Virtual Zone and International Company Status: Impact on Accounting & Taxation
- Tinatin Tolordava
- May 30
- 9 min read
Table of contents
Why Georgia is Suddenly on Every Entrepreneur’s Radar
Low taxes. Fast registration. Full remote flexibility.
If you're in tech, consulting, or digital services, you’ve probably already heard Georgia mentioned as a go-to destination for relocating your business. And no, we’re not talking about Atlanta. We’re talking about the Republic of Georgia, nestled between Europe and Asia, where digital entrepreneurs are turning tax burdens into tax savings.
At the heart of this shift are two special statuses: Virtual Zone and International Company. Each offers game-changing tax incentives, but the rules, benefits, and obligations differ. If you’re not clear on how this affects your accounting, payroll, and compliance, you’re leaving money (and risk) on the table.
Let’s break it all down: practically, clearly, and with enough detail to actually help you decide what’s right for your business.
Quick Overview: What’s So Special About Georgia’s Tax System?
Georgia runs on a territorial tax model. That means income is only taxed if it's earned inside the country. If you're working with clients in the US, UK, EU, or anywhere else, you can keep your corporate profits tax-free under the right status.
Here’s what else makes the system attractive:
Flat 15% corporate income tax, but only on distributed profits
No tax on retained earnings
Personal income tax capped at 20%
Dividend tax: just 5%
0% tax on foreign-sourced income if you qualify for Virtual Zone or International Company status
What Is Virtual Zone Status? And Who Qualifies?
The Virtual Zone is designed specifically for IT and software businesses. If your company develops software, manages cloud-based systems, or provides digital services to clients abroad, this is for you.
With VZ status, you get:
0% corporate tax on all foreign-sourced income
0% VAT on digital services sold internationally
No need for a physical office or local employees
Remote-friendly setup with full legal backing
But there are catches. If you earn even a small amount from local clients, that portion of your income will be taxed at Georgia’s standard 15% corporate tax and 18% VAT.
You still need to handle accounting, payroll, and declarations like any other company. Here’s a full breakdown of what bookkeeping and accounting in Georgia actually involves.
What Is International Company Status?
This is the upgrade. It’s for IT or maritime companies that have been operating for at least 2 years and want deeper tax benefits.
To qualify, you need:
An LLC or JSC legally registered in Georgia
A physical office
A local team performing your income-generating activities
Here’s what you get in return:
5% corporate income tax on distributed profits
0% dividend tax
0% property tax on qualifying assets
5% payroll withholding tax
Unlike the Virtual Zone, this status isn’t for side hustles or 1-person teams. It’s built for companies that want a long-term, growth-friendly base in Georgia. And it comes with stricter compliance expectations.
Accounting Implications: What You Really Need to Know
Tax exemptions sound great, until you forget a monthly declaration or misreport VAT. That’s when fines hit. And they hit fast.
Here’s what you’re still responsible for as a VZ or IC company:
Monthly declarations (income, reverse VAT, payroll if hiring locally)
Annual financial statements
Dividend distributions (and taxation where applicable)
Employee income tax and pension contributions if hiring in Georgia
Reverse VAT obligations on foreign service purchases
If you’re working with contractors abroad, your Georgian accountant won’t always know how to classify them. That’s why it's essential to have an accountant who understands your business model, not just Georgian tax law.
If you don’t know whether your online ad purchases, SaaS subscriptions, or foreign contractors count as VATable transactions, you’re already taking risks.
Virtual Zone or International Company: Which One Fits You?
Here’s where most founders get stuck.
Both the Virtual Zone and International Company statuses in Georgia offer powerful tax benefits, but they’re built for very different types of businesses. Choose wrong, and you risk losing access to 0% tax on foreign income or getting stuck with unnecessary paperwork and overhead.
Let’s make this simple.
Choose Virtual Zone Status if you:
You’re a freelancer, small remote team, or early-stage startup
You work exclusively with foreign clients (outside of Georgia)
You want to operate 100% online with no office requirement
You’re looking for a low-maintenance, fast setup
You don’t plan to hire locally in Georgia, for now
Why it works:
Virtual Zone status gives you 0% corporate tax on foreign income and 0% VAT on digital services. It’s ideal for software developers, consultants, SaaS founders, and tech freelancers who bill clients abroad and run lean. No office leases. No forced local hiring. Just a legal Georgian LLC and a government-issued certificate that confirms your special tax status.
And yes, you can manage everything remotely.
Choose International Company Status if you:
You have at least 2 years of operational track record
You’re ready to build a team in Georgia and hire locally
You want to rent or buy office space to show real economic presence
You’re aiming for more structured, long-term operations
You’re okay with more compliance, filings, and oversight
Why it works:
International Company status is perfect for growing tech firms that want to benefit from Georgia’s 5% corporate tax, 0% dividend tax, and 0% property tax on qualifying assets. But unlike Virtual Zone, this status requires a physical presence. That means setting up an office, employing people, and demonstrating that your team is doing the core work in Georgia.
It’s not for everyone, but if you qualify, the long-term tax benefits can outweigh the extra effort.
Still unsure which path fits your business?
You’re not alone. Many companies find themselves somewhere in between: starting remote, then scaling locally. Or building software in Georgia while managing marketing from abroad. That’s where it gets tricky.
At Gegidze, we help you assess your structure, qualify for the lowest legal tax outcome, and handle all registration, reporting, and compliance steps. Whether you’re opening a digital nomad LLC or expanding into a full-scale tech hub, we’ll guide you every step of the way.
Payroll & Hiring: What Happens If You Add Employees?
With Virtual Zone, you’re not required to hire anyone locally. But if you do, things change. You’ll need to:
Register for payroll and withholding tax
Deduct 20% income tax plus 2% pension from salaries
Pay your own 2% employer pension contribution
If you’re working with international contractors, it depends on where they live and how long they spend in Georgia. Tax residency kicks in at 183 days, and so do personal income tax rules.
Hiring in Georgia? You need to know how withholding, tax residency, and double tax treaties affect your payroll strategy. Here’s a practical guide on managing payroll in Georgia.
Double Tax Treaties and Why They Matter
Georgia has treaties with over 50 countries: including the US, UK, Germany, and most of the EU. This helps you avoid being taxed twice on the same income.
But treaties don’t apply automatically. You must file the right paperwork, prove your tax residency, and track days spent in Georgia vs abroad.
If your home country doesn’t recognize Georgia as your primary tax base, your “tax-free” dividends might come back to haunt you. Especially in places like Germany, where global income rules are aggressively enforced.
Don’t rely on a treaty you haven’t actually filed for.
Tax Residency in Georgia: Don’t Get Caught Off Guard
Let’s be clear: tax residency is not the same as legal residency or immigration status. In Georgia, you become a tax resident the moment you spend 183 days in the country during any 12-month period. No paperwork required. It just happens.
Why does that matter?
Because once you cross the 183-day threshold, Georgia can claim tax rights over your worldwide income. If you’ve already paid taxes elsewhere, that opens the door to complex reporting, and in some cases, double taxation if not managed properly.
Want to avoid that? Then:
Track your time in Georgia precisely
Align your business income with your personal residency strategy
Get a tax residency certificate if needed for treaty protection
Work with a team who can help you plan before you stay too long
It’s surprisingly easy to trigger tax obligations in two countries at once—especially if your bank accounts or company are based in Georgia, but your home country still sees you as a resident.
VAT, Reverse VAT, and Foreign Purchases
If you’re a Virtual Zone or International Company, you might think VAT doesn’t concern you. But Georgia’s tax law has a twist: Reverse VAT.
Whenever you buy services from abroad, think software subscriptions, cloud storage, marketing tools, you’re required to submit a reverse VAT declaration at 18%, even if you didn’t actually pay VAT to the foreign supplier.
Yes, even if your vendor is in the US.
And if you’re VAT-registered in Georgia, that reverse VAT can often be refunded. But if you’re not? It becomes a cost.
Here’s what you need to do:
Keep receipts and invoices for all foreign service purchases
Work with a local accountant to declare reverse VAT monthly
If VAT-registered, claim eligible expenses properly
Don’t wait until the Revenue Service audits you
Still unsure? That’s what we’re here for. Our team manages reverse VAT declarations as part of our tax compliance packages.
Dividend Tax: 5% Sounds Great, But...
Georgia taxes dividends at a flat 5% when they’re distributed. Sounds like a win. But there’s a catch: your home country may want a piece too.
If you’re a tax resident in another country, that 5% might not be the final stop. For example:
A German resident receiving dividends from a Georgian VZ company could be taxed again in Germany at 25%+
A UK tax resident may have to declare foreign income even if it was taxed at source
Some countries allow a credit for the 5% you paid in Georgia, but only if a treaty applies and proper paperwork is filed
The solution? Either delay dividends until you qualify as a tax resident in Georgia or get ahead of it with a clean structure and clear residency plan.
At Gegidze, we review your tax status before distributions happen. Not after.
Compliance Mistakes That Cost Real Money
Here’s what we’ve seen go wrong: over and over again:
Registering too late for Virtual Zone or International Company status
Missing monthly declarations (especially for reverse VAT)
Earning Georgian-sourced income but failing to declare and pay 15% corporate tax + 18% VAT
Not tracking foreign contractors correctly under payroll and tax rules
Paying dividends to non-residents without checking double taxation risk
Assuming the 1% tax regime applies to you when it doesn’t (spoiler: only individual entrepreneurs get that, and only under strict rules)
If you want a fast-growing business in Georgia, these details matter.
We’ve cleaned up more than one client’s fines and penalties before onboarding them to our ongoing service. Don’t let that be you.
How Gegidze Keeps You Legally Tax-Optimized
This isn’t just paperwork. It’s your money. And your legal risk.
Our tax team offers:
End-to-end company registration, including LLC and JSC formation
Virtual Zone and International Company status applications, with a 90%+ approval rate
Monthly accounting and tax filing, so you never miss a deadline
Reverse VAT handling and smart VAT registration strategies
Dividend distribution planning tailored to your tax residency
Payroll setup and compliance if you hire locally or remotely
Strategic tax planning based on your business model and personal goals
We work with founders, solopreneurs, and remote-first teams across the EU, US, Canada, the UK, and more.
Final Thoughts: VZ and IC Are Powerful, If You Get It Right
The Virtual Zone and International Company programs are two of the best tax tools in Europe right now. But they aren’t magic. They require careful setup, constant compliance, and real expertise to work as intended.
Don’t DIY your way into tax trouble.
If you're serious about building a lean, borderless business from Georgia, let us guide the way. We’ve done this for hundreds of entrepreneurs and we’ll do it for you.
Book your free consultation with Gegidze today and let’s make your tax setup as smart as your product.
Frequently Asked Questions (FAQ)
Can I get Virtual Zone status if I don’t live in Georgia?
Yes. You don’t need to live in Georgia or be a tax resident to apply. You only need a registered company in Georgia and a qualifying IT-related business activity. However, having a Georgian tax-resident director or local operations can improve your chances of approval.
