Georgia's Profit Tax: What Counts as a Distribution and When the 15% Is Due

A Georgian company pays corporate income tax, called profit tax in the Tax Code, at 15%, and it pays it on profit that leaves the company, not on profit as it is earned. That much is widely known. What decides the bill in practice is the Code's list of what counts as leaving: a dividend, but also a personal expense paid by the company, a gift, a loan to the founder, a payment to a low-tax jurisdiction, a price that was not at market level. Each of these is taxed in the month it happens, on a grossed-up amount, and declared by the 15th of the next month. The rules and figures here are those of the Tax Code of Georgia at the time of writing.

Profit that stays in the company is not taxed

Since 2017 Georgia has used the model associated with Estonia. A resident company keeps accounts and earns profit in the ordinary way, but annual accounting profit is not the tax base. Money that is retained, reinvested, or spent on salaries, equipment, marketing or any other documented cost of the business produces no profit tax. An ordinary company has no annual profit tax return and makes no advance payments on expected profit. The base is built event by event, month by month, from four categories the Code names.

The four taxable events, and what the Code treats as each

Three of these deserve attention because they do not look like distributions. First, loans. Lending the company's money to an individual, the founder included, or to any non-resident is taxed as if it were a payment out, and so is pledging the company's deposit to secure the borrowing of a partner who is an individual or a non-resident. The tax is not lost: when the loan is repaid, the Code allows the profit tax paid on it to be credited or refunded. Second, low-tax jurisdictions. Loans, advance payments, purchases of debt securities and contractual penalties paid to a person registered in a jurisdiction on the Government's list of countries with preferential taxation are taxable events. So, as a rule, is a contribution to the capital of any non-resident, low-tax or not, or a purchase of its shares, other than shares listed on a recognised foreign exchange. For a loan or an advance the tax is credited when the money comes back; for a share or a security, when it is sold on and the price is actually received. Third, prices. A transaction with a related party who is not itself taxed under this model, such as an individual shareholder or a foreign affiliate, is taxed on the difference from the market price, and cross-border dealings between related companies fall under the transfer pricing rules.

How the 15% is calculated: the gross-up

The rate is applied to more than the cash that leaves. The Code treats the payment as the amount after tax, so the payment is divided by 0.85 and 15% is charged on the result. For a dividend of GEL 85 the base is GEL 100 and the tax is GEL 15; put the other way, profit tax costs about 17.65% of the amount paid out. The same division applies to every category in the table, including an expense outside the business and the excess of representation costs. Where the payment is made in kind, the base is the market value of what was handed over, without VAT.

The monthly return and the separate 5% on dividends

1. 1

   Identify the month's taxable events from the bank statements and the ledger: dividend resolutions, transfers to individuals and non-residents, undocumented costs and costs outside the business, gifts, and representation spending against the annual limit.

2. 2

   Compute the base for each by dividing the amount by 0.85, and apply 15%.

3. 3

   File the monthly profit tax return through rs.ge by the 15th of the following month and pay the tax by the same date. The Code makes the return monthly; it treats an unfiled return as a nil return, but under the Minister of Finance's rules not for a VAT-registered company, which should file for a quiet month too.

4. 4

   For a dividend, withhold 5% from the amount due to an individual or a non-resident shareholder, pay it over when the dividend is paid, and report it in the monthly return on taxes withheld.

5. 5

   Claim the credit when a taxed loan or advance comes back: the return has a section for tax to be credited or refunded.

6. 6

   Keep the document that explains each large outgoing payment from the month it is made: an expense that cannot be documented is taxable for that reason alone.

The 5% is a different tax from the 15%: it falls on the shareholder and the company collects it. It applies to dividends paid to individuals and to non-resident companies; a dividend paid to another Georgian company carries neither the 15% nor the 5%, and the tax arises when that company distributes in turn. For a resident individual the 5% withheld is final in Georgia. For a non-resident, a double tax treaty may reduce it if the certificate of residence is on file before payment; our article on Georgia's tax treaties covers that step. The shareholder's own country may tax the dividend again. Our article on salary and dividends compares the two routes out of the company.

Who is outside the model, and who pays a different rate

• Banks, credit unions, microfinance organisations and loan-issuing entities are taxed on annual profit, that is gross income less deductions, at 20% at the time of writing, and file an annual return.
• Certain gambling activities have their own base and their own rates.
• A company with International Company status applies the same model at 5%; a Virtual Zone company is exempt on profit from IT supplied outside Georgia; a free industrial zone enterprise is exempt on permitted activity in the zone. Each is a status granted on conditions, not a choice made in the return.
• Dividends that a Georgian company receives from a foreign company can be distributed onward without the 15%, unless they come from a jurisdiction on the list of countries with preferential taxation.
• An Individual Entrepreneur is not a company: the entrepreneur pays personal income tax, not profit tax, and the 1% small business status belongs to that system.
• A foreign company with a permanent establishment in Georgia is taxed on the same events through that establishment.

What this article does not answer

It does not tell you whether a particular expense is a business expense: that is decided on the facts, and the Revenue Service may see them differently from the founder. It does not cover transfer pricing documentation, the rules on reorganisation and liquidation, or the transitional treatment of profit earned before 2017. And it stops at the Georgian border: a founder who is tax resident elsewhere may be taxed at home on a Georgian dividend, and some countries tax the undistributed profit of a foreign company that their residents control. We prepare distributions, review a company's past payments for taxable events and handle the monthly returns through our accounting service. We do not advise on the tax law of your home country; on that we work with your adviser there.