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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.