Tax Residency of Individuals in Georgia
A guide to determining tax residency status in Georgia, including rules for calculating periods and possible special conditions for obtaining status and paying taxes.
April 4, 2024
Giorgi Zhuzhunashvili, Lawyer, Partner at Tax Practice
Determining tax residency is an important part of the process of determining tax obligations.
Taxes themselves are often based either on the principle of residency or on a territorial basis. The essence of the difference lies in the fact that in taxes based on residency, the taxpayer determines the taxable object, while in territorial taxes, the obligation to pay tax depends on the object.
In simpler terms, in some countries, your resident status (resident or non-resident) is directly linked to which taxes you must pay. Typically, these rules are followed by developed countries.
Taxes themselves are often based either on the principle of residency or on a territorial basis. The essence of the difference lies in the fact that in taxes based on residency, the taxpayer determines the taxable object, while in territorial taxes, the obligation to pay tax depends on the object.
In simpler terms, in some countries, your resident status (resident or non-resident) is directly linked to which taxes you must pay. Typically, these rules are followed by developed countries.
Who is a Tax Resident?
A tax resident is an individual or organization subject to taxation in a country under the country’s legislation based on criteria such as residence, location of primary activity, duration of stay in the country, or other factors indicating a close connection with that country. For individuals, tax residency is usually determined by the criterion of the duration of stay in the country during the tax period (typically, 183 days or more within a year).
How to Obtain Tax Resident Status in Georgia?
According to Article 32 of the Tax Code of Georgia, individuals become tax residents of the country if they reside in the country for 183 days within 12 consecutive months. Tax resident status is effective in the year of its acquisition. The procedure needs to be repeated for the next year.
Time spent in Georgia does not include the time during which a natural person was in Georgia:
Time spent in Georgia does not include the time during which a natural person was in Georgia:
- as a person with diplomatic or consular status, or a member of the family of such person
- as an employee of an international organization operating under an international agreement of Georgia, or a person serving in a foreign state’s public service in Georgia, or a member of the family of such person, except for Georgian citizens
- when moving from one foreign country to another through the territory of Georgia
- for treatment or leisure
Rules for Calculating Periods to Determine Status
An individual becomes a tax resident of Georgia in the year when the specified 183 days of residence expire.
For example, if you lived in Georgia for 182 days in 2023, and the 183rd day falls on January 1, 2024, you can confirm your tax resident status in 2024, even if you left the country on January 2, 2024.
If the 183rd day of residence in Georgia falls on December 20, 2023, but in January 2024, you continue to live in the country, you can confirm your tax resident status for 2023 by applying for it on December 21, 2023. From December 21, 2023, a new 12-month period begins for determining your tax resident status, during which you must reside in the country for 183 days. In this case, you do not need to confirm your tax resident status in 2023 and can use the accumulated days in 2023 to apply for tax resident status for 2024 — you can submit such an application directly on January 1, 2024. The new period in this case begins to be calculated from January 2, 2024, and you will lose the right to confirm tax resident status for 2023.
For example, if you lived in Georgia for 182 days in 2023, and the 183rd day falls on January 1, 2024, you can confirm your tax resident status in 2024, even if you left the country on January 2, 2024.
If the 183rd day of residence in Georgia falls on December 20, 2023, but in January 2024, you continue to live in the country, you can confirm your tax resident status for 2023 by applying for it on December 21, 2023. From December 21, 2023, a new 12-month period begins for determining your tax resident status, during which you must reside in the country for 183 days. In this case, you do not need to confirm your tax resident status in 2023 and can use the accumulated days in 2023 to apply for tax resident status for 2024 — you can submit such an application directly on January 1, 2024. The new period in this case begins to be calculated from January 2, 2024, and you will lose the right to confirm tax resident status for 2023.
Can You Obtain Tax Resident Status in Georgia under Special Conditions without Residing in the Country?
Georgia is one of the exceptional countries that, with the presence of corresponding capital, allow non-residents (so-called HNWIs) to obtain tax resident status in Georgia without spending a single day in the country. To obtain tax resident status in Georgia as a person with significant assets (HNWI), one must simultaneously meet three requirements listed below:
- Income Requirement:
• The aggregate value of assets of the interested party is not less than 3,000,000 lari, or
• Their aggregate income for each of the last 3 years exceeded 200,000 lari, - Connection Requirement with Georgia:
• The applicant is a citizen of Georgia or has a residence permit in Georgia, or
• Their income from a source in Georgia amounts to at least 25,000 lari per year, - Requirement for the Presence of Assets on the Territory of Georgia:
• The interested party has assets (including cash, real estate, vehicles) on the territory of Georgia with a total market value of not less than 500,000 USD.
Important:
Accordingly, a person can spend 183 days in Georgia and not be considered a tax resident, or conversely, for example, not be in Georgia at all but have tax resident status.
- Assets with an aggregate market value of 3,000,000 lari may be located both in Georgia and abroad
- The type of assets does not matter: houses, apartments, yachts, vehicles, cash, securities
Accordingly, a person can spend 183 days in Georgia and not be considered a tax resident, or conversely, for example, not be in Georgia at all but have tax resident status.
Can You Lose Tax Resident Status in Georgia?
If a person is not present in the territory of Georgia for more than 183 days within 12 consecutive months, they generally lose their tax resident status.
How to Confirm Tax Residency in Georgia?
The tax resident status of Georgia can be confirmed with a certificate from the tax authority issued upon request of the interested party or their representative with power of attorney.
Taxation for Residents and Non-Residents when Paying Income Tax
- Declaration Specifics
- If an individual is a tax resident of Georgia, they are required to declare both incomes earned domestically in Georgia and incomes earned abroad. However, only incomes derived from sources within Georgia are subject to income tax. Given that foreign investments play a significant role in Georgia's economy, the taxation principle is based on the "nationality" of the income source, i.e., the territorial principle. On one hand, the state attracts investors with low taxes, while on the other hand, it does not tax the income of the investor from sources outside Georgia (referring to passive incomes).
- For a non-resident individual, only income earned from a source in Georgia, reflected in the declaration, is subject to income tax.
- Tax Rate
- If a non-resident individual receives royalties from a resident legal entity in Georgia, their income is taxed at the source and the rate is 5%.
- In the same scenario, the income of a resident individual is taxed at a rate of 20%
Double Taxation Avoidance Agreements between Georgia and Other Countries
A tax resident of Georgia may simultaneously be a tax resident of another country. In such cases, it is important to utilize Double Taxation Avoidance Agreements (DTAA) based on objective criteria (e.g., permanent residence, vital interests, citizenship, etc.), under which the individual will be considered a resident of one state or another.
Currently, Georgia has signed such agreements with 58 states (the full list of countries can be viewed here. It should be noted that agreements on double taxation avoidance between Georgia and Russia, and between Georgia and the USA, are absent.
Currently, Georgia has signed such agreements with 58 states (the full list of countries can be viewed here. It should be noted that agreements on double taxation avoidance between Georgia and Russia, and between Georgia and the USA, are absent.
And finally, who are non-resident individuals?
The answer is simple: those who are not considered tax residents of Georgia according to Georgian legislation.
Having an individual entrepreneur status, employment in Georgia, a residence permit status, citizenship, company registration, participation in company management (e.g., as a director), as well as having a tax identification number, is not sufficient grounds for recognizing a person as a tax resident of Georgia.
Having an individual entrepreneur status, employment in Georgia, a residence permit status, citizenship, company registration, participation in company management (e.g., as a director), as well as having a tax identification number, is not sufficient grounds for recognizing a person as a tax resident of Georgia.
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MARIA GUSEINOVA
Leading Manager of Commercial Department
Leading Manager of Commercial Department