Category: კატეგორიის გარეშე

Georgia’s Innovation Law

Georgia has introduced a new innovation-support framework under the Law on Innovations and related Tax Code amendments, effective from 24 September 2025. The reform allows companies to obtain one of three official statuses:

1. Innovative Startup
2. Innovative SME
3. R&D Company (R&D Service Provider)

Each status provides specific tax incentives and is granted through the Innovation Registry administered by GITA. Below is a practical summary of benefits, eligibility, application timelines and what is required to maintain status.

 

1) Innovative Startup Status

Tax benefits (up to 10 years, phased)

Innovative Startup status is the most generous and applies in stages:

• Years 1–3

o 0% Personal Income Tax (PIT) on employee salaries
(applies within a 10,000 GEL monthly cap per employee set by the Government).

• Years 4–6

o 5% PIT on salaries

o 5% Corporate Income Tax (CIT) on distributed profit.

• Years 7–10

o 10% PIT on salaries

o 10% CIT on distributed profit.

For Innovative Startup status, the tax relief is phased and tied to renewal thresholds. The company receives Year 1–3 benefits based on the initial qualification, but to continue into Years 4–6 it must confirm that it has attracted a significantly higher cumulative investment (around 5 million GEL) and still meets all innovation and compliance criteria. To extend the status further into Years 7–10, the cumulative investment requirement increases again (around 15 million GEL). In other words, the state expects startups to demonstrate real scale-up through verified funding at each renewal stage, otherwise the preferential tax regime ends.

Important restriction: Innovative Startup status cannot be used simultaneously with other special IT regimes (such as International Company or Virtual Zone Person).

Eligibility criteria (core requirements)

A company may qualify if it:

• Is developing an innovative product, service, technology, or business process (new or substantially improved).
• Received within the last 2 years either:

o ≥ 100,000 GEL investment from an accredited venture/angel/accelerator source, or

o ≥ 150,000 GEL grant funding from a recognized innovation or development program.

• Demonstrates that most revenue and expenses relate to the innovative activity.
• Has no tax arrears, is not insolvent, and not in liquidation.

Documents and audit requirement

Typical submission package includes:

• Company registration extract and ownership details.
• Description of the innovation and business plan/roadmap.
• Investment or grant agreements and proof of receipt.
• Audited financial statements and/or auditor’s assurance confirming that activity and costs are innovation-related.
• Tax compliance confirmation.

Keeping the status

• Startup status is granted for 1 year.
• To keep it, the company must re-apply annually through the Registry and confirm it still meets all criteria.
• Renewal is possible up to a maximum total of 10 years, if requirements continue to be satisfied.

 

2) Innovative SME Status

Tax benefits

Innovative SMEs receive an R&D-based tax incentive:

• When profit distribution triggers CIT under Georgia’s “Estonian model,” the company may reduce the taxable base by 3 times qualifying R&D expenses from the previous financial year.

This effectively lowers the tax cost of dividends for R&D-intensive businesses.

Eligibility criteria (including SARAS category rule)

To apply, a company must:

• Be registered in Georgia.
• Be classified only as a Category 3 or Category 4 entity under SARAS enterprise size categories.
  (Larger Category 1–2 entities are not eligible for Innovative SME status.)
• Have R&D expenses in the prior year of:

o at least 100,000 GEL, and

o at least 5% of annual revenue.

• Meet at least one innovation indicator, such as:

o owning a patent or registered/deposited software tied to the R&D work,

o purchasing R&D services from accredited/certified entities,

o maintaining R&D cost accounting in line with approved rules.

• Have no tax debt, insolvency, or liquidation proceedings.

Documents and audit/verification requirement

The application typically includes:

• Financial statements and SARAS category confirmation (only category 3 and category 4 entities are eligible).
• R&D expense calculation with methodology.
• Supporting R&D evidence (contracts, project descriptions, technical documentation).
• Independent verification / auditor or accountant confirmation is expected to support R&D expense eligibility.

Keeping the status

• Innovative SME status has no fixed end date, but it remains valid only while requirements continue to be met.
• Annual compliance confirmation is required: each year the company must submit updated evidence showing:

o it still qualifies as Category 3 or 4 under SARAS criteria,

o R&D spending thresholds are met,

o R&D costs are properly tracked and supported.

• If documentation is weak or thresholds are not met, status may be suspended or revoked.

 

3) R&D Company (R&D Service Provider) Status

Tax benefits

R&D Companies enjoy stable low rates:

• 5% PIT on salaries
• 5% CIT on distributed profit

Eligibility criteria

This status is for companies whose main business is delivering R&D services (e.g., engineering R&D, software R&D, applied science, lab/prototype work). Approval focuses on whether the company:

• Performs real R&D operations in Georgia.
• Employs qualified R&D personnel.
• Has clear R&D project documentation.
• Keeps transparent R&D cost accounting.
• Has a clean tax/compliance record.

Documents and audit/verification requirement

Applicants typically submit:

• Service and project portfolio showing R&D nature.
• Staff qualifications and infrastructure overview.
• R&D accounting records and cost allocation method.
• Auditor/accountant verification supporting R&D classification and expenses.

Keeping the status

• Status is granted indefinitely, but requires annual compliance confirmation.
• Each year the company must prove R&D services remain the core activity and documentation remains audit-ready.

 

Application Timeline (How long it takes)

The law sets clear deadlines mainly for GITA’s review stage:

1. GITA verification – 15 working days
   From the moment your application is submitted, GITA has 15 working days to review and verify compliance.
2. If additional information is required

o GITA issues a request for corrections/additional documents.

o The applicant has 10 working days to submit missing or corrected materials.

o After resubmission, GITA reviews within another 10 working days.

3. Government approval
   Once GITA confirms eligibility, the file is forwarded through the Ministry of Economy to the Government for final approval. 

How Ants Can Help

Innovation status can reduce salary taxes and profit-distribution tax significantly, but approval and renewal depend on proper R&D accounting, strong documentation, and audit-level evidence.

Ants supports clients with:

• Managing the entire application process and annual confirmations,
• eligibility assessment and choosing the best status,
• structuring and tracking R&D costs correctly,

 

 

Company X and Company Y are identical in terms of their business sector, size, management style, and other aspects. The only significant difference between them is that Company X opted for outsourced accounting services, while Company Y decided to handle accounting internally by hiring an employee. After a few months, Company X smoothly handles all accounting and tax challenges, while Company Y repeatedly runs into multiple troubles. Specific cases are discussed below:

• Qualification and Competence – Company X receives prompt and accurate answers to all its accounting and tax questions. Company Y, on the other hand, encountered several situations where its accountant’s competence was insufficient to plan complex transactions. In Company X’s case, the outsourced accountant involved other team members as needed — including a tax expert and a financial consultant — who jointly analyzed the transaction and advised the client company on the best approach. Company Y’s in-house accountant had no one to consult for a second opinion.
• Tax Liability Insurance – Company Y made a mistake that resulted in a 10,000 GEL fine by the tax authority. Although the company scolded its accountant, it had to pay the fine itself. In a similar situation, Company X turned to its outsourced accounting provider and requested reimbursement for the fine. The outsourced accounting firm investigated and confirmed that the fine was caused by a mistake made by the assigned accountant. As a result, the outsourced accounting firm reimbursed the client company for the amount of the tax fine.
• Stability – Offended by the complaint, the accountant of Company Y resigned and gave the legally required one-month notice period during which the company had to find a replacement. It was very difficult for Company Y to find a qualified accountant, and when they finally hired one, the new accountant refused to take responsibility for the previous records and balances prepared by the former accountant. In contrast, the outsourced accountant assigned to Company X decided to travel abroad for two months, and the outsourcing firm immediately replaced them to ensure service continuity. In addition to the assigned accountant, the outsourced service also involved an assistant-accountant and a portfolio manager, so the handover process was smooth.
• Software Tools – After its accountant left, Company Y discovered that its accounting was being done on outdated and unlicensed software lacking automation and integrations. The company asked the new accountant to migrate old records and balances to a modern system, but the accountant responded that the task was too labor-intensive and could not be done. Company X did not face such issues, as its outsourced accounting provider had used modern accounting software from the beginning and maintained well-organized records for all transactions.

 

In conclusion, Company X spent less money and received higher-quality results, while Company Y spent more and ended up with disorganized accounting, poor data quality, and tax risks.

 

Tax system in Georgia offers many significant benefits to investors and is designed to attract foreign investments. There are six broad types of taxes in the country:

• Profit tax (corporate profit tax) – 0% on undistributed profits; 15% on distributed profits
• Value added tax (VAT) – 18% on taxable turnover
• Personal income tax (PIT) – 20% on gross salaries and other compensation
• Property tax – 1% on market value of property
• Import tax – 0%, 5% or 12% on imports
• Excise – on some goods

Besides, there are several special tax statuses, which provide significant benefits to investors. These benefits include, but are not limited to:

• Small Business Status – for individual entrepreneurs (individuals)
• International Company Status – for IT or maritime industry companies
• Virtual Zone Entity Status – for IT companies

Our company provides accounting services in Tbilisi and Batumi and offers expert advice on all aspects of the tax system in Georgia.

Profit tax

Georgia in on “Estonian Model of Profit Tax”, meaning that companies in Georgia do not pay profit tax unless they distribute profits and pay dividends to shareholders. Unless company pays dividends, profit tax is zero.

Under Georgian tax law, when dividends are distributed, the company is required to pay both income tax and dividend tax. The income tax rate stands at 15%, while the dividend tax rate is 5%. For example, if a company distributes a 100 GEL dividend, the owner would receive a net amount of 80.75 GEL, which is calculated by multiplying 100 by 85% (100% – 15% profit tax) and by 95% (100% – 5% dividend tax).

However, no profit tax is paid on the return of invested capital to shareholders. Whether taxes apply or not depends on the nature of the distribution – a capital return differs from a dividend distribution. It’s important to recognize the difference between these two: when distributing invested capital, the company does not owe income or dividend taxes. For instance, if an owner withdraws 100 GEL from invested capital, unlike with dividends, the company does not pay 19.25 GEL in taxes, so the full 100 GEL is received by the owner without any deductions.

Dividends – represent the distribution of a company’s profits. These are the earnings the company has generated through its operations, often accumulated over time. When distributing profits, the company is obligated to pay both income and dividend taxes as previously mentioned.

Invested capital – refers to the equity contributed by the owners. Unlike accumulated profits, invested capital represents the funds provided by the owners when the company was established or afterward. When a company returns this capital, no income or dividend tax is due.

Profit tax rate applicable to entities holding International Company Status is 5% instead of standard rate of 15%. Additionally, profit tax rate applicable to entities holding Virtual Zone Entity status is zero for portion of profits generated from services provided to foreign entities.

Value added tax

Most companies in Georgia are subject to VAT of 18% on their taxable turnovers (revenues). VAT is paid monthly. It is mandatory to register as a VAT payer if entity’s taxable turnover for the last 12 months exceeds 100,000 GEL. On the other hand, entities can take credit on the VAT they have paid to their suppliers (“input VAT”). To be able to take credit for the input VAT, entity itself must be registered as a VAT payer. Entities can voluntarily register as VAT payer even if their taxable turnover is less than 100,000 GEL in the last 12 months and therefore it is not mandatory for them to register as VAT payer.

Notably, VAT does not apply to some revenues, including, but not limited to:

• Revenues from exports (revenues from sources outside Georgia)
• Financial income (e.g. interest income on loans issued, interest income on deposits placed and revenue from financial services e.g. banking or insurance)
• Revenues from healthcare services
• Revenues from selling pharmaceuticals

Reverse-charge VAT (RC VAT) is a type of VAT that is paid on services purchased from foreign providers. Typically, VAT is reported and paid by the service provider, not the service recipient. However, in the case of RC VAT, it is the responsibility of the service recipient to file the tax returns and settle the RC VAT. This is due to the fact that the service providers are based abroad, and as a result, local tax authorities cannot collect taxes directly from them. Consequently, the obligation to declare and pay RC VAT falls on the service recipient. However, a company can take credit for the paid RC VAT and can use it to offset its other tax liabilities. To be able to take credit for RC VAT, entity must be voluntarily or mandatory registered as a VAT payer. To encourage foreign inflows, in accordance with Georgian Tax Code, entities, which source their revenues from exports, are privileged in that they can take credit for input VAT, regardless of the fact that they do not pay VAT on revenues generated from exports.

Personal Income Tax

PIT in Georgia is 20% of gross compensation paid to employees. For example, if an employee is paid 100 GEL net, PIT is 25 GEL, which is calculated by dividing 100 GEL by 80% (“gross-up”) and then multiplying the amount by 20%.

Additionally, there is a pension scheme operated by the state. Mandatory pension contribution by employer is 2% on its employees’ gross salaries. In addition, 2% is contributed by the employees themselves. However, depending on their age, not all employees are involved in the pension scheme in Georgia. While pension contribution is not classified as “tax”, it is an important component in deriving the total cost of employment in Georgia.

For instance, in a scenario where a company pays an employee a salary of 100 GEL, employers are required to pay a 20% Personal Income Tax (PIT) on salaries and benefits, along with a 4% pension contribution, where 2% is covered by the company and 2% by the employee. As a result, the company’s total salary expense, including taxes, is calculated by dividing 100 GEL by 98%, by 80% and multiplying by 102%. Thus, when an employee participates in a pension scheme and the company pays a net salary of 100

GEL, the company must also contribute an additional 30.12 GEL for PIT and pension contributions. Of this amount, 25 GEL accounts for PIT, while 5.102 GEL is allocated to the pension contribution.

Personal income tax rate applicable to entities holding International Company Status is 5% instead of standard rate of 20%.

Small Business Status

The related concept to personal income tax is the “Small Business Status”, which can be applied to individual entrepreneurs. If an individual holds such status, the income tax applied to such individual is 1% instead of standard rate of 20%. In addition, involvement in the pension scheme is not mandatory for individual entrepreneurs regardless of their age.

An Individual Entrepreneur can attain this status provided their business activities do not fall under the “prohibited activities”, which disqualify them from Small Business Status. Such prohibited activities include medical services, architecture, legal work, consulting services, etc. A comprehensive list is accessible on the Legislative Herald of Georgia’s website.

To qualify for Small Business status, an individual’s revenue must not exceed 500,000 GEL. If revenue surpasses this threshold for two consecutive years, the individual will lose their status. In instances where revenue exceeds 500,000 GEL in non-consecutive years, the individual must pay a 3% income tax instead of the usual 1%. This 3% tax applies from the month the limit is exceeded until the end of that calendar year.

For instance, if a company allocates a net amount of 100 GEL for employee compensation, the total salary expense, including PIT, amounts to 125 GEL (100 divided by 80%). However, if the company pays this amount to an Individual Entrepreneur, the individual will only owe 1.25 GEL (125 multiplied by 1%) in taxes, resulting in a net payment of 123.75 GEL (125 multiplied by 99%). Consequently, the status holder benefits by receiving an additional 23.75 GEL compared to a regular employee due to the tax savings from the PIT. Additionally, the status holder does not have to pay any pension contributions.

Property Tax

Property tax is 1% on average accounting balance sheet value of properties and equipment owned by a company. The average balance is derived by adding the beginning of the year accounting balance to year-end balance of properties and equipment and dividing the result by two. Unlike VAT, property tax is paid annually. The tax authority has a right to calculate taxes from market value, instead of accounting balance value if it is proved that the market value is different from the balance sheet accounting value by more than 10%. Effectively, this means that property tax is calculated from market value of property (unless the difference with accounting balance value is less than 10%, in which case accounting balance value can be used). The tax authority has the right challenge the balance sheet value used by entity for the purposes of deriving property tax. The only exception is when an entity has chosen an accounting policy to record its property and equipment at market value (over historical value accounting policy choice) and has its financial statements audited by an external auditor. If the latter two criteria are satisfied, then the tax authority will not challenge the accounting value of the property and equipment used by the company to calculate its property tax.
It should be noted that, unlike other property tax, the land tax is not based on the book value or market of the land. It is calculated based on the space of land owned by company. There are different land tax rates in different regions of Georgia. Therefore, if a company owns multiple lands in different regions of Georgia, the applied taxes will be different based on the different locations.

Import tax

Import tax rates can be 12%, 5% or 0% depending on the type of goods imported. This tax is applied when an entity imports products from abroad and such products cross Georgian customs. The detailed list of products by the applied tax rates (12%, 5% or 0%) is presented in the Tax Code of Georgia.

Excise

Excise is paid by an entity if it produces, imports or exports certain products, which are called “excisable goods”. Products subject to excise include, but are not limited to alcoholic beverages, tobacco, petroleum products, motor vehicles, natural gas. Excise tax rates are variable by product types.

Ants is a company that offers accounting, tax advisory, and other financial services. Each day, we provide accounting services in Tbilisi and Batumi to hundreds of businesses.