|                                                                                                                                                                                     |  | UNDERSTANDING TAXES IN GEORGIA                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                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|**BISNISHome PageSearchBISNISEmbassyReportsCountryReportsIndustryReportsCustomsCornerPublicationsSourcesof FinanceFinanceLinkLeadsand EventsExchangeRatesState ExportsOtherSources** |  | October 1998by David ChantladzeThe Georgian Government has recently turned its attention to designing and implementing important
structural reforms to the fiscal system, including the introduction of a new tax code in September 1997. Although
Georgian tax rates are in line with those of other NIS countries, the country also has the lowest ratio of tax to
gross domestic product of any non-oil producing country in the world, indicating an exceptionally large shadow
economy.  The Georgian Government is working to bring the  economy into the tax net. It seeks to maintain low
statutory tax rates while at the same time ensuring adequate revenues to maintain macroeconomic stability. This
article provides an overview of key Georgian taxes important to U.S. exporters and investors.Tax AdministrationThe Georgian Tax Inspectorate, part of the Ministry of Finance, is the sole state agency charged with monitoring
compliance with tax legislation.  Bodies within the Inspectorate's jurisdiction have the right to examine all financial
documents, accounting books, reports, cash flows, securities, and other documents related to the calculation and
payment of taxes.  They are also responsible for collecting taxes and penalties from organizations, as well as
administrative fines that are not paid in a timely manner.  If taxes are not paid by the due date, a fine of 0.1 percent
is charged for each day taxes are overdue.Georgia's Tax Code is the principal piece of legislation that determines: formation and functioning of the taxation
system in Georgia, payment of taxes, legal positions of tax payers and tax authorities, and more. Both Georgian
and foreign companies are subject to budgetary and local taxes, as well as to certain social payments. Generally,
the taxes collected in Georgia include:Import Duties and Customs Fees - Duties on goods imported into Georgia range
from 5 to 12 percent. Additionally, Customs charges a 0.3 percent processing fee on goods it
clears.Excise Taxes -Excise taxes in Georgia range from 5 to 100 percent.  Goods subject to excise
taxes include: still, fortified, and sparkling wines (15 - 100 percent); spirits (50 - 100 percent);  beer (15 percent);
tobacco products (100 percent); jewelry (35 percent); passenger vehicles  and vehicle tires (15 percent);  petrol
(15 - 50 percent); and caviar and other valuable fish and sea products (20 percent). Transit and temporary import
of excisable goods into the customs territory of Georgia, as well as reexport and import of vehicles and tires for
the purpose of humanitarian aid during a natural disaster, are exempt from excise duties.Value-Added Tax (VAT)  -Taxable operations (the delivery of goods and/or services by a person in Georgia) and
taxable imports are subject to a VAT equal to 20 percent of the value of goods and services. The following entities must pay VAT:
importers of taxable goods into Georgia;  resident foreign nationals who are not registered as VAT payers but who provide services on
the territory of Georgia; and branches, representative offices, and other departments that are considered separate legal entities.Operations and goods exempt from VAT include:the provision of financial services;the supply or import of national or foreign currency;medicines and other pharmaceutical products;diabetic foodstuffs, baby food, baby hygienic products;transit, reimport, or temporary entry of goods into the customs territory of Georgia;chemicals, pesticides, and other means of plant protection for agriculture (according to yearly quotas approved by       the Georgian Ministry of Agriculture and Food); andimport of fixed assets and spare parts including power and  power-saving equipment, technology lines, electronic instrumentation,
and monitoring equipment.Profit Tax  -Both Georgian and foreign companies must pay a profit tax of 20 percent. A 10
percent withholding tax for dividends, interests, and management fees is included in the profit tax. Foreign
companies earning a profit without having a permanent office in Georgia are subject to the following withholding
taxes:Dividends and interests   10 percent;Insurance premiums by Georgian companies   4  percent;Payments by Georgian companies for international telecommunication and transportation services   4  percent;Royalties, management fees, payments for the delivery of  goods or rendering of services, rent for the lease of movable property in
Georgia, etc.   10 percent.Tax on the Property of Enterprises (TPE)  -  Georgian companies, branches, and structural
units that maintain independent balance sheets and accounts, and foreign companies carrying out activities in
Georgia through permanent establishments must pay the TPE, equal to 1 percent of the value of the company's
property. Property subject to the TPE includes: main assets listed in the balance sheets of the company, uninstalled
equipment, unfinished capital investments, and intangible assets.Personal Income Tax (PIT)  -PIT is paid by citizens and resident foreign nationals in Georgia at
rates varying from 12 to 20 percent of taxable income plus 89 Georgian laries.  Technically, the PIT is paid by
employers through an employee payroll deduction.Social Payments  -The current tax legislation in force requires certain social deductions from the salaries of employees,
including for the health protection fund  (1 percent) and a social security contribution (1 percent).  Additionally, under the Georgian Tax
Code, legal entities carrying out their activities on the territory of Georgia must also pay contributions for social security (27 percent),
unemployment (1 percent), and health protection (3 percent).David Chantladze works for BISNIS in Tbilisi, Georgia.For more information on Georgia, visit BISNIS OnLine, at www.mac.doc.gov/bisnis/country/caucasus.htm.This report is provided courtesy of the Business Information Service for the Newly
Independent States (BISNIS)