Overview of legal framework on the protection of investment in Georgia

(Last Updated On: 14/07/2015)

Georgia/March 2014

Aygun Janmammadova

In 2013 Georgia ranked 9th at on the World Bank’s “Ease of Doing Business” Report. The country has carried out positive reforms in all sectors of governance and economy and made significant improvement in macro-economic indicators. The Strategic geographic location serving as a regional trade hub, the low tax burden and the lack of bureaucratic hurdles makes all make Georgia an attractive business destination. The main factor in achieving this has been an the existing investment-encouraging legislation and its constant modernization.

The cornerstone legal act in the areas of foreign investment is the Law of Georgia on Promotion and Guarantees of Investment, dated 1996 (hereinafter “Law”).  The Law determines legal grounds of realization of both foreign and domestic investments and guarantees their protection purporting at establishing instrumental legal regime thereof.

General Principles

The Law gives the definition of investment as any kind of property (monetary or real estate) or intellectual value or right contributed and used within the entrepreneurship implemented on the territory of Georgia with the purpose to of generating income.

Such value or right may be materialized in the form of:

- funds, shares, stocks and other securities;

- movable and immovable property;

- land tenure or right to use other natural resources (including concession, as well), patent, license, "know-how", experience and other intellectual value;

- other legally recognized property and intellectual value or right.

The Law contains an exhaustive list of persons who are considered as subjects of investments-investors in Georgia and specifies the term of foreign investor.  In particular, investor is any physical or legal person, or international organization realizing investments in Georgia. Foreign investor may be:

- a citizen of foreign country;

- a stateless person not permanently residing on the territory of Georgia;

- a citizen of Georgia permanently residing abroad;

- a legal person registered outside Georgia.

On the subject of foreign investor, the Law goes on to conclude that the rights of an enterprise with at least 25% foreign investor's share are equated to the rights of a foreign investor.

One of the main advantages of the Law is its liberal approach when it comes to the rights of investors. As such, investors have the right to:

- open current and other accounts in any currency with any banking institution on the territory of Georgia;

- take apply for a loan in any banking and finance institution, or from physical or legal persons both in Georgia and abroad;

- acquire stocks, bonds and other securities and property existing both on the territory of Georgia and abroad;

- after payment of taxes and other charges to convert the earnings (income) gained after investments as well as other funds at the market exchange rate in bank institutions of Georgia as well as to repatriate them abroad without any limitation (provided of taxes and other charges have been paid);

- take his owned property abroad.

The Law guarantees that the investment is entirely and unconditionally protected in Georgia. It may be withdrawn in cases directly specified by the law only, by court ruling or in case of emergency established by the fundamental law and with appropriate compensation. Compensation paid to the investor shall correspond to the real market value of the withdrawn investment at the very moment of the withdrawal.

The Law also envisages stipulates that the investor is entitled to the payment of the losses that he may incur from the moment of withdrawal till the payment of compensation.

State Registration of Foreign Investment

The Law is quite strict in terms of accountability of foreign investment and stipulates the procedures in the areas of state registration in front of state authorities.

Within 60 days after investing in the an amount of not lessin excess of USD 100.000 USD, a foreign investor is obliged to register the investment at the Foreign Investment Agency existing at the Ministry of Trade and Foreign Economic Relations of Georgia. The failure to follow this requirement risks imposition of ban on investment. The aim of registration is to establish a single database of investments realized in Georgia.

Labor and tax terms

There are no restrictions or limitations as to the organization of enterprise and the employees hired by a foreign investor. A foreign investor is free to employ foreigners in accordance with the applicable laws of Georgia. Foreigners can also hold managerial positions within the governing bodies of a company set up or owned by a foreign investor. Work permits do not exist in Georgia. There are no branch remittance taxes. FX regulations are very flexible and there is no restriction on the repatriation of the earnings gained in Georgia after the payment of due taxes.

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