October 20, 2020

Georgia’s Business Environment: How Does It Appeal to Businesses in 2019?

Georgia is firmly moving up on the international ranking lists reflecting the ease of doing business. Georgia, for the first time ever, has made it into the Top 20 of the EuCham European Countries for Business 2019 report, having outranked Italy, Spain, Greece and other countries. The ease of registering a company, low tax rates, moderate involvement of the government in the economy and absence of corruption have transformed Georgia into one of the most attractive countries for conducting business.

This country is one of the world’s top 10 ones with a simple and clear taxation system (according to Dow Jones Index). In the Global Finance Index of World’s Safest Countries it has settled on the 49th place out of 128, which is the best statistic in the region. And finally, Greece is in the top 10 of the world’s countries with the easiest start of any business processes.

Certainly, taking into consideration the inflow of investments and the growth dynamics compared to other post-Soviet countries, “the land of eternal beauty” is becoming interesting not only for opening a branch of your company but also for starting a business from scratch.

Let us consider it one by one.

№10 in the World Bank’s Doing Business 2018 Index

‘When we were choosing the headquarters for our company,’ tells the Deputy President of D-Tech Stanislav Sabanov, ‘we spent many weeks of discussions just to pick the key parameters. At long last we decided to factor in the ease of start, level of corruption and tax pressure, lack of linguistic barrier, dynamic of the economy (not the level and strength, but particularly the growth).

We had 3 candidate countries that we evaluated based on the above listed points. Finally we chose in favor of Georgia. To be perfectly honest, the climate, sea and local mindset also played a role in addition to more pragmatic factors.

By the way, we were a little surprised when we saw the World Bank’s Doing Business Index. Georgia landed on the 10th place in the ease of doing business area, having considerably outranked Spain and Cyprus – the countries we were initially considering. The ranking looked as follows:

Georgia – 10th place,

Spain – 32th place,

Bulgaria – 39th place,

Cyprus – 45th place,

Italy – 50th place.’

A really easy start

Sometimes a person is just a step away from starting his or her own business because of the lack of information on how to properly organize everything. Alexandr Nepolyaev, Co-founder of AirCar Sharing Company, has found this out the hard way. He was close to registering his LLC in his home city of Minsk twice. However, he was not able to take the final step because of the bureaucracy and information vacuum. ‘I almost had to beat the actual information out,’ recounts the businessman, ‘while a mistake during the registration could cost you a lot. In Georgia, on the other hand, obtaining the help of the professional community is easy. There were instituted government and private programs for the support of small and medium-sized enterprises along with the business project co-funding programs.’

According to the Ministry of Economy and Sustainable Development of Georgia, in 3 years since the launch of Produce in Georgia Program the Government has supported 3205 projects worth of 12.1 million dollars, the co-funding amount exceeding 9.5 million dollars.

‘If you wish to start a business, but do not know where to begin,’ advises Alexandr Nepolyaev, ‘consult the professional associations, head for the information to the Public Service Hall and just go for it! The consultations on all the matters and, importantly, clarifications on each specific situation are given for free.’

Establishing a business in 1 Day

There is no threshold for the minimum statutory capital. The registration procedure of an enterprise by a foreign national is pretty simple. One does not have to possess the residence permit or the citizenship of Georgia.

Enterprises are registered in the public registry at the Ministry of Justice with both state and tax registration being available as one-stop service. The whole process won’t take more than one day: you submit your documents, pay the fee and register your company. The company will be registered the very next day and you will be sent a text message informing about that. If you want your company to be registered on the same day, all you have to do is order a fast-track registration service.

Then you will have to go to the local taxing entity, the Revenue Service, where you will be registered and issued a tax code at a one-stop shop in about 20 minutes. Next, you go the bank and open an account. Obtaining a license is required if you intend to engage in building, medicine, energetic, communications or gambling industry. There are no requirements as to the minimum statutory capital or the founder’s citizenship.

When the company begins generating income, you will have to file a tax return. You can file your tax statement and pay the taxes on the same day. All in all, this shouldn’t take more than a few hours.

Specifics of taxation

One more thing to make clear is the imposition of taxes. In Georgia it is quite taxpayer-friendly. If a company’s revenue in a year is below 30 thousand laris (around 12 thousand dollars), it is exempt from taxation. Exceptions are commerce, licensable activity, currency exchange, individual enterprises with employers.

The corporate tax constitutes 15 %, with the income tax going up to 20%. But there is a chance your business is subject to preferential tax treatment: “the free industrial zone” category in case of exportation of Georgian goods to the EU, “the free warehouse company” for cargo companies, “the international financial company” category. The country’s VAT amounts to just 18%.

As for the yearly real estate taxes, there is no such thing in Georgia. Remarkably, there is a constitutional provision, according to which new taxes cannot be introduced, the tax levies cannot be raised (except the excise duties) and progressive taxation cannot be brought in without holding a referendum.

Taxes for small-scale enterprises have been cut  from 5% to 1% for an easy start and unemployment elimination

According to the tax reform initiative, only individuals whose earnings from their business activity do not exceed 500 thousand laris a year (over 200 thousand dollars) can register as small-scale entrepreneurs.

As defined by the existing norms, the small-scale entrepreneur status can be granted only to the businessmen whose revenue amounts to less than 100 thousand laris (over 40 thousand dollars).

At the same time “an unprecedented preferential treatment” will be established for small-scale entrepreneurs with their current 5 % tax rate being cut to 1 %.

As Georgia’s Minister of Finance Mamuka Bahtadze has explained, the initiative will also eliminate the pre-payment of taxes: small-scale entrepreneurs will be paying 1% in turnover taxes only at the end of the month.

At the same time, small-scale entrepreneurs will be relieved from “drawing up any additional accounting documents” and obliged to use only the cash register and the consignment notes. This miracle law – the dream of any businessman – has entered into force starting 1 July 2018.

If anything goes wrong

If you decide to liquidate your business, it is as easy to do as it was to start.

‘You have to file documents for closing up your business to the Public Service Hall and provided that the company is not involved in creditor debts, this shouldn’t be a problem. The Public Service Hall will carry out a tax inspection, which may take up to 3 months. Based on the inspection results, the registration of the company will be cancelled in the registry’, explained Tariyel Chochishvili.

Cancelling the registration of a sole proprietor can be executed within one working day. The process of liquidation of a legal entity should be finalized not later than within 4 months provided that the company is free of debts.

So what conclusion have we come to? Georgian companies can become a convenient instrument for doing business in the current circumstances. Besides, compared to other tax jurisdictions, they are reasonably-priced and convenient to operate.