Is your business ready for potential new tax audits?

Tax legislation in Georgia remains one of the most pressing issues for companies operating under the Virtual Zone regime. Despite significant progress achieved by the Association of Georgian Virtual Zone Persons, tax risks persist.

Why Do Tax Risks for Virtual Zone Companies in Georgia Still Exist?

While some regulatory clarifications have been provided, tax authorities still have leverage to initiate repeated audits. The methodological guidelines that companies rely on do not have the force of law and can be revised at any time.

Moreover, a new wave of tax audits is anticipated to assess companies’ compliance with updated requirements. However, there are still no clear answers to key questions:

 ✔ Which products and services qualify for Virtual Zone tax benefits?

 ✔ What criteria determine eligibility for tax incentives?

 ✔ What reporting requirements are crucial for minimizing risks?

 ✔ What documentation is required during audits?

And other important issues

These uncertainties create serious risks. Even if your business fully complies with regulations, the lack of explicit legal clarification leaves room for different interpretations. This has already resulted in significant tax reassessments for many Virtual Zone companies. One such case is analyzed below.

Real Case Study: How the Association Helped Remove Tax Penalties

In 2022, one of the Association’s member companies, LLC “N”, underwent a tax audit that resulted in additional tax liabilities and penalties totaling 127,678 GEL.

Grounds for Tax Authority Claims Against a Virtual Zone Company

Grounds for Tax Authority Claims 

• The company’s founder, who was also a key specialist, spent most of the year in Georgia and was considered a tax resident.

• There was insufficient evidence of investments in Georgia’s IT industry, despite the company’s declared local operations.

• A significant portion of profits was distributed as dividends, raising concerns about potential misuse of Virtual Zone tax benefits.

How the Association Defended the Business: A Successful Case

The Association takes an individualized approach to protecting its members’ rights. In the case of LLC “N”, our intervention led to the following outcomes:

 ✔ Regulatory improvements – Through the Association’s active engagement with tax authorities, lawmakers, the Business Ombudsman, media, industry experts, and international partners, two methodological guidelines were annulled, and a third one was adopted based on the Association’s recommendations, which influenced the situation of companies.

 ✔ Penalty reduction – During the administrative appeal process, 35,884 GEL in fines were successfully revoked based on the newly issued guidelines.

 ✔ Lower tax liabilities – The company’s retrospective tax charges were reduced by 91,794 GEL.

 ✔ Financial relief – The overall financial burden on the business was significantly decreased.

Moreover, these regulatory changes not only benefited LLC “N” but also helped dozens of other Virtual Zone companies avoid similar penalties.

How to Protect Your Business: Key Steps for Virtual Zone Companies

• Assess your risks – Ensure your business meets the latest compliance requirements.

• Stay informed – Follow regulatory updates and engage in discussions with the Association.

• Act together – Collective efforts are the most effective way to safeguard business interests.

The Association of Georgian Virtual Zone Persons continues to work towards greater legal certainty for Virtual Zone companies. We are here to help you navigate the evolving tax landscape and secure your business from unnecessary risks.

Don’t wait until tax issues become a reality – prepare for changes today!

If you’re not a member of the Association yet, stay ahead of risks—join the Association and protect your business today!