Setting up a Limited Liability Company (LLC) in Georgia offers significant advantages for businesses, including favorable tax rates and straightforward compliance requirements. Here's a detailed overview of the legal framework, compliance obligations, and tax implications for establishing an LLC in Georgia.
Overview of a Georgian LLC
A Georgian LLC is a flexible business entity ideal for both local and international entrepreneurs due to its minimal formation requirements, ease of compliance, and favorable tax regime.
Legal Framework
Country Code: GE
Legal Basis: Civil law
Legal Framework: Civil Code, Law on Entrepreneurship of 1994
Company Form: Limited Liability Company (LLC)
Liability: Partners' liability is limited to their capital contributions.
Share Capital Requirements
Minimum Capital: No minimum capital requirement. Capital is divided into shares but cannot issue additional shares.
Shareholders, Directors, and Secretary
Shareholders: Minimum of one shareholder, who can be a natural or legal person, resident or non-resident. Shareholder details are publicly accessible.
Directors: At least one director required, who must be a natural person, resident or non-resident. Director details are publicly accessible.
Secretary: Optional but not mandatory.
Registered Address
Requirement: Must have a registered office in Georgia.
General Meeting and Compliance
Annual General Meeting (AGM): Usually required.
Electronic Signature: Permitted.
Re-domiciliation: Not allowed.
Annual Returns: Must submit tax returns and financial statements annually. Companies with significant assets, revenue, or employees must submit audited financial statements.
Taxation
Tax Residency: A company is tax resident if incorporated under Georgian laws or effectively managed in Georgia.
Basis of Taxation: Corporate income tax is levied on worldwide income.
Corporate Tax Rate: 15% on distributed profits. Retained profits are not taxed.
Capital Gains: Taxed as ordinary income upon distribution.
Dividends: Received by resident entities are not taxed.
Interest and Royalties: Taxed when distributed as dividends.
Withholding Taxes: Dividends paid to non-residents are subject to a 5% withholding tax, which may increase to 15% for low tax jurisdictions. Interest and royalties are subject to similar withholding rates.
Foreign-Source Income and Labor Taxes
Foreign-Source Income: Generally taxed when distributed as dividends. Tax credits are available for taxes paid abroad.
Labor Taxes: No social security contributions.
Losses and Inventory
Losses: May be carried forward for five years, or ten years in specific cases.
Inventory Valuation: Methods include individual accounting, weighted average cost, or FIFO.
Anti-Avoidance Rules
Transfer Pricing: Transactions between related parties must adhere to OECD principles and be documented.
Tax Credits and Incentives: Exemptions available for specific organizations and income types, including those in Free Industrial Zones.
Personal Income Tax
Tax Residency: Individuals residing in Georgia for at least 183 days are tax residents.
Income Tax: Taxed only on Georgian-source income at a flat rate of 20%. Dividends, interest, and rental income have reduced rates under certain conditions.
Other Taxes
Property Tax: Varies between 0.8% to 1% for individuals based on property value and household income. Companies pay 1% on the average annual residual value of fixed assets.
Land Tax: Rates vary by administrative unit and land type.
VAT: Standard rate is 18%, with certain exemptions.
Pros and Cons of a Georgian LLC
Pros
Favorable Tax Regime: Low corporate tax rate of 15% on distributed profits.
No Minimum Capital Requirement: Flexible for startups and small businesses.
Ease of Compliance: Minimal bureaucratic hurdles and electronic filings.
Publicly Accessible Information: Transparency in business operations.
International Trade Hub: Strategic location and favorable business climate.
Cons
Public Disclosure: Shareholders' and directors' details are publicly accessible, which may not suit all businesses.
No Re-domiciliation: Inward or outward re-domiciliation is not permitted.
Mandatory Annual General Meeting: Compliance requirement may be seen as a formality.
Conclusion
Establishing a Limited Liability Company (LLC) in Georgia provides significant advantages, including a favorable tax environment, ease of compliance, and strategic location. This makes Georgia an attractive destination for both local and international businesses.
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