Virtual Zone Persons’ budget contributions are up y-o-y

Tbilisi (GBC) – Since the implementation of tax incentives in Georgia for companies with the status of a Virtual Zone Person (VZP) in January 2011, the dynamics of taxes contributed to the state budget by companies registered in the country have increased sharply from year to year, indicating unequivocally the positive dynamics of the development of this industry, despite the financial impact received from state finance agencies due to the changed taxation policy in 2020.

In particular, according to the data requested from the Revenue Service by the Association of Georgian Virtual Zone Persons, the taxes paid by these companies exceeded 2,225,000 GEL in the budget in the first year (2011), and after the introduction of tax benefits, this data exceeded to 70 million GEL in 2022.

More detailed statistics clearly indicate the effectiveness of the resolution of the Government of Georgia “On the rules and conditions for granting the status of the Virtual Zone Person and the determination of the person granting the status of the Virtual Zone Person”.

In particular, the dynamics of taxes paid by this industry to the state budget of Georgia in 2011-2020 are as follows:

Source: Revenue Service of the Ministry of Finance.

As can be seen from the table, after the introduction of tax benefits, the budget revenues from the VZP IT sector are increasing almost continuously. In particular, in 2012, compared to the previous year, the taxes paid by these companies to the budget increased by 35.1%, in 2013 – by 14%, and in 2014, revenues increased sharply and amounted to 139.8%. In 2015, the growth was 41.5%, in 2016 and 2017, this indicator decreased; however, it returned to growth in 2018 and increased by 41.5% compared to the previous year.

The volume of payments by VZP companies rose to another height in 2019, and the growth showed 270.7%. The dynamics were maintained even in the pandemic year 2020, and compared to the previous year, the increase amounted to 1.6%.

In the table, if we observe the volumes of income taxes from year to year, we can see at what rate the volume of salaries paid by the Virtual Zone Persons in Georgia is increasing. This directly indicates the significant contribution of this industry to the economy of Georgia.

Representatives of the sector say that if the Georgian government further refines the legal framework, which will reduce the opportunities for manipulation by the agencies, more international companies will enter the Georgian market, which will contribute to the growth and development of both the sector and the economy as a whole.

The mentioned issue became relevant after the fact that, in recent years, companies with the status of Virtual Zone were fined due to the ambiguity in the legislation. This amount was several million.

The Association of Georgian Virtual Zone Persons, which defends the interests of the participants in this industry, declares that they have recently started active cooperation with state agencies, and as for controversial issues, some of them have become the subject of court consideration.

Shorena Kopaleishvili, the head of the Association of Georgian Virtual Zone Persons, in a conversation with GBC, claims that the promotion of this industry should be a priority for the state, which will contribute to the development of the country in all directions.

“As confirmed by the figures discussed above, the development of information technology and the promotion of this industry should become one of the state’s priority directions, because this area affects almost all areas of work. Today, almost everything works with the help of information technology, and almost every industry recognizes the importance of information technology: business, education, finance, healthcare, and etc.  In today’s competitive world, IT services are critical for any organization to increase productivity, streamline business operations, and drive efficient economic growth. As a result, the regulation of legislative and tax issues, as well as the creation of an appealing investment environment, are the prerogatives of the state, while the fundamental obligation of a private person is to pay taxes. It is a public relationship between the taxpayer and the state, where the state is dominant.

As a result, the regulation of legislative and tax issues, as well as the creation of an appealing investment environment, are the prerogatives of the state, while the fundamental obligation of a private person is to pay taxes. It is a public relationship between the taxpayer and the state, where the state is dominant. Taking into account the dominant role of the executive branch of Government in tax matters, the legislative body should create such a legislative base where economic criteria will be the starting point along with fundamental human rights,” says Shorena Kopaleishvili.

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