The dispute between the Revenue Service and companies with the status of a Virtual Zone continues

The Revenue Service has started another wave of fines and imposed tens of thousands of GEL on the companies with the status of a Virtual Zone. The Association of Georgian Virtual Zone Persons constantly reacts to these actions. In September, there was a meeting between the Association and the Ministry of Finance (link), and the issue of the Virtual Zone companies on “Business Formula” was discussed (link). 

At that time, the chairman of the Association spoke about this issue on “Business Formula”. Due to the fact that the Revenue Service failed to solve the problem at the legislative level, the agency asks the business to reflect a part of the profit as the salary of the employees, so that later this amount will be taxed with income tax. The Revenue Service limits the market amount of wages to companies at 5,000 GEL for each employee, which, according to the Association, is completely illogical. Lawyers also share the opinion of the Association. For them, this fact is unclear because Georgian legislation does not define such a concept of m.v of salary. In addition, it is impossible to set the same salary for IT specialists with different qualifications. Foreign companies with the status of a Virtual Zone mainly work in the fields of software and information technologies, and according to the tax code, they are exempt from profit tax in the event that they create a product on the territory of Georgia and sell services abroad.

The European Business Association also supports companies with the status of a Virtual Zone and they explain that such facts hinder the development of business and the inflow of investments in the country.

The Association of Georgian Virtual Zone Persons has already sent official letters to Parliament and the Prime Minister’s office. As the chairman, Shorena Kopaleishvili, said on the “Business Formula” TV Show, an additional meeting is scheduled at the Revenue Service in a month. Shorena Kopaleishvili noted that the Association hopes the Revenue Service will try to correct the situation and that the dispute will not continue with the court process. During his speech, David Papiashvili, managing partner of Kreston Georgia, again emphasized the initial stage of the problem, which concerns the gap in the legislative clauses, and said that solving the problem should start from here.

To summarize, the dispute between the companies with the status of a Virtual Zone and the Revenue Service has been going on for almost two years, and the accrued taxes, fines and penalties have reached a total of more than a  million GEL. Lawyers think that the Ministry of Finance and the Revenue Service should eliminate legal gaps and clearly define the rights of the Virtual Zone Persons, and the ways of granting this status so that the Ministry of Finance and the Revenue Service no longer have the opportunity to interpret and retrospectively impose taxes with penalties should be canceled.