Investment Opportunities in Georgia (Part 1)

Georgia confidently maintains its leading position among the countries of the region in attracting foreign investment.

The Georgian legal system creates a favorable environment for foreign investment. Key laws include:

• The Law on Promotion and Guarantees of Investment Activity. The law guarantees capital protection and determines the procedure for making investments in the country.

• The Law on State Support for Investments. The law establishes support measures - tax incentives, simplified administrative procedures and other mechanisms to speed up the launch of investment projects.

Georgian legislation also recognizes cryptocurrencies as digital assets, which opens up additional opportunities in the field of fintech and blockchain projects. All these measures are aimed at creating equal and transparent conditions for both local and foreign businesses.

Investment Incentives

The Government of Georgia has created several instruments to support investments in the country's economy.

JSC "Georgian Development Fund" (DFG) is a state-owned investment fund. The main goal of the DFG is to attract and support private investors by participating in early stage investment projects (co-investment in equity, subordinated debt, etc.).

The GCF provides investors with access to fast-growing sectors of the Georgian economy. It uses a private capital structure designed to meet the diverse needs of investors. The fund considers investment opportunities in various sectors and industries that significantly contribute to the development of the Georgian economy, including energy, infrastructure, hospitality, real estate, agriculture, logistics, manufacturing.

«Enterprise Georgia» is a government agency operating under the auspices of the Ministry of Economy and Sustainable Development of Georgia. The agency is responsible for supporting businesses, promoting exports and attracting investment. Some of the recent incentives that the Georgian government has introduced under the auspices of Enterprise Georgia include the following:

• FDI Grant. The Georgian government offers support to foreign investment projects with a 15% refund on capital and training costs. The program aims to promote the growth of foreign direct investment in the country, as well as the influx of knowledge and technology and the creation of new jobs in Georgia.
• International Company Status (ICS). International Company Status — is a special tax status in Georgia available to certain types of Georgian businesses that must operate in the country. This may include Georgian businesses that represent foreign (non-resident) businesses. For example, “International Company Status” provides IT companies with a preferential tax regime that entitles them to reduced corporate tax rates (5%), dividend tax (0%), and income tax (5%).
• Business Universal —a loan interest rate subsidy and collateral guarantee covering the following sectors: manufacturing, hospitality/balneological resorts, tourism services, agritourism, ecotourism.

Credit Guarantee Mechanism. This program aims to improve access to finance for small and medium-sized businesses, facilitate lending, and ensure inclusive economic growth. The program opens up opportunities for small and medium-sized businesses that do not meet the loan collateral requirements.

The National State Property Agency oversees the physical infrastructure transfer component - the free transfer of state-owned real estate to an entrepreneur under certain investment obligations.

In October 2018, the Prime Minister of Georgia introduced the concept of e-residency, allowing citizens of 34 countries to register their companies electronically and open bank accounts in Georgia without having a physical presence in the country.

Incentives for the construction of renewable energy sources

According to Article 5 of the Law on Energy, one of the general principles of organization, regulation and control of energy activities is the promotion of electricity production from renewable energy sources and combined heat and power production. In addition, Article 7 of the Energy Law states: “State energy policy must provide for measures aimed at the use of renewable energy sources for the production of electricity and the consumption of electricity produced from such sources, as well as any incentives and support mechanisms applied to promote the use of renewable energy sources.”

The energy legislation encourages domestic and foreign investments in the rehabilitation and improvement of industries such as coal mining, natural gas production, water supply, and the use of local hydropower and other sustainable and alternative tools. It also emphasizes the value of small power plants with an installed capacity of 15 megawatts (MW) for the efficient and environmentally friendly use of renewable energy.

The Resolution of the Government of Georgia #403 “On Approval of the Support Scheme (Hydroelectric Power Plants) for the Production and Use of Energy from Renewable Energy Sources” was adopted in 2020 and amended in 2021. This resolution sets out support schemes for the construction and operation of power plants initiated by a private developer and having an installed capacity of more than 5 MW.

Taxation

• Corporate income tax. 0% or 15%. There is no corporate income tax on retained earnings and reinvested profits; profit tax applies only to distributed profits.

• Personal Income Tax. The personal income tax on wages is 20%. The personal income tax on interest, dividends, and royalties is 5%.

• Value Added Tax (VAT). 18%.

• Import Tax. 0%, 5%, or 12%, with most goods taxed at 0%.

• Property Tax. Property tax is a local tax in Georgia and cannot exceed 1%.

Free Zones of Georgia

There are four free zones in Georgia, all of them are created by Georgian legislation in free industrial zones. There are some key benefits common to all free zones, as well as some unique terms and services.

Benefits common to all four options include:

• 0% corporate tax rate
• Virtual office services
• No minimum capital/investment requirements
• 100% foreign ownership discount
• 100% profit repatriation
• Remote incorporation services
• Low electricity costs

Taxation in Free Zones

All corporate taxes payable by a company are 0% in free zones, meaning that the profits you make remain untouched and you can easily transfer them from your corporate bank account to your personal account invoice.

Hualing Kutaisi Free Zone

Hualing Kutaisi Free Zone was established in October 2015. It is located in Central Georgia, 90 km from the seaport and 19 km from the international airport.

The main advantage of Hualing Free Zone over other local free zones is the wide availability of ready-made buildings.

Poti Free Industrial Zone

Poti Free Zone is the oldest free zone in Georgia. It was founded in 2007 by the large Rakia Group from the UAE. The fact that it is located in the seaport is very convenient in terms of logistics.

It is also 10 times larger than other Georgian free zones and is a good location for large industrial projects that require large volumes of raw materials. Moreover, it is the most cost-effective free zone in Georgia. Poti Free Industrial Zone is strategically located near the Black Sea port city of Poti, the largest seaport in Georgia. The favorable location makes it a very attractive place to start a business in a tax-friendly environment.

The zone covers 3.0 million sq. m. Most of the land is occupied by various industrial and logistics activities, from light to heavier industries such as chemicals, steel and processing.

Advantages of Poti Free Industrial Zone:

• Strategic manufacturing location with sea, rail and road connections to all points of the Silk Road corridor and the Black Sea-Caspian region.
• Simplified procedure for starting a business in a tax-free environment.
• Low labor, land and energy costs.
• Significant logistics and supply chain advantages for traders and merchants.
• Benefits of storage and distribution to the market.
• Reduced inventory needs and costs.
• Price stability due to avoidance of market and currency peaks and troughs.
• A safe environment for doing business.

Tbilisi Free Zone

Tbilisi Free Zone is the newest free zone in Georgia. In addition to the general benefits that all free zones have, Tbilisi Free Zone is focused on the crypto mining industry and is home to one of the largest data centers.

Advantages of the Tbilisi Free Industrial Zone:

• The income of a free industrial zone enterprise is exempt from corporate income tax.
• Interest and dividends paid by a free industrial zone enterprise are not taxed and are not included in the recipient’s taxable income.
• Trade between free industrial zone enterprises is exempt from VAT.
  Free industrial zone enterprises are not required to administer employee income tax.
• Free industrial zone enterprises are not required to calculate and pay reverse chargeable VAT (RCVAT).
• Exports are exempt from VAT with the right to a tax credit.
• Property, including land, located in the free industrial zone is exempt from property tax.
• Trade between a free industrial zone enterprise and Georgian company is subject to a tax of 4% of the invoice value.

Kutaisi Free Zone

Kutaisi Free Economic Zone was established in March 2009 on the territory of the famous Kutaisi Automobile Plant. The 27-hectare land plot is located just 10 km from Kutaisi International Airport, 95 km from Poti Sea Port and 210 km from Tbilisi.

The zone is aimed at attracting international tenant companies to carry out export-oriented activities in a tax-free zone. We invite companies operating in various business areas to cooperate: technology, trade and services, light industry, logistics, warehousing, etc. We also provide flexible rental terms and an individual approach to each tenant company.

Advantages:

• 100% permanent exemption from corporate income tax, dividends, property and VAT.
• 100% permanent exemption from import/export of all goods, including raw materials, equipment and machinery, finished products.
• 100% repatriation of capital and profits.
• Double taxation with many countries.
• Free trade regime with the CIS countries and Turkey.
• DCFTA (Free Trade Agreement) with the EU — unique potential for manufacturing and processing industries for quota-free and duty-free imports to European countries.
• Free trade regime with EFTA (Switzerland, Liechtenstein, Iceland, Norway).
• Free trade regime with the People's Republic of China.
• Preferential trade (GSP with the USA, Canada, Japan).

According to the Law on Free Industrial Zones of Georgia, the following activities are prohibited on the territory of the free industrial zone:

• manufacture of weapons and ammunition, trade in weapons and ammunition;
• manufacture of nuclear and radioactive substances, trade in nuclear and radioactive substances;
• import, storage, manufacture and (or) sale of narcotic drugs, psychotropic substances;
• import, storage, manufacture and (or) sale of sale of tobacco products and (or) tobacco raw materials, except in cases provided for by law.