The Tax Code, Georgian citizens and businessmen?s specific problems, ways of solving them Case one The issues of taxing property, cars, business share, transfer of shares, i.e. the way of taxing houses, cottages, and places of business or re-registration

According to section 8 of the previous tax code (“property surrender tax”, articles 164, 165, 169), tax for the surrender of property or its lease for a period of over one year makes up 2% off total cost (no less than market price).

Under article 169, the clause also spread on cases of vehicle surrender. The tax was payable on the day subsequent to the date of property surrender. A notary did not perform registry operation unless a receipt was presented. Benefits concerned only divorce of first-line relatives and company reorganization. According to article 181, tax on vehicles was determined differentially in accordance with vehicle capacity and production year by means of a special table. At the same time, tax benefit article (chapter 14, article 101, clause 1, subclause “Z”) said that exempted from VAT was supply of the following goods, works and services as well as the following imports ? z) house rental (excluding hotels) and real estate supply (excluding newly-built hydro-electric power stations).
According to the previous and new codes, (business or personal) property surrender and sale, transfer or sale of shares was tantamount to economic activities (the new code, article 13-I 4-e, clause 7). Additional value from the sale of property or business share was included in total incomes and was liable to tax, yet according to article 43, subclause Z of the previous code, exempted from income tax was additional value gained by a natural person from sale of tangible assets. Thus, if one sold a house or a cottage, its additional value would not be included in proceeds subject to VAT or income tax. One paid only 2% property surrender tax, nothing more.
Property surrender tax has been abolished in the new code. The new code has also abolished previous benefits of VAT payers for sale of property or shares and for property supply as an economic activity. If turnover (or sales volume) exceeds 100000 GEL, any seller becomes a VAT payer and business operations are liable to VAT.
Besides, according to section 9 of the new code, article 166, additional value from purchase or sale of business share and property is liable to 12% income tax, i.e. if you sell your own flat that is worth 80000 GEL, you are to pay 12% income tax, but if the flat was bought 2 years ago, you are exempted from the tax (article 168). If you bought your flat in 1994 and now its selling price is 120000 GEL, you are to pay 20% VAT. Here you have one small way out – you sold your flat on the 10th day of a certain month at 120000 GEL and under article 221 you should be registered as VAT payer in two days after the operation, but according to the same article, subclause 3 you become a tax-payer on the second day after the presentation of an application (within two days), yet your sale operation had been performed earlier. This can help you to avoid VAT tax once.
If you have bought your flat over the past two years and its selling price is 160000 GEL, you will be liable to 20% VAT, i.e. you will pay 32000 GEL, then the sum paid initially during the purchase of flat, e.g. 60000 GEL, will be subtracted from the sum of 160000 and the additional value will be liable to 12% income tax.
If the sold property belonged to a firm, it is to pay VAT and place the sum on income account, afterwards it pays 20% profit tax, and if a founder wishes to receive his share from the sold property gains, he will pay further 10% of dividend tax.
For instance, your business premises were sold at 1000000 GEL. You are to pay 200000 VAT, next you pay 20% profit tax from the sum of 800000 and further 10% of the rest sum of 640000, i.e. 64000 in the form of dividend tax. Hence, your net profit will be 576000 or 57.6% from property sale.
If, for instance, you bought 30% share of a certain business at 20000 GEL in 1976 and then you sold the share at 200000 GEL as the business proved to be successful, you are to pay 20% VAT and 12% income tax.
The same is applied to sale of cars, chiefly, import of second-hand cars from abroad that is very much in fashion nowadays. If you bought a car in Germany at 10000 dollars and sold it at 12000 here, your car will not be registered unless you pay income tax from the sum of 2000 GEL. Naturally enough, during the sale of property or shares a seller will have to take into account the new reality in price, otherwise severe penalty is envisaged in an article on evasion of high taxes that is also applied to persons who sell their family houses or business shares.
The new code abolishes VAT benefits for sale of property or share as well as for income taxes during property sale including benefits for inherited pictures or valuables that have been means of subsistence for many people. Taxes for almost everybody, both natural persons and legal entities have become equal.