investors handbook

8/3/2019 Investors Handbook

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Febuay 2011

1st Eton

STArT Up

privATizATiON

LABOr LEGiSLATiON

inestos

Hanbook

A Legal Guide to Business in Georgia


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This brochure is a publication by the Georgian National Investment Agency (GNIA) and was prepared by Georgian law rm Mgaloblishvili, Kipiani, Dzidziguri (MKD). The Brochure is

intended to be a general guidance on start up, privatization and labor relations. It is thus not

expected to be a substitute for detailed research or exercise of professional judgment on above

mentioned topics. Companies and individuals operating in Georgia or planning to operate, are

strongly advised to obtain current and detailed information from experienced professionals. None

of the organizations mentioned above, nor their members, employees or agents accept liability for

the consequences of you and anyone else acting or refraining to act on the information contained

in this brochure or for any decision based on it.

The brochure is published with support of the German Development Cooperation DeutscheGesellschaft fr Internationale Zusammenarbeit GmbH (GIZ). Findings, conclusions and

comments made in the publication do not necessarily reect the opinion of GIZ.

This publication may not be reproduced in whole or in part without the written permission of the

copyright holder.

Deutsche Gesellschaft fr Internationale Zusmmenarbeit GmbH (GIZ), 2011.


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iNTrOdUCTiON

For the past few years, Georgian government has carried out a number of signicant economicreforms in various elds in order to create attractive business environment and to breathe a new

life into Georgian economy. The main aim of the reforms was to boost foreign investments, cre-

ate new jobs, stimulate entrepreneurial activities in a variety of elds and increase the welfare of

citizens.

As a result of economic deregulation policy which was focused on liberalization of the Economy,

a number of state regulated spheres were sharply decreased and regulation procedures were sim-

plied. Consequently, our achievements have been recognized by a number of international in-

stitutions. This year the World Bank and the International Finance Corporation published a joint

research Doing Business 2011, under which Georgia ranks 12th among 183 countries in terms of

Ease of Doing Business. Moreover, Georgia surpasses 174 counties in terms of reformation of

business regulations since 2005. Last but not least, Georgia ranks rst in the Post-soviet space,

excluding the Baltic countries, in terms of counter-corruption policy. It is worth noting that de-

spite the current difculties related to the global nancial crisis, Georgia managed to overcome

economic challenges due to economic liberalization reforms. In this direction, Georgian Govern-

ment made several important steps:

Tax -The administration of tax and customs systems has been simplied. The number and rates

of taxes have been signicantly reduced making it easier for local and foreign businesses to dobusiness. Currently, there are only 6 taxes and no capital gains, inheritance, wealth, property

transfer; social, branch remittance or any other taxes are in place in Georgia. The coming into

effect of a new comprehensive Tax Code (including customs legislation) on January 1, 2011 con-

stitutes a further milestone in the development of tax legislation.

Lcenses an emts - Georgia has dramatically reduced licensing and permitting requirements

to ease constraints on business.The total number of licenses and permits was cut by 84% in re-

forms that eliminated 756 licenses and permits and streamlined procedures. Currently, licenses

and permits are only used in the production of highly risky goods and services, also usage of

natural resources and specic activities. The procedures of issuing licenses and permits weresignicantly simplied to the one-stop shop and silence is consent principles.

Customs refom - From January 1, 2011 the new Tax Code of Georgia took effect which also

includes the provisions regulating customs. Tax Code established business friendly customs pro-

cedures. Customs Tariffs Reform signicantly eased and sharply reduced the costs connected to

the foreign trade. Number of import tariffs were abolished on approximetaly 90% of products and

only 3 tariff rates (0%, 5%, 12%) exist instead of previous 16. Georgia sets import taxes on only

several kinds of agricultural goods and constructing materials. In addition, there are no quantita-

tive restrictions (quotas) on imports and exports.


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Labo relatons -New Georgian Labour Code made signicant reforms in the sphere of labour

relations simplifying the relations between employers and employees. As a result of the reform,

Georgia is among the worlds leaders in labor freedom with its new Labor Code.

pataton of State poety Starting from 2004, provision of aggressive and transparent

privatization policy was one of the important reforms of Georgian Government, that was ad-

dressed to denationalization of the remained state property in order to attract foreign investments,

increase and develop the private sector and effective use of country resources.

Georgia is a business-friendly state that strives to make Georgia the best destination for business-

es. The reforms and creation of the right legal base have played a signicant role in Georgias

economic growth. The Government of Georgia stays committed to its economic reform agenda

and intends to implement further reforms to improve its investment climate and stimulate eco-

nomic growth. This means more reforms and more initiatives in a range of elds aimed at further

improvement of investment climate and progress in terms of the ease of doing business.

In this brochure we offer information about the legal framework which is highly important in the

process of starting up and running a business in Georgia.

The brochure consists of three parts Start up a Business, Privatization and the Labor legislation.

Each part consists of chapters outlining in most comprehensible language the content of the leg-

islative base regulating the corresponding eld. Furthermore, relevant legislative acts and articles

are provided at the end of each chapter.

Unfortunately, the format of the brochure does not enable full incorporation of every relevantdetail and information and can thus not serve as a substitute for professional legal advice. Nev-

ertheless, we did our best to make the brochure comprehensive and catch main aspects and rules

of Georgian legal framework which will hopefully be of use for the interested reader.


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Table of contents

pArT i

STArT Up

Chate i. Legal Foms of Comanes ------------------------------------------------------- 6

Chate ii. Settng u a comany ------------------------------------------------------------16

Chate iii. reoganaton, Luaton an insolency poceues ---------------23

Chate iv. Tax Legslaton -------------------------------------------------------------------28

Chate v. Customs oceues --------------------------------------------------------------36

Chate vi. intenatonal Tae regmes of Geoga -----------------------------------50

Chate vii. Geneal reew of Cuent

Lcenses an pemts Alcable n Geoga -----------------------------------------------59

Chate viii. State pomoton of inestments --------------------------------------------79

pArT ii

privATizATiON

Chate iX. pataton ---------------------------------------------------------------------87

pArT iii

LABOr LEGiSLATiON

Chate X. Labo Coe of Geoga -------------------------------------------------------- 114

Useful lnks ------------------------------------------------------------------------------------- 129


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Prior to starting a business in Georgia, one must rst of all identify a specic legal structure

through which one intends to establish and operate the business. The rules regarding the foun-

dation, registration, reorganization and liquidation of a company are enumerated in the Law on

Entrepreneurs. Pursuant to the law, one of the following legal forms can be chosen for organizing

a business in Georgia:

1. Limited Liability Company;

2. Joint Stock Company;

3. General Partnership;4. Limited Partnership;

5. Cooperative;

6. Individual Entrepreneur

Of the above-mentioned legal forms, only the last one - Individual Entrepreneur does not have the

status as a legal person. Thus, the individual entrepreneur acts as a physical (natural) person and

has unlimited liability against his or her creditors.

According to the Georgian legislation, any activity related to art, science, medicine, architecture,

attorneys or notaries, advisories, agriculture or forestry is not considered an entrepreneurial activ-

ity. As such, it is not required to incorporate a company in order to carry out the aforementioned

activities, provided that such activity is undertaken by a physical person individually, without

hired labor.

A brief review of basic features of each legal form is given below in a successive order:

Lmte Lablty Comany

Liability

As the name implies, the limited liability company (LLC) provides limited liability to its owners

in such a way that they are not liable for the LLCs debt obligations. The liability of a partner in

an LLC is limited to the investment made in the company, while his or her personal assets are not

at risk. The LLC can be established by a single person or by several persons jointly.

pArT i. STArT Up

Chate i

LEGAL FOrMS OF COMpANiES


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Charter capital

The presence of charter capital is required to set up a limited liability company. The Law on Entre-

preneurs does not establish a minimum or maximum capital requirement for establishing a LLC.

The amount of the charter capital, therefore, rests entirely with the partner(s) of the company.

Rights and Obligations of Partners

The partners of the limited liability company are entitled to create an agreement, which sets forth

their rights and obligations and the distribution of shares. This agreement is reected in the stat-

ute of the company.

Management

The managerial structure of a company, its composition and the regulation of its activity rest

solely on the decision of the partners.

A partners meeting is the highest body of the limited liability company. The partners meetinghas the exclusive right to make strategic decisions with respect to companys activity.

A director (or directors) appointed by the partners meeting carries out the overall management

of the day-to-day activity of the Company. The rights and obligations of the director are specied

by respective agreement and the Law on Entrepreneurs.

Besides that, the partners meeting is entitled to create a supervisory board and determine its

functions.

Jont Stock Comany

Liability

Similar to an LLC, a joint stock company is liable vis a visits creditors only to the extent of the

property owned. The shareholders are not personally liable for the corporate debt obligations.

Charter capital

The presence of charter capital is required to set up a joint stock company. The Law on Entrepre-

neurs does not establish a minimum or maximum capital requirement for the joint stock company.

Rights and Obligations of Shareholders

The shareholder of a company is expected to make a contribution in the charter capital to get his

shares. The law does not prescribe any other obligations.

Currently, a monetary contribution is the most common way of paying the charter capital in a

joint stock company.


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The class of shares owned by the shareholder determines the rights of the shareholder in the

company. Unless otherwise stipulated by the statute, the joint stock company may issue ordinary

(common) and preferred shares. At a shareholders meeting, the owner of ordinary shares enjoys

a voting right corresponding to the number of shares owned. The owner of preferred shares does

not have such a right; he is only entitled to receive stock dividends at an approved rate.

Management

According to the Law on Entrepreneurs, the joint stock company has a three-tiered structure. The

shareholders general meeting is the highest body of the company authorized to make decisions

on the companys strategic and key issues. The general meeting elects a supervisory board of the

company. The supervisory board is mandatory for public companies, for joint stock companies

licensed by the National Bank of Georgia, and for joint stock companies with more than 100

shareholders. The main tasks of the board are the appointment and dismissal of the directors and

regulation of their activity. The director is responsible for the management and representation of

the company and reports to the supervisory board.

Geneal patnesh

Liability

A general partnership can be set up by two or more persons. Unlike the partners in the limited li-

ability company, the founders of the general partnership have unlimited liability against creditors

and are jointly liable for the debt obligations of the company to the extent of their entire personal

property.

Charter capital

With regard to the personal liability of partners to the creditors of the company, the Law on En-

trepreneurs does not require the creation of charter capital for setting up a general partnership.


Each partner of the company is entitled to participate in the management of the company. Any

partner who does not participate in the management of the company is entitled to become familiar

with details of the companys activity, as well as any nancial or other type of documentation

related to the operations of the company.

Management

The company is managed by the partners on basis of a mutual agreement. Each partner has one

voting right in the course of decision-making. The partners may undertake management jointly or

delegate it to one partner. The management structure of the company is specied by the partners

in the statute of the company.


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Lmte patnesh

Liability

A Limited Partnership can be established by two or more persons (either physical or legal per-

sons). Under this legal structure, the liability of certain partners (the limited partners) for the ob-

ligations of the company is limited to an agreed pledge amount paid by those partners. However,

the liability of other partners (the general partners) is unlimited, i. e. they are personally liable to

the creditors for their entire personal property.

Charter capital

The limited partners are obliged to pay an agreed pledge amount by which their liabilities for a

companys obligations are limited. The general partners do not make contributions to the charter

capital, and therefore their liability is unlimited.

The Law on Entrepreneurs does not specify a lower and upper threshold for the pledge amount.


The partners of the company enjoy different rights. The limited partners may not participate in

the management of the company. They can only review annual reports and require corresponding

nancial documentation to double-check the data given in the report.

The limited partners do not have the right to approve or amend the statute of the company.

Management

Only general partners are entitled to manage the company. The limited partners can exercise their

voting rights only in cases prescribed by the statute of the company.

Cooeate

Liability

A Cooperative (CO) is a company incorporated with the objective of developing common busi-

ness and increasing the prots of its members. The objective of the CO is to accomplish the in-terests of its members. The CO is not primarily aimed at earning prot. Both physical and legal

persons can be members of the CO. The CO is liable to the creditors to the extent of its own

property.

Charter capital

The Law on Entrepreneurs does not specify the minimum capital requirement for setting up a

cooperative. The members of the CO decide on minimum initial shares.

Rights and obligations of the members


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All members are expected to contribute a predetermined initial share. Unless otherwise agreed, all

members enjoy equal rights. They participate in the management of the company jointly by means

of the partners general meeting. The statute of the cooperative may stipulate different rules.

Management

The cooperative has a three-tiered managerial structure. A general meeting is the highest body

authorized to make decisions on strategic issues. The general meeting elects a supervisory board

and a board of directors. The supervisory board monitors the activity of the board of directors.

The board of directors should consist of at least two directors to manage the daily activity of the

cooperative and report to the supervisory board and the general meeting.

Banch ofce of a comany; Banch ofce

(emanent establshment) of a foegn comany

A company registered in Georgia is entitled to set up a branch ofce, which is not a legal person.

The Law on Entrepreneurs does not require registration of the branch ofce.

A foreign company can establish a branch ofce in Georgia. The registration of a branch of a

foreign company in Georgia is mandatory. The procedures for registration are highlighted in the

following chapter.

Tye of Comany Lablty Catal Management

LLC No personal liability

Required. Minimum capital

requirement is not specied

Partners Meeting

Director (Directors)

Supervisory Board(Optional)

JSC No personal liabilityRequired. Minimum capital


Partners Meeting


Supervisory Board (In cases

provided by law)

General partnership Personal liability Not required Partners Meeting


Limited Partnership

Personal liability for

General partners.

Limited liability for

Limited partners

Required. Minimum capital


Partners Meeting


(Only general partners have

right to manage company)

Cooperative No personal liabilityRequired. Minimum capital


General Meeting of

Members


Supervisory Board

Individual

EntrepreneurPersonal liability Not required No management body


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Aut an Accountng euements

As far as the auditing requirements are concerned, per Law on Entrepreneurs, the audit is

incumbent for the following entities:

a) accountable company (as dened by the Law on Securities Market), the securities of which are

admitted at the stock exchange;

b) the company which is licensed by the National Bank of Georgia (such as banks, insurance

companies, brokerage companies and etc);

c) the company, the number of its shareholders exceeds 100. In this case the audit shall be

conducted by the auditor being legally and economically independent from the company, its

directors and shareholders.

Despite the legal status, the company turnover of which exceeds 100 000 GEL in any continuous

period of 12 calendar months must le an application for VAT registration to the Revenue Service

and process the accounting in compliance common standards. Individual entrepreneurs, small

and micro business are eligible for certain simplied accounting rules and tax exemptions.

Legslate Base

Law of Geoga on Enteeneus

October 28, 1994

Article 1. Scope of application of the law

1. This law regulates the legal forms of entrepreneurial entities.2. Entrepreneurial activity is a legitimate and continuous undertaking that is carried out for

the purpose of gaining prot individually or in a corporate manner.

3. Creative art, science, medicine, architecture, legal defense or notary, audit, advisory

(including tax advisory), agriculture or forestry related activity of physical persons is not

considered to be an entrepreneurial activity; agriculture and forestry related companies may

exist in the legal form anticipated in Article 2 of this law if they are registered in the Register

of Entrepreneurs and Non-Entrepreneur (non-commercial) Legal Persons. Registration is

mandatory if an enterprise permanently employs at least ve persons who are not the members

of the family of the owner.

Article 2. Entrepreneurial entities and how they are established

1. Entrepreneur entities are: individual entrepreneur, general partnership, limited partnership,

limited liability company, joint stock company and cooperative.

3. General partnership, limited partnership, limited liability company, Joint Stock Company

and cooperative are enterprises (companies) with the status of a legal person. An individual

entrepreneur identied in this law is not a legal person. In business relations an individual

entrepreneur implements his rights and fullls his obligations as a physical person.


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Article 3. Responsibility, rights on receiving of information and monitoring

3. Partners of a general partnership and personally responsible partners of a limited

partnership general partners (Complementars) are jointly liable for the debts of the company i.e.

each partner is responsible for the debts with all his entire property directly and independently.

Different agreement between the partners is void for the third person.

4. Limited partners of a general partnership (Comandites), the partners of a limited liability

company, a joint stock company and a cooperative are not liable for the debts of the company.The partners of a limited liability company, a joint stock company and a cooperative shall be

liable towards the creditors with the unpaid contribution if the liability takes an effect before the

full contribution agreed between the parties is made.

4 1.The partners enter into an agreement (a statute) by which the matters related to the

operation of the company and relationships of the partners are regulated. The part of the partners

agreement (the statute) which includes the data envisaged under Article 5 of this law and is

registered in the register represents a registration application. The partners agreement, which

is not subject to registration, is made in written form and can be concluded in any language (the

Partners Agreement - the Statute)

5. In the course of the creation of a company, the partners shall agree on distribution of shares

and accord on the amount of their contribution into the charter capital. The contribution can be

tangible and intangible assets, labor or/and provision of services.

Article 9. Management and Representation

1. Managerial right is assigned to: in a general partnership all the partners; in a limited

partnership the general partners , in case the general partner is a legal person a physical

person appointed by him; in a limited liability company, joint stock company and a cooperative

the directors if otherwise stipulated in the Statute (the partners agreement).

2. The power to manage anticipates the act of decision making on behalf of the companywithin the terms of reference, and the representation right implies action taken on behalf of the

company in relations with third parties.

Article 91. Partners General Meeting

1. Unless otherwise specied by this law or the Statute of the company, the rule of calling and

procedures of a partners general meeting, as well as its scope of authority shall be stipulated in

accordance with the regulations identied in this Article.

5. Partners meeting shall make decisions on the following issues:

a) Types of production, commencement and cancellation of industrial activity;

b) Approval of changes in the data of an application for registration and the Statute;c) Opening and liquidation of branch ofces;

d) Investments with the value of each or all of them exceeding 50% of the company assets in

a scal year;

e) Taking liabilities with the value of each or all of them exceeding 50% of the company assets;

f) Guarantees for the liabilities that do not belong to a regular industrial activity and have a

value which exceeds 50% of the value of the company assets;

g) Issuance and cancellation of procurement;

h) Approval of annual results;

i) Selection of an audit;


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g) Reorganization and liquidation of a company.

6. In a limited liability company the meeting makes decisions on the following issues apart

from those spelled out in Paragraph 5 of this Article:

a) Identication of principles of distribution of prot among the management, participation in

general income and issuance of pension;

b) Application of those additional rights which is assigned to the company from the day of its

registration or is anticipated in the management of the company against the director or/and the

partner, as well as representation of the company in the judicial proceedings that are carried out

against the directors;

c) Require to make a contribution;

d) Return of extra contribution;

e) Appoint and dismiss directors, sign and terminate agreements with them, approve their reports;

f) Make decisions on setting up a supervisory board;

g) Decisions on increasing the companys capital by making new/additional contributions.

7. Every decision of special importance outweighing regular activity of the company requires

approval of a general meeting with participation of all the partners.10. At the general meeting, each partner of a general partnership and each general partner

of a limited partnership has one voting right. The limited partner of a limited partnership does

not have a voting right. Voting right of the partners of a limited liability company is specied

proportionally to their shares.

Article 16. Branch Ofce of a Company

1. Company may establish a branch ofce, which is not a legal person. The branch ofce of a

company registered in Georgia does not require registration.

Article 20. Concept of a General Partnership1. A general partnership is a company where several persons (partners) carry out an

entrepreneurial activity jointly under a single name and are liable for the obligations of the

company as joint debtors to their creditors directly with all of their property

Article 34. Concept of a Limited Partnership

1. Limited Partnership is a company where several persons carry out an entrepreneurial

activity under a single brand name and liability of one or several partners to the creditors is

limited to agreed pledge amount the limited partners, while the liability of other partners is

unlimited the general partners.4. Only general partners have the right to adopt and amend the statute of a limited partnership

and modify the registration data.

Article 36. Monitoring Right of Limited Partners on

1. The limited partners are entitled to require a copy of the annual report and check its

accuracy through reviewing nancial documentation of the company.

Article 37. Management of the company

1. The limited partners do not participate in the management of the company. They may not


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challenge the actions of the general partners taken within ordinary entrepreneurial operations.

The limited partners enjoy a voting right only in the cases foreseen by the statute of the company.

Article 44. Concept of a Limited Liability Company

1. A Limited Liability Company is a company the liability of which to its creditors is limited to

its entire property. A single person may also set up such company.

2. Agreement between the partners of the company on lessening the liability is void for the

third parties.

3. Capital of a limited liability company is divided into shares. The share is a transferable right.

Article 45. Capital of a Limited Liability Company

Charter capital of a limited liability company may be determined in any amount.

Article 46. Rights and Obligations of Partners

Rights and obligations and the rule of initial distribution of shares are spelled out in the

statute of a company (partnership agreement).

Article 47. Management of the Company

Structure, composition and the method of activity of management bodies are dened by the

statute of a company.

Article 51. Concept of a Joint Stock Company

1. A joint stock company is a company whose capital is divided into shares, the classication

and the number of which are specied in the Statute. A share is a dematerialized nominative

security which conrms the liability of a joint stock company to a partner (shareholder) and

the rights of a shareholder in the joint stock company. The Statute of a joint stock companymay identify the price, which is the threshold for the shares of this class during a primary sale

(nominal price of shares).

A liability of a joint stock company towards the creditors is limited to its entire property. A

shareholder of the joint stock company is not liable for the obligations of the company. When

setting-up a joint stock company the charter capital of company may be determined in any amount.

Article 52. Types of shares. Other securities convertible into shares

1. Unless otherwise established by the statute, shares may be ordinary and preferred. One

ordinary share provides a shareholder one voting right at a shareholders general meeting. On

the contrary, a preferred share does not grant a voting right. The preferred share entitles theshareholder to receive a dividend at an approved rate. Size of a dividend and the rule of its

granting are dened by the Statute. A different rule may be stipulated by the Statute that suggests

different denition of the rights of ordinary and preferred shares. Shares of one class provide

equal rights to their holders. Promise on unrestricted granting of dividends is invalid.

Article 53. Rights and Obligations of Shareholders

1. Unless otherwise stipulated by the law, the sole duty of the shareholder is to make a

contribution in order to get a relevant number of shares. Imposing a duty to a shareholder by

virtue of the statute of a joint stock company, which is not stipulated by the law, is invalid.


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32. Shareholders owning 5% of the shares are entitled to require a special examination of

industrial actions or the entire annual balance if they think violations take place.

Article 60. Concept of a Cooperative

1. A Cooperative is a company based on the labor activity of its members or is created for the

purpose of development of the business and boosting the revenues and the main goal is to meet

the interests of the members. A Cooperative is not primarily oriented towards earning a prot.

3. A Cooperative is liable for its obligations to the creditors only with its own property.

Article 61. Share

1. The minimum share of a cooperative member is determined by the founders. One member

of the cooperative may have several shares.

Article 63. General Meeting

1. Unless otherwise stipulated by the law, the members of a cooperative exercise their

cooperative related rights at the general meeting.3. Each member has one voting right. A different distribution of the voting rights may be

dened by the statute.

Article 65. Supervisory Board

1. A cooperative has a supervisory board consisting of at least 3 and no more than 15 members

elected by simple majority of votes of the members being present at the general meeting.

3. Supervisory board monitors the activity of the board of directors in every area of the

management and for this purpose obtains information on progress of the cooperatives operations.

Article 66. Board of Directors; The Directors1. A board of directors of a cooperative consists of at least 2 directors (members of the board

of directors). The directors may not be the members of the cooperative. A statute may foresee

other conditions as well.


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Chate ii

SETTiNG Up A COMpANY

After choosing a suitable legal form for the business, the next step is the registration of the company.

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.

The registration of a company in Georgia is based on three essential principles: fast, inexpensive

and simple procedures.

Registration is absolutely mandatory for all of the types of companies listed in the rst chapter.

A company is considered established only after it is registered in the National Agency of PublicRegistry (www.napr.gov.ge). The data entered in the Registry is public. A company is not re-

quired 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.

Prior to submission of an application for registration, the partners sign an agreement specifying

the rights and responsibilities of the parties and other matters related to the company. Such an

agreement is referred to as the Statute of the company.

The distribution of shares between the partners, the method of formation of charter capital of the

company and the form of contribution are also specied by the partners agreement.

For the purpose of registration, the law does not require a document verifying the amount or ex-

istence of the charter capital.

regsty

Registration of companies in Georgia is carried out by the National Agency of Public Registry a

legal person of public law.

regstaton poceues

The registration process begins with ling an adequate application to the National Agency of

Public Registry. The application shall be submitted to an ofce of the Public Registry appropriate

to the legal address of the company applying for registration.

The application for registration should be signed by all partners of the company and veried by

a notary.


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If the partners sign the application in the Public Registry in the presence of an authorized ofcer,

notarization of the application is not required.

The Application for the registration should include the following information:

a) The name of the company;

b) The legal form of the company;

c) The legal address of the company;

d) The full name, address and the personal identication number of the partner(s). If the partner

is a legal person the application should include:

The name of the company;

The companys legal form;

The companys legal address;

The companys date of registration and the identication number;

Information on the representation (management) of the company;

e) The management body (bodies) of the company and the decision-making methods;f) The number of shares of the partners of the limited liability company and the general partners

of the limited partnership, if the company is a limited liability company or a limited partnership.

g) A reference to the general and limited partners, if the company is a limited partnership;

h) In the case of a limited liability company or limited partnership, any obligations limiting own-

ership of the shares by the partners/general partners;

i) The persons authorized to manage and represent the company full name, address and the

personal identication number;

j) The full name, address and the personal identication number of a procurist, if any;

k) If the company has several persons entitled to represent the company, a statement as to whether

these persons shall act jointly or separately.l) The person, if any, authorized to apply, on behalf of the company, to the Public Registry in fu-

ture with the request for amendments to the record of incorporation. This person may be either a

legal or physical person. In case of physical person, the application should include the full name,

address, and the personal identication number of that person. For a legal person, the name, legal

address, legal form, date of registration, identication number, and representatives should be

indicated.

If the activity of the company is related to the production of or trade in food or animal feed, a

respective note should be made in the process of registration.

Establshment of a comany n Geoga by foegn esents

If the partner, director or representative of the company or the person authorized to make amend-

ments to the registration data in the registry is not a Georgian citizen, he/she is required to submit

to the Public Registry the data equivalent to the personal data prescribed for a citizen of Georgia.

A certicate of residence in Georgia or a personal identication document issued by the foreign

country is considered as an equivalent document.


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If the Georgian company is established by a foreign company, the information on the corporate

standing of the parent company entity should be veried or legalized according to the applicable

rule.

regstaton of a banch ofce of a foegn comany n Geoga

Georgian legislation allows a foreign company to set up a branch ofce (a permanent establish-

ment) in Georgia. In this case, registration of the branch ofce is mandatory.

Registration of a branch ofce of a foreign company is carried out by the Public Registry and the

application for registration should be submitted to an ofce of the Public Registry appropriate to

the legal address of the branch.

For the purpose of registration of the branch ofce, the following documents should be submitted

to the Public Registry:

a) Application for the registration of the branch;

b) Decision of the company on the appointment of a branch director or the power of attorney au-

thorizing a person to manage the branch, veried in accordance with the Georgian legislation;c) Information on the foreign company and its management as enumerated by the Law on Entre-

preneurs and veried in accordance with the Georgian legislation. This information is the same

that required by Georgian legislation for the establishment of the company.

(The data established by the law implies the information that is normally required for registration

of a company)

relocaton (eomocle) of a foegn comany to Geoga

Georgian legislation allows the redomicile of a foreign company to Georgia without requir-

ing it to cease its activity. When seeking to relocate a company, one should keep in mind thatthe company can operate in Georgia only under one of the legal forms allowed by Georgian

legislation.

For the purpose of redomicile, the interested person should submit the following documents to

the National Agency:

Application;

Personal identication document;

Document conrming the redomicile of the company (respective decision of the company

partners);Document verifying the payment of the registration fee.

If redomicile is carried out by a representative, a copy of the personal identication document of

the representative and the respective power of attorney are required.

The term and fee for redomicile registration is the same as for the registration of a company.

Fee an Tem of regstaton

The fee payable for the registration of the company (including registration of the branch of the

foreign company) is 100 GEL. The registration is completed in one business day.


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Georgian legislation allows the registration of the company on the same day of ling the applica-

tion. In this case, the fee is 200 GEL.

Registration of a company producing food or animal feed is completed during one business day

and the registration fee is 15 GEL.

The document showing payment of the registration fee should be attached to the application for

registration and submitted to the Public Registry. The payment of the registration fee is possible

at any Georgian bank.

Once the registration procedures are completed successfully, the company is assigned a unique

identication number.

Oenng a bank account

After completing the registration, a company may select any Georgian bank and open a bank ac-count.

Opening a bank account takes one business day and a minimum cost of 10 GEL.

For the purpose of opening the bank account, the following documents should be submitted to

the bank:

a) Application for opening a bank account in the form established by the bank (the form is avail-

able at the bank and can be completed on site).

b) State and Tax Registration Certicate of the company;

c) Sample signature of the director of the company;

d) Copies of identication documents of the persons authorized to represent the company.

Legslate Base

Law on Enteeneus

October 28, 1994

Article 3. Responsibility, rights on receiving and monitoring of information41The partners enter into an agreement (a statute) by which the matters related to the opera-

tion of the company and relationships of the partners are regulated. The part of the partners

agreement (the statute) which includes the data envisaged under Article 5 of this law and is

registered in the registry represents a registration application. The partners agreement, which

is not subject to registration is made in written form and can be concluded in any language (the

Partners Agreement - the Statute)

5. In the course of the creation of a company the partners shall agree on the distribution of

shares in accordance to the amount of their contribution into the charter capital. The contribu-

tion can be tangible and intangible assets, labor or/and provision of services.


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Article 4. Registration of an entrepreneurial entity

2. A registration of an entrepreneurial entity is undertaken by a legal person of the public law

the National Agency of Public Registry being under the management of the Ministry of Justice

of Georgia (hereinafter the Registry).

3. An entrepreneurial entity is created upon the moment of its registration in the register of

commercial and noncommercial legal persons. An existence of an entrepreneurial entity is veri-

ed by a record of the registry of commercial and noncommercial legal persons. The registration

of the entrepreneurial entity covers both state and tax registration. A decision of the registering

body on registration becomes effective upon its ofcial presentation to the party or as soon as

it gets published. The decision is considered published once it is posted at the webpage of the

registering body.

4. The registration of an entrepreneurial entity is undertaken according to the address chosen

by the entity. A written notication (correspondence) sent to this address is considered as an of-

cially dispatched notication (correspondence) (legal address).

Article 5. Terms of Registration of an entrepreneurial entity1. In case of requesting a registration of a company, an application for registration signed by

all partners of the company and veried according to the applicable rule shall be submitted to the

Registry, while at the same time the application represents the part of the partners agreement

and includes the following information:

a) A name/brand name of the company;

b) A legal form of the company;

c) A legal address of the company;

d) A full name, address and the personal number of the partner(s) and if the partner is a legal

person the application shall include the brand name of the company, the legal form, legal ad-

dress, date of registration, identication number and the information about its representatives;e) A management body of the company, decision making methods and the information about

the number of shares of the partners and the general partners in case of a limited liability com-

pany and a limited partnership;

f) A reference to the general and limited partners, if the company is a limited partnership;

g) In case of limited liability company or limited partnership, the obligations limiting an own-

ership of the shares by the partners / general partners;

h) The managers and representatives of the company full name, address and the personal number;

i) Full name, address and the personal number of a procurist, if any;

j) If the company has several persons entitled to represent the company, a reference whetherthese persons shall act jointly or separately.

k) The person, if any, authorized to apply, on behalf of the company, to the Registry in future

with the request on amendments to the record of incorporation. This person may be either legal

or physical person. In case of physical person, the application shall include full name, address

and the personal number of that person, while for the legal person, the name, legal address, legal

form, date of registration, identication number and representatives shall be indicated.

3.Notary verication of the application for registration is not required if the authorized per-

sons sign it in the Registry or it is veried by the authorized administrative body in accordance

with the established rule.


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4. In the case when a partner (partners) of the company, an authorized person (persons) on

management or representation, a person authorized to registry changes in an application for

registration (if any) are physical persons without Georgian citizenship or legal persons of a

foreign country for the purpose of registration they shall submit the data analogous to those

established for a Georgian citizen or a company registered in Georgia. The rule of identica-

tion of data equivalency is specied in the instruction. In case of a legal person of a foreign

country the documents authenticating its registration as a legal person needs to be duly veri-

ed or legalized.

6. For the purpose of registration of a company, the document verifying the existence of the

charter capital is not required.

7. If the activity of the company is related to the production, processing, distribution, selling

of food/animal feed or food business operators it is mandatory to include this information in the

documents submitted for registration. Additional terms of registration of such a company are

specied by the instruction and the price is stipulated in the Georgian Law on Public Registry.

Article 57

. Company Redomicile1. Transfer (redomocile) of the registration of a foreign company without discontinuation of

its activity is permitted.

2. A Company redomociled to Georgia may be registered only under the form foreseen by the

Georgian legislation.)

Article 16. Branch Ofce of a Company

4. For the purpose of opening a branch ofce (a permanent establishment) of a foreign com-

pany in Georgia the following documents shall be submitted to the Registry:

a) Application for the registration of the branch;

b) Decision of the company on appointment of the branch director or the power of attorneyauthorizing a person to manage the branch, veried in accordance with the Georgian legislation;

c) Information on the company and its management veried in accordance with the Georgian

legislation and dened by this Law.

Law on publc regsty

December 19, 2008

Article 31. Terms and fees established for the service provided by the agency1. The following timeframe is established and the following fees are set for the service pro-

vided by the Agency:

h) Registration of an entrepreneurial entity, excluding an individual entrepreneur, and a non-

entrepreneurial (non-commercial) legal person; Registration of amendments of the registered

data and cancellation of them is possible in one business day at the cost of 100 GEL.

j) Registration as a company producing food/animal feed or/and as a distributor which also

implies registration as a company whose activity is related to processing, selling an producing

food/animal feed; as well as registration of amendments of the registered data and cancellation

thereof is possible in one business day at the cost of 15 GEL.


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Article 32. Accelerated Service

1. The Agency offers an accelerated service for the following timeframe and at the following

cost:

c1) Registration of an entrepreneurial entity, excluding an individual entrepreneur, and a non-

entrepreneurial (non-commercial) legal person; Registration of amendments of the registered

data and cancellation thereof is possible on the same day of submission of an application at the

cost of 200 GEL.

instucton on regstaton of Enteeneus an

Non-enteeneu (Non-commecal) Legal pesons

Approved by the Order # 241

of the Minister of Justice of Georgia December 31, 2009

Article 9. Identication of personality of an interested person, his/her trustee or/and an ap-

plicant1. Identication of personality of an interested/representative physical person is carried out

by means of a personal identication document. A passport of a citizen of Georgia or a personal

identication card is considered to be a document identifying personality of a Georgian citizen.

A residency permit for Georgia or a personal identication document issued by a respective

country shall be considered to be a document identifying personality of foreign residents or the

persons without citizenship.

Article 12. The Rule of Assigning an Identication Number

1. Identication Number is the unique code that is assigned to a subject along with registra-

tion.


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reoganaton of a comany

Georgian legislation enables a company to change form, as well as the merger of two or more

companies into one legal entity.

Procedures related to the reorganization of a company are provided in the Law on Entrepreneurs.

Only partners are authorized to make the decision to reorganize a company. The decision to reor-

ganize should be reected in the statute of the company. Specically, following reorganization,

the redistribution of partners shares and determination of their obligations should be revised in

the statute with regard to the change in form of the company. The company established through

reorganization is a successor of the reorganized company.

Georgian legislation enables the division of a company, as well. In the case of division, the com-

pany may be split to create two or more new and independent entities. In this case, the partners

are entitled to dene their shares in the companies established as a result of the division on the

basis of a new agreement.

Companies established through division are jointly liable for the commitments of the transferring

company.

Georgian legislation allows a merger of two or more companies into a single legal entity. The

decision to merge is made according to the same rule as in the case of division. A company es-

tablished in this way is the successor of those companies whose merger resulted in establishment

of the new company.

The reorganization of a company requires the registration of adequate changes in the Public Reg-

istry. The term and cost of registration are similar as those applicable for the initial registration

of a company.

Luaton of a comany

The decision to liquidate a company is made by the partners of the company. Following the deci-

sion to liquidate, the partners (or the supervisory board) appoint a liquidator of the company and

submit an application for liquidation to the Public Registry. Once the application is registered by

the Public Registry, the process of liquidation is commenced. According to the Georgian legisla-

tion, the creditors must be informed of the liquidation.

Chate iii

rEOrGANizATiON, LiqUidATiON ANd iNSOLvENCYprOCEdUrES


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Liquidation is carried out by the liquidator of the company. Specically, the liquidator undertakes

the sale of a companys assets and puts the received amount in the deposit account of court or

notary. This amount is used to satisfy the debts owed by the company to the creditors. After all

claims of creditors are satised, the remaining part of the assets shall be distributed among the

partners.

Once the liquidation of a company is completed, and upon the receipt of a respective notice, the

Public Registry cancels the registration of the company and the company ceases to exist. Submis-

sion of the application for liquidation and the cancellation of registration are carried out within

the same term and at the same cost as in the case of registration or reorganization of a company.

pncles an featues of nsolency oceues

In the process of operation, a company may face nancial hardship when it is not in the posi-

tion to honor its obligations to creditors and thus, the company becomes insolvent. Insolvencyprocedures are regulated by the Law on Insolvency Procedures. In the case of insolvency, the

director(s) of the company is obliged to make an announcement about insolvency in due time.

The legislation on insolvency procedures is focused on the balanced protection of the interests

of debtor company and its creditors, and if possible, allows the insolvent company to solve its

nancial problems and avoid bankruptcy.

Insolvency procedures can be initiated by an application submitted by the creditor or the debtor.

Cases on insolvency are considered by the City Courts of Tbilisi and Kutaisi. The procedures can

be initiated only if a company is insolvent or if it is expected that it will not be able to meet itsnancial obligations.

The acceptance of an application by the court and commencement of insolvency procedures

entails a suspension of all the enforcement (execution) measures initiated against the debtor.

Additionally, the accrual of the interest or penalties to the outstanding debts shall be suspended.

Upon commencement of insolvency procedures a custodian is appointed who monitors the man-

agement of the company, protects the debtors property, studies its nancial position and submits

the information to the mediation council. The latter is composed in accordance with the agree-ment between the debtor and the creditors. The mediation council examines the position of the

insolvent company, studies the ways to reconcile the nancial difculties faced by the company,

and resolves on bankruptcy, rehabilitation or cancellation of insolvency procedures. The decision

of the mediation council is approved by the court.

Once a decision on bankruptcy is made, the trustee of the bankruptcy is appointed. The trustee

manages the insolvent company, facilitates the sale of its assets through auction, and the payment

of debts according to the sequence specied by the law. After the nalization of this process, the

bankruptcy procedures are terminated and the company ceases to exist.


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In the case that the mediation council and the creditors consider that it is viable to solve nancial

difculties through rehabilitation of the company they adopt a rehabilitation plan and appoints a

rehabilitation manager. This decision is approved by the court. The rehabilitation manager man-

ages the rehabilitation process. If the rehabilitation process goes on successfully, the company

satises all its debts and continues its normal operations.

Legslate Base

Law of Geoga on Enteeneus

October 28, 1994

Article 14. Liquidation, reorganization (transformation, merger, division)

1. Partners of an entrepreneurial legal person are entitled to take a decision on initiating aliquidation of the company. The partners, as well as the members of supervisory board or the

director (directors) in the cases foreseen by the statute, are authorized to designate the persons

who carry out the liquidation of the company (the liquidators).

3. Decision of partners on commencement of liquidation process of company has to be regis-

tered in the Register of Entrepreneurs and Non-Entrepreneur (Non-Commercial) Legal Persons.

The liquidation process shall be considered commenced upon the moment of its registration on

where the Registrar shall notify the Tax Authorities without delay.

5. The company (the liquidator) shall commence the sale of the property of the company at a

market price or by means of auction from no later than 90 days from registration of liquidation

process of the company and deposit the proceeds from such sale at the deposit account of thecourt or notary.

If the partners resolve on in kind distribution of the property, they shall, from the moment of

registration of liquidation process of the company until in kind distribution of the assets, main-

tain the assets in the original condition at their own expenses by means of putting the assets in

the custody of one of the partners. Disposition of funds allocated at the deposit account and the

entrusted property prior to distribution of aforementioned funds and the property among the

partners is allowed only with the aim of satisfaction of creditors claims.

8. Registering body cancels registration of company on the basis of application of person

authorized for cancellation of registration of the company and the decision on completion ofbankruptcy/liquidation process of the company submitted by the authorized person/body.

101. A liquidation process of company has to be completed within no later than 4 months from

the registration of commencement of liquidation process.

11. Partners are entitled to transform a company of a specic legal form into a company of

different legal form. In such case partners rights shall be redistributed by the statute with regard

to the limitations established for the particular legal form. Unless otherwise provided in the stat-

ute, for transformation of joint stock company into Limited Liability Company and, vice versa,

75% of votes of attending partners with voting rights (the Partners) is required. In all other cases

a decision shall be made unanimously.


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12. Companies may be united (merger). For merger with a joint stock company, a limited

liability company and a cooperative 75% of votes of attending partners with voting rights (the

Partners) is required; In all other cases a decision is made unanimously unless otherwise pro-

vided by the statute. The decision on merger shall indicate whether one company merges with

another or two companies merge into the new company. Decision on merger shall specify the

rights and responsibilities of the partners unless they follow the proportionality principle in re-

spect with their shares in the charter capital. The company merged with another company or a

newly established enterprise is a successor of the former company (companies).

13. An enterprise may be divided into two or more enterprises and the latter may continue

business as independent companies with their individual legal form. Decision on division may

provide participation of former partners in the company established as a result of division on the

basis of different shares.

Companies established as a result of division are jointly liable for the liability of the original

company existing before division.

Article 9. Management and representation9. If company is insolvent or faces the risk of insolvency the persons identied in Paragraph

1 of this Article shall make a statement about this fact without faulty delay, however no later than

3 weeks from the moment of occurrence of insolvency in accordance with the rules of Law on In-

solvency Procedures. Statement about insolvency shall not be considered to be made with faulty

delay if aforementioned persons treat this statement in a good faith as foreseen in Paragraph 6

of this Article.

Law of Geoga on insolency poceues

March 28, 2007

Article 1. Aim of the law

This law aims at equal protection of the interests of a debtor and a creditor (creditors), reso-

lution of the debtors nancial difculties, if possible, and satisfaction of creditors claims or

satisfaction of creditors claims by means of distribution of funds received from realization of the

debtors property in case the resolution of nancial difculties is not possible.

Article 4. Court procedure

2. The cases envisaged by this law are considered by the city courts of Tbilisi and Kutaisi.

Article 6. Procedural fees related to the insolvency procedures

2. Submission of application on insolvency is charged with a state duty in the amount of 5,000 GEL.

3. Debtor is exempted from payment of the state duty.

Article 13. The ground for submission of insolvency application to the court

Insolvency or expected insolvency of a debtor is the ground for submission of an insolvency

application to the court.


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Article 21. Decision on acceptance of an insolvency application for consideration

1. By virtue of decision on acceptance of an insolvency application, the court:

a) Appoint a custodian;

c) Suspends all the measures of enforcement initiated against the debtor and it is not allowed

to commence the new measures of enforcement.

Article 26. Custodian

Custodian shall be an independent, impartial, honest person, a nominated member of a pro-

fessional organization, an auditor or a member of Bar Association of Georgia, a lawyer with a

general or civil specialization.

Article 32. Mediation council

1. Mediationcouncil is a collegial body, established on the basis of parity, which evaluates

and resolves the issue of insolvency of a debtor. In case of rehabilitation of debtor the mediation

council reviews a rehabilitation plan as well.

4. One member of mediationcouncil is appointed by the debtor and the other member iselected by the creditors meeting by the simple majority of votes. If the creditors meeting fails to

elect the member of mediationcouncil the judge shall appoint the second member of mediation

council as soon as the rst meeting of the creditors is over.

5. The third member of mediationcouncil shall be selected by agreement between the media-

tors appointed by the debtor and creditors (or the judge).

Article 37. Bankruptcy manager

A bankruptcy manager carries out management and representation of company in the process

of bankruptcy. The bankruptcy manager is assigned with all rights granted by the Law on En-

trepreneurs to the persons authorized to manage and represent respective company. Managerialand representation rights of the director of company in the process of bankruptcy are suspended.

Article 43. Term of preparation of rehabilitation plan

1. The term of preparation of rehabilitation plan shall commence from the moment of an-

nouncement of decision on rehabilitation taken by the court in accordance with the decision of

the mediation council. A court decision on rehabilitation is published according to the rule pro-

vided by this law.

Article 44. Rehabilitation manager1. Rehabilitation process is carried out by the rehabilitation manager.

Article 47. Ratication of rehabilitation plan by the creditors

1. The rehabilitation plan reviewed and approved by the mediation council shall be ratied

by the secured creditors within 7 days after receiving the rehabilitation plan from the mediation

council. Ratication of rehabilitation plan requires consent of all secured creditors.


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Chate iv

TAX LEGiSLATiON

In September 2010, the Parliament of Georgia adopted a new tax code (the Tax Code) whichtook effect on January 1, 2011.

The Tax Code introduces several new initiatives and predominantly aims to improve the tax envi-

ronment and attract investments to Georgia by offering an efcient tax administration and better

protection of taxpayers rights. At the same time, one of the major novelties of the Tax Code is

that it incorporates both tax and customs legislation into a single legal act.

This chapter offers general information about tax rates and provides an at-a-glance insight into

the basic features of the Georgian tax system.

TAXES

There are two types of taxes in Georgia: general taxes and local taxes.

General taxes are unied and mandatory throughout the territory of Georgia. These taxes are as follows:

a) Income Tax;

b) Corporate income tax;

c) Value Added Tax;

d) Excise Tax;e) Import Tax.

(Tax Code, Article 6, Part 5)

The local tax is governed by the Tax Code, which simultaneously species its lower and upper

threshold. However, it rests with the local governments to determine the specic rate of the local

tax within the limits set forth by the Tax Code. So the xed local tax is effective only within the

territory of the respective municipality.

Local taxes include Property Tax.

Income Tax

The income tax is applicable only to individuals (both resident and nonresident). Individuals are

taxed only on income earned in Georgia.

The standard income tax rate is a at rate - 20%. This rate will reduce to 18% in 2013 and to 15% in 2014.

Note: Tax on income from interest and dividends is - 5%. The rate for dividends will reduce to

3% in 2013 and to 0% in 2014. The rate for interest will reduce to 0% in 2014.


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Corporate income tax

For the Corporate income tax, the taxpayer is any resident or nonresident company which car-

ries out its business in Georgia through a permanent establishment and/or makes income from a

Georgia-based source.

The standard rate is 15%.

Value Added Tax VAT

The following persons are VAT payers:

a) Any person who registers as a VAT taxpayer;

b) Any person required to register as a VAT taxpayer;

c) Any person who imports or temporarily imports goods to Georgia;

d) Non-Resident persons (other than a Georgian physical person), who render the services in

Georgia without being registered as a VAT taxpayer and without having a permanent establish-ment related to this particular service and is subject to the reverse charge.

(Tax Code, Article 156)

A person who carries out a VAT taxable activity with total taxable amount exceeding 100 000

GEL per annum is obligated to register as a VAT taxpayer.

The following are subject to VAT:

a) Taxable Operation;

b) Import;

c) Export;d)Temporary Import.


The standard rate of VAT is 18%

The special rates: *VAT on supplies within a Free Industrial Zone Exempt;

*Supply of goods by a Free Warehouse Company to a VAT taxpayer Exempt;

* Activities of an International Financial Company Exempt

Excise Tax

Under the Excise Tax, the taxpayer is the person which:

a) Produces excise goods in Georgia;

b) Imports excise goods to Georgia;

c) Exports excise goods from Georgia;

d) Supplies condensed natural gas-condensate or/and natural gas to motor vehicles;

e) Delivers mobile communication service.

(Tax Code, Article 182, Part 1)


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The following are subject to the excise tax:

a) Taxable Operation;

b) Import of excise goods;

c) Export of excise goods.


The excise tax rates are xed per physical unit of excisable good (liter, cm3, kilogram, ton, etc.)

Import Tax

Under the Import Tax, the taxpayer is a person importing the goods to Georgia.

Tariff value of goods at the moment of crossing the economic border of Georgia is subject to the

import tax.

The rate of import tax is 5% or 12 % (depending on the type of imported goods).

Property Tax

The Property Taxpayer is any individual or legal entity owning and leasing property in Georgia.

Taxable object includes property and land.

The rate of the property tax is a maximum of 1%.

Property in a Free Industrial Zone is exempt from the property tax.

Protection of Taxpayer Rights

A separate chapter of the Tax Code is dedicated to the protection of taxpayer rights. This chapter

introduces a set of principles to ensure the protection of taxpayer rights.

These principles include:

The right to request information;

Tax Condentiality;

The right to enjoy a tax benet and claim overpaid tax;

Protection of taxpayers legal interests;

Tax Ombudsman.

Below is brief information to each principle:

The right to request information

This right establishes the taxpayers privilege to receive information from tax authorities regard-

ing the application of the tax legislation and taxpayers rights, as well as any personal informa-

tion on the taxpayer maintained by the tax bodies. At the same time, the taxpayer is not required

to disclose information on paid taxes to anyone, except the tax authorities, unless otherwise

prescribed by the law.


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Tax Condentiality

Any information on a taxpayer held by the tax bodies is condential. This rule does not apply

to information submitted to the public registry by the taxpayer in the course of registration of a

company. Such information is public and available to anyone.

The Tax Code obliges the tax authorities to keep taxpayer-related information condential.

The right to enjoy a tax benets and claim overpaid taxes

All taxpayers are equal before the law. Everyone is entitled to enjoy the tax concessions estab-

lished by the law. Tax or penalty amounts overpaid by a taxpayer must be returned to the taxpayer

or credited to the account of future tax payments.

Protection of taxpayers legal interests

The taxpayer is entitled to represent his interests directly or through a representative, participatein any tax auditing processes, and to receive and deliver information related to the tax audit.

Moreover, the taxpayer is entitled to bring a case against an action or decision taken by the tax au-

thorities and claim compensation for the loss incurred as a result of their illegal action or decision.

The Tax Code establishes two levels of tax dispute resolution. The taxpayer may choose to

appeal to the Ministry of Finance of Georgia (the Revenue Service and the Dispute Resolution

Council are empowered to hear the tax appeals in the Ministry of Finance) or to the courts. Spe-

cial provisions set forth the time frame and procedures for the appeals in both circumstances.

Tax Ombudsman

A tax ombudsman is appointed by the Prime Minister of Georgia in agreement with the Chairman

of the Parliament of Georgia. The main objective of the tax ombudsman is to secure protection

of taxpayers rights. The ombudsman reviews applications and claims submitted by taxpayers,

investigate the facts of violations of the law by tax authorities and provide recommendations on

how to remedy the violations.

Aealng aganst a ecson of the tax boes

Tax administration in Georgia is carried out by the Revenue Service a legal person of public

law. The Revenue Service reports to the Ministry of Finance.

Any decision taken in regard to taxation can be appealed in the dispute resolution bodies of

the Ministry of Finance of Georgia, which are the Revenue Service and the Dispute Resolution

Council.

The deadline for appeal is 20 days from the moment of delivery of the decision.


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According to the Georgian legislation, a tax dispute involves two stages. At the initial stage, a

claimant submits an appeal to the Revenue Service. If the appeal meets the formal requirements

dened by the law, the Revenue Service reviews it and makes a decision. If the Revenue Service

decides against the claimant, the claimant can appeal this decision in the Dispute Resolution

Council or the court up to 10 days after the decision is delivered. The claimant is entitled to

choose between the court and the Dispute Resolution Council for hearing his appeal.

The Dispute Resolution Council is a collegial body at the Ministry of Finance. It is headed by

the Finance Minister and the members of the Council are members of the Parliament of Georgia

and tax bodies. Such a structure offers additional assurance for objective decision making by

procient experts.

It should be noted that the Dispute Resolution Council is not the nal adjudicator for tax disputes,

and any decision by the Dispute Resolution Council can be appealed in court by an interested party.

The deadline for appealing against a decision of the Dispute Resolution Council is 10 days afterthe decision is delivered.

Aong ouble taxaton

Georgia has signed agreements to avoid double taxation of income and property with the follow-

ing countries:

Uzbekistan

Iran

The Ukraine

Azerbaijan

Kazakhstan

Armenia

Turkmenistan

Romania

Bulgaria

Greece

RussiaPoland

Italy

Belgium

Holland

Lithuania

Great Britain

Latvia

Austria

China

Czech Republic

Germany

Estonia

FranceDenmark

Finland

Luxemburg

Turkey

Ireland

Kuwait

Malta

Singapore

Israel

Egypt

Spain

Switzerland


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Legslate Base

Tax Coe

September 17, 2010

Article 6. Concept and Types of Tax

5. General taxes include:

a) Income Tax

b) Corporate income tax

c) Value Added Tax (VAT)

d) Excise Tax

e) Tax on Import

6. Local tax includes the Property Tax

Article 38. The Right to request information

1. The taxpayer is entitled to receive information from the tax authorities regarding applica-tion of the Georgian tax legislation, protection of taxpayer rights, or any personal information

kept in the tax bodies in accordance with the rule established by the law.

2. The taxpayer is entitled to not disclose the documents related to type of taxable objects, cal-

culation and payment of taxes to the law enforcement and other controlling agencies, except the

tax authorities, apart from the cases when such power is delegated to other agencies by this Code.

Article 39. Tax Condentiality

Any information about a taxpayer obtained by the tax bodies, except that related to the status,

name, address, identication number of the taxpayer and the public information recorded in the

register of commercial and non-commercial legal persons, has the status of tax condentialityupon the moment of registration as the taxpayer.

Article 40. The Rights to enjoy a tax benet and claim overpaid tax amount

Taxpayer has the right to enjoy tax benets, including tax exemptions, on the basis of and in

accordance with the rules established by the tax legislation of Georgia. Taxpayer is also entitled

to claim overpaid tax or/and ne amount or credit it for the account of future tax liability within

the term specied by the Georgian legislation.

Article 41. Protection of taxpayers legal interests

1. Taxpayer is entitled to:a) Maintain relation with a tax body personally or through his legal or authorized representa-

tive and communicate his own interests to the tax body; at that, substitute his representative any

time in the course of tax relation.

b) Bring an action against a tax claim submitted to him and also against other decisions and

actions of the tax authorities in accordance with the rule established by the law;

h) Not implement tax ofcers acts and claims that are inconsistent with this Code and other

laws of Georgia;

i) Claim compensation for damages caused by the illegal decisions and actions of the tax of-

cers in accordance with the rule established by the law.


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Article 42. Tax Ombudsman

1. Tax ombudsman supervises protection of taxpayer rights and legal interests across the ter-

ritory of Georgia, reveals the facts of violation of these rights and interests, facilitate restoration

of infringed rights.

9. Tax Ombudsman is appointed by the Prime Minister in agreement with the Chairman of the

Georgian Parliament.

Article 79. Income Tax Payer

Income tax is paid by:

a) Resident physical person;

b) Non-Resident physical person who gets income from a Georgia based source.

Article 81. Income Tax Rate

Taxable income of a physical person is taxed at 15 percent.

Article 96. Corporate income tax Payer

1. Corporate income tax is paid by:

a) Resident company;

b) Non-Resident company that carries out its business in Georgia through a permanent estab-

lishment or/and gets income from a Georgia based source.

Article 97. Object of Taxation

1. Taxable prot of a resident company is the object of taxation with a corporate income tax. It

is the balance between taxpayers gross income and the sum of payments anticipated by this Code.

Article 98. Corporate income tax RateTaxable prot of a company is taxed at 15 percent.

Article 156. VAT Payer

The following persons are VAT payers:

a) Person registers as a VAT taxpayer;

b) Person who shall register as a VAT taxpayer;

c) Person who carries out an import or a temporary import of goods to Georgia;

d) Non-Resident person (other than a Georgian physical person), who renders the services in

Georgia without being registered as a VAT taxpayer and without having permanent establish-

ment related to this particular service and is the subject to the reverse charge.

Article 157. Mandatory Registration as a VAT Payer

1. Person who carries out economic activity and conducts VAT taxable operations in the

amount exceeding 100,000 GEL for the period of any 12 consecutive months:

a) Shall approach the tax body to get registered as a VAT payer in no later than 2 working

days from the instance when the gross amount of taxable operations exceeds 100,000 GEL;

b) Is considered to be a VAT payer from the moment of conducting the taxable operation

(including this operation) according to which the gross amount of the taxable operation will

exceed 100,000 GEL


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Article 160. Object of VAT Taxation

The following are objects of VAT taxation:

a) Taxable operation

b) Import;

c) Export;

d) Temporary Import

Article 169. VAT Rates

1. VAT rates are as follows:

a) 18 percent of taxable turnover or import amount;

b) 0.54 percent of tariff value of the good at the moment of its temporary import per each com-

plete and incomplete month of the goods being on the economic territory of Georgia but no more

than 18 percent of tariff value of the good at the moment of its temporary import;

c) 18 percent of the amount of a taxable operation according to the rule of back taxation.

Article 195. Import Tax Payer

Import tax payer is a person who transfers goods across the economic boarder of Georgia

except in cases of export.

Article 196. Object of Taxation

Tariff value of the goods at the moment of crossing the economic boarder of Georgia is the

object of import taxation unless otherwise specied by this Code.

Article 202. Property Tax Rate

1. Annual rate of the property tax for a company/organization is specied at no more than 1

percent of a taxable property.

Article 297. Tax Resolution Bodies

1. Dispute resolution bodies within the system of the Ministry of Finance of Georgia are the

Revenue Service and the Dispute Resolution Council at the Ministry of Finance (hereinafter the

Dispute Resolution Bodies).

2. Dispute Resolution Council at the Ministry of Finance is the body that reconciles tax related

disputes.

3. Tax related dispute in the system of the Ministry of Finance includes two stages, the process

begins with submission of an appeal to the Revenue Service.

Article 299. Initiation of a tax dispute

4. A person is authorized to appeal against a decision of the tax authorities in a 20-day period

running from the receipt of the decision

Article 305. Appealing against the decision

1. In case the Revenue Service takes an undesired decision for the claimant he has the right to

appeal against the decision in the Dispute Resolution Council during the 10 days from its receipt.

2. The claimant is entitled to appeal to court against the decision of the Dispute Resolution

Council in 10 days from the receipt of the decision.


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The Customs Code of Georgia used to govern customs procedures. However, from January 1,2011 the new Tax Code of Georgia took effect which also includes the provisions regulating

customs.

As mentioned, the Tax Code of Georgia regulates customs issues, i.e. the actions and procedures

related to the movement of goods across the economic territory of Georgia.

The economic territory of Georgia encompasses the territory of Georgia, including territorial and

inland waters of Georgia and the airspace as well. Goods entering the economic territory of Geor-

gia are subject to registration according to the procedures established by Georgian legislation.

According to the Law, commodities are dened as material property, including money, securities,

electric and thermal energy, natural gas and water.

Customs refom

As a result of customs reforms undertaken by Georgia, the customs procedures have become ad-

vanced and simplied, and modern management technologies have been introduced.

Currently, the Customs agency employs a risk management system that is based on an automated

system for processing customs declarations ASYCUDA (Automated System of Customs Data).

The system provides for the four channel release of goods at customs.Physical examination of goods takes place in the red channel. Only documentary checking is

undertaken in the yellow channel. When releasing the goods through the green and the blue

channels, no examination of goods is performed (in case of the blue channel only an audit can be

carried out after certain period of time).

(See picture #1)

After launching this system, 85% of goods undergo customs registration by means of ofce con-

trol only, without the need for a physical examination.

The process of customs registration itself is carried out inside the territory of Georgia in specially

arranged customs ofces (Tbilisi, Telavi, Akhaltsikhe, Gori, Kutaisi, Batumi and Poti regional

centers). The introduction of three special zones Customs Clearance Zone (hereinafter CCZ)

is planned in Georgia:

Customs Clearance Zone TBILISI

Customs Clearance Zone BATUMI

Customs Clearance Zone POTI.

The Customs Clearance Zone TBILISI was launched by the end of 2010, and the other two zones

will begin to function in the rst quarter of 2011.

Chate v

CUSTOMS LEGiSLATiON ANd prOCEdUrES


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As a result of the reforms, the method for determining the customs value of the goods has been

streamlined and now relies on the standards of the General Agreement on Tariffs and Trade (GATT).

The Importer/Exporter Golden List (authorized economic operator) is another innovation of the

Customs system of Georgia. Persons included in this list have the right to enjoy even more sim-

plied customs procedures and pay import duties under preferential timeframes.

Finally, due to the reforms, the duration of customs procedures takes only 2 hours (versus the

three days previously required).

regstaton of Goos an the State Contol

The most common customs activities include import, export, temporary import of goods, transit

and re-export.

During the registration of goods the owner of the goods lls in a customs (commodity) declara-tion and pays customs taxes and fees. The rate of taxes and duties depends on the customs regime

(commodity operation) and the type of commodity, as well as the quantity of the go

investors handbook

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