s where the similarity ends.
Virtual Zone is built for exported software and product development.IT Company Status is built for operational tech businesses with teams.
If your company earns revenue but employs people, the difference matters immediately.
If your company reinvests profits and pays salaries monthly, the difference compounds every month.
What Virtual Zone Status Actually Is
Virtual Zone Status is a targeted tax regime for software exporters.
It is regulated by the Ministry of Finance and granted through a formal application. Approval is activity-based, not revenue-based.
Who Virtual Zone Is Designed For
Virtual Zone fits companies that:
develop software or digital products
sell those products or services outside Georgia
have limited payroll or founder-heavy structures
reinvest profits rather than distribute them often
Typical profiles:
SaaS startups
product development studios
software engineering firms selling IP abroad
non-custodial Web3 development teams
Tax Treatment Under Virtual Zone
When approved, the company benefits from:
0% corporate tax on qualifying export income
0% VAT on exported IT services
5% dividend tax when profits are distributed
There is no payroll tax reduction under Virtual Zone. Salaries are taxed at the standard Georgian rates.
This is where many founders miscalculate.
What Virtual Zone Does Not Cover
Virtual Zone does not work well for:
IT outsourcing and staff augmentation
BPO or support centers
consulting-heavy tech firms
payroll-intensive operations
companies serving Georgian clients
Banks are also stricter with Virtual Zone companies that:
mix service types
invoice for non-software activity
hire large teams locally
What IT (International Company) Status Actually Is
IT Company Status, often called International Company Status, is an operational tax regime.
It exists to attract companies that employ people in Georgia and serve global markets.
This is why it is heavily used by:
IT outsourcing firms
staff augmentation companies
BPO operations
fintech and platform support teams
tech companies scaling real teams
Tax Treatment Under IT Company Status
Approved companies receive:
5% corporate profit tax
5% personal income tax on salaries
0% dividend tax
possible customs and import benefits in some cases
This is not theoretical. These rates are written into law.
Why Payroll Is the Key Difference
Under standard taxation, salaries in Georgia are taxed at 20% personal income tax.
Under IT Company Status, that drops to 5%.
For a team of 10, 20, or 50 employees, this single difference outweighs the entire 0% vs 5%corporate tax debate.
How Banks See These Two Regimes
This part is rarely discussed publicly, but it matters.
Banks in Georgia do not approve accounts based on slogans. They approve them based on predictability.
Virtual Zone companies are expected to:
have clear export income
limited transaction complexity
minimal payroll relative to revenue
IT Company Status companies are expected to:
pay salaries regularly
have substance in Georgia
operate as structured service providers
For payroll-heavy companies, banks often feel more comfortable with IT Status than Virtual Zone.
This affects:
onboarding speed
long-term account stability
Comparison Table. Virtual Zone vs IT Company Status
Category | Virtual Zone Status | IT Company Status |
Corporate tax | 0% on export income | 5% |
VAT on exports | 0% | 0% |
Dividend tax | 5% | 0% |
Salary income tax | 20% | 5% |
Best for | Product & SaaS | Outsourcing & teams |
Payroll efficiency | Low | Very high |
Bank perception | Neutral to cautious | Strong |
Scale suitability | Early to mid | Mid to large |
Staff augmentation | Poor fit | Excellent fit |
The Real Cost Difference
Example 1. SaaS Company (5 Developers)
Revenue: €500,000
Payroll: €150,000
Dividends: none
Virtual Zone
Corporate tax: 0
Payroll tax: 20%
Total tax cost: high on salaries
IT Company Status
Corporate tax: 5% = €25,000
Payroll tax: 5%
Net result: IT Status costs less overall
Zero corporate tax did not win.
Example 2. IT Outsourcing Firm (25 Employees)
Revenue: €1,200,000
Payroll: €750,000
Dividends: moderate
Virtual Zone
Corporate tax: 0
Payroll tax: 20% → €150,000
IT Company Status
Corporate tax: €60,000
Payroll tax: 5% → €37,500
Difference: IT Status saves over €110,000 annually.
This is why outsourcing firms almost never stay on Virtual Zone.
Example 3. Founder-Led Product Company
Revenue: €300,000
Payroll: minimal
Dividends: occasional
Virtual Zone
Near-optimal
Effective tax close to 5% total
IT Company Status
Slightly higher overall
Virtual Zone wins here.
Edge Cases, Switching Regimes, Audits, and Crypto Reality
When Virtual Zone Starts to Break. The Payroll Problem
Virtual Zone works beautifully on paper until a company starts hiring.
The moment payroll becomes a meaningful percentage of revenue, the tax advantage begins to erode. Virtual Zone does not reduce employment taxes. Salaries are still taxed at the standard 20 percent personal income tax rate, plus mandatory social components.
This creates a quiet mismatch. The company enjoys 0 percent corporate tax, but every new hire increases fixed monthly tax costs. For a five-person team, this is manageable. For a twenty-person team, it becomes material. For a fifty-person team, it becomes painful.
This is the point where founders often say, “Virtual Zone looked perfect, but cash flow feels tight.”
Nothing is broken. The structure is simply no longer aligned with the business reality.
When IT Company Status Becomes Risky Instead
IT Company Status has its own edge cases. It is not a free pass.
The status assumes real operational substance. Banks and the Ministry of Finance expect to see employees, ongoing activity, and a clear link between revenue and services provided from Georgia.
Problems arise when:
a company applies with minimal staff
revenue is high but payroll is symbolic
the business looks like a shell designed only for tax reduction
In those cases, approval can be delayed, or worse, later revoked during review.
IT Company Status works best when payroll is not artificial. It is designed for companies that actually operate.
Switching from Virtual Zone to IT Company Status. Yes, It’s Possible
Many tech companies start in Virtual Zone and later switch to IT Company Status. This is normal. It is not a red flag.
However, the timing matters.
Switching is easiest when:
the company has not distributed profits recently
accounting is clean
payroll has already increased
revenue sources are stable
Switching becomes risky when:
dividends were paid recently under Virtual Zone
accounting treatment is inconsistent
activities changed without updating registration
VAT positioning is unclear
There is no automatic migration.
A new application is required. During that process, tax authorities review historical activity. This is why planning the switch before scaling aggressively is always safer than reacting late.
Can You Hold Both Statuses? No. And That’s Important
A company cannot hold Virtual Zone and IT Company Status at the same time.
Trying to “blend” benefits is one of the fastest ways to trigger audit attention. The Georgian system is flexible, but it is strict about classification. One company. One regime. One logic.
Some founders attempt workarounds with multiple entities. This can work, but only with proper transfer pricing, substance, and banking separation. Without that, risk increases fast.
How Audits Actually Happen in Practice
Georgia does not audit aggressively, but audits are targeted.
Virtual Zone audits usually focus on:
whether income is truly export-based
whether activity is genuinely software or IT services
whether Georgian clients exist
whether VAT exemption was applied correctly
IT Company Status audits usually focus on:
payroll levels
substance and staffing
consistency between declared activity and real operations
salary tax treatment
What auditors look for first is not numbers. It is logic.
If the story makes sense, audits tend to be procedural.If the story does not make sense, audits expand.
This is why regime choice is not only about tax rates. It is about audit survivability.
Crypto and Web3 Companies
Crypto companies sit at the edge of both regimes.
Virtual Zone can work for:
blockchain development
protocol engineering
smart contract work
tooling and analytics
non-custodial Web3 services
IT Company Status can work for:
crypto outsourcing teams
Web3 support operations
fintech-adjacent service companies
blockchain companies with larger teams
Where problems arise is custody and transaction handling.
If a company:
holds client crypto
facilitates transfers
runs exchange-like functions
touches fiat-to-crypto conversion directly
then neither regime alone solves compliance. Banks will expect VASP-style documentation regardless of tax regime. This is where founders confuse “crypto license in Georgia” with banking approval.
Georgia does not issue a single universal crypto license, but banks expect AML logic. If that logic is missing, no tax regime will save the onboarding.
Banking Stability. Why Regime Choice Matters Long After Approval
Many founders think tax status matters only to the Revenue Service. In practice, banks monitor it continuously.
Banks prefer:
IT Company Status for payroll-heavy operations
Virtual Zone for product-based exporters
consistency between tax filings and transaction patterns
When a Virtual Zone company suddenly starts processing large monthly payroll, compliance teams notice.
When an IT Company Status entity shows minimal salaries and high dividends, compliance teams notice.
Accounts are rarely frozen suddenly. They are reviewed, questioned, and sometimes restricted. Clean alignment prevents that.
Founder Decision Checklist. Which Regime Fits Your Company?
Ask yourself:
Is more than 30 percent of my costs payroll?
Do I employ developers or support teams in Georgia?
Is my revenue service-based or product-based?
Do I distribute dividends regularly?
Do banks need to see operational substance?
Do I expect to scale headcount in the next 12 months?
Is my income purely export-based?
Does my activity include crypto custody or transactions?
If payroll and scale matter, IT Company Status usually wins.If IP and exports dominate, Virtual Zone often fits better.
Choosing between Virtual Zone and IT Company Status is not a paperwork decision. It is a structural one that affects your taxes, banking stability, hiring costs, and audit risk for years.
Most mistakes happen not because founders pick the “wrong” regime, but because they pick without running the numbers or understanding how Georgian banks and tax authorities interpret their business model.
A short conversation at the right moment can save tens of thousands in unnecessary tax and prevent painful restructuring later.
If you want to know which regime actually fits your company today and how that choice will hold up as you scale, book a free consultation with Gegidze and get a clear, no-guesswork answer tailored to your tech business.
Frequently asked questions (FAQs)
Is Virtual Zone always better than IT Company Status because it is 0 percent tax?
No. Virtual Zone offers 0 percent corporate tax only on qualifying export income, but salaries are still taxed at the standard 20 percent rate. For companies with teams, IT Company Status often results in lower total tax due to the 5 percent salary tax and 0 percent dividend tax.
Which regime is better for IT outsourcing and staff augmentation companies?
IT Company Status is almost always better. Outsourcing firms are payroll-heavy. The 5 percent personal income tax under IT Company Status typically saves significantly more than the 0 percent corporate tax under Virtual Zone.
Can a company switch from Virtual Zone to IT Company Status later?
Yes. Many companies do. However, switching requires a new application and clean historical accounting. It is safest to plan the switch before payroll scales aggressively or dividends are paid.
Do Georgian banks prefer one regime over the other?
Banks generally prefer IT Company Status for operational companies with staff, and Virtual Zone for product or IP-driven exporters. Banking approval depends on alignment, not prestige.
Can crypto or Web3 companies use Virtual Zone or IT Company Status?
Yes, for development and service-based activities. Custodial or exchange-like activity requires additional compliance regardless of regime. Banks focus on AML clarity, not labels.
Does choosing the wrong regime increase audit risk?
Yes. Misalignment between activity, payroll, and tax regime is one of the main triggers for deeper audits. The correct regime reduces both tax cost and audit exposure.
