New corporate income taxation rules in Georgia

Based on the Law of Georgia N5092- II, dated 13 May 2016, amendments relating to the corporate income tax (CIT) have been introduced into the Georgian Tax Code.

Most of amendments in question have entered into force on 1 June 2016 and envisage, in particular: the extension of the term of import VAT payment on certain types of fixed assets up to 45 days as of the date of realization of such assets; the exclusive power of tax authorities to exercise tax control over the company`s economic activities and, accordingly, carry out tax audits; the writing off of tax arrears of taxpayers which do not carry out economic activities with respect to tax liabilities arisen and sanctions imposed up to a certain deadline; the prohibition to freeze the taxpayer`s bank account during a tax dispute except when based on a court ruling, as well as some other novelties.

At the same time, certain amendments relating to the removal of thin capitalization rules and introduction of CIT on distributed profits will enter into force on 1 January 2017.

Based on the new rules, the rate of CIT remains unchanged. Additionally, the law includes a list of ` profits and activities which are subject to CIT, including (but not limited to) free of charge supply of goods and services, loan issuance to an individual or a non-resident, certain non-deductible expenses per the Georgian tax legislation, distributed profit to related parties or a person which is exempt from taxation, as well as transactions not conducted based on an arms – length principle, etc.

Certain banking and non-banking financial institutions are exempt from the new CIT rules until 1 January 2019. Finally, the transition provisions of the law contain some specific rules regarding the profit distribution by a Georgian legal entity earned before the amendments` entrance into force.

Anna Pushkaryova, Country Director,
Eurofast Georgia
T. +995 595 100 517