Investor’s guide

TaTa Toria

During the meetings with foreign businessmen abroad or in Georgia they always ask questions that mainly concern elementary issues related to the normative and legal base for doing business in Georgia – how to open a non-resident’s firm, how to take part in a tender, what are economic laws and redulations in Georgia, etc

All this prompted us to introduce a permanent rubric – Investor’s Guide, in which we shall present potential investors information on the existing business situation in Georgia and the rules as to how to start and do business here, how to make independent investments without excessive lobbying.
It is necessary to go through a number of procedures in order to start entrepreneurial activities in Georgia. However, before we touch upon the requirements necessary for registration of firms, it should be pointed out that there are the following organizational-legal forms of enterprises in the country: individual enterprise, joint responsibility company, joint stock company and cooperative society.
An enterprise, as a subject, is formed from the moment of its registration in the entrepreneurial register, and one of the partners has the right to require registration in the register. Partners, like the members of the representative and supervisory bodies, are obliged to sign the company’s application concerning registration. Also, a person that represents the company, leaves a sample of his signature in the court.
The application is submitted to the court in accordance with the legal address. It should include: the firm name (form), organizational-legal form, location, the subject of activities, the data on the beginning and end of the economic year. Also, name and surname of each of the founding partners, place and date of birth, profession and place of residence. In case the founder is a legal entity – its firm name and registration data.
Besides the aforementioned data, it is required from a special partnership to indicate in the application the amount of the sum to be paid in by each partner and the document confirming how much was paid by each of them. In case of a limited liability company, joint stock company and cooperative society – the amount of the authorized capital and the document concerning the payment, as well as the amount of each founder’s payment and, correspondingly, share. Also, name, surname, place and date of birth, profession and place of residence of each of the directors and members of the supervisory board, documents concerning appointment of each of the directors and election of members of the supervisory board.
The company’s application should be enclosed with the document confirming the appraisal of the payment (in case of a non-money payment);
In founding of the company or increasing of the authorized capital, a monetary payment can be expressed in any currency. Half of the payment should be covered after signing of the statute, if the statute does not envisage otherwise.
For a limited liability company, the amount of the obligatory capital should make up at least 2000 GEL, and that of a joint stock company – 15 000 GEL.
During five calendar days after submission of the necessary documents, the court is obliged to carry out registration of the enterprise and then issue a registration certificate.
The relations of the registered enterprises or entrepreneurial physical persons with the budget are regulated by Georgia’s Tax Code.
In accordance with the Code, the following taxes are imposed upon legal entities’ activities: profit tax, VAT, social tax, income tax, property tax, excise.
Levied with the profit tax are: a Georgian enterprise, a foreign enterprise that implements its activities in the country by means of a permanent institution and receives incomes from the source existing in the country, partnership and other similar organizations.
As to a Georgian enterprise, the subject of imposing a profit tax is the profit liable to taxation. It is determined as a difference between the total incomes of a tax payer and the deduction sums.
The income received by a non-resident from the source existing in Georgia, which is not related to the non-resident’s permanent institution in the country, in case of dividends and interest rates, is taxed at the 10% rate.
Enterprises or organizations, which implement economic activities, are obliged to pay the current tax sums to the budget in accordance with the yearly tax of the previous tax year in the following amount:
1. No later than 15 May – 25%
2. No later than 15 July – 25%
3. 3. No later than 15 September – 25%
4. No later than 15 December – 25%
A tax payer that did not have taxable income (profit) during the previous tax year does not pay the current taxes.
An enterprise’s taxable profit is taxed at 20%. Calendar year is considered as the date of covering of the tax.
The next tax, by which a taxable operation and import is taxed, is VAT.
A person that implements economic activities and whose total sum of operations liable to taxation with VAT exceeds 100 000 GEL during continuous 12 calendar months is obliged to be registered as a VAT payer.
The following kinds of goods/services and import are exempt from VAT: rendering of financial services, supplying and import of the national/foreign currency and securities; supply and import of treasure, confiscated or unaddressed goods; import of goods by physical persons in the amount that is below the limit established for exemption from the customs tax; import of equipment, transportation means, spare parts and materials that are necessary for implementation of oil and gas operations envisaged by Georgia’s Law on Oil and Gas. Also, supplying of goods/services for companies implementing operations related to gas and oil in accordance with the issued licenses; transit, repairs and temporary import of goods; import of goods intended for re-export; import of raw materials and semi-finished products as well as package intended for production of export products within the limits of the volume of actually exported finished products; implementation of works or rendering of services by navigation companies established by non-residents of Georgia, which do dot implement entrepreneurial activities in the Georgian territory and whose vessels sail under the national flag of Georgia; education services rendered by educational institutions, import of computing machinery, equipment and chemicals intended for scientific and educational activities; supplying and import of babies’ food products and children’s hygiene products, which are marked so in wholesale and retail supplies; import and supplying of natural gas necessary for electric power production.
The following operations are taxed at zero rate: export of goods, in particular rendering of international goods transportation services; rendering of international passenger transportation services; air or sea navigation, dispatching and informational services in international transportation; aviation fuel, lubricants and other auxiliary means supplied aboard for implementation of international flights.
The rate of VAT makes up 18% of the taxable turnover or taxable import. A calendar month is considered as its reporting period.
The taxable turnover is the sum of taxable operations carried out in the reporting period. The VAT sum to be paid to the budget from the taxable turnover is determined as a difference between the VAT sum added on to the taxable turnover and the VAT sums liable to reckoning.
The VAT sums liable to reckoning is the tax sum that was paid or is to be paid, in accordance with tax invoices or customs declarations, on a taxable operation, taxable import, if goods/services are used for the tax payer’s economic activities.
The following kind of taxes is the excise. Its payer is a person that produces excise goods in Georgia on the goods produced by it; a person that implements import of excise goods to Georgia on the import implemented by it; a person that implements export of excise goods on the export implemented by it.
The subject of taxation with the excise: taxable operation and import of excise goods to Georgia. The volume of an operation taxable with excise and import (sum) for goods produced in Georgia, in relation to the goods to be sold be the tax payer at a retail market price, is determined by the wholesale market price (without excise and VAT).
For imported goods –by the total sum of the goods’ customs value and the dues and taxes on importing of the goods to Georgia. (Without VAT and the excise); for ferrous and nonferrous metal scrap – by the weight of the scrap; for strong drinks – by their volume, for tobacco products – by their amount; for oil products – by their weight (volume); for passenger cars – by their age and engine volume;
The excise rate is differentiated in accordance with kinds of goods. A calendar year is considered as its reporting period.
In the Georgian territory, producers and importers of goods to be provided with excise marks fully pay the excise and the nominal cost of the excise mark.
I importing of goods or exporting of ferrous and nonferrous metals, the control over payment of the excise is implemented by the customs authorities.
Export of excise goods is taxed at the zero rate except for the export of ferrous and nonferrous metals.
Exempt from the excise tax are: strong drinks produced by a physical person for own consumption; import by a physical person of 2 liters of strong drinks and 200 GEL worth of cigarettes; transit of excise goods and their temporary import to Georgia’s customs territory; import of aviation fuel to be delivered aboard for implementation of a flight, on the basis of presentation of a bank guarantee to the customs authorities; import and supplying of oil products for implementation of operations envisaged by Georgia’s Law on Oil and Gas.
As to the social tax, considered as its payers are: a tenant; Enterprise/organization or entrepreneurial physical person that compensates services rendered in Georgia by persons unregistered in the tax authorities; entrepreneurial physical persons, physical persons – members of a partnership that implement economic activities in Georgia.
The subject of taxation is salary. The social tax’s rate makes up 20% of the taxation subject. The mentioned tax is reckoned by the payer every month and the data is submitted to the tax authorities till the 15 day of every subsequent month.
Property tax occupies an important place in the tax system. In Georgia, considered as a property tax payer is a person that in the country’s territory: owns a subject taxable by this tax; legally uses or actually possesses the land owned by the state.
For a Georgian or foreign enterprise, organization or physical person, the taxation subject is: land being in ownership; used or actually possessed land owned by the state.
At a taxation subject, tax rate makes up no more than 1% of the cost of the average annual residual book cost.
In general, these are the tax requirements and tax rates envisaged by the Georgian tax system.
As to the requirements related to starting of banking activities in Georgia, it should be pointed out that the National Bank of Georgia is fully responsible for the issue of bank licenses.
A person wishing to acquire a bank license is obliged to apply to the National Bank in written form. The application should be enclosed with: notarized copies of the statute registered and in the court and other constituent documents; information on qualification of the bank’s managers and their work experience in the banking sphere; the bank’s certificate on the declared authorized capital and its encashed part; business plan, in which, along with other aspects, the kind of its activities and structural organization should be indicated; name, surname, place of residence (location of a legal entity) and profession of each partner (shareholder) that possesses the share of 5% and more, the National Bank’s regulations also envisage additional information on the fixed capital and other financial resources, location of the bank’s head office and its branches.
In accordance with the main directions of the monetary and credit policy, the National Bank of Georgia determines the necessary minimal amount of the declared and encashed capital as well as the rules of formation of the untouchable capital and reserves. Proceeding from the aforementioned, the bank will be granted a license in case the encashed capital makes up no less than 50% of the declared one, on condition of obligatory observance of the requirements set for the minimal authorized capita. The minimal amount of the authorized capital is determined at the level of 12 million GEL.
No bank has the right to reduce its capital and reserves by means of redemption of the share or distribution of reserve assets without a preliminary written consent of the National Bank and introduction of the corresponding changes to the statute.
A bank has the right to possess no more than 20% of a legal entity’s authorized capital, if its share does not exceed 15 % of the total amount of the bank’s untouchable capital and reserves.
As far as affiliate organizations of foreign banks and their branches are concerned, licenses will be granted if a bank, in the country of location of its head office, is authorized to attract money deposits or other means of payment.
It should be pointed out that bank licenses are granted for an uncertain term, but their handing over is prohibited. The duty on licenses is determined by a special law, which is single for all banks, and is added on to the National Bank’s incomes.
The National Bank of Georgia takes a grounded decision no later than one month after receiving of the application and notifies the applicant in written form.