Tax Guide for US Expats Living and Working in Georgia
Who Is Liable For Income Taxes in Georgia
Resident individuals and nonresident individuals are subject to income tax on income received from Georgian sources.
For tax purposes, individuals are considered resident if they actually are located on the territory of Georgia for 183 or more cumulative days in any continuous 12-month period ending in the current tax year (that is, the calendar year) or if they are in Georgian state service abroad during the tax year. For purposes of the above residency test, the days considered are the days on which the individual is actually located on the territory of Georgia, as well as the days spent by the individual outside the territory of Georgia for medical treatment, vacation, business trip or study purposes. The status of resident or nonresident is determined for each tax year. Days that were taken into account in determining the residency of an individual in the preceding tax year are not taken into account in determining residency in the current tax year.
In addition, high net-worth individuals may elect to be considered Georgian residents for tax purposes and taxed accordingly even if under the above general rule on residency, they are not deemed to be Georgian residents. For this purpose, high net worth individuals are individuals who hold property with the value in excess of GEL 3 million or whose annual income for each of the preceding three years exceeded GEL 200,000.
The Ministers of Finance and Justice of Georgia set the rules and conditions for granting the status of Georgian resident to high net-worth individuals. Under these rules, an individual qualifying as a high net-worth individual in Georgia may become a Georgian resident if he or she holds a local personal identification card or residence permit and/or proves the receipt of annual Georgian-source income of GEL 25,000 or more. If these conditions are satisfied, the Ministry of Finance of Georgia grants Georgian residency to such individual for a tax year based on the submitted application.
Income subject to tax. The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Taxable income from employment consists of all types of compensation or benefits, whether received in cash or in any other form, subject to certain exceptions.
Self-employment and business income. Tax is levied on an individual entrepreneur’s annual income, which consists of gross income less expenses (except for nondeductible or partially non-deductible expenses) incurred in earning the income.
Directors’ fees. Directors’ fees are included in taxable income.
Investment income. A 5% withholding tax is imposed on dividends paid by Georgian enterprises to individuals. Dividends received by resident individuals that were taxed at source are not included in the gross income of such individuals and are not subject to further taxation.
The following dividends are taxed at source and are included in the gross income of recipients:
- Dividends received from International Financial Companies (financial institutions established outside the Free Industrial Zone and granted such status)
- Dividends received from International Companies (Free Industrial Zone companies granted such status for the purpose of tax benefits)
- Dividends on free-floating securities (securities listed on a stock exchange with free float rate in excess of 25% as of 31 December of the preceding or current tax year, according to the information provided by the issuer of these securities to the stock exchange)
The dividend withholding tax rate will be reduced to 3%, effective from 1 January 2013, and will be eliminated, effective from 1 January 2014.
A 5% withholding tax is imposed on interest payments made by Georgian residents and permanent establishments (PEs) of nonresidents if the source of interest income is in Georgia. Interest received by individuals that was taxed at source is not included in gross income and is not subject to further taxation.
The following interest is not taxed at source and is not further included in the gross income of the recipient:
- Interest received from financial institutions licensed according to the Georgian legislation
- Interest received from International Companies
- Interest on free-floating securities or on debt securities issued by Georgian enterprises and listed on a recognized foreign stock exchange
Interest withholding tax will be eliminated, effective from 1 January 2014.
Other income. Inheritances and gifts received are generally included in taxable income. However, certain exceptions apply (see Exempt income).
Nonresidents’ income. Georgian source income of a nonresident that is not related to a PE of the nonresident in Georgia is subject to tax at the source of payment. Income derived by nonresidents from international telecommunication and international shipping services is taxed at a 10% rate. A 4% rate applies to the income received from the oil and gas operations of nonresident subcontractors under the Law of Georgia on Oil and Gas. Other payments to nonresidents deemed to represent income received from a Georgian source are taxed at source at a rate of 15%.
Exempt income. Income derived by individuals that is exempt from income tax includes the following:
- Income derived by nonresidents from employment with diplomatic or equalized organizations located in Georgia
- Grants, state pensions, state compensation, state scholarships, cumulative and repayable pensions from private pension schemes up to the amount of the contributions made and other specific government payments
- Alimony
- Capital gains derived from the sale of vehicles that were held for more than six months
- Capital gains derived from the sale of apartments or houses together with the attached land plot that were held for more than two years
- Capital gains derived from the sale of assets (other than vehicles and apartments or houses) that were held for more than two years and that were not used for economic activities
- Capital gains derived from the receipt of real estate in exchange for a partner’s share that was held for more than two years
- Property received by a I or II level legatee gratuitously or by inheritance
- Property received by a III and IV level legatee, up to GEL 150,000, gratuitously or by inheritance
- Property with the value of up to GEL 1,000 received gratuitously during a tax year, other than property received from an employer
- Amounts paid to a donor for food required for the restoration of blood
- Until 1 January 2014, income received by individuals from the initial supply of agricultural products before their reproduction (change of code) and salary payments received from these individuals by their employees if such income does not exceed GEL 200,000 during a calendar year
- Gains derived from the sale of securities issued by International Financial Companies
- Gains derived from the sale of free-floating securities
- Georgian-source income of a nonresident received from insurance, reinsurance and finance lease services not related to his or her PE in Georgia
- Interest income and gains derived from the sale of bonds issued by the government of Georgia or the National Bank of Georgia (NBG)
- Income of resident individuals received from foreign sources
- Lottery winnings up to GEL 1,000
- Income received by a nonresident individual from a nonresident employer for employment executed in Georgia for up to 30 calendar days in a tax year paid, if such salary expenses are not attributable to the PE of a nonresident in Georgia, regardless of whether the payment is made by the PE
- Income received from the transfer of property by a partnership to its members if, at the moment of the transfer, the members of the partnership consist only of individuals, the members have not changed since the establishment of the partnership, and the partnership is not a value-added tax (VAT) payer
Taxation of employer-provided stock options. Employer-provided stock options are a taxable benefit.
Capital gains and losses. Capital gains are subject to regular income tax when they are realized. Unrealized capital gains are not subject to tax. Individual entrepreneurs may offset their capital losses against proceeds received from the sale of property. If the loss cannot be offset in the year of the loss, it may be carried forward to offset proceeds from sales of property in the following 5 or 10 years (see Relief for losses). Individuals who are not entrepreneurs may offset losses from the sale of assets against gains from the sale of the same type of assets. However, if a loss cannot be offset in the year in which it is incurred, the loss may not be carried forward.
Deductions
Personal deductions and allowances. The Tax Code of Georgia (TCG) does not allow any deductions from gross salary.
Business deductions. Taxpayers may deduct all documented expenses contributing to the generation of taxable income (for example, expenditure for materials, depreciation deductions, lease payments, wages and interest payments), except for expenses of a capital nature and expenses that are nondeductible or partially nondeductible.
A taxpayer may deduct the gain derived from the gratuitous supply of goods and services from his or her gross income, subject to the restrictions imposed by the TCG in the reporting year in which such goods or services are used in an economic activity.
Nondeductible expenses include the following:
- Expenses that are not related to economic activities, except for contributions to charity funds. However, such contributions are deductible only up to 10% of taxable income before deduction of charitable expenses.
- Entertainment expenses, unless a taxpayer is engaged in entertainment business and the expenses have been incurred in the framework of such activity.
- Expenses incurred for personal consumption and costs related to the winnings received from lotteries, casinos (gambling houses), games of chance or other winning games.
- Expenses related to generation of income that is exempt from income tax.
- Penalties and fines paid or payable to the Georgian state budget.
- Income tax, except for income tax paid by an individual with respect to receiving a benefit (with the exception of a benefit received from employment and economic activities).
- Interest expenses above the established limit of 24% per year.
- Representative expenses in excess of 1% of gross income earned during the tax year.
- Expenses incurred on goods and services purchased from an individual with the status of micro business (see Section E).
- Bad receivables may be deducted only if the respective income was previously included in gross income and if such receivables have been written off in the accounting books. Certain conditions provided by the TCG must be met for the receivable to be considered a bad receivable.
- Capital repair expenses for fixed assets in excess of 5% of the balance of the corresponding group of fixed assets at the end of the preceding tax year. These expenses are added to the group and deducted through depreciation. However, such expenses are immediately expensed if a person applies the full depreciation method (see below).
- Insurance premiums paid by insured parties under pension insurance agreements.
Expenditures on tangible assets are deducted in the form of group depreciation charges through the application of the diminishing-balance method.
Rates. The personal income tax rate is 20%. The tax rate will be reduced to 18%, effective from 1 January 2013 and to 15%, effective from 1 January 2014.
Credits. Because the income of resident individuals received from foreign sources is exempt from personal income tax, no foreign tax credits are allowed.
Relief for losses. Individual entrepreneurs may carry forward operating losses for up to five years to offset future operating profits. The offsetting of loss carryforwards against the salary income of individual entrepreneurs is not allowed.
Losses may be carried forward for up to 10 years. However, the statute of limitations is 11 years for a 10-year carry forward period, and 6 years for a 5-year carry forward period. A 10-year carryforward period may be changed to a 5-year carry forward period if the losses carried forward are used up. No loss carrybacks are allowed.
B. Other taxes
Inheritance and gift taxes. Georgia does not impose gift taxes. As mentioned in Section A, inheritances and gifts are subject to general income taxation.
Wealth tax. Georgia does not impose wealth tax or net worth tax.
Property tax. For individuals, the following items are subject to property tax:
- Owned immovable property (buildings or parts of buildings)
- Unfinished construction
- Yachts, planes and helicopters registered in Georgia
- Property received from nonresidents under finance leases In addition, for individuals carrying out economic activities, the following items are taxable:
- Fixed assets (except for biological assets and property received from residents under finance leases)
- Unassembled equipment
- Intangible assets
- Property granted to other parties under finance leases
Property located in the Free Industrial Zone is exempt from tax. The property tax rates for taxable property, except for land, vary according to the revenues earned during the tax year by the family owning the property. The rates are applied to the market value of the property.
C. Social insurance tax
Contributions. Georgia does not impose social insurance tax.
Totalization agreements. Georgia is not a party to any international agreement regarding contributions to social funds.
F. Double tax relief and tax treaties
Georgia has entered into tax treaties with the following countries.
Armenia
France
Malta
Austria
Germany
Netherlands
Azerbaijan
Greece
Poland
Belgium
Iran
Romania
Bulgaria
Ireland
Singapore
China
Italy
Turkey
Czech Republic
Kazakhstan
Turkmenistan
Denmark
Latvia
Ukraine
Estonia
Lithuania
United Kingdom
Finland
Luxembourg
Uzbekistan
Georgia considers none of the tax treaties of the former USSR to be in force. Georgia has signed and ratified tax treaties with Egypt, Israel, Kuwait, Spain and Switzerland, but these treaties have not yet entered into force.
Tax treaties have been initialed with Bahrain, Cyprus, India, Qatar, the Slovak Republic, Slovenia and the United Arab Emirates.
Tax treaty negotiations are underway with Argentina, Belarus, Belize, Brazil, Hungary, Jordan, Korea (South), Liechtenstein, Marshall Islands, Norway, Panama, Portugal, Seychelles and Sweden.
Most of Georgia’s tax treaties exempt individuals from tax in Georgia if all of the following conditions are satisfied:
- The individual is present in Georgia for less than 183 days in any period of 12 consecutive months.
- The income is paid to the individual by or on behalf of an employer who is not a resident of Georgia.
- The cost of the income is not borne by a PE of the employer in Georgia. Tax benefits granted by the tax treaties can be claimed in accordance with the rules established by the Minister of Finance of Georgia.
We have been preparing US income tax returns for US Citizens and permanent residents living in Georgia for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Georgia and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Georgia.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a consultation by phone, skype or email