Taxation of crypto assets is a very popular topic in the modern world. Ministry of Finance of Georgia published a decision in June 2019 which shed some light on the approach to taxation of crypto assets. We provide all relevant accounting services in Tbilisi, Batumi, and other large cities of Georgia to more than 350 clients and this article provides answers to the questions frequently asked by our clients regarding crypto-currency taxation.
I own a company which sells crypto in USD, EUR, or other currencies, should I pay VAT (value-added tax) on my revenues?
The short answer is – no.
In accordance with the state decision, from taxation perspective, crypto assets are considered equivalent to cash alternatives. Therefore, sale of crypto assets represents equivalent of currency-exchange operation. As a result, as exchange of USD in EUR would not be subject to VAT, similarly trade of crypto assets in exchange for USD, EUR or even other crypto currencies is not taxable by VAT.
My company owns crypto mining hardware and earns crypto assets, would my revenue be subject to VAT?
To answer this question, we should distinguish between two scenarios:
In the first scenario, when company itself earns crypto assets from mining, its revenues are not taxable by VAT.
In the second scenario, when company rents out its mining hardware to third parties and these third parties are the ones who earn crypto currencies, the company’s revenues would be subject to 18% VAT if it rents out the mining hardware within the borders of Georgia i.e., to entities registered in Georgia. However, if company rents its mining hardware outside Georgia, i.e. exports services to foreign counteragents, then its revenues would not be subject to VAT. This is because, in accordance with the state decision, renting out mining hardware qualifies for “provision of computing power” and is therefore taxable by VAT in case of local revenues and is exempt from VAT in case of exports.
Would I have to pay PIT (Personal Income Tax) on employee salaries if I pay them in crypto assets?
The short answer is – yes.
Even though the state decision does not specifically mention the taxation of salaries paid in crypto assets, from other parts of Georgian Tax Code, it can easily be deducted that the salaries paid in crypto are subject to PIT. Furthermore, any compensation of employees in any non-cash assets, for instance compensation by food, clothes or literally any other non-cash items are subject to PIT. Besides, similarly to ordinary salary payments in cash, salary payments in crypto assets are subject to mandatory pension payments (not applicable to foreign employees). For instance, if you transfer compensation in cryptos equivalent to USD 1,000 to employee’s crypto account, then your company must pay USD 301 to the state (1,000/80%/98%*102% – 1,000), out of which USD 250 represents PIT paid to Revenue Service of Georgia and USD 51 represents pension contributions paid to Pension Agency of Georgia. If this was not the case, companies would have a room to manipulate and avoid paying taxes simply by paying salaries in crypto instead of local currencies. Note that pensions are only applicable to citizens of Georgia and are not applicable to foreign employees. Therefore, it is important to file all relevant tax declarations. Our company provides accounting services in Tbilisi, Batumi, and other large cities of Georgia. One third of our clients are foreigners.
It should be noted that in Georgia, the only legal form of payment is Georgian Lari. Therefore, when we discuss payments in cryptocurrencies, we always mean payments through intermediaries, that convert the cryptocurrencies in Georgian Laris and transfer the equivalent Georgian Laris to the receiver.
My company earns profits by crypto trading, do I have to pay profit and dividend taxes upon distributing dividends?
The short answer is – yes.
In accordance with Georgian legislation, most companies pay profit taxes only upon distributing dividends and are free from taxation in case of reinvestment. This is also true for crypto trading companies. For example, if company has earned USD 1,000 in profits and the owner would like to extract dividends, then the company must pay USD 192.5 in profit and dividend taxes (1,000 – 1,000*85%*95%), and the remaining USD 807.5 (1,000*85%*95%) represents net dividend after taxes received by the owner.