1. On October 2, 2024, the Minister of Finance of Georgia issued Order №329, which amended Order №996 of December 31, 2010, “On Tax Administration.” This amendment introduced a new Article 11115, outlining the rules and conditions for tax exemptions provided under Article 309, Part 146 of the Tax Code of Georgia. The amendment specifically defines the conditions for exemption from import tax on assets/goods imported into Georgia from an enterprise registered in a country with preferential taxation.
To qualify for the tax exemption, all the following conditions must be met:
The import of the asset must be completed by January 1, 2028.In both Georgia and the preferential tax jurisdiction, 100% of the shares/stocks must be owned by the same natural person or group of natural persons.The natural person or group must have owned 100% of the foreign enterprise’s shares as of June 5, 2024.The natural person or group must hold 100% of the Georgian enterprise’s shares at the time of the asset transfer or goods import.
When applying for the import tax exemption, the Georgian enterprise must submit an application to the tax authority (using Annex №VII7-01) along with the following supporting documents:
Proof of ownership of the foreign enterprise’s shares.Documentation confirming ownership of all assets, goods, and shares before June 5, 2024.Evidence of the transfer of assets to the Georgian enterprise, either free of charge or as a capital contribution.
If the application satisfies these requirements, the tax authority will issue an order titled “On Exemption from Import Tax on Asset/Goods Import under Article 309, Part 146 of GTC.” If additional information or corrections are needed, the applicant will have 15 working days to address these deficiencies. Failure to do so will result in the denial of the tax exemption.
This amendment took effect on October 3, 2024.
2. On October 3, 2024, the Minister of Finance of Georgia issued Order №331, amending the “Instruction on the Assessment of International Controlled Transactions,” originally established by Order №423 on December 18, 2013. This amendment introduces a new Article 141, which provides guidelines for qualifying loans as capital contributions in the context of international controlled transactions.
Under Article 141, 12 criteria are outlined for determining whether a transaction initially classified as a loan should be reclassified fully or partially as a capital contribution. A transaction will qualify as such if at least three of these criteria are met, based on the agreement between the parties involved in the controlled transaction and/or the actual circumstances.
Examples of the criteria include:
Fixed repayment schedule.Obligation to pay interest.Enforcement of principal/interest through compulsory measures.The lender's status (subordination) relative to other creditors.Contractual restrictions and security mechanisms.Ability to fulfill debt obligations.Borrower’s capital structure.Necessity for the loan and purpose of its use.Deferral of debt obligations.Lender’s participation in the borrower’s management.Loan issuance proportional to share ownership or contingent on ownership.Potential for converting the loan into capital.
It is important to note that this amendment does not apply to loans issued before January 1, 2025, nor to exchange rate differences or interest accrued before this date. Payments made on such interest during or after this period are also excluded from this order.
The amendment came into effect on October 4, 2024.
3. On October 17, 2024, a new Article 46¹, titled "To Treat Several Persons Based in the Territory of Georgia as a Single Taxable Person for VAT Purposes," was introduced as part of an amendment to the relevant tax administration order. This addition aligns with Paragraph 9 of Article 73 of the Georgian Tax Code (GTC) and establishes conditions and procedures under which the tax authority may treat multiple persons operating in Georgia as a single taxable entity. The primary aim of this measure is to prevent VAT evasion.
Conditions for Grouping Entities as a Single Taxable Person
This approach applies only when all the following criteria are met:
Centralized Decision-Making: The main decisions related to the activities or management of the entities are made by the same person.Shared Business Location: All entities operate from the same place of business.Identical Activities: The type and content of their activities are the same.Non-VAT Registration: At least one member of the group is not registered as a VAT payer.
The person making the decisions is deemed the same if they exercise control over at least two key aspects, such as dividend distribution, business reorganization, or investments.
Identifying Similar Activities
The type and content of the entities' activities are considered identical if at least one of the following conditions is met:
The entities provide the same, analogous, or similar goods or services.They operate in the same or related economic sectors.Their activities are directed toward the same target customers.They share or utilize the same essential resources.Any other factor demonstrates the similarity of their activities.Additional Applicability
The rule also applies to entities outlined in subparagraph "a" of Article 157 of the GTC, including natural persons, enterprises, or associations of independent persons without legal status. These entities must either be established in Georgia or, in the absence of establishment, have a permanent address or residence in Georgia.
Illustrative Example
The order provides an example in which three entities (two legal entities and one individual entrepreneur) were treated as a single taxable person. Since their combined taxable transactions exceeded 100,000 GEL, they were required to register as VAT payers.
This amendment ensures greater oversight and compliance with VAT regulations and became effective on October 17, 2024.