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Overview of Changes in Georgian Legislation: Grant Thorthon

The Georgian Parliament adopted important amendments to the Tax Code. Amendments foresee implementation of the so-called Estonian model of corporate income tax (CIT).

Latest amendments to the Tax Code also relate to value added tax (VAT), Personal Income Tax (PIT) and excise tax, as well as certain procedural changes in tax administration. Major changes affect CIT – tax base, timing of payments and reporting. Proposed amendments also abolish the concept of thin capitalization. VAT payment timeline on the import of the certain items is changed.

Also new law on reporting regulation was adopted by the Parliament. Proposed effective date for CIT amendments is January 2017. For other amendments, effective dates are based on the publication.

CIT– Timing for CIT payments is being linked to profit distribution. CIT base will be revisited, mainly for:

  • expenses or payments related to non-business activities
  • free delivery of goods/services or transfer of funds
  • representative expenses exceeding the allowed limit
  • related party transactions outside arm’s length principle
  • execution of controlled transactions. CIT base calculation involves grossing up taxable base by 0.85 Timing for CIT payments and reporting is changing from annual to monthly basis

At this time, the proposed amendments will not apply to financial institutions, oil and gas operations and gambling activities, arranged “in system-electronic form”. Proposed amendments also give rise to certain changes in terminology and definitions.

VAT

Amendments propose to postpone the requirement to pay VAT on import by 45 days on the items determined by the government under the codes 8401−9033 of the Harmonized Commodity Description and Coding System.

(source: N5092-IIს 13 May, 2016)

Amendments also declare VAT shall not apply to transfer of ownership right to real estate by individuals, when such transaction is intended for fulfillment of contractual liabilities.

(source: N 5406-IIს, 8 June, 2016)

Tax Amnesty

Amendments propose write-off for all unpaid tax liabilities pertaining to periods before 2011 for the companies that had no business activities after the mention period. Similarly, amendments propose write-off for penalties and fines registered on taxpayer’s account in respect of tax liabilities pertaining to periods before 2013 if the principal tax liability is paid and the company had no business activities after the mention period.

(source: N5092-IIს, 13 May, 2016)

Personal Income Tax

PIT exemption is extended for income by individuals within the framework of supply of primary agricultural products produced by an individual employed in agricultural production.

The proposed exemption applies to income of up to GEL 200,000 during a calendar year and is effective until December 2017. (source: N 5491-IIს, 22 June, 2016) PIT relief is introduced for pardoning of debts to individuals by financial institutions before January 1, 2014 as per regulations of the National Bank of Georgia.

(source: N 5406-IIს, 8 June, 2016)

Tax Amnesty

Amendments propose write-off for all unpaid tax liabilities pertaining to periods before 2011 for the companies that had no business activities after the mention period. Similarly, amendments propose write-off for penalties and fines registered on taxpayer’s account in respect of tax liabilities pertaining to periods before 2013 if the principal tax liability is paid and the company had no business activities after the mention period.

(source: N5092-IIს, 13 May, 2016)

Reporting Regulations

New law on “Accounting, Reporting and Audit” was enacted on June 8, 2016. The new law stipulates financial reporting and auditing requirements for different categories and sizes of entities as well as establishes the government oversight functions.

(source: : N 5386-IIს, 8 June, 2016)

Thin capitalization

Amendments propose to abolish the concept of thin capitalization and any limitations previously linked to this concept.

(source: N 5092-IIს, 13 May, 2016)

Fiscal audits and tax lien

Amendments propose to establish that authority to perform fiscal audits shall now lie only with the Revenue Service. Amendments also propose that a lien imposed on a taxpayer’s bank accounts for the duration of a tax dispute shall be deemed invalid, if the Revenue Service fails to submit to court substantiation for the tax lien within 48 hours after imposing.

(source: N5092-IIს, 13 May, 2016)

Excise tax

Amendments propose 50% reduction on excise tax rate on hybrid vehicles aged less than 6 year classified under code 8703 of the Harmonized Commodity Description and Coding System. (source: N4941-IIს, 13 April, 2016) Amendments set to abolish excise tax on mobile communication services from January 2018. Amendments propose gradual reduction of rate till abolishment: • 8% by December 2016 • 3% during 2017

(source: N5445-IIს, 22 June, 2016)

Grant Thorton