Contributions to the budget of companies benefited from tax incentives increase considerably

Tbilisi (GBC) – The dynamics of the volume of taxes paid to the state budget by companies with the status of Virtual Zone Person and International Companies (IC) enjoying tax exemptions are increasing year by year. Payments of companies with the status of Virtual Zone Person (VZP) are especially high.

In particular, during eight months of the current year, VZPs paid GEL 29.5 million in the form of VAT to the budget. During the same period VZPs paid 6.5 million GEL of profit tax. The income tax reached an impressive amount, which amounted to GEL 25.4 million during the analyzed period. If we summarize all taxes, VZP paid GEL 61.6 million to the state budget during eight months of this year.

If we take into account tax benefits calculated on these payments, it is clear that the contribution of companies with such status to the real economy of Georgia is much more significant, which means the creation of high-paid jobs, employment of qualified IT personnel in Georgia, and thus a reduction in the outflow of specialists with such important qualifications from the country.

Effect of tax incentives

In this context, it was interesting to hear the opinion of the Minister of Education of Georgia regarding employment and remuneration issues.  On October 18, Giorgi Amilakhvari in an interview with public channel, emphasized the importance of employing local Georgian specialists and providing them with remuneration at the level of European standards as priority tasks for the ministry. In principle, one of the components of the mentioned priority is realized in the VZP industry segment.

Regarding the statistics of payments to the budget of companies with the VZP status for the last 5 years, we can notice a sharp increase in the dynamics. In particular, in 2019, VZP companies contributed a total of GEL 46 million as taxes. In 2020, during the pandemic, this figure dropped slightly to GEL 43.8 million, but from the following year 2021, there was a sharp increase of GEL 67.3 million. In 2022, the figure reached GEL 74 million, and a total of GEL 61.6 million was paid in the first 8 months of 2023, with a significant increase expected by the end of the year. However, it should be noted that this industry was under severe pressure in 2021-2022 as a result of a sudden and unexpected change in tax policy by the tax authorities. However, there appears to be continued interest in Georgia, so the state should properly evaluate and capitalize on this circumstance.

According to these indicators, contributions to the budget of companies with International Companies status using tax incentives lag behind the VZP, but there has been a significant increase over the last 3 years. Thus, if in 2021 International Companies paid 11.8 million GEL to the budget, in 2022 this figure has already exceeded 45 million GEL. In total for eight months of the current year they paid 52 million GEL, which significantly exceeds the absolute figure of the previous year.

What benefits do companies receive?

Companies with VZP and IC status enjoy almost the same tax benefits in Georgia.

In particular, while companies pay a standard 15% profit tax in case of distributing dividends , for companies with VZP status this tax is zero, while international companies pay only 5%. On the other hand, VZP pays the standard 5% and IC pays 0% as withholding tax on dividend distributions.

Companies with the mentioned status  do not benefit from “VAT” exemptions and, like standard companies, are only exempt from paying VAT if they provide services/products abroad.

Income tax on wages is the standard 20% for the self-employed, while ICs pay only 5%. ICs are also exempt from paying property tax, while VZPs pay the standard 1%.

The other side of the coin

However, the development of the segment of companies with VZP status and the entry of new large companies into this sector would be even more active if it were not for the presence of certain loopholes/ambiguities in the tax legislation regulating the industry.

To date, approximately 1,200 companies have been granted VZP status in Georgia.

The Association of Georgian Virtual Zone Persons, which defends the interests of VZP companies, has repeatedly pointed out the necessity to improve the tax legislation and initiated amendments to the relevant legislative acts. Chairman of the Association Shorena Kopaleishvili holds constant meetings and consultations with the relevant committee of the Parliament of Georgia and representatives of the Ministry of Finance in order to achieve the goals of the Association. According to her, the meetings are quite constructive and the government is fully prepared to accept the changes, although the issue of time remains a problem.

The source of financial data is the Revenue Service

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