VAT in Georgia: The Rate, the Registration Threshold and How Filing Works

Value added tax in Georgia is charged at a single rate of 18%, and a company is not required to register for it until its taxable turnover passes GEL 100,000 in any twelve consecutive months. From that point registration is mandatory, returns are monthly, and the tax on what the company sells is reduced by the tax on what it buys. Below the threshold registration is a choice, and for some companies the right one. The figures are those of the Tax Code of Georgia at the time of writing; the sections below set out who registers, what is exempt, what can be deducted and what is filed each month.

Who has to register for VAT in Georgia, and when

The test is turnover, not the calendar year. A company adds up its VAT-taxable supplies of goods and services over any twelve consecutive calendar months; once the total passes GEL 100,000 it must apply to the Revenue Service for registration within two working days. The tax does not wait for the application: under the Code, VAT is due from the transaction that takes the total over the threshold, including that transaction. A company that notices three months late has three months of VAT to account for on sales it priced without it. A few special cases, such as producers of excisable goods, must register before their first supply.

Not every sale counts towards the total. Supplies the Code exempts are left out, with exceptions: exports of goods are counted, as are certain international transport supplies, and exempt financial or real-estate transactions are counted where they are the company's main activity. Services supplied abroad are a separate case. The Code counts only VAT-taxable supplies and defines those as supplies made in the territory of Georgia, so on its wording a service whose place of supply is outside Georgia is not in the count. What has to be confirmed is the place of supply: a service to a business established abroad is, as a rule, supplied abroad, while a service to a private individual, or one tied to property or an event in Georgia, can be supplied here and then counts. Our article on VAT for exported services explains those rules; have your accountant confirm the reading for your services before you rely on being under the threshold. An Individual Entrepreneur on the 1% small business regime watches the same threshold: the 1% does not cover VAT.

Voluntary registration, and when it pays

A company under the threshold may register by choice, and is a VAT payer from the day it applies. The decision is arithmetic. Registration lets the company deduct the VAT on its own purchases, and it turns the reverse charge on foreign services from a cost into an entry that cancels itself in the return. In exchange the company charges 18% on its taxable sales in Georgia, files every month, and issues tax invoices.

• It usually pays when customers are VAT-registered businesses, which deduct the VAT charged to them, or when customers are abroad and the supply is outside Georgian VAT.
• It usually pays when the company buys a significant volume of services from abroad: an unregistered company bears the reverse charge as a cost.
• It usually pays ahead of a large purchase with Georgian VAT on it, such as a fit-out or equipment: the excess input tax can be set against later sales or claimed as a refund.
• It rarely pays when customers are private individuals in Georgia and costs are mostly salaries: the 18% then either comes out of the margin or goes onto the price.
• Once on the register, a company can as a rule ask to leave only after a year, so the choice is made on a twelve-month view.

What is taxed at 18%, what is exempt, and what falls outside Georgian VAT

Georgia has no reduced rates. The Code works with one rate and two kinds of exemption, and the difference between them decides whether the VAT on your costs is recoverable. An exemption with the right of deduction behaves like a zero rate: no VAT on the sale, full credit for the input tax. An exemption without the right of deduction means no VAT on the sale and no credit for the input tax behind it. A third group is not exempt but outside the tax altogether: services whose place of supply is not Georgia.

Input VAT: what can be deducted and what cannot

Only a registered VAT payer deducts. The credit is taken in the monthly return and rests on a document: a tax invoice, in practice raised in the Revenue Service's electronic system, for purchases in Georgia; the customs declaration for imports; and the company's own return for the reverse charge. The purchase must be used for taxable supplies, for supplies exempt with the right of deduction, or for supplies made outside Georgia. Where output tax in a month is lower than input tax, the Code gives a right to a refund of the excess, on application and after whatever checks the Revenue Service decides to make.

• No credit for VAT on representation, entertainment and social expenses, unless those supplies are themselves taxed.
• No credit for purchases used for supplies that are exempt without the right of deduction; a company with both kinds of supply deducts in proportion, on a formula the Code sets.
• No credit on an invoice that does not identify the seller or was not issued under the rules, and none once three years have passed from the end of the calendar year of the transaction.
• Only a registered payer deducts, so VAT on running costs incurred before registration is, as a rule, lost; the Code has a separate rule for fixed assets held at registration, which your accountant should apply.

The monthly return: what is filed and by when

1. 1

   Raise tax invoices as supplies are made: to a business customer as a matter of course, to a consumer on request. An advance received before the supply is, as a rule, taxed in the month it is received.

2. 2

   Collect the month's input documents: tax invoices from Georgian suppliers, customs declarations for imports, and invoices from foreign service providers for the reverse charge.

3. 3

   Close the month. The tax period is the calendar month, and the Code offers no quarterly option.

4. 4

   File the return through rs.ge by the 15th of the following month, showing output VAT, the reverse charge and the input VAT claimed, and pay the balance by the same date.

5. 5

   File for a month with no transactions as well: a registered payer's obligation is monthly, whether or not any tax is due.

6. 6

   Where input tax exceeds output tax, leave the excess on the taxpayer account against later liabilities or apply for a refund under the Code's procedure, and keep the documents that support it.

Leaving the VAT register

Registration is not permanent. A company may apply to cancel it once a year has passed since it was last registered and its taxable supplies over the last twelve calendar months do not exceed GEL 100,000; cancellation takes effect from the first day of the month after the application. There is an exit cost. Goods still on the balance sheet at cancellation, on which input VAT was deducted, are treated as supplied at that moment, so the credit taken on unsold stock is in effect handed back; how the rule applies to fixed assets is a point to confirm with your accountant. A company in liquidation leaves the register when it is struck off.

What this article does not answer

This is the general map. It does not decide the place of supply of your particular service, which is where most cross-border questions are settled, and it does not cover customs valuation, excise, the special schemes for second-hand goods and vouchers, or the VAT rules inside a free industrial zone. It also says nothing about the VAT your customers may owe in their own countries: a foreign tax authority applies its own rules to what you sell there. We register companies for VAT, track the rolling threshold and file the monthly returns as part of our accounting service, and we give a written view on whether voluntary registration pays for a given business. We do not advise on another country's VAT; on that we work alongside your adviser there.