Georgian investment incentives

DOING BUSINESS IN GEORGIA

As a bridge between Europe and Asia, Georgias economy is highly integrated with international markets. As a Regional Headquarters for international firms, Georgia provides direct access to more than 1 billion consumers.
 
Georgias government has implemented sweeping reforms since 2004 to offer a Liberal Tax System and a Business-Friendly Environment  to potential investors. Georgias pro-business legislation and liberal labor law have contributed to trade liberalization and a significant growth in local production and exports.
 
In 2007, Georgias 4-Year Average GDP growth was 10.5% and Foreign Investment was over USD 2 Billion.
 
This economic growth and increased international investment has created many social benefits, including increased education and employment opportunities, more specialized trades, expanded access to capital and international business standards.
 
Despite recent decreases in economic growth rates due to the global financial crisis, Georgias real GDP growth rate was 7% in 2011.

In 2010, Georgias total international trade turnover was USD 6.7 Billion, an increase of 199% since 2005. This success can be contributed to Georgias more active role in the global economy and its steady growth in FDI since 2004.
 
Georgia has been a member of The World Trade Organization since 2000 and benefits from Most Favored Nation Regime with WTO Members, which provides lower tariffs for WTO members. It has joint major bilateral agreements within the WTO.

Georgia benefits from a Generalized System of Preferences when trading with the USA, Canada, Switzerland and Japan. Accordingly, lower tariffs are applied on goods exported from Georgia into these countries.

Georgia is beneficiary of GSP Plus trading regime, which allows Georgia to export 7200 products to the 495 million EU market duty free.
 
Georgia has Free Trade Agreement with CIS countries and Turkey (since November 1, 2008).

To protect investors and to enhance Georgias role as an investment destination, it has established bilateral treaties on investment promotion and protection with 32 countries and has concluded double taxation treaties with 31 countries across the globe.
 
Georgias Customs Code is on par with European standards and has streamlined its Customs procedures to simplify the import and export process. Highlights of the Customs tariffs are:

• Low import tariffs (90% of goods are free from import tariff)
• Few export/import licenses and permits
• No quantitative restrictions on import and export
• No customs tariff on export and re-export
• No VAT on export
• Simplified export and import procedures
 
Competitive Trade Regimes – Highlights

• Free Trade Regime – with CIS countries and Turkey (since November 1, 2008)
• Most Favored Nation Regime (MFN) – with World Trade Organization (WTO) member countries
• Preferential Regime (GSP) – with USA, Canada, Japan, Switzerland, Norway
• Preferential Regime (GSP+) – with EU (7200 products duty free)
• Possibility of FTA with EU in nearest future


SETTING UP A BUSINESS IN GEORGIA

 
Setting up a business in Georgia is a straightforward process. Procedures are simple and efficient, based on a transparent system that promotes the establishment of new enterprises. In fact, the registration process takes only 1 day to complete.
 
Georgian economy and industry is very entrepreneurial and highly motivated to develop rapidly. As industries in Georgia develop, firms and investors are looking for opportunities to invest. The combination of dynamic economic growth, pro-business legislation, a liberal tax code, a strong legal framework to protect investors and an educated and skilled workforce presents a solid platform for successful business in Georgia.
 
Currently, there are approximately 260,000 businesses operating in Georgia, with more than 4,600 businesses established by foreign capital or with its participation.
 
The registration of a company in Georgia is based on three essential principles: fast, inexpensive and simple procedures.
 
The terms and procedures for registering a company are regulated by the Law on Entrepreneurs, the Law on Public Registry and the Instruction Manual on Registration of Entrepreneurs and Non-Entrepreneur (non-commercial) Legal Persons.
 
Registration of companies in Georgia is carried out by the National Agency of Public Registry. For the purpose of registration, the law does not require a document verifying the amount or existence of the charter capital. A company is not required to complete a separate tax registration, as pursuant to the Georgian legislation, the initial registration includes both the State and the Tax registration and is carried out simultaneously.

 

TAX SYSTEM
 
To enhance Georgias Investment & Business Climate, the Government has dramatically overhauled its tax system since 2004. By implementing a liberal reform agenda, Georgia has simplified its processes and has reduced the number of taxes from 21 in 2004 to only 6 today.
 
These improvements have made Georgia one of the most attractive tax regimes globally. In 2008, Forbes Magazine designated Georgia as the “4th Least Tax-Burdened Country”.
 
Currently, Georgia has established Double Taxation Treaties with 31 major trading partner countries and plans to finalize several more in 2011. Additional reforms are projected to decrease tax rates even further in the next few years.
 
In 2010, The government submitted to Parliament the constitutional Law on Economic Liberty, Opportunity and Dignity (the Liberty Act). With the Liberty Act, no new taxes or tax rate increase is possible without a nationwide referendum.
  

 No payroll tax or social insurance tax
 Capital expenditure can be depreciated fully in the year it has been incurred of the operation, and 10-year loss carry forward is available
 No capital gains tax
 No wealth tax, inheritance tax or stamp duty
 Foreign-source income of individuals fully exempted
 
TAX-FREE REGIMES

For investors interested in locating their industrial operations in Georgia, there are 3 Tax-Free Regimes available to take advantage of:

• Free Industrial Zones
• Free Warehouse Enterprise
• International Finance Company


SPECIAL TAX-FREE REGIMES IN GEORGIA

Specialized tax rates and procedures have been adopted for the 3 Tax-Free Regimes. The purpose of these Tax-Free Regimes is to establish new international financial institutions in the country, to encourage economic growth and to support sustainable development in Georgia's trade-transit function internationally.

The three types of Tax-Free Regimes are:

•    Free-Industrial Zones
•    Free Warehouse Enterprise
•    International Finance Company Designation
 
SPECIFIC TAX  FREE INDUSTRIAL ZONE FREE WAREHOUSE COMPANY AN INTERNATIONAL FINANCIAL COMPANY

Corporate Income Tax 0% 0% 0%
Value Added Tax  0% 0% 0%
Customs Tax 0% 0% 0%, 5% or 12%
Property Tax  0% up to 1% up to 1%
Personal Income Tax 20% 20% 20%
Net Operating Losses (years)     
Carry back 0 0 0
Carry forward     0 0 0

 

WHY TO INVEST IN GEORGIA
 
Georgian industry is very entrepreneurial and highly motivated to develop rapidly. As industries in Georgia develop, firms and investors are looking for opportunities to invest. The combination of dynamic economic growth, pro-business legislation, a liberal tax code, a strong legal framework to protect investors and an educated and skilled workforce presents a solid platform for successful business in Georgia.
 
More than 4,600 companies in Georgia were established by foreign investors. These firms have capitalized upon the skills and talents of Georgias multi-lingual and highly educated workforce.

• Georgia offers competitive cost factors (labor, utilities, real estate, taxes).
• Georgias workforce of 1.9 million people is highly educated – 30.8% have university degrees.
• Average Gross Monthly Salaries are lower than European equivalents – USD 346 in 2010.
• 50.4% of the unemployed population (169 100 people) is aged between 20-34.
• Georgia boasts low tariffs, streamlined border clearance procedures and preferential trade regimes with major partners, including the EU, the U.S. and free trade with Turkey and CIS countries. Georgia has been a member of the WTO since 2000 and has no quantitative restrictions on trade.
• Georgia hosts an excellent infrastructure. Extensive public and private investment has developed a dynamic nationwide network of roads, railroads, waterways, harbors and airports.
• Georgias foreign trade has been growing rapidly since 2003 as a result of aggressive policy re¬forms to make it easier and less expensive to trade across borders.
• Georgia offers a high quality of living to visitors. Its environment is clean, with a focus on Green Energy and organic food production.


INVESTMENT INCENTIVES
 
Georgian legislation offers many incentives to investors in Georgia, including:

• Liberal Tax Code
• Tax-Free Regimes (FIZ, FTZ)
• Preferred Trade Regimes with Major Trading Partners
• Tax Incentives for Agricultural Investments
• Cheap & Skilled Workforce
• Liberal Labor Code
• Investor Protection Regulations
• Investment Guarantees
• Choice of Law for Contracts
• International Dispute Resolution Mechanism


LEGAL FRAMEWORK

Since 2004, Georgia has implemented a proactive strategy in developing its legal framework in order to attract investment as well as to protect investors and their assets. Below are highlights of Georgias legal framework as it relates to international investment.
 
Investor Protection

Promoting investment is considered to be a primary goal of the State economic policy. Georgian legislation provides for the protection of investors and their assets through domestic regulations, as well as through the number of Bilateral Investment Treaties and international agreements with partner countries and organizations. With few exceptions, foreign investors are guaranteed fair and equal treatment under the law, regardless of their nationality, and have the same rights and guarantees as Georgian companies.

Investment Guarantees

Georgian legislation offers unconditional protection of investments. Assets of a foreign investor shall not be subject to expropriation, except when it is explicitly provided in the law, decision of the court or constitutes a matter of urgent necessity as envisaged in the respective organic law and with fair compensation, including the amount of damages born by investor from expropriation. In any event investors have the right to challenge the decision regarding the expropriation of the investment in the local courts of Georgia.

The State protects investment during the state of war and provides equal treatment of foreign and domestic investors while compensating for damages.

Most significantly, should new laws be adopted worsening the investment conditions it shall not have a retrospective application to the existing investment for the period of ten years and the investor will conduct its activity in accordance with law applicable at the time when the investment was carried out.

Labor Law

Georgia has one of the most liberal Labor Codes in the World. According to the Heritage Foundation, Georgia's ranking on the Labor Freedom Index was 99.9. Georgia is a member of the International Labor Organization, and investors are guaranteed authorization to hire foreign workers, who are permitted to transfer their income abroad once they have complied with all state duties and levies.

Choice of Law

Georgian legislation provides the possibility to foreign investors to have their contractual obligations governed by the law of the country they choose. The choices of law provisions are legal, valid and binding under the laws of Georgia and will be recognized and followed by Georgian courts.

Dispute Resolution

According to the Law of Georgia on Promotion and Guarantees of Investment Related Activities, unless otherwise agreed between the parties, any dispute arising out of or in connection with the investment activity between the Government of Georgia and a foreign investor shall be resolved by the courts of Georgia. However, the most commonly favored tribunal is the International Center of Settlement of Investment Disputes decisions of which are final and binding on the parties and are easily enforceable through the 1958 New York Convention on Recognition and Enforcement of Foreign Arbitral Awards to which Georgia joined on June 2, 1994.

International Agreements

 

EU & OECD REGULATIONS AGREEMENTS

Georgia is party to the EU initiative, the European Neighborhood Policy, which, from a legislation standpoint, means that Georgian legislation should be brought in line with the EU laws.

Furthermore, Georgia has recognized technical regulations of European Council, Organization for Economic Cooperation and Development (OECD), and its main trading partner countries and permitted their comparable activities, which will consequently promote the development of business environment and the reduction of technical obstacles in trading.

 

INTERNATIONAL TRADE AGREEMENTS

Georgia has been a member of The World Trade Organization since 2000 and benefits from Most Favored Nation Regime with WTO Members, which provides lower tariffs for WTO members. It has joint major bilateral agreements within the WTO.

Georgia benefits from a Generalized System of Preferences when trading with the USA, Canada, Switzerland and Japan. Accordingly, lower tariffs are applied on goods exported from Georgia into these countries.

Georgia is beneficiary of GSP Plus trading regime, which allows Georgia to export 7200 products to the 495 million EU market duty free. From January 2006, Georgia has also enjoyed GSP Plus status with Turkey which envisages entire liberalization of trade on industrial goods as well as essential preferences in the field of agriculture.

 

© 2013 Netherlands Georgia Business Council