VAT, GST and Sales Tax in Georgia

Summary

Name of the tax Value-added tax (VAT)
Local name damatebuli ghirebulebis gadasakhadi
Date introduced 24-Dec-93
Trading bloc membership None
Administered by Ministry of Finance (http://www.mof.ge)
VAT rates
Standard 18%
Reduced 0.54%
Other Exempt with the right to reclaim input tax; and exempt without the right to reclaim input tax
VAT number format Not applicable
VAT return period Monthly
Registration thresholds Businesses established in Georgia Taxable turnover of GEL100,000 in the preceding 12 months
Businesses established elsewhere Reverse-charge rule applies
Recovery of VAT by non-established businesses No

Scope of the tax

VAT applies to the following transactions:

  • Supply of goods or services in Georgia within the scope of economic activities
  • Use of VAT taxable goods or services for noneconomic pur­poses if a taxpayer has obtained a VAT credit for these goods (services)
  • On termination of VAT registration (except for bankruptcy cases), the balance value of the goods for which a taxpayer has obtained a VAT credit
  • Use of self-constructed buildings as fixed assets
  • Transfer of ownership of goods or services in exchange for shares in an enterprise or partnership
  • On expiration or early termination of a rental agreement, supply of leasehold improvements, if any, to the landlord
  • Import or temporary import of goods into Georgia
  • Export or re-export of goods from Georgia

Who is liable

Business entities or individuals are considered VAT payers if any of the following circumstances exists:

  • They are registered or required to be registered for VAT.
  • They carry out taxable imports or temporary imports of goods into Georgia. Such persons are considered VAT payers with respect to such imports or temporary imports only, without the obligation to register.
  • They are nonresident persons (except for Georgian citizen indi­viduals) rendering services in Georgia without VAT registration and a permanent establishment. Such persons are considered VAT payers with respect to such services only and are subject to reverse-charge taxation.
  • They are transferring property to a creditor in fulfillment of a contract. Such persons are considered VAT payers with respect to this operation only and are subject to reverse-charge taxation, without the obligation to register.
  • Their property is being sold to fulfill tax liability or other finan­cial obligation (excluding imposed criminal and administrative sanctions) via auction, direct sale or other methods. Such per­sons are considered VAT payers with respect to this operation only, without the obligation to register.
  • Their property is being sold according to the rules set by the Law of Georgia on Insolvency Proceedings. Such persons are considered VAT payers with respect to this operation only, with­out the obligation to register.

Taxpayers must register for VAT if they satisfy any of the follow­ing conditions:

  • They conduct economic activities, and the total amount of VAT taxable transactions carried out in any continuous period of 12 calendar months exceeds GEL100,000. Such persons must register within two working days after exceeding the threshold.
  • They produce goods subject to excise tax (excisable goods) in Georgia. Such persons must register before making a supply of such goods.
  • They import excisable goods into Georgia (except for excisable goods exempt from VAT taxation on import). Such persons must register before making a supply of such goods.
  • An entity is established as a result of reorganization and at least one of the parties to the reorganization is a VAT payer. The entity must register before a VAT taxable transaction is carried out, but no later than 10 calendar days following the completion of the reorganization.
  • A VAT payer contributes goods or services into the capital of an enterprise or partnership. Registration of the latter is required before a VAT taxable transaction is carried out, but no later than 10 calendar days following the date of the contribution.

For purposes of determining whether VAT registration is required, exempt supplies with the right to reclaim input tax and exempt supplies without the right to reclaim input tax are not considered.

The above measures also apply to a foreign entity in Georgia. However, to determine the total amount of taxable transactions of a nonresident person, only the supply of goods and rendering of services through a permanent establishment in Georgia is taken into consideration.

Registration procedures. The VAT registration procedure is straightforward and any taxpayer may register for VAT in one working day. An authorized official of the company or its offi­cially designated representative shall appear in person at the tax office to sign and submit the application.

Voluntary registration. A business established in Georgia, includ­ing a permanent establishment of a foreign entity, may register for VAT voluntarily. VAT registration is effective from the appli­cation date but no later than the date when the obligation of mandatory VAT registration arises.

Group registration. VAT group registration is not allowed in Georgia. Entities that are legally related must register for VAT individually.

Late-registration penalties. A penalty is assessed for late VAT registration. This penalty equals 5% of the VAT taxable turnover (except for exempt supplies) for the entire period of operating without VAT registration. The penalty for the late filing of a VAT return (see Section I) does not accrue during this period.

Non-established businesses and tax representatives. A “non-established business” is a business that does not have a perma­nent establishment in Georgia. If a business does not have a permanent establishment in Georgia, it may not register for VAT even if it makes taxable supplies of goods or services there. Reverse-charge VAT generally applies to the supply of services made by non-established businesses in Georgia.

The supply of goods by a non-established business through its tax representative in Georgia is considered to be a supply made by such representative for VAT taxation purposes.

Reverse charge. The reverse-charge mechanism applies to non­resident entities or nonresident individuals (except for Georgian individual citizens) making a taxable supply of services in Georgia. The reverse-charge mechanism also applies to the sup­ply of goods or services conducted outside Georgia if the product (for example, projection documents, technical documentation, and technical schemes and programs) is delivered to resident taxpayers through the Internet or any other means of electronic communication and does not cross the customs border of Georgia in the form of an integrated device or any other type of informa­tion bearer.

Under the reverse-charge mechanism, resident taxpayers (except for individuals who do not carry out entrepreneurial activities and Free Industrial Zone Companies) and permanent establishments of foreign entities are responsible for the calculation and payment of VAT.

Digital economy. There are no special rules for the digital economy.

Deregistration. The VAT registration of a taxpayer, including a permanent establishment of a foreign entity, is cancelled in the following cases:

  • A business is liquidated.
  • An individual passes away.
  • A taxpayer applies to the tax authorities through a written request or approves a request from the tax authorities to deregister.
  • A bankruptcy proceeding is initiated in accordance with the procedure prescribed under the Law of Georgia on Insolvency Proceedings.

A taxpayer may request deregistration within one year of the most recent VAT registration if the value of taxable transactions carried out during the preceding 12 calendar months did not exceed GEL100,000. The tax authorities may also request that the taxpayer deregister.

VAT registration is cancelled from the date the state registration is cancelled, the date the individual passes away or the first day of the month following the application by a taxpayer, the date a court’s statement on bankruptcy enters into force or an approval of the request from the tax authorities.

VAT rates

The term “taxable supply” refers to the supply of goods and ser­vices that are subject to VAT. The term “exempt supply” refers to the supply of goods and services that are not subject to VAT. Persons that make exempt supplies may or may not be entitled to claim the input tax deduction (see Section F).

In Georgia a standard rate of VAT at 18% applies to all taxable supplies of goods and services and imports, unless a specific mea­sure allows an exemption. The 18% rate also applies to transactions subject to the reverse-charge mechanism.

A VAT rate of 0.54% applies to temporary imports for each full or partial calendar month in which the goods are located in the cus­toms territory of Georgia, but the maximum VAT rate for these goods is 18%.

Goods and services that are exempt from VAT may or may not give rise to input tax deductions. The following lists provide some examples of exempt items for which the taxpayer has the right to reclaim input tax and those for which the taxpayer does not have the right to reclaim input tax.

Examples of exempt items
with the right to reclaim input tax

  • Export or re-export of goods
  • Supply of goods or services intended for the official use of foreign diplomatic missions and equivalent representative offices as well as for the personal use of the members of such diplomatic missions and representative offices (including fam­ily members residing with them)
  • Transportation of goods under export, re-export, external processing and transit arrangements (foreign goods moving through the customs territory of Georgia) and related services
  • Transportation of goods not yet declared into import, warehouse, temporary import, internal processing or free-zone operations between points located in Georgia and related services (except for storage services)
  • Transportation of goods declared into import, warehouse, tem­porary import, internal processing or free-zone operations before entering the territory of Georgia from the customs bor­der of Georgia to the destination point and related services (except for storage services)
  • Transportation of passengers and cargo and related services, if the departure or arrival point is located outside Georgia and if a unified transportation document is issued for such trans­portation
  • Import and supply of products to be provided on board for international flights or international sea passages
  • Transportation, loading, unloading and storage services pro­vided for the purpose of sending (returning) empty transport facilities (including containers and wagons) outside Georgia
  • Supply of natural gas to thermoelectric power stations
  • Withdrawal of assets by the state or a local governing body from an entity’s capital if more than 50% of the shares is owned by the state or the local governing body
  • Free supply of goods or services to the state or a local govern­ing body
  • Supply of Georgian goods to a duty-free outlet for sale, and sale of goods and provision of catering services in a duty-free zone
  • Supply of assets during a corporate reorganization
  • Contribution of assets into the capital of an enterprise or part­nership (on the contribution, the recipient hypothetically credits the VAT on the assets)
  • Supply of gold to the National Bank of Georgia
  • Organized foreign tours into Georgia by tour operators and the supply of tourist packages to foreign tourists
  • Supply of all assets or independently operating units of an entity in a single transaction by one VAT payer to another VAT payer if both parties notify the tax authorities within 15 calen­dar days after the supply
  • Rendering of services to ships on carrying goods into the cus­toms territory of Georgia, and in accordance with these agree­ments, the supply of such goods/services and/or import of goods is exempt from VAT
  • Supply of goods or services or import of goods that qualify for VAT exemption in accordance with the framework of interna­tional agreements ratified by the parliament of Georgia
  • Supply of unprocessed agricultural products produced in Georgia (except for eggs and chicken)
  • Supply of electricity and guaranteed power (except for supply to residential customers), as well as transmission and/or elec­tricity dispatch services

Examples of exempt items
without the right to reclaim input tax

  • Supply or import of certain medicines
  • Supply or import of passenger cars
  • Supply or import of publications and mass media
  • Supply or import of baby products
  • Supply of land plots
  • Supply of goods and services between Free Industrial Zone Companies
  • Conduct of financial operations or supply of financial services
  • Supply of medical services
  • Supply of educational services
  • Supply of assets under finance leases if the assets are exempt without the entitlement to credit
  • Supply of betting and gaming services
  • Import of gold for supply to the National Bank of Georgia
  • Supply or import of goods and services needed for the oil and gas industry under the Law of Georgia “on Oil and Gas”
  • Import of natural gas for electricity production
  • Import of goods by an issuer or a recipient of a grant as defined by the grant agreement
  • Import or temporary import of goods or services intended for the official use of foreign diplomatic missions and equivalent representative offices, as well as for the personal use of the members of such diplomatic missions and representative offices (including family members residing with them)
  • Import or temporary import of goods intended for the personal use of the citizens of foreign countries employed at oil and gas exploration and extraction works
  • Import of natural gas for electricity production
  • Import of goods by an issuer or a recipient of the grant as defined by the grant agreement
  • Supply of property by partnerships to their members if all the members are individuals, the partnership is not a VAT payer, and the members have not changed since the moment of estab­lishment of partnership

Option to tax for exempt supplies. A VAT-registered taxpayer may apply to pay VAT on all transactions that qualify for exemption without the right to reclaim input tax. This option gives the tax­payer the right to reclaim input VAT against output VAT.

After applying to the tax authorities to use this option, it becomes effective from the first day of the reporting month following submission of the application and is valid for 12 calendar months for all transactions.

Time of supply

The time when VAT becomes due is called the “time of supply” or “tax point.” The “basic” tax point is the moment when goods are delivered or made available to a customer or services are rendered. However, the “actual” tax point is the date on which the invoice for supplied goods or rendered services is issued or the date on which the payment obligation for supplied goods or ren­dered services arises, if either of these dates is earlier than the basic tax point. For regular or continuous supplies of goods (electrical or thermal energy, gas or water supply) and services, the actual tax point is the last day of a reporting period if earlier than the basic tax point.

A range of other situations have different time-of-supply rules that do not fit naturally into the above scheme. The following are some of these special time-of-supply rules:

  • Starting point of the use of goods or services for noneconomic purposes
  • In the case of VAT deregistration, the day preceding the date on which registration is cancelled
  • Starting point of bringing self-constructed buildings into use as fixed assets
  • Starting point of receiving ownership of goods or services in exchange for shares in an enterprise or partnership
  • In the case of the supply of leasehold improvements to the landlord, the moment of expiration or early termination of the rental agreement
  • December of each year for long-term contracts if neither the basic nor actual tax point occurs

Imported goods. The time of supply for imported goods is the date on which the commodity declaration is filed at the border and the goods are accordingly placed into the import regime.

Reverse-charge services. The time of supply for services subject to the reverse-charge mechanism is determined in accordance with the standard rules discussed above.

Recovery of VAT by taxable persons

VAT-registered taxable persons may recover input tax, which is VAT charged on goods and services received for business pur­poses. Taxable persons generally recover input tax by deducting it from output tax, which is VAT charged on supplies made. Input tax includes VAT charged on goods and services acquired in Georgia, VAT paid on imports or temporary imports of goods into the customs territory of Georgia and VAT self-assessed for reverse-charge services received from outside Georgia. Input tax also includes VAT assessed on self-constructed buildings that are used as fixed assets.

The claim for input VAT must be accompanied by one of the fol­lowing documents:

  • Tax invoice
  • Customs declaration
  • The bank payment order for services rendered by public law entities
  • The document confirming the purchase of property that includes the amount paid and related VAT in case of realization of this property to fulfill tax liability or other financial obliga­tion

A VAT credit is allowed for the following:

  • Goods and services that are used or will be used in taxable transactions (except for exempt transactions without the right to reclaim input tax), exports or re-exports of goods and rendering of services outside Georgia
  • Goods and services used for production of the above-mentioned goods or rendering of services

Nondeductible input tax. No VAT credit is allowed in the follow­ing circumstances:

  • VAT paid on expenses incurred or that will be incurred for the production of goods and services used in exempt supplies with­out the right to reclaim input tax
  • VAT shown on tax invoices that do not make the identification of the seller of the goods or services possible
  • VAT shown on tax invoices not included in a tax return within three reporting periods following the reporting period of a tax­able transaction or in December of the calendar year of a tax­able transaction. This limitation is not applicable to electronic invoices
  • VAT shown on tax invoices issued with respect to bogus opera­tions or fictitious agreements

Partially creditable VAT. If a VAT payer makes both exempt sup­plies with the right to reclaim input tax and exempt supplies without the right to reclaim input tax, it must account for these supplies separately. Input VAT directly related to exempt supplies with the right to reclaim input tax is recoverable in full, while input VAT directly related to exempt supplies without the right to reclaim input tax is not recoverable. Input VAT that may not be directly attributed to either of these two types of exempt supplies must be apportioned. The statutory method of apportionment is a pro rata calculation, based on the value of exempt supplies with­out the right to reclaim input tax as compared to the total turnover of the business. The recoverable VAT is adjusted in the last VAT return for the current tax year in accordance with the annual proportion.

Capital goods. Capital goods are items of capital expenditure that are used in the business for more than one year.

The recovery of input VAT on capital goods is similar to the other goods described above with one exception. This exception applies if fixed assets are used in both exempt supplies with the right to reclaim input tax and exempt supplies without the right to reclaim input tax, and the input VAT cannot be directly attrib­uted to either of these two types of exempt supplies. In these circumstances, the input VAT is recoverable in full in the first reporting period if exempt supplies without the right to reclaim input tax account for less than 20% of the total turnover of the preceding tax year of the business. The recoverable VAT is adjusted at the end of each calendar year based on the value of exempt supplies without the right to reclaim input tax as com­pared to the total turnover of the business for the respective cal­endar year.

If the above-mentioned 20% threshold is not met, the input VAT is recoverable only in the last VAT return of a calendar year in the proportion of supplies with the right to reclaim input tax to total turnover of the business during the calendar year.

The following adjustments must be made to the value of input VAT for capital goods:

  • For a building, an adjustment of 1/10 of total input VAT applies annually for 10 calendar years from the year of bringing the building into use.
  • For other fixed assets, an adjustment of 1/5 of total input VAT applies annually for five calendar years from the year of bring­ing the asset into use.

Refunds. The excess of input VAT over output VAT in the report­ing period must first be used to offset other taxes payable. If the amount of VAT credit exceeds all taxes payable, the excess can be used to cover future VAT and other tax liabilities, or a refund may be claimed.

In certain cases specified by the Minister of Finance of Georgia, overpaid tax may be refunded to the taxpayer automatically.

Refund application. If the amount of input VAT on the export of goods, import or purchase of fixed assets subject to depreciation under the Tax Code of Georgia or the purchase of goods for the construction of buildings exceeds the output VAT assessed during the reporting period, this surplus amount must be refunded to the taxpayer within one month following the submission of the appli­cation to the tax authorities.

For all other cases, a surplus of input VAT over output VAT assessed during the reporting period must be returned to the tax­payer within three months following the submission of an appli­cation to the tax authorities.

Preregistration costs. The recovery of VAT incurred before VAT registration is allowed on the balance of inventory acquired for business purposes outstanding at the moment of VAT registra­tion.

Write-off of bad debts. Not applicable.

Noneconomic activities. Input tax may not be recovered on pur­chases of goods and services that are not used for economic activities, e.g., VAT paid on expenses incurred for social pur­poses, entertainment activities or related expenses.

Recovery of VAT by non-established businesses

Non-established businesses cannot recover VAT, because only entities registered for VAT in Georgia may claim recovery of input tax.

Refund of VAT paid on goods purchased by citizens of foreign countries. A citizen of a foreign country who purchased goods in Georgia may obtain a refund of VAT paid on the goods if the fol­lowing criteria are met:

  • The goods are taken out of Georgia within three months from their purchase.
  • The price of the goods is more than GEL200 (exclusive of VAT) per receipt.
  • A special receipt is issued by an authorized seller.

Invoicing

VAT invoice and credit notes. A VAT invoice is a strict accounting document that must be issued in the format approved by the Minister of Finance of Georgia. It certifies the occurrence of a VAT taxable transaction. A VAT invoice could be issued and submitted in electronic form. Such an electronic invoice is not a strict accounting document.

A VAT-registered taxpayer is required to issue a VAT invoice to the recipient of goods or services on the request of the recipient within 30 calendar days. VAT invoices can be issued only for VAT taxable transactions. They can be issued according to the supply cycles for electrical or thermal energy, gas or water supplies if the taxpayer accounts for the supplies based on cycle accruals and payment is usually made periodically and not according to the calendar months.

VAT invoices must be issued in Georgian lari.

The Minister of Finance of Georgia may introduce a special form of VAT invoice for certain goods or services or certain buyers. In addition, computer-printed VAT invoices may also be introduced for certain VAT payers.

Corrected VAT invoices may be used to adjust VAT if a taxable transaction is cancelled, the type of taxable transaction has changed, the compensation amount has changed or services are partially or fully returned to the VAT taxpayer.

A corrected VAT invoice is also an accounting document issued in the format approved by the Minister of Finance of Georgia. It certifies the correction of a VAT taxable transaction.

Foreign-currency invoices. No foreign-currency invoices are allowed for VAT purposes. As noted above VAT invoices shall be issued in Georgian lari (GEL).

Electronic invoices. VAT invoices may be issued and submitted in electronic form.

Proof of export. Goods exported from Georgia are exempt from VAT with the right to reclaim input tax. To confirm the applica­bility of this exemption, the supplier must collect and provide to the tax authorities all relevant supporting documents: sales invoice, sales contract, transportation document, license/certifi­cate, etc.

VAT returns and payment

VAT returns. The VAT reporting period is monthly. VAT payers must file VAT returns by the 15th day of the month following the reporting period. VAT returns must be completed in Georgian lari and filed electronically.

The VAT amount payable to the budget is the difference between output and input VAT. Payment in full is required by the due date for the VAT return. VAT liabilities must be settled in Georgian lari.

VAT on imports is paid at the moment the goods are imported into Georgia.

VAT on temporary imports must be paid by the 15th day of the month following the month of the temporary import. The last payment must be made on the last day of the temporary import.

Reverse-charge VAT must be paid by the 15th day of the month following the reporting period.

Special schemes. Not applicable.

Electronic filing and archiving. VAT returns must be completed and filed electronically.

Annual returns. Not applicable.

Penalties

Penalties and interest apply to a range of offenses. Late payment interest is calculated from the day following the payment due date. Late payment interest is imposed at a rate of 0.05% of the overdue tax amount for each overdue day. The payment day is considered an overdue day in case of delay.

A penalty is imposed for the late submission of a tax return at a rate of 5% of the amount payable stated in the return for each full or partial month of delay. The amount of the total penalty may not exceed 30% of the tax payable stated in the return and may not be less than GEL50.

If tax is understated, a penalty equaling 50% of the understated amount is imposed. A 10% penalty applies if the understatement results from a change of a tax point by the tax authorities. Understatement of tax in excess of GEL50,000 is considered tax evasion, and criminal proceedings are instituted.

The above penalties also apply to the increase of credited tax or tax subject to refund. If credits are claimed based on bogus operations, fictitious agreements or fake documents, a penalty of 200% of the credited tax amount is imposed.

If a purchaser requests an invoice and if the invoice is not submit­ted, a penalty equal to 100% of the VAT amount of the taxable transaction is imposed.

For the issuance of a fake invoice or the issuance of an invoice based on bogus operations or fictitious agreements, a penalty equal to 200% of the VAT amount indicated in this VAT invoice is imposed.

Interest is not charged on penalties.

No penalty is imposed for incorrect information presented in the return or calculation form filed by the taxpayer if the latter files an amended return or calculation form before receiving the noti­fication regarding the tax audit or the tax violation from the tax authorities.

The head of the tax authorities and dispute resolution body may not impose the sanction on a “good faith taxpayer” if the tax­payer’s action resulted from a mistake or unawareness and has not adversely affected the state budget.