On November 7, 2023, the  Association of Georgian Virtual Zone Persons, with the support of Kreston Georgia, held an online conference dedicated to discussing challenges, problematic issues, and legal and tax difficulties faced by partner companies.

The discussion was chaired by Shorena Kopaleishvili, the chairman of the Association, and David Papiashvili, a tax expert and managing partner of Kreston Georgia.

The business discussion was aimed at analyzing the specific problems faced by VZP companies, which will help them solve the problems that still exist in the field of taxation. The parties also exchanged information on expected changes in tax and relevant legislation.

Both member and non-member companies of the Association and representatives of legal and auditing companies were interested in participating in the conference. The meeting was quite dynamic; the participants engaged in a lively and interesting discussion where they discussed the challenges they faced and shared their practical experiences.

The chairman Shorena Kopaleishvili provided the meeting participants with detailed information about the Association of Georgian Virtual Zone Persons and introduced them to the Association’s achievements and plans. She also spoke about the advantages of a partnership with the Association and the tasks, the solution of which remains the main goal and challenge.

David Papiashvili made an explanation about the methodological reference and talked about the gaps and real problems that companies face due to tax approaches. During the discussion of practical problems, Papiashvili emphasized the relevance and necessity of legislative regulation and introduced the main aspects of the legislative initiative to the participants.

Company representatives responded to the wording of the methodological reference and highlighted the risks arising from these unclear instructions.. Faulty audit processes complicate the operation of companies and lead to inconsistencies and potential financial risks for companies. For example, after the issuance of the third reference, certain companies found themselves in a situation where there are grounds for exemption from accrued taxes, fines, and penalties. However, there is an obvious gap in the legal mechanism – it does not reflect the procedure that these companies must follow to cancel the imposed taxes and fines. This uncertainty highlights the need for clear and well-defined norms to ensure fairness and compliance in the industry. Companies demand the clarity and transparency necessary for all stakeholders to effectively navigate such situations. According to the representatives of the companies, the establishment of clear regulations and procedures will ensure an effective and timely review of past cases and a corresponding decision, which in turn will contribute to the more stable and reliable activity of the industry. The Association has expressed its full willingness to work on a structured framework that will ensure a more stable future for the industry.

Also, the representatives of the companies state that if a decision is not made on time, both in the direction of the cancellation of the accrued taxes and the legal clarifications, they are ready to apply to the European Court of Human Rights. They perceive this situation as a violation of their property rights without a clear legal basis. This condition emphasizes the seriousness of the issue and the need for a fair and justified solution. The participants in the conference expressed concern about the absence of a clear taxation policy from the Revenue Service. Analyzing the past period confirms the need for a unified and coherent approach.

A clear contrast between the statuses of an International Company and a Virtual Zone Person was also discussed. It is worth noting the advantages of the status of the Virtual Zone Person: they are not limited to other activities, and two years of experience are not required. The effectiveness of this status is also evident in the area of taxation. It is a fact that interest in this status is growing, which is confirmed by statistical data. And this emphasizes the attractiveness and advantage of the status of the Virtual Zone Person.

As it turns out, foreign investors are more cautious about doing business in the territory of Georgia today. This is due to different factors, such as the emergence of unsubstantiated and unexpected demands from the relevant state control body, changes in the taxation policy in a short period, lack of foresight, vagueness of the legislation, and others. The question arises, how to encourage companies to do business and bring investments to Georgia. The goal is to create an environment that will facilitate the establishment of trust and cooperation between the parties, especially when the issue concerns the growing and today one of the most developing industries in the world. The Association of Georgian Virtual Zone Persons plays an important role in this process even today and is ready to continue its activity in this direction. During the discussion, all the participants agreed that the essence of the issue lies in the need to correct the problems and shortcomings faced by this industry at the legislative level. This ensures a more fair and standardized framework that protects companies from such risks as unexpected changes in taxation policy, retrospective penalties, interpretation of legislation by one or another auditor, and others. The representatives of the companies supported the activity of the Association and its partners in this direction and confirmed their full support.

Another main issue highlighted by the companies was the shortage of resident staff in Georgia. They emphasized the need for support and intensified work in this direction. The shortage of staff poses a challenge to companies operating in the region, which affects their ability to effectively conduct business, and it is this shortage that determines the hiring of foreign specialists. It is critical to provide support in the form of training programs, incentives for local talent development, or even fostering partnerships between companies and educational institutions that will benefit both companies and the country’s economy in the long run.

The complicated process of opening bank accounts for non-residents was another important topic at the meeting. This complex process raises the question of whether there are ways to simplify the process. In response, the Association expressed its support within the framework of the law.

Who and where the employee should be, the amount of salary, the issue of double taxation, the definition of the concept of information technology, the determination of the product as manufactured in Georgia, still undetermined issues related to the resident and non-resident founder/employee and other topics were also discussed during the meeting. These are some of the topics that still cause confusion in companies and need clarification. Establishing clear definitions, criteria, and guidelines will go a long way toward eliminating this uncertainty and creating a more conducive environment for business operations.

Finally, the discussion of these topics, the sharing of experiences, and the involvement of the participants once again confirmed the importance and necessity of the meeting. The raised topics and challenges will allow the Association to actively engage in the analysis of these problems and advocate for the interests of the parties, creating an environment that will support and protect the interests of the members. The Association continues to focus on ongoing advocacy and transparency to ensure that members’ interests are protected.