VAT registration in Georgia is quite simple and straightforward. For some, it is required by the tax code of Georgia to be registered as a VAT payer whereas some voluntarily get themselves registered. Before you voluntarily decide to be registered as a VAT payer in Georgia, let us help you understand the advantages and disadvantages (mostly advantages) of VAT in Georgia.
Advantages of VAT in Georgia
Let us start by looking at the bright side of VAT in Georgia.
- Georgia levies a flat 18% VAT on domestic supply of goods/services and on importation of goods.
- VAT payments, returns and reporting are not to be done monthly anymore. It is done on a quarterly basis which has made tax compliance tremendously easy for registered micro and small businesses that are involved in the production of goods that come under the purview of VAT taxable transactions.
- Supply of goods to an international corporation by a company registered in Georgia is an export sale, so it is VAT exempt. But as a Georgian supplier, you can still claim input tax credit for such exports.
- The right to claim input tax credit on supply of goods or services that are treated as taxable transactions for the purpose of VAT allows the VAT payer to deduct VAT paid on inputs for his output tax obligations.
- If you are a registered VAT payer and you decide to transfer all of your business assets to another registered VAT payer, then this supply is VAT exempt if the recipient notifies the concerned authorities about the transaction within 15 days of its execution. The added bonus to this is that you can also claim input tax credit.
- If your business is a part of the Golden list members (Authorized Economic Operator) then you can defer your VAT payments for a period of 30 days.
Disadvantages of VAT in Georgia
It is a universal thing that everything that has pros also has certain cons to it but maybe not in the same proportion. Similarly, the VAT structure of Georgia has a few disadvantages to it.
- If your Georgian company supplies goods and services to a business that is located in one of the three free industrial zones in Georgia then you cannot claim input tax credit as all the supplies to any business that is established in FIZ is exempt from VAT.
- Supply of goods to a free warehouse enterprise is exempt from VAT without the right to claim input tax credit. A Free Warehouse Enterprise stores and sells foreign goods or it might be involved in just storing goods for re-export.
- If you produce or import excisable goods then you have to register your business for VAT irrespective of the turnover of your business.
- If in the course of a commercial activity, you make a one-off taxable transaction that crosses the threshold of GEL 100,000 then you have to register yourself as a VAT payer. However, if this transaction fails to take place then you can easily deregister yourself also.
Other important aspects related to VAT in Georgia that you should be aware of are-
- A VAT payer has to use the accrual method of accounting according to the tax code of Georgia.
- You can deduct the appropriate amount from your taxable profits for corporate tax purpose if for certain reasons you are not able to reclaim VAT.
- VAT paid on services maybe claimed as input tax credit if you are rendering services outside of Georgia.
- You should apply the overpaid VAT to meet your other tax obligations as the refund process is sometimes delayed.
- If non-residents who are not registered in Georgia are rendering services in Georgia then such services are subject to VAT reverse charge.
- There are many services that are VAT exempt such as- financial services, funeral services, medical services, import of currency or securities, supply of land plot, etc.
Georgia is continuously trying to make its tax structure simpler and align it to the best tax practices of the European Union and international standards in order to have more company registration in Georgia and boost the economy of the country. The Ministry of Finance of Georgia presents all of its new initiatives to its business community for them to review and comment on the initiatives before the ministry decides to adopt them. This consultation process is a positive and progressive step by the government of Georgia. Another initiative is the establishment of a Tax Working Group of experts to make the draft code better and more inclined towards the simplification of the process. These initiatives by the government prove that there is still room for improvement and it is a learning process for both the business community of Georgia and the Georgian government.
If you are looking for company incorporation in Georgia or already have a business in Georgia and are looking for services such as visa services, tax services, corporate secretarial services and other such services then you may contact us. Our experts in Georgia will give excellent advice according to the needs of your business.