Keeping Virtual Zone Status: What a Georgian IT Company Does Every Month and Every Year
The Virtual Zone certificate is issued once and has no expiry date. The exemption behind it is tested against every month's books: which income is the company's own software sold abroad, which is not, what is still withheld from salaries and dividends, and what the file shows if someone asks. A working routine for the company that already has the status.
A Virtual Zone certificate changes one line of a Georgian company's tax position: profit from the company's own software, supplied outside Georgia, is not taxed when it is distributed. Everything else stays as it was. The company still files monthly, still withholds 20% from salaries and 5% from dividends at the rates in force at the time of writing, still accounts for VAT on the foreign services it buys, and still has to show, month by month, which part of its income earned the exemption. The status has no expiry date. It is kept by the books and the file, and this article is about both.
0%
Profit tax on exempt distributions
Only profit from the company's own IT supplied outside Georgia; at the time of writing
5%
Withheld from dividends
On dividends paid to individuals or non-resident companies; declared by the company as tax agent
15th
Monthly return deadline
Day of the following month for payroll and profit tax returns; confirm against the Tax Code
What the exemption covers and what stays taxed
The Tax Code exempts one thing: profit, and the distribution of profit, earned from supplying outside Georgia information technologies that the Virtual Zone company itself created. The Revenue Service's methodological guideline on the regime, approved by order of its Head on 29 December 2022 and in force at the time of writing, reads that together with the Law on Information Technology Zones. The software has to be created in Georgia, and it counts as created by the company where the work is done substantially by its employees or by founders who are Georgian residents; the company may also buy in services for the purpose. Development services for clients abroad qualify where their aim is a software product, and so do licence fees from foreign clients for software the company maintains and develops. A service merely delivered electronically with the help of hardware and software does not. A Virtual Zone company may also sell in Georgia or earn other income: that income is simply taxed the ordinary way.
| Income or payment | Treatment | What to keep |
|---|---|---|
| Own software or development services for clients outside Georgia | Profit exempt from profit tax when distributed | Contract, invoice, proof the client is abroad, work records |
| The same products for clients in Georgia | Ordinary rules: 15% profit tax when distributed, VAT as for local supplies | A separate revenue line and a cost allocation |
| Income that is not the company's own IT: resale, consulting, dividends from a subsidiary | Outside the exemption | A separate line and a written view on classification |
| Salaries | 20% income tax withheld, pension contributions where the scheme applies | Contracts and payroll returns |
| Dividends to individuals or non-resident companies | 5% withheld at source | Partners' resolution, return for the month of payment |
| Expenses unrelated to the business and anything given away free | Taxed under the ordinary profit tax rules | The business purpose noted on each expense |
Profit, including its distribution, earned from supplying outside Georgia information technologies created by a legal person that holds Virtual Zone status is exempt from profit tax. Activity in the virtual zone is the economic activity of a legal person connected with producing information technologies in the territory of Georgia. Where an enterprise has both exempt and taxable profit, the exempt amount is treated as paid out first when a dividend is distributed.
Keeping exempt and taxable income apart in the books
A company with both kinds of income has to be able to identify its exempt profit. The guideline's order is direct attribution first: costs that belong to a contract are booked to that contract. Where costs cannot be attributed, exempt profit may be calculated in proportion to the share of income that came from supplies outside Georgia, and a more exact and reasonable method may be used where one exists. The same document has an example on timing: a product written before the status and licensed to foreign clients for a monthly fee, with support and updates. The fees earned after the status are treated as paid for information technologies supplied after it, and the exemption applies. The current guideline says nothing of profit earned before the status; the cautious reading is that it is taxed on distribution like any other profit. In the ledger this means separate revenue accounts by client country and by type of income from the first month, not a reconstruction at the year end.
A studio with one Georgian client
A Virtual Zone company develops software in Tbilisi. In one year it invoices GEL 800,000 to clients abroad and GEL 200,000 to a single Georgian client. Net profit is GEL 400,000, and its costs cannot be split by client.
- 1Following the Revenue Service's method, exempt profit is 400,000 x 800,000 / 1,000,000 = GEL 320,000, and taxable profit is GEL 80,000.
- 2The partners resolve a dividend of GEL 300,000. Exempt profit is treated as paid out first, so no profit tax arises.
- 3The company withholds 5% from the dividend, GEL 15,000, and declares it by the 15th of the following month.
- 4Had they distributed all GEL 400,000, the last GEL 80,000 would carry profit tax at 15% under the ordinary distribution rules, and the 5% would be withheld from the whole dividend.
The Georgian client did not put the status at risk. It created a taxable slice that the books had to be able to show. A company that kept one revenue line could not have said which part of its dividend was exempt.
Illustrative figures. The proportional method is taken from the Revenue Service's published guideline; confirm the rates and the method with your accountant before distributing.
The returns a Virtual Zone company still files
- Every month with a salary: the return of remuneration paid and tax withheld, by the 15th of the following month at the time of writing. The guideline states plainly that a Virtual Zone company has the ordinary duties of a tax agent.
- Every month with a dividend: the 5% withheld from individuals or non-resident companies is declared and paid for the month of payment, even where the profit behind the dividend is exempt.
- Every month with a taxable event: a profit tax return by the 15th of the following month. Besides taxable distributions, the Code taxes expenses unrelated to the business, goods, services or money given away free, and representation expenses above the limit, and the status does not change that.
- Every month with foreign suppliers: reverse-charge VAT on services bought from abroad, and the VAT return itself once the company is registered.
- Every year: financial statements by size category, and a review of whether the conditions of the status were met throughout.
- A month in which nothing happened still has its filing where a return is prescribed; send the accountant the month by a fixed date either way.
Founders who write the code should read the current guideline, not the old one. Earlier versions of the Revenue Service's guideline, of December 2021 and March 2022, said that where founders develop the software themselves and take only dividends, the tax authority could treat what they receive, or part of it, as salary. The version in force, approved on 29 December 2022, dropped that passage. Its example is a company whose founder, a Georgian resident, creates the software in Georgia himself, has no developer on the payroll and takes only dividends: the conditions of the exemption are met. Two limits remain. The example is about a founder who is resident and works in Georgia, not one who writes the code abroad. And the Tax Code still lets the tax authority requalify a transaction whose form does not match its substance. Whatever is paid as salary carries the ordinary withholding.
VAT on exported services and on what the company buys
The Law on Information Technology Zones says VAT is not levied on the supply outside Georgia of information technologies created by a Virtual Zone person. In the Tax Code the same result follows from the place-of-supply rules: a service for a business customer is treated as supplied where that customer is established, so an invoice to a foreign company carries no Georgian VAT. Sales to private individuals and to customers in Georgia follow other rules and should be checked product by product. For the other half of VAT the status does nothing. Cloud hosting, development tools and contractors abroad are services received from non-residents, and the company accounts for VAT on them under the reverse charge, at 18% at the time of writing: as a cost if it is not VAT registered, as a neutral entry if it is. Our article on VAT for a company that sells services abroad covers the registration decision.
The evidence to keep for each contract and each month
There is no statutory checklist of documents. The Revenue Service's guideline names the facts the tax authority looks at, and in practice a file that shows them contains the following.
- 1
Per client: the signed contract naming the software or the development service, the client's country and business details, each invoice issued by the Georgian company and the bank credit that matches it.
- 2
Per delivery: release or acceptance records, repository and deployment history, and task tracker exports that show who did the work and when.
- 3
Per developer: the employment or service contract with the Georgian company, where the person works, and the payroll or payment record.
- 4
For Georgia: the lease or the address in real use, the equipment and subscriptions the work needs, and local costs paid from the company's account.
- 5
Per month: a one-page split of revenue by client country and by type of income, saved with the accounting pack while the month is fresh.
- 6
Per year: a review of the whole file as if it were requested tomorrow, with the gaps closed and the review dated.
Changes to review first and how the status is lost
The status is granted for an indefinite term and is not renewed. The Government's rule on the status lists how it ends. It is cancelled where the status is used to evade the payment of taxes, on information supplied by the competent bodies. It is cancelled on the company's own application. It is treated as cancelled when the company is granted International Company status, from the start of that month, and, under an amendment of September 2025, when it is granted innovative startup status under the Law on Innovations, from the day of that grant. Short of cancellation, a tax audit can deny the exemption for income that did not meet the conditions, with the tax and penalties that follow; the guideline says that where the status served evasion the preferential treatment is not applied to the profit at all. In practice the following changes deserve a written review before they happen.
- Developers or founders moving out of Georgia, or development passing to a subcontractor abroad.
- A first Georgian customer, or a first product sold to private individuals.
- A new income line that is not the company's own software: resale of third-party licences, consulting, hosting, marketing services.
- Software written before the status, or acquired from someone else, starting to earn revenue.
- An application for International Company or innovative startup status, which ends the Virtual Zone status by operation of the rule.
- A new director, owner or address: these are registry filings and a beneficial owner update, separate from the status.
Next step
Keep the file ready before anyone asks for it
We assess Virtual Zone eligibility in writing, file the application after a positive assessment and, alongside the monthly accounts, keep the evidence file ready for review. We do not promise that a status will be granted or kept: the authorities decide that on the facts.
See the Virtual Zone serviceWhat this article does not answer
It does not decide whether your activity qualifies in the first place; our article on the evidence that wins the status covers the application. It does not compare the regime with International Company status, which has its own article. It does not classify a specific income line: whether a support contract or a white-label product is the company's own information technology is a question of fact that needs the documents. And it says nothing about tax in the owner's home country, which may tax the dividend again under its own rules. We give the eligibility assessment in writing, file the application and keep the monthly accounts; we do not promise that a status will be granted or kept, because the authorities decide that on the facts.
General information, not legal or tax advice. Virtual Zone status is governed by the Law of Georgia on Information Technology Zones, the Tax Code of Georgia and the Government's rule on granting the status; rates, guidance and practice change, and the official Georgian text governs.