Georgia is becoming a desirable location for both domestic and international commerce. It has drawn international investors from all over the world due to its competitive advantage in terms of global access, logistics, tax incentives, talented professionals, and level of living. In the sphere of entrepreneurship and technology, the country has also received a lot of praise in recent years.
The internet has provided the corporate sector with numerous opportunities. And software development is right at the top of the list of such options. Software exports are the primary source of revenue for a slew of international IT firms. However, in most situations, the revenue obtained from exporting software outside of the country is taxed, resulting in enterprises paying a significant portion of their earnings in taxes. What if such an income is not taxed in some countries? Doesn't it sound amazing?
The Republic of Georgia is the solution to the question. Companies that exclusively work in the IT sector are granted a special status under Georgian tax legislation. The term "Virtual Zone Entity" refers to a legal entity that engages in IT activities and has been granted a special status by Georgia's tax authorities. The Virtual Zone Entity's profits from the provision of information and services outside of Georgia are tax-free.
What Is a Virtual Zone Entity in Georgia?
A Virtual Zone is defined in Georgian law as "any legal body associated with information technology." It must include any process of computer information system and software design research, development, support, design, production, and implementation. Information Technology Zones are another name for Virtual Zone IT enterprises.
The following are the definitions used in the applicant Law:
a) virtual zone - a virtual zone person or a group of virtual zone people; b) virtual zone - a virtual zone person or a group of virtual zone people; c) virtual zone
b) virtual zone person - a legal entity that engages in IT activities and has the necessary status;
c) information technologies (IT) – research, development, design, manufacture, and introduction of computer information systems that result in software products.
Tax benefits for people who work in virtual zones
1. The Tax Code of Georgia governs concerns of virtual zone persons' taxation.
2. The following taxes are not to be imposed:
a) a tax on income earned from the sale of information technology developed by virtual zone residents outside of Georgia;
b) a tax on information technologies (ITs) generated by virtual zone persons that are sold with VAT outside Georgia.
c) export tariffs on information technologies created by virtual zone individuals exported from Georgia's customs territory.
3.Expenses associated with earning income from supplying ITs created by a virtual zone person within or outside of Georgia's territory are deducted from gross income in accordance to the part of the income earned from supplying the ITs within Georgia's territory.
Regulatory benefits for people who work in virtual zones
1. Persons in the virtual zone are exempt from any special regulations.
2. Virtual zone users are not required to obtain licences, permits, or other regulatory documents in order to carry out their activity.
3. Any physical person working in the virtual IT zones are taxed 20% of their total income to be paid to the state treasury.
Granting the status of virtual zone person
1. An interested person is awarded the status of a virtual zone person by a person recognised by the Georgian government.
2. An interested person's position as a virtual zone person is given within 10 working days of making an application for the status.
An act of the Georgian government establishes the procedure and terms for awarding virtual zone person status.
3. After the status of a virtual zone person is granted, an electronic certificate evidencing the status of the virtual zone person must be issued within 2 working days.
The economic operations of legal persons relating to the production of ITs in Georgia's territory shall be included in the virtual zone.
The procedure and terms for awarding the status of a virtual zone person will be determined by an ordinance issued by the Georgian government.
Key Features of a Virtual Zone Entity in Georgia
- If the company provides services to consumers outside Georgia, the Virtual Zone in Georgia is exempt from VAT (18%) and Corporate Income Tax (15%).
- The VZE's director can be a Georgian national or a foreigner living in Georgia or abroad. If the director is not in Georgia, he or she can use an internet banking service to manage the company's accounts.
- With the exception of VZE accounting, having workers is not required in Georgia. This account manager is assigned at the House of Justice in Tbilisi after the firm is registered.
- Licenses, permits, and regulatory paperwork will not be required for enterprises operating in the Virtual Zone.
- All expenses incurred as a result of software exports outside or within Georgia's borders must be deducted from the company's total income.
- There will be no further taxation in Georgia if the income generated by the company in VZ is not dispersed as dividends.
- Software items exported from Georgia's customs territory are exempt from export tariffs.
Georgia, in addition to the aforementioned benefits, provides the ideal business climate for IT companies to thrive in.
Why Virtual Zone?
- Exemption from paying taxes
- Your company has a unique status.
- The company is owned entirely by you.
- There are no licences or permits required.
- There is no minimum capital requirement.
- Exporting items without constraints is possible.
- A simplified approach for forming a business
How to Apply for the Status of a Virtual Zone?
- It takes roughly 2 working days to register your legal organisation (company).
- 1 working day to register your business with the Revenue Service and its online portal.
- Visit to submit your digital Virtual Zone Application - Application processing takes at least 10 business days (but expect a 30 day wait in practice).
- You may be asked to produce more verification and clarification of your company model, services/products, and local staff contracts, among other things. Another ten to thirty days will pass before new documents are reviewed. If accepted, the certificate will take an extra two working days to arrive.
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