Virtual Zone Status (VZS) for IT in Georgia: 0% Corporate Tax on Foreign Income and How to Qualify in 2026
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- 13 min read
Table of contents
TL;DR: Virtual Zone Status in Georgia in 2026
Introduction
What Virtual Zone Status Actually Is (And What It Is Not)
The Foundation: Why Virtual Zone Status Only Works With an LLC
Dividend Tax Under Virtual Zone Status: What Happens When You Distribute Profits?
The Core Rule: 0% Corporate Tax Applies to Foreign-Sourced IT Income
What Qualifies as IT Activity Under Virtual Zone Status
The Practical Process: From LLC to Virtual Zone Approval
What Taxes Still Apply Under Virtual Zone Status?
Substance Requirements in 2026: Why Virtual Zone Is Not a Paper Regime
Virtual Zone Status vs. Individual Entrepreneur (1% Tax)
The Bigger Picture: Virtual Zone as a Corporate Tool
How Gegidze Supports Virtual Zone Companies
Frequently Asked Questions (FAQs)
TL;DR: Virtual Zone Status in Georgia in 2026
Virtual Zone Status (VZS) is a corporate tax regime in Georgia designed for export-oriented IT companies.
If you register a Georgian LLC and qualify under the IT development criteria, your company may apply:
0% corporate income tax on qualifying foreign-sourced IT income
5% dividend tax upon distribution
Standard 20% payroll income tax for employees
VAT Georgia rules may still apply depending on turnover and activity
Virtual Zone Status does not apply to individuals.It requires a properly registered LLC, a corporate TIN Georgia, and genuine IT development activity.
It works best for SaaS companies, software developers, and IT exporters serving foreign clients.
When structured correctly, it creates one of the most competitive corporate tax environments in the region. When structured incorrectly, it creates compliance risk.
Introduction
If you’ve been researching how tech companies use Georgia to legally reduce corporate tax, you’ve probably seen bold claims about “0% tax” and “Virtual Zone Status.”
Some of those claims are accurate. Many are incomplete. A few are simply wrong.
Virtual Zone Status (VZS) is one of the most powerful corporate tax regimes in Georgia. But it only works when you understand three things clearly:
It is a corporate regime, not a personal one.
It only applies to qualifying IT activities.
It has no meaning without opening a Georgian LLC.
This guide explains exactly what Virtual Zone Status is, how 0% corporate tax on foreign income actually works, why LLC registration is essential, and what you must do to qualify and stay compliant.
What Virtual Zone Status Actually Is (And What It Is Not)
Virtual Zone Status is a special corporate tax regime introduced by the Georgian government to support IT exports.
At its core, it allows a qualifying IT company registered in Georgia to pay 0% corporate income tax on foreign-sourced income derived from eligible IT services.
That’s the promise.
But before we go further, let’s clear up the most common misunderstandings.
Virtual Zone Status is not:
A personal tax residency solution
Georgia tax residency for individuals
An individual entrepreneur in Georgia
A Georgia freelance visa
Georgia e residency
It is a corporate export incentive granted to a Georgian legal entity, most commonly a Limited Liability Company (LLC).
If you are operating as an individual entrepreneur, this regime does not apply to you.If you are looking for personal income tax benefits, you are looking at the wrong tool.
Virtual Zone Status lives entirely in the corporate tax space.
And that’s exactly why it’s powerful.
The Foundation: Why Virtual Zone Status Only Works With an LLC
You cannot “get” Virtual Zone Status as a person, apply for it without a registered company, or invoice under VZS without a corporate structure.
Virtual Zone Status is granted to a Georgian-registered company. In practice, this means you must first open an LLC in Georgia.
The LLC is the legal infrastructure and Virtual Zone Status is a tax status layered on top of it.
When you register an LLC in Georgia:
You create a separate legal entity.
The company receives a corporate TIN Georgia.
It obtains an official TIN number Georgia for tax purposes.
It can open a corporate bank account.
It can enter into contracts.
Only after this structure exists can you apply for Virtual Zone Status.
An individual entrepreneur in Georgia cannot obtain VZS. That structure falls under different rules, including Small Business Status Georgia, which offers a 1% turnover tax regime. Useful for freelancers, yes. Relevant for Virtual Zone? No.
If you are serious about 0% corporate tax on foreign IT income, the starting point is simple: Register the LLC correctly.
Because Virtual Zone Status depends entirely on proper LLC formation, mistakes at the registration stage can affect approval later. Defining the company’s activity correctly, structuring shareholders properly, and aligning documentation from day one significantly increases approval stability.
This is why professional help from the Gegidze team with structuring and registration is important.
How Corporate Tax Works in Georgia (Before Virtual Zone)
To understand how Virtual Zone Status benefits you, you need to understand how corporate tax normally works in Georgia.
Georgia uses a distributed profit tax model.
Unlike many countries where corporate tax is calculated on annual profits, Georgia taxes companies when profits are distributed, not when they are earned.
In other words:
If profits are reinvested, no corporate tax is triggered.
When profits are distributed as dividends, corporate income tax applies.
This system is already competitive. But Virtual Zone Status goes further.
For qualifying IT companies, income derived from eligible foreign IT services may be taxed at 0% corporate income tax, even when distributed.
That is what makes Virtual Zone Status attractive to export-focused tech businesses.
However, Virtual Zone Status only applies to qualifying income. It does not automatically apply to everything your company does.
Which brings us to the most important requirement.
Dividend Tax Under Virtual Zone Status: What Happens When You Distribute Profits?
Virtual Zone Status in Georgia allows qualifying IT companies to apply 0% corporate income tax on foreign-sourced IT income. That is the headline.
But corporate taxation and shareholder taxation are not the same thing.
Even if your Georgian LLC operates under Virtual Zone Status and pays 0% corporate income tax on qualifying export IT revenue, dividend distributions to shareholders are generally subject to a 5% withholding tax in Georgia.
Here is how it works in practice.
When your Virtual Zone company earns qualifying foreign IT income:
The company pays 0% corporate income tax on that income.
Profits can remain inside the company without triggering corporate taxation.
Reinvestment of retained earnings remains tax-efficient.
However, when those profits are distributed to shareholders as dividends, a 5% dividend tax applies.
This 5% rate is significantly lower than dividend taxation in many EU jurisdictions and is one of the reasons Virtual Zone Status in Georgia remains attractive for export-oriented IT companies.
Why This Structure Matters
The combination of:
0% corporate income tax on qualifying foreign IT income
5% dividend tax upon distribution
creates a two-layer tax model that is both predictable and competitive.
It allows companies to:
Accumulate and reinvest profits tax-efficiently
Control timing of distributions
Maintain operational flexibility
It also ensures the regime remains transparent and aligned with Georgia’s broader corporate tax framework.
Important Clarification
Virtual Zone Status does not eliminate dividend taxation.
It reduces corporate income tax to 0% for qualifying export IT revenue, but shareholder-level taxation still applies when profits are distributed.
This distinction is critical for founders structuring long-term cash flow, investment strategies, and cross-border tax planning.
If you are evaluating Virtual Zone Status purely based on “0% tax,” you are only looking at half the picture. The full structure includes dividend taxation and must be analyzed together.
The Core Rule: 0% Corporate Tax Applies to Foreign-Sourced IT Income
Virtual Zone Status applies to income derived from eligible IT activities provided to foreign clients.
Two words matter here: IT activity, and foreign-sourced income.
If your company develops software for clients based outside Georgia, that revenue may qualify for 0% corporate tax under VZS.
If your company builds a SaaS platform used by international customers, that revenue may qualify.
If your company develops custom software for a German or US business and invoices from Georgia, that income may qualify.
But if you provide IT services to Georgian clients, that income does not fall under the 0% regime.
The export element is essential.
Georgia introduced Virtual Zone Status to promote IT exports, not domestic services.
This is why the structure must reflect reality. If your client base is primarily Georgian, VZS is unlikely to be the right tool.
What Qualifies as IT Activity Under Virtual Zone Status
Not all digital activity qualifies.
The law focuses on genuine IT development and related technical services.
Qualifying activities typically include:
Custom software development
Web application development
Mobile application development
SaaS product development
Database design and architecture
System engineering
Software testing and maintenance
IT infrastructure development
What does not qualify?
Pure business consulting without development
Digital marketing services
Hardware trading
E-commerce operations
General outsourcing unrelated to IT development
Authorities look at the substance of the activity. If your company describes itself as “technology consulting” but does not actually develop software, your application may face questions.
This is why defining the company’s activity correctly at the LLC registration stage holds strategic importance.
Virtual Zone Status Does Not Eliminate VAT Georgia
Many founders ask: But what about VAT?
Virtual Zone Status affects corporate income tax. It does not eliminate VAT Georgia obligations.
VAT and corporate income tax are separate systems.
If your LLC exceeds the VAT registration threshold, you must register for VAT in Georgia, even if you have Virtual Zone Status.
For exported IT services, VAT treatment often differs from domestic services. In many cases, exports may fall under reverse charge mechanisms or zero-rated treatment depending on structure and client location.
But the key point is this: 0% corporate income tax does not mean 0% tax across the board.
You must analyze VAT Georgia exposure independently.
Ignoring VAT is one of the most common compliance mistakes made by newly approved Virtual Zone companies. Proper bookkeeping and tax accounting are part of maintaining the 0% regime safely. Ongoing compliance support from Gegidze is just as important as initial registration.
The Practical Process: From LLC to Virtual Zone Approval
Understanding the structure is important. Knowing the process is essential.
Here is how it works in practice.
Step 1: Register the Georgian LLC
You begin by registering your company with the help from the Gegidze team.
Upon registration, your company receives a corporate TIN Georgia and official TIN number Georgia.
Without this, nothing moves forward.
Step 2: Open a Corporate Bank Account
Before or alongside the VZS application, you will typically need to open a corporate bank account.
Banks in Georgia apply structured compliance checks. Procedures such as Bank of Georgia KYC involve:
Source of funds verification
Business model review
Shareholder background checks
Preparation matters. The bank will expect your declared IT activity to align with your documentation.
Step 3: Prepare Virtual Zone Application
Once the LLC is operational, an application for Virtual Zone Status should be submitted.
This requires:
Clear description of IT activities
Evidence of development capability
Explanation of foreign client focus
Authorities evaluate whether your activity genuinely qualifies under IT export criteria.
Step 4: Receive Approval and Maintain Compliance
After approval, your company can apply 0% corporate income tax to qualifying foreign IT income.
From that point forward, compliance becomes ongoing:
Proper invoicing
Accurate accounting
Clear separation of foreign and domestic income
VAT compliance where applicable
Virtual Zone Status in Georgia is not a shortcut, it is a structured corporate tax tool designed for export-oriented IT companies.
What Taxes Still Apply Under Virtual Zone Status?
Virtual Zone Status in Georgia provides one major advantage: 0% corporate income tax on qualifying foreign IT income.
But it does not eliminate the broader tax framework.
Understanding what still applies is critical if you want to operate confidently and remain fully compliant in 2026.
Here is the complete picture.
1. Dividend Tax: 5% Upon Distribution
Even though qualifying export IT income may be taxed at 0% at the corporate level, profits distributed to shareholders are generally subject to a 5% dividend tax in Georgia.
This means:
Retained earnings can remain in the company without corporate income tax.
Once profits are distributed as dividends, 5% withholding tax applies.
This structure is part of Georgia’s broader corporate tax model and is one of the reasons Virtual Zone Status remains predictable and transparent.
2. Payroll Tax: 20% Personal Income Tax on Salaries
If your IT company hires employees in Georgia, payroll obligations apply.
Employee salaries are subject to:
20% personal income tax
Mandatory pension contributions (where applicable)
Virtual Zone Status does not change payroll taxation.
If you are operating a development team from Georgia, these employment taxes must be accounted for in your cost structure.
3. VAT Georgia: Registration and Reporting May Still Apply
Virtual Zone Status does not automatically remove VAT Georgia obligations.
VAT is a transaction-based tax and operates independently from corporate income tax.
If your company exceeds the VAT registration threshold or conducts taxable transactions under Georgian VAT rules, you may be required to:
Register for VAT
File VAT declarations
Comply with reporting requirements
Exported IT services are typically treated differently from domestic services under VAT Georgia rules. However, registration and reporting obligations may still apply depending on turnover and transaction type.
This is one of the most misunderstood areas of Virtual Zone Status.
0% corporate income tax does not equal automatic VAT exemption.
4. Corporate Compliance and Accounting Obligations
Even under Virtual Zone Status, your LLC must:
Maintain proper bookkeeping
File tax declarations
Keep contracts and invoices
Clearly separate qualifying foreign IT income from domestic revenue
Virtual Zone Status reduces corporate income tax on qualifying income.It does not eliminate corporate compliance responsibilities.
The Full Tax Structure at a Glance
Under Virtual Zone Status in Georgia, a typical IT export company may operate within this framework:
0% corporate income tax on qualifying foreign IT revenue
5% dividend tax upon distribution
20% payroll income tax on employee salaries
VAT Georgia obligations where thresholds or transactions require
When structured properly, this creates one of the most competitive corporate environments for export-oriented IT companies in the region.
Substance Requirements in 2026: Why Virtual Zone Is Not a Paper Regime
In 2026, Virtual Zone Status regime offers 0% corporate income tax on qualifying foreign IT income, but authorities expect real activity.
What does “substance” actually mean in practice?
It means your company must genuinely perform IT development work. And you must be able to prove it.
That proof usually includes:
Signed contracts with foreign clients
Technical documentation
Development workflows
Project records
Invoices that clearly reflect IT services
If your company describes itself as a software developer but cannot demonstrate real development activity, you create risk. And risk defeats the purpose of using Virtual Zone Status in the first place.
If your structure is clean, your documentation is aligned, and your activity matches your registration, Virtual Zone Status works smoothly. If it does not, friction starts appearing, during audits, during banking reviews, or when you scale.
Virtual Zone Status vs. Individual Entrepreneur (1% Tax)
This comparison matters because founders often confuse the two.
Virtual Zone Status is a corporate regime.The individual entrepreneur in Georgia is a personal structure.
Under Small Business Status Georgia, an individual entrepreneur can pay 1% tax on turnover (within thresholds). That works well for freelancers and consultants.
But Virtual Zone Status is different.
It requires:
A Georgian LLC
Corporate accounting
A company structure
And it offers:
0% corporate income tax on qualifying foreign IT income
When does each structure make sense?
If you are a solo consultant providing mixed services, including non-IT, the individual entrepreneur model may be simpler.
If you are building a SaaS product, running a development agency with foreign clients, or planning to scale with employees and contracts, an LLC with Virtual Zone Status is usually the more appropriate structure.
The key difference is scale and structure.
Virtual Zone is built for export-oriented IT companies.Small Business Status Georgia is built for individuals with lower operational complexity.
Choosing the wrong structure at the beginning often leads to restructuring later.
When Virtual Zone Status Makes Strategic Sense
Virtual Zone Status works exceptionally well for companies that:
Develop software for international clients
Operate SaaS platforms with foreign users
Provide IT engineering services to non-Georgian markets
Build scalable digital products intended for export
If your business model is built around international IT services, Georgia’s structure aligns naturally with that model.
You benefit from:
0% corporate income tax on qualifying foreign IT income
A stable regulatory framework
Clear company formation procedures
Predictable corporate taxation rules
When properly structured, it becomes a sustainable operating model.
When It Does Not Make Sense
Virtual Zone Status is not universal.
It is not appropriate for:
Companies serving primarily Georgian clients
Businesses outside the IT sector
Mixed-service agencies where IT is only a minor component
Founders unwilling to maintain compliance and documentation
Trying to force-fit your business into Virtual Zone Status when it does not genuinely qualify creates more problems than it solves.
Because sometimes a standard LLC structure is sufficient, sometimes Small Business Status Georgia under an individual entrepreneur model is more practical.
The Bigger Picture: Virtual Zone as a Corporate Tool
Virtual Zone Status is best understood as a targeted corporate instrument. It is a policy tool designed to attract export-oriented IT companies to Georgia.
When you:
Register your LLC properly
Obtain your TIN Georgia correctly
Define your IT activity clearly
Separate foreign and domestic income
Maintain accounting discipline
Respect VAT Georgia requirements
Virtual Zone Status delivers exactly what it promises: 0% corporate income tax on qualifying foreign IT income.
How Gegidze Supports Virtual Zone Companies
Virtual Zone Status is one of the most competitive corporate regimes in Europe. But it rewards precision.
Incorrect activity description.
Unstructured banking.
Poor accounting discipline.
Those are the risks.
Gegidze structures Virtual Zone companies end-to-end:
Georgian LLC registration
TIN Georgia issuance
Virtual Zone Status application preparation
Corporate bank account coordination
VAT Georgia advisory
Ongoing tax accounting and bookkeeping
Compliance monitoring as your company scales
The goal is to ensure that you register your company correctly, benefit from a competitive tax regime and it remains stable, defensible, and aligned with your business growth.
If you’re considering Virtual Zone Status for your IT company, don’t leave the structure to guesswork.
A short consultation with professionals can clarify whether you qualify, how the 0% corporate tax applies to your exact business model, and what the full setup would look like from LLC registration to ongoing compliance.
Book your free consultation with the Gegidze team and get clear, practical guidance before you make your move.
Frequently Asked Questions (FAQs)
1. What is Virtual Zone Status in Georgia?
Virtual Zone Status in Georgia is a special corporate tax regime for IT companies that export services. It allows qualifying Georgian LLCs to apply 0% corporate income tax on foreign-sourced IT income. It is not a personal tax status and does not apply to individual entrepreneurs.
2. Do I need to open an LLC to obtain Virtual Zone Status?
Yes. Virtual Zone Status can only be granted to a Georgian legal entity, typically an LLC. You must complete proper Georgia LLC registration, obtain a corporate TIN Georgia, and define qualifying IT activity before applying. Individuals and sole traders cannot obtain VZS.
3. Is dividend income tax-free under Virtual Zone Status?
No. While qualifying foreign IT income may be taxed at 0% at the corporate level, dividend distributions are generally subject to a 5% withholding tax in Georgia. The regime combines 0% corporate income tax with a 5% dividend tax structure.
4. Does Virtual Zone Status eliminate VAT in Georgia?
No. Virtual Zone Status affects corporate income tax only. VAT Georgia rules operate separately. If your company exceeds VAT thresholds or conducts taxable transactions, you may need to register for VAT and file VAT declarations. Exported IT services are often treated differently, but VAT obligations may still apply.
5. Who qualifies for Virtual Zone Status in 2026?
Companies most likely to qualify are those engaged in genuine IT development, such as:
Software development
SaaS platforms
Web and mobile application development
IT engineering services for foreign clients
Businesses focused on marketing, consulting without development, e-commerce, or domestic Georgian clients typically do not qualify.
Approval depends on the nature of the IT activity, foreign client focus, and proper documentation.
