The Comprehensive Guide to Personal Income Tax for Foreigners in Georgia.
Is it necessary to pay tax on income received in Georgia? What are the tax rates and payment deadlines?
Georgia attracts many visitors, and not all are tourists. There is a significant community of freelancers — from IT professionals to highly creative photographers and designers. The country also hosts many expats employed locally. Should they pay tax on income sourced in Georgia? What are the applicable tax rates and payment deadlines? How do Georgian tax obligations interact with tax liabilities in one’s country of citizenship? Are there differences in income tax between locals and foreigners? Let’s examine the details.
Since this article focuses on foreigners, we must first clarify that for tax purposes, foreigners (like citizens of Georgia) are divided into two categories:
The general rule is: "Any income received by a physical person from a source in Georgia shall be subject to income tax."
With regard to income from labor activity and from the provision of services/execution of works: The source of income is located in Georgia if the Performer carries out work under an employment contract or provides a service/executes work within the territory of Georgia. The work may be of any nature — from furniture manufacturing to psychological consultations via Skype, marketing research of Zanzibar markets, or software development for Apple. The decisive factor is that you perform your work in Georgia.
The Revenue Service of Georgia maintains that even if you only use a personal laptop for work, and the product creation process occurs in your mind or in the virtual world, you are still providing a service in Georgia, simply because you are physically present here and utilize electricity and communication facilities.
Does the form of receiving income matter?
No. Income received in both non-cash and cash forms is subject to taxation. This applies to payments made through PayPal and similar payment systems. It also applies to income received by you in foreign bank accounts. It is true, however, that such payments, as well as cash settlements, are not easily tracked by the Revenue Service.
What if the Customer is located abroad?
For personal income tax purposes, this is irrelevant. The Customer may be a Georgian company or a physical person, a representative office of a foreign company in Georgia, a foreigner residing in Georgia, or a foreign company — the only thing that matters is that you provide services or perform work for all of them within the territory of Georgia.
Tax Rate and Taxable Income:
1) Physical person — tax resident of Georgia: Pays personal income tax at a rate of 20% of the amount of received income.
2) Income of a physical person who is a non-tax resident of Georgia is taxed at the following rates:
3) If the Performer has Individual Entrepreneur (IE) status: A 20% income tax is levied on their income. Income is defined as the difference between the gross income received and the expenses incurred related to the execution of works/provision of services (including, depending on the situation, the purchase of materials, utility payments, and internet services).
4) If the Performer is an IE with Small Business status: Income tax is paid at a rate of 1% of the total remuneration received (provided that the remuneration does not exceed 500,000 GEL or its equivalent within 12 consecutive months).
Who is responsible for paying income tax – the Performer or the Customer?
An Individual Entrepreneur (IE) calculates and pays the tax independently; however, in a contract, the IE-Performer may delegate this obligation to the Customer. Personal income tax on salaries and remuneration for a physical person (without any special status) is withheld and paid at source by the employer (customer).
Keep in mind that:
b) You hire the person as a physical person, not as a micro-entrepreneur: In this case, the remuneration IS subject to income tax at source, and the amount of the paid remuneration CAN be included in your deductible expenses for tax purposes. Your Performer DOES NOT include the received remuneration in their allowable micro-business income limit (30,000 GEL). Simply put, when employed this way, the Performer is NOT operating within the scope of their micro-business status.
When concluding a contract, pay close attention to the specified amount of remuneration and take taxes into account.
Who must file an income tax declaration and when? When should the tax be paid?
Liability for failure to submit a declaration and non-payment of tax:
Good news: If you are a tax resident of Georgia, your foreign-source income (income from leasing property and the sale of property abroad, dividends, etc.) is exempt from personal income tax in Georgia.
Georgia attracts many visitors, and not all are tourists. There is a significant community of freelancers — from IT professionals to highly creative photographers and designers. The country also hosts many expats employed locally. Should they pay tax on income sourced in Georgia? What are the applicable tax rates and payment deadlines? How do Georgian tax obligations interact with tax liabilities in one’s country of citizenship? Are there differences in income tax between locals and foreigners? Let’s examine the details.
Since this article focuses on foreigners, we must first clarify that for tax purposes, foreigners (like citizens of Georgia) are divided into two categories:
- Tax residents of Georgia — as a general rule, these are individuals who reside in the country for more than 183 days during any 12 continuous calendar months, or those who have obtained tax residency status under the High Net Worth Individual (HNWI) special conditions (applicable to citizens of Georgia, foreigners, and stateless persons — the possession of a residence permit or citizenship is irrelevant).
- Non-tax residents
- All other individuals.
The general rule is: "Any income received by a physical person from a source in Georgia shall be subject to income tax."
With regard to income from labor activity and from the provision of services/execution of works: The source of income is located in Georgia if the Performer carries out work under an employment contract or provides a service/executes work within the territory of Georgia. The work may be of any nature — from furniture manufacturing to psychological consultations via Skype, marketing research of Zanzibar markets, or software development for Apple. The decisive factor is that you perform your work in Georgia.
The Revenue Service of Georgia maintains that even if you only use a personal laptop for work, and the product creation process occurs in your mind or in the virtual world, you are still providing a service in Georgia, simply because you are physically present here and utilize electricity and communication facilities.
Does the form of receiving income matter?
No. Income received in both non-cash and cash forms is subject to taxation. This applies to payments made through PayPal and similar payment systems. It also applies to income received by you in foreign bank accounts. It is true, however, that such payments, as well as cash settlements, are not easily tracked by the Revenue Service.
What if the Customer is located abroad?
For personal income tax purposes, this is irrelevant. The Customer may be a Georgian company or a physical person, a representative office of a foreign company in Georgia, a foreigner residing in Georgia, or a foreign company — the only thing that matters is that you provide services or perform work for all of them within the territory of Georgia.
Tax Rate and Taxable Income:
1) Physical person — tax resident of Georgia: Pays personal income tax at a rate of 20% of the amount of received income.
2) Income of a physical person who is a non-tax resident of Georgia is taxed at the following rates:
- At a rate of 20%: Salaries received from a Georgian employer, as well as income received by a non-resident from foreign customers;
- At a rate of 10%: Income received from a Georgian company or an Individual Entrepreneur (IE) not under an employment contract (note the reverse charge VAT at source).
3) If the Performer has Individual Entrepreneur (IE) status: A 20% income tax is levied on their income. Income is defined as the difference between the gross income received and the expenses incurred related to the execution of works/provision of services (including, depending on the situation, the purchase of materials, utility payments, and internet services).
4) If the Performer is an IE with Small Business status: Income tax is paid at a rate of 1% of the total remuneration received (provided that the remuneration does not exceed 500,000 GEL or its equivalent within 12 consecutive months).
Who is responsible for paying income tax – the Performer or the Customer?
An Individual Entrepreneur (IE) calculates and pays the tax independently; however, in a contract, the IE-Performer may delegate this obligation to the Customer. Personal income tax on salaries and remuneration for a physical person (without any special status) is withheld and paid at source by the employer (customer).
Keep in mind that:
- If your employer is (a) a foreign company (which has no official representative office in Georgia) or (b) a company registered in a Free Industrial Zone (FIZ) of Georgia, you shall be required to calculate and pay the income tax to the Georgian budget independently.
- If you are an IE with Small Business status, the 6,000 GEL per year that you pay as remuneration to your employees or hired freelancers is exempt from income tax.
- If you hire a person with Micro Business status under an employment or service contract, two options are possible:
a) You hire the person specifically as a micro-entrepreneur: In this case, the remuneration is NOT subject to income tax at source, and the amount of the paid remuneration CANNOT be included in your deductible expenses for tax purposes. Your Performer (micro-entrepreneur) includes the received remuneration in their allowable micro-business income limit (30,000 GEL).
b) You hire the person as a physical person, not as a micro-entrepreneur: In this case, the remuneration IS subject to income tax at source, and the amount of the paid remuneration CAN be included in your deductible expenses for tax purposes. Your Performer DOES NOT include the received remuneration in their allowable micro-business income limit (30,000 GEL). Simply put, when employed this way, the Performer is NOT operating within the scope of their micro-business status.
When concluding a contract, pay close attention to the specified amount of remuneration and take taxes into account.
Who must file an income tax declaration and when? When should the tax be paid?
- Individual Entrepreneurs (IEs) are obligated to submit an annual income tax declaration by March 31 of the year following the reporting year. The tax must be paid within the same deadline.
- IEs with Small Business status are obligated to submit an income tax declaration monthly, by the 15th day of the month following the month in which income was received, and to pay the tax for the reporting month within the same deadline.
Liability for failure to submit a declaration and non-payment of tax:
- Fine for failure to submit each tax declaration: 100 GEL.
- Penalty for tax underpayment (non-payment): 50% of the tax deficiency amount.
- Late payment interest (overdue payment): 0.05% for each day of delay.
Good news: If you are a tax resident of Georgia, your foreign-source income (income from leasing property and the sale of property abroad, dividends, etc.) is exempt from personal income tax in Georgia.