Georgia is a country located on the verge of Eastern Europe and Western Asia. The country offers something for everyone to like. Therefore, it is no surprise more and more digital nomads set up their tax residency in Georgia.
What to do in Georgia?
If you prefer to spend some time on the beach, you have the Black Sea in the West. If you prefer to spend your time in the city, Tbilisi is the place to go. Almost one third of Georgia’s population is living there. This is also the reason that a lot of other parts of the country are still very much untouched. So, if you are into exploring the nature, hiking and fabulous views from the mountaintops, Georgia has plenty to offer you. In winter you can also go skiing in the Georgian mountains. Hence, there is no dispute everyone will find something for their liking in Georgia.
For those more in gastronomy, and more specifically wine, you should know that Georgia is the birthplace of wine. Georgia is still proud of this and they show it: in the past, some nomads claim to have received a bottle of wine upon arrival in the country.
Tax residency in Georgia: general rules
We established that Georgia is a nice country to spend some time in. Let’s now have a look at the Georgian tax rules.
Days test
Georgia applies the so-called days test. Basically, this means that they look at the amount of days you spend in the country to establish if they consider you having your tax residency in Georgian or not. If you spend 183 days or more in the country over a twelve month period, you will obtain tax residency in Georgia. Not so difficult actually, just do the math.
Georgia’s flat tax rate
So, now we established when you are having tax residency in Georgia. The next step is to see what this actually means from a taxation point of view. Also this is not that hard. Georgia had a flat personal tax rate of 20%. Of every €100 you make, you will need to pay €20 in income taxes.
I can hear you thinking: “A 20% tax rate, that isn’t bad, but not really great either!” That’s true. However, I would want to take the time to make two additional comments in this respect.
Georgian territorial tax regime
First, Georgia applies a territorial tax regime. This means that if you have your tax residency in Georgia, you will not pay tax on your worldwide income but only on income you derive from Georgian source.
If you are a freelancer and you are performing your activities from Georgia, you will have to pay taxes on this income. You made the income while working from Georgia. Unlike what some people think, it does not matter if you receive the income in a Georgian or foreign bank account.
Another example is if you have some investment portfolios overseas and passively receive income from it. This will be income that is not from Georgian source and thus you will not pay taxes on that in Georgia.
Some example in between is where you are remotely managing a business with employees – so, no one man show – overseas. If you are actively performing activities from within Georgia, the income could be (partially) allocated to Georgia and be taxed there.
Nevertheless, you should know that combining tax residency in Georgia together with setting up a US LLC can optimize your tax situation. If you don’t spend too much time in Georgia and don’t manage your US LLC from within the country, this will qualify as foreign source income. If you have an interest in setting up a US LLC, definitely check out our dedicated post on opening a US LLC as a digital nomad.
Social security and pension contributions
A second positive note is that Georgia doesn’t levy social security contributions. Contributing to a pension scheme is obligatory, though, but only for employees. So if you are self-employed this doesn’t apply.
When we compare countries, you should always take into account these contributions as well as they could have a major impact.
Beneficial Georgian tax regimes for entrepreneurs and high-net worth individuals
Maybe you are not yet convinced of the fact that obtaining tax residency in Georgia might be something for you. Then you should know that Georgia also offers some beneficial tax regimes for entrepreneurs and high-net worth individuals who want to have their tax residency in Georgia. And this, ladies and gentlemen, is where it really gets interesting.
Tax residency in Georgia for entrepreneurs
Georgia wants to attract entrepreneurs to let them establish their tax residency in Georgia. They do this by providing a specific tax regime for entrepreneurs who fall within the scope of the micro or small business status.
If you have a turnover of less than GEL 30.000 (equivalent to around €11.000) you qualify for the micro business status and don’t pay any income taxes at all.
If your turnover is above GEL 30.000 but below GEL 500.000 (equivalent to around €180.000), you qualify for the small business status. Your tax liability will be equal to 1% of your turnover/revenue (so not profit).
Apart from the limited turnover, there are some other conditions that apply. The most important one is that some activities are excluded. Unfortunately, consulting activities are on the list of prohibited activities and therefore they do not qualify for the regime. However, if you would be running an online business for example, that activity will qualify. The regime is also only open to people performing their activities in personal name and not through a corporation.
In order to benefit from these regimes, it is key to first assess if you fit the criteria. Second, you will also need to apply for them upfront.
Tax residency in Georgia for high-net worth individuals
Apart from entrepreneurs, Georgia also tries to attract high-net worth individuals. Georgia considers you a high-net worth individual if your net worth exceeds GEL 3.000.000 (equivalent to around €1.100.000) or if your annual income exceeded GEL 200.000 (equivalent to around €72.000) during the last three years.
Although these numbers probably aren’t within everyone’s scope, they aren’t unattainable either. If you read about a regime for high-net worth individuals and you’re from a Western country, you were probably expecting some other numbers to be involved.
Now the best thing with tax residency in Georgia for high-net worth individuals is that they do not need to be present in Georgia for 183 days every year to qualify as a tax resident. This is of course gold to us digital nomads as this wouldn’t limit your choices on where to spend your time.
Please note that apart from the aforementioned requirements, there are some other formalities to take care of. One of these is that you have a minimum of GEL 25.000 (equivalent to around €9.000) of income from within Georgia. However, there are structures to set this up. The most important requirement is that starting from April 2023 you need to hold Georgian assets with a value of at least USD 500.000. This can be real estate, but also financial investments or just cash.
Apart from this income that qualifies as Georgian source income, any other income could be exempted from taxes in Georgia. In this way you can definitely lower your tax burden to a great extent. However, the fact that you now need to own Georgian assets of at least USD 500.000 puts up an additional burden.
Setting up a company in Georgia
Another way to make the most of the beneficial tax rates in Georgia is to set up your company there.
Any corporate income from a Georgian company will be taxed at a 15% flat tax rate. This is a good rate compared to many other countries around Europe. The best thing is that since 2017 Georgia changed its corporate tax system to the liking of that from Estonia in order to become even more competitive. Since then corporate taxes are only due when you distribute income from your company. This system enables you to defer your taxes.
So as long as you keep your profits within the company, you can reinvest them and you will not incur a corporate tax bill. This could of course massively enhance the snowball effect of the earnings of your company as it enables you to reinvest your gross proceeds, before taxes.
Upon distribution, also withholding tax at a flat rate of 5% will be due. This will bring your total tax rate on 19,25%.
Double taxation
If we convinced you that you should establish tax residency in Georgia, there could be the issue of double taxation to take into account. Double taxation could occur when two countries see you as a tax resident of their country. Consequently, they would both want to levy taxes on your income.
This could for example happen in the year you move your tax residency to Georgia. Also when you opt for the tax residency in Georgia as a high-net worth individual, you should pay attention to this. Under this regime, you are not required to spend much time in Georgia. So the easier it becomes to fall in the trap of spending a lot time in another country. This could lead to them regarding you as a tax resident as well.
Luckily, Georgia signed double tax treaties with many (Western) countries in order to avoid double taxation. Nevertheless, it is better to be safe than sorry and avoid any discussion at all with the tax authorities. A proper set-up is thus important. So make sure to reach out if you need help with this.
