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Tax Turnaround for Foreign Owners

Brace Yourselves: Next Stop – Property Tax at the Maximum Rate!
February 5, 2024
Giorgi Zhuzhunashvili, Leading lawyer, Barister
Julieta Gibradze, Chief Accountant
For several years, there have been discussions about Georgia planning to amend the taxation regime for real estate (which includes vehicles and land). It was anticipated that the changes would affect the income threshold that triggers the tax liability (currently, households with a total annual income not exceeding 40,000 GEL are exempt from property tax). However, while the state is contemplating amendments to the Tax Code, the Georgian Revenue Service is drastically shifting its approach to enforcing existing norms and announces that foreign non-residents of Georgia, who own real estate and do NOT file a property declaration, will be subject to a presumed property tax at the maximum rate of 0.8%-1% of the property's market value.
This is stated in the Situational Instruction №1434 on property tax accounting for property owned by a non-resident individual, published on January 25 on the Revenue Service's website - internal clarifications of tax law norms that tax authorities are mandated to follow (the instruction text is available here).

The Past Scenario

According to Article 201 of the Georgian Tax Code, all property owners are obligated to pay property tax, regardless of citizenship and tax residency. As per Part 5 of Article 202 and Part 1 of Article 206 of the Tax Code, the tax liability and rate depend on the owner's income: up to 40,000 GEL – a tax exemption applies, and the taxpayer is not required to pay tax; 40,000-100,000 GEL – the rate is 0.05-0.2%, and above 100,000 GEL – the rate is 0.8-1% of the property's market value. The specific percentage within the range set by the Tax Code is determined by the municipality where the property is located. In the absence of a direct indication otherwise, income was understood to mean any income received by the owner, including global income – income received not from Georgian sources.

The Revenue Service could reliably verify property owners' income based on income tax declarations – employers and small business individual entrepreneurs report monthly on employees' incomes, and annually for individual entrepreneurs without special status and individuals. It is worth noting that the income tax in Georgia is generally 20% and is payable on incomes derived from Georgian sources. If a property owner does NOT have incomes from Georgian sources, they are NOT required to pay income tax in Georgia, and thus are not obliged to file an income tax declaration.

Thus, if the foreign owner voluntarily did NOT declare their global income (without paying income tax), the Revenue Service did NOT have justified information about the foreign non-resident owner's income level. Despite the tax authority's ability to request information on non-resident property owners' incomes based on conventions and international agreements, tax authorities applied the following approach to foreign owners: no declared income – property tax rate = 0.

What Changed

To put it briefly, everything has changed. The new clarification by the Revenue Service has established a new presumption: foreign owners, who are NOT tax non-residents of Georgia and have NOT filed a property tax declaration, will be taxed at the maximum property tax rate of 0.8-1% of the property's market value.

To avoid paying tax at the maximum rate or to be exempt from it altogether, owners must file a property declaration and prove their income level.

How to Avoid Paying the Maximum Tax

  • 1
    Obtain a tax identification number and activate a tax account.
    • We wrote about how foreigners can obtain a tax identification number here
  • 2
    File a property declaration for the year 2023 by November 1, 2024. If a foreign owner, not having tax resident status in Georgia, has an income exceeding 40,000 GEL, they must pay the property tax by November 15. Depending on the income level, the property tax rate will range from 0 to 1%.
    • We wrote in detail about income declaration and filing a property tax declaration here

Potential Consequences

Changes in the tax authority's approach could increase state budget revenues, but there is a risk of reducing the investment attractiveness of Georgian real estate for foreign investors. Since the tax code has not changed, and the Revenue Service's Instruction is a clarification of the application of existing norms, it is only speculative whether the new approach will apply to previous periods. The scope of tax inspection in Georgia is 3 years.
The new clarifications from the Georgian Revenue Service regarding foreign real estate owners, who do not have tax resident status in Georgia, significantly change the rules of the game. It is crucial for each owner to be aware of their obligations and to fulfill them correctly to avoid unnecessary financial losses. Providing accurate information about their incomes and timely tax payments will allow avoiding the maximum tax rate and maintaining transparent and honest relations with Georgian tax authorities.
For more detailed information on the Georgian tax system, you can visit our website or our Telegram channel.

You can receive individual consultation from a tax lawyer on tax calculation and payment rules, as well as services for obtaining a tax identification number and/or filing tax declarations remotely - contact us

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