Our clients often ask about tax-free zones in Georgia. Those are referred to as Free Industrial Zones or FIZs. In this article, we will be discussing what are FIZs and how can foreign investors benefit from them. We will also be answering the frequently asked questions.
What is Free Industrial Zone (FIZ)?
FIZ is not some virtual zone, but rather represents specific areas on Georgian territory. Currently there are four FIZs. One is in Tbilisi, another one is in Poti, and a couple more in Kutaisi. FIZ can be established on practically any territory of Georgia (except for protected territories of Georgia as determined by the local law), if such territory’s space exceeds 10 hectares. Decision about establishment of FIZ is made by the Georgian government. FIZ have their own customs from which you can enter or exit the territory. Payments in all currencies (including EUR and USD) are allowed on FIZ territory.
What is the purpose of FIZs?
Purpose of FIZs is to attract foreign investors, foster economic growth of Georgia and aid technological progress. Significant tax benefits are offered to FIZ entities.
List of tax benefits
Entities operating in the FIZs are entitled to the following significant tax benefits:
Corporate income tax – represents 0% instead of ordinary 15%
VAT on operations performed within FIZ territory and foreign product exports – represents 0% instead of ordinary 18%
Property tax on FIZ territory – represents 0% instead of up to 1%
Import tax – represents 0% instead of 5% or 12%
Frequently asked questions
Our clients often ask the following questions regarding the FIZs:
Are there any practical impediments to operating in a FIZ?
Upon exporting products from FIZ to Georgian territory or vice-versa, 4% import/export tax is applied. This is because the government wants to encourage exports from FIZ to countries outside Georgia. This tax often acts as an unpleasant surprise for interested entities and makes it more expensive to operate in the FIZ.
Besides, investors who plan to operate in FIZ should know that there are difficulties in opening bank accounts for such entities. Georgian banks are often unwilling to open bank accounts for FIZ companies since they find it difficult to identify substance of bank transfers. However, our company will assist you in selecting better alternatives for obtaining tax benefits (e.g. Virtual Zone Entity status) and will provide all necessary accounting services in Tbilisi as well as other large regions of Georgia. We will also provide all relevant legal advice along with respective bookkeeping services.
Is it efficient for my company to operate in FIZ or are there any better alternatives?
The short answer is – it depends. If your business is manufacturing and export outside Georgia, then you may be entitled to significant tax benefits. However, if your business is provision of services or buying and re-selling products without any manufacturing, in this case there may be some disadvantages in operating in FIZ, including lack of possibility to obtain tax reliefs.
It should be noted that if your business is related to IT industry, you may find it more efficient to obtain “International Company” or “Virtual Zone Entity” status. Details of the statuses are discussed in separate articles in our blog.
Our company is eager to serve your best interests in obtaining the above-mentioned statuses and provide any necessary accounting services in Tbilisi. We also provide bookkeeping services in Batumi, Kutaisi, Poti, Telavi and other major cities of Georgia.