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CHRISTMAS GIFTS AND TAXES

Baker Tilly Georgia LLC, an independent member of Baker Tilly International, is an audit firm with over 18 years of experience in Georgia. Baker Tilly International is a network of high quality, independent accountancy and business services firms, all of whom are committed to providing the best possible service to their clients, in their own marketplaces, and across the world, wherever the client needs help. It is the 8th largest network in the world by fee income and is represented by 161 firms in 137 countries (738 offices), with a global aggregate fee income of $3.4 billion and more than 27,000 staff worldwide.

As a firm, we offer the full range of professional services: audit and assurance, corporate finance, taxation, accounting and other, tailored to individual client professional accounting services.

This brief article represents the beginning of a series of publications aimed to provide overview of audit, accounting and tax matters that concern businesses in Georgia today. The theme of this article is the fast approaching holiday season and certain tax issues associated with it that majority of businesses in the country will be or are already facing.

With the Christmas season at the doorstep we are all getting ready to give and receive gifts. The business community is no exception and the etiquette calls for demonstrating appreciation to clients and partners – by means of greeting cards and in some cases – quite valuable gifts. As with everything else, this seasonal activity is also subject to taxation rules. How does Georgian legislation treat this seemingly simple gift exchange? We have prepared a very brief overview of tax legislation concerning the matter.

Let’s start with an example:

A company intends to reach out to its existing and potential customer base with branded Christmas gifts comprising a plastic bag containing a pen, a bottle of red wine and a greeting card.

Of these four items, the plastic bag, the pen and the bottle of wine bear “independent consumer specifications” (a term used in the Tax Code).

(a) If the person (legal or private) receiving the gift is identified and there is an evidence that the gift had been actually received the legislation requires for “independent consumer specifications”:

i. The value added tax (VAT) applies to the market value of items bearing “independent consumer characteristic” and it is a deductible expense for profit tax purposes if no VAT invoice is written out;

ii. The market value of these items are included in gross revenues for profit tax purposes;

iii. The cost of the items are deductible for profit tax purposes in line with the Revenue Services’ established practice;

iv. In addition, if a private person is receiving a gift with the market value exceeding 1,000 Georgian lari, it is subjected to the personal income tax.

Note that delivery of gifts will also require filling out the official distribution waybill (consignment note).

(b) If private persons or entities receiving the gifts are not identifiable, it is recommended to seek an advice from your tax consultants as taxation schemes for items bearing “independent consumer characteristic” have certain peculiarities associated with them and cannot be easily formulated in this article.

(c) Remember the forth item in our gift package – branded greeting card? For the greeting card and any other item that does not have “independent consumer characteristic” – the distribution of these items is not subject to profit and value added taxes, the cost is directly deductible for profit tax purposes, and any VAT paid on their acquisition may not be claimed.