Until the legislation is refined IT companies do not see prospects

Tbilisi (GBC) – IT companies with the status of Virtual Zone Persons (VZP), united in the Association of Georgian Virtual Zone Persons, are actively working with government officials to solve legislative challenges faced by international companies attracted by tax incentives.

In order to better understand the problems of companies with VZP status, the GBC obtained permission to interview the manager of one such company on condition of confidentiality.

The mentioned company, “W” LLC , has been on the Georgian market since 2020, and its representative A.F. cites the tax “oasis” created in the country for IT companies as the basis for choosing this country to work in.

According to the respondent, in addition to low taxes, Georgia is also attractive to their business, given the easy accessibility of CIS markets from this country.

As for the legislation, the GBC respondent states that it is not very well researched; it seems that most of the basic laws are borrowed from other jurisdictions (European) and are not adapted to the local reality. As a result, companies attracted by tax incentives often have problems with the Revenue Service. This company has already been fined for improper taxation of reverse VAT (import of services).

In general, IT is a much younger sector than other industries. It is also new to governments, including those in Georgia. According to the respondent, to regulate relations with the Government (on the issue of legislation), it is necessary to study the specifics of this business in more detail, to take into account its constant development, and to exchange information with business representatives.  According to the respondent, it is necessary to ensure the transparency of legislation and its thorough implementation.

“Our company employs a total of 11 people, of whom 3 are citizens of Georgia and 3 are residents of Georgia. The average salary is 2,300 GEL,” says the respondent.

Due to important gaps in the tax legislation, the head of the company does not see the prospects of expanding the business in Georgia at this stage, but everything depends on what results the Association of Georgian Virtual Zone Persons achieves through its active work. The respondent says that the Association has fundamentally raised the importance of the issue at the state level and is the only hope for transparent legislation in this area.

“At this point, there is hope that we will get transparent and reliable legislation, and our company also understands that there needs to be an ongoing dialogue with the state, and the Association can help with that,” the respondent says.

The respondent advises new companies entering the Georgian market or those about to obtain status to be prepared for unexpected inspections and penalties from the tax authorities until clear laws are passed by the Georgian authorities.

It was previously reported that in recent years, the Revenue Service of the Ministry of Finance has fined companies with VZP status for several million GEL. The owners of the mentioned companies and the Association of Georgian Virtual Zone Persons do not agree with the justification of the fine.

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