CFC rules in Georgia

[backpacker]

You will get your certificate but need to answer a bunch of questions.⁢ You also have to understand that there are different categories of taxpayer-status. Be careful to︀ not -accidentally- receive the wrong status.
If you do not want to answer these questions︁ you can try the following:

1. Come to Georgia on whatever visa/stamp you like,
   
2. Be here︂ for a month to get an idea of the place,
   
3. Then go to a certain︃ local pawnshop (it's also an exchange booth) and open what they call "Golden Bond". Read︄ the last sentence on the page of that pawnshop/exchange booth.
   
4. Do not put too much︅ in it!
   
5. Thereafter go to Revenue Service (RS) and ask to register with them. Reason:︆ A pawnshop is not considered to be a bank. It means the interest you receive︇ will be taxed.
   
6. You will be issued a piece of paper which is your tax︈ certificate,
   
7. After being in the country for several months (just count >183 days in any︉ rolling 12-month-period) go to RS once again and apply for the certificate of tax residency︊ for the respective tax year.
   

You can do the very same by opening a local brokerage account and trade a local share (stock) of a Georgian Resident Legal Entity on the Georgian Stock Exchange. However, you will be surprised to learn that there is︋ only one single stock which fits into this category. Everything else listed on that Exchange︌ is either a Foreign Entity or are local debt securities.
Sorry guys, that is completely wrong and a︎ big mistake! This is not some rich Western country were everything runs like clockwork and️ were every person is serious about what he/she is doing. You bring yourself into the‌ spotlight and draw too much attention. I am not talking about law and taxes, this‍ is about your own security. Think about it for a while!
Furthermore, I already mentioned⁠ that "Zoom only advisors" are best to be avoided. If you want to⁤ do something of significance you need a professional law firm. I am not here to⁣ endorse anybody but there is a list of very good local law firms in the⁢ Legal500. Invest a bit, build up a relationship with that firm and have somebody︀ on your side who is able to stand up for you. By writing to them︁ you will soon get a feeling who suits you best.
I explained it randomly in an︄ earlier post. That is valid for local Georgian brokerage companies who offer these services on︅ foreign stock markets:
Furthermore, one of the large Georgian banks has issued a tax booklet︋ for its ("preferred") customers which gives clear guidance regarding the term "Georgian sourced income︌" in connection with "Financial Instruments (Interest Income, Capital Gains, Dividend Income". It︍ says:
"Income (interest, dividend, capital gain) earned from foreign securities is considered to be foreign︎ sourced income.
Income that should be considered as a Georgian sourced:

• Dividend by the resident️ legal entity
  
• Interest paid by the Georgian resident
  
• Capital gains earned from the supply of‌ shares of or partner's interest in an enterprise, more than 50% of the value of‍ which assets is directly or indirectly created from the value of the immovable property located⁠ in Georgia
  
• Capital gains earned from the Georgian securities"
  

Furtherdown the very same brochure⁤ reads:
"Georgian tax resident individuals are taxed only on their Georgian sourced income"

This bank would not have produced such a booklet without double- and triple-checking it.

The difference in all of this is of course the sheer number of trades. A private⁣ individual can not claim the status of private individual for tax purposes when he produces⁢ more trades than any licensed brokerage house. Take Switzerland as an example where your trades︀ won't be considered "private" when you exceed a certain -still generous- amount of︁ trades per annum.
There is also a big difference if you remit or use any︂ of that money for daily living expenses (no matter if locally or abroad). If you︃ can proof that you live in Georgia only from money which was already within Georgia︄ before you became tax resident + that you did not touch funds/gains you do have︅ abroad, it massively supports (and simplifies) the argument of foreign sourced income.

The best would︆ be to maintain your life in Georgia by generating local sourced interest income from a︇ simple bank deposit. Then do not withdraw anything abroad (just keep it in the foreign︈ brokerage account and do your stock trading) and good is it.
It would not be︉ much different from a "private investment fund".
You can visit his website and look︋ up the article "Georgia's welcoming international freelancers-what they can enjoy and should pay attention︌ to" (dated Jul 25, 2020) scroll down to "0% taxation" and read the subparagraph in︍ its entirety.
Compare with what I wrote above, study the tax code in itself, read︎ about the history of the tax code and why it has been established that way.️ You will then get an understanding of the spirit of the current legislation.

Regarding history:‌ The current territorial tax system is not as long-standing as many may believe. It has‍ been installed during a situation of state emergency in mid-2008 and was an attempt to⁠ attract foreigners to live in Georgia. The plan was to setup a regime similar to⁤ what is known in the Philippines as "Special Resident Retirees Visa" (i.e. you put a⁣ certain pre-defined amount of money into a local bank deposit account and will get a⁢ permanent resident permit as long as you maintain this deposit).
This time period and its︀ intention can also be seen in light of the various South African farmers who have︁ been encouraged to move to Georgia (look it up, worth studying) and farm in Kakheti︂ and other areas of the country in return for easy access to residence permits.
This is past tense - times have changed!

 

[khinkali]

Devious. I like this. I was‍ looking for some taxable income that is unrelated to software, crypto, etc. Thanks!

And be the only trader. See the latest GSE session results⁣.

This is what I as asking about above. I completely︀ understand that in many places, trade volume, organisation, time and effort can cause income to︁ be trading and not capital gains. For example in UK the wording is "badges of︂ trade". What I'm asking above, is how that applies in Georgia, as opposed to other︃ places. I am not convinced that the Georgian Revenue Service has the same attitude (though︄ i have a caveat at the end of this comment).

This is 100% true for Thailand or Malta, for example. But where did you find︇ that Georgia has this law or interpretation?

I'm not trying to say that you're wrong︈ as such, just that you're using examples we know about from other places and I'm︉ not sure that the Georgian treatment is the same.

Of course I am sure we︊ would both be concerned about treatments changing, especially if retrospectively like the recent VZE clampdown.︋ This is why I am interested if @Almouk got a definitive reply from the RS;︌ if this were repeated in an ATR then it would be legally binding in respect︍ of the individual tax payer.

 

[backpacker]

GSE today is just a shadow of itself compared to the Good Old‌ Days: Major Georgian companies (banks) are now foreign owned and listed in London. In order‍ to keep GSE alive there was some kind of deal with regards to the A-⁠ and B-segment and its preferential tax treatment of local bonds.
History: Between 2002 and 2008⁤ there was a lot of hype around CIS and Eastern Europe. Well, the typical Gloom-Boom-Doom⁣ cycle. Georgia with its local stock market had quite impressive turnover during that time because⁢ BoG was still locally listed. It all changed when BoG had its London debut. That︀ was the time when lights went off for GSE.
Georgia does not have this︂ law. However, the interpretation is out there. Please read the entire part of my writing︃ and see it in context with the word "argumentation".
It has been explained to somebody︄ who wanted to settle down in Georgia but was actually quite young (at that time︅ he was only 34 years of age). His idea was to own nothing in GE︆ (no bank account, no investment). He wanted to live in GE just by withdrawing monies︇ from an ATM. His actual income he wanted to generate through day-trading via a foreign︈ broker. He has been told that this won't fly. Reason: He would have lived off︉ monies through day-trading (= too much activity, professional equipment) + He can not ring-fence the︊ proceeds out of that day-trading because he was planning to live solely from ATM withdrawals︋ with direct link to that brokerage account.
The only solution would have been to ring-fence︌ everything, have sufficient monies in Georgia before becoming tax-resident and live off the interest these︍ monies generate on a local Georgian bank account.
I can only explain it that way︎ and to me it makes sense to keep that in mind. The local tax code️ is convoluted and lives from interpretation. That is why you get so many different advise.‌ Well, in this country advise is more an opinion ... .

Seeing these problems coming‍ out of an immature legal system I am of the opinion that GE is a⁠ beautiful country for a foreign retiree who wants to live in peace hap¤#" . To all⁤ others I can say: I wish you luck.
Off topic: This is one of the most overlooked wordings in Malaysia.

 

[seabreeze]

Pleasurable reading material, thank you.

 

[khinkali]

That's exactly the kind‌ of parallel I was drawing with "badges of trade" wording in other places. It is‍ how I would expect things to work, most of the time, in most countries.

However if @Almouk gets a letter from RS saying it's 0% then I say follow up⁠ and ask for an ATR. Then it's a golden ticket, or did I miss something?⁤

 

[backpacker]

Theoretically you missed nothing.

However, in⁣ case @Almouk just asked by email I would be surprised if he will get any⁢ precise answer to his question. If he is lucky Revenue Service (RS) will simply refer︀ to the tax code and perhaps to decision 201 without elaborating any further. They do︁ not do the job of a tax advisor free of charge.

If you ask for︂ a ruling it will certainly take several months.
In any case should you contact a︃ professional who can formulate your request for a binding ruling. The answer always depends on︄ the question and any half-way capable lawyer can turn a Yes easily into a No. Note that these things have to be processed in local language.

 

[khinkali]

So far the non committal impressions I get are that the RS are not very‌ interested in chasing people around the world who have accounts in far away places, trading‍ non Georgian things. It's easier to say "this stuff is not Georgian source" and focus⁠ efforts on collecting money from factories and casinos, than to try to chase Khinkali's US⁤ exchange accounts registered in Thailand to a UK passport, in case they can somehow find⁣ some income that might or might not have been Georgian sourced, based on where he⁢ was using his laptop on that day and whether it was income from crypto or︀ income from economic activity that just happens to be in crypto. I can see how︁ the tax inspector might think "don't bother me with this ****, crypto is offshore and︂ I don't want to spend massive effort that probably results in no tax income anyway".︃

Across the reservoir from me is a Free Zone park that was set up specifically︄ so that International economic activity can be located in Georgia, outside the tax base in︅ the hope that it attracts some business that otherwise would have been somewhere else. There︆ is so much conflicting advice about FZEs but I still hear recommendations for taking that︇ route.

Recent comments from the ruling party have indicated a possible change of tune. The︈ (IMO wrongly) retroactive changes to VZE tax treatment reinforce my view that it's better be︉ sure than live in grey area. My own history with tax authorities makes me deeply︊ skeptical and I don't want to trust that current interpretations will be future interpretations.

However, not all the advice I've had is negative about Advance Tax Rulings. I don't know︋ how you can be quite so certain about it taking "several months". If @Almouk does get a positive response from RS then I wouldn't bet against getting a binding confirmation︌ in reasonable time - for a fee. It is not against Georgia's national interest to︍ attract low tax or untaxed business into the country that otherwise would have been elsewhere.︎

All the above assumes a natural person, trading their own crypto on non-Georgian exchanges. Obviously️ the situation is different if you are able to scale up and take formal investment‌ to trade with. Or if you have an office in Georgia with employees implementing your‍ trading business.

 

[Almouk]

As @khinkali has asked as well, I will put here the final⁣ part of the answer of RS. The beginning is irrelevant and it would be so⁢ large. I put the answer in georgian, because they answer in their local language and︀ to probe that I really wrote to them and got a response. You have a︁ pretty decent translation using Google Translator.

--------------------------------------------------------
რაც შეეხება კრიპტოაქტივის მიწოდებით მიღებული შემოსავლის დაბეგვრას საშემოსავლო︂ გადასახადით, „კრიპტოაქტივის და მის მოსაპოვებლად გამოთვლითი სიჩქარის (სიმძლავრის) მიწოდების ოპერაციების გადასახადებით დაბეგვრის თაობაზე“ საქართველოს ფინანსთა︃ მინისტრის 2019 წლის 28 ივნისის N201 საჯარო გადაწყვეტილება განმარტავს:

სსკ-ის 79-ე მუხლის მიხედვით, საშემოსავლო გადასახადის︄ გადამხდელია:

ა) რეზიდენტი ფიზიკური პირი

ბ) არარეზიდენტი ფიზიკური პირი, რომელიც შემოსავალს იღებს საქართველოში არსებული წყაროდან.︅

სსკ-ის 82-ე მუხლის პირველი ნაწილი „ფ“ ქვეპუნქტის შესაბამისად, საშემოსავლო გადასახადისგან თავისუფლდება რეზიდენტი ფიზიკური პირის მიერ︆ მიღებული შემოსავალი (მათ შორის, სარგებელი), რომელიც არ განეკუთვნება საქართველოში არსებული წყაროდან მიღებულ შემოსავალს;

სსკ-ის 104-ე︇ მუხლი განსაზღვრავს შემოსავლის სახეების ჩამონათვალს, რომელიც საშემოსავლო/მოგების გადასახადის მიზნებისთვის განიხილება საქართველოში არსებული წყაროდან მიღებულ შემოსავლად.︈

ამასთანავე, გასათვალისწინებელია, რომ კრიპტოაქტივს არ გააჩნია ფიზიკური ფორმა, არ მდებარეობს კონკრეტულ ადგილას, არ არის დეპონირებული︉ რომელიმე ანგარიშზე ფინანსურ ინსტიტუტში და, როგორც წესი, მისი ემიტენტის დადგენა შეუძლებელია. ასევე, პრაქტიკულად შეუძლებელია ოპერაციის︊ განხორციელების ადგილის (ტერიტორიის) დადგენა, რადგან კრიპტოაქტივის მიწოდება და მისი გაცვლა სხვა ვალუტაში ხორციელდება ვირტუალურ სივრცეში,︋ ვირტუალურ საზოგადოების წევრებს შორის, რის გამოც, ოპერაციის შინაარსის გათვალისწინებით, მიჩნეული უნდა იქნეს, რომ აღნიშნული საქმიანობა︌ არ ხორციელდება საქართველოს ტერიტორიაზე და ასეთი ოპერაციით მიღებული შემოსავალი არ მიეკუთვნება საქართველოში არსებული წყაროდან მიღებულ︍ შემოსავალს.

აღნიშნულიდან გამომდინარე, სსკ-ის 79-ე, 82-ე მუხლის პირველი ნაწილის „ფ“ ქვეპუნქტის და 104-ე მუხლის საფუძველზე,︎ ფიზიკური პირის მიერ კრიპტოაქტივის მიწოდებით მიღებული შემოსავალი თავისუფლდება საშემოსავლო გადასახადისგან.

გისურვებთ წარმატებებს

შემოსავლების სამსახური​

ყურადღება: ვებ-გვერდის მეშვეობით გამოგზავნილი წერილი ატარებს საინფორმაციო ხასიათს, შესაბამისად მასზე გაცემული პასუხი ვერ იქნება იურიდიული️ ძალის მატარებელი"

-----------------------------------------------------------------

So basically, in this response they are not considering cryptocurrency profits as‌ Georgian sourced income related to the nature of the asset, therefore, not taxable.

This question‍ was done in January of 2020. Anyway, as I pointed before, I would be very⁠ cautious because the answer is not binding as is said in the answer itself.

 

[backpacker]

Thanks for‌ posting this extract. When did you receive this answer? Shortly thereafter?
The answer is basically‍ this:
Nevertheless, it is useful because it is⁣ a direct reply to your question.
Of course, if you plan to do several hundred⁢ trades a day like @khinkali has in mind then it might not be sufficient due︀ to the constraints in its definition. We discussed that already at length and I expressed︁ my reservations quite clearly.
Spot on!
I asked my tax advisor out of curiosity. That was about four years ago. He also︄ mentioned that it is highly dependent on the merits of the case.
If you want︅ a more recent indication, look up the following article via Google: "Georgia: a low-tax︆ European country with much to offer investors" (dated September 2, 2019), scroll down to︇ "Possibility of high tax certainty" and read the last sentence of this subparagraph.︈

 

[khinkali]

Yes I see "a few weeks to a couple of months". *If* the RS genuinely‌ see PD201 as just meaning "crypto, that's outside scope even if you trade in an‍ organised way" then I would hope an ATR would arrive at the shorter rather than⁠ longer timeframe. I expect I'm not the only person, for whom this is really about⁤ deciding where to live next year.

Someone needs to apply for the ATR and those⁣ of us with an interest in it should chip in (after agreeing the wording with⁢ a local tax expert).

 

[backpacker]

Well, @11111 already proposed to‍ meet.
I am not a crypto trader, just a boring HODLer. Hence, 201 is sufficient⁠ for me. Nevertheless, it would be interesting to get to know new people in town.⁤
So, who wants to start organising something?

 

[Almouk]

You are welcome, @Bagpacker. Thans to‍ you for your suggestions about getting tax certificate in your ous answer. I appreciate it.⁠ I received the answer in Jan 2020 as well. They usually respond in a short⁤ period of time, but as you say for me the answer is what it is⁣ -merely informative, not binding - and I am only interested in going there if trading⁢ crypto from Georgia as individual will be taxed at 0% but I continue having many︀ doubts about this.

The guy I talked in previous mails that worked for RS and︁ writes in Forbes and Bloomberg about these topics, do you consider his local firm trustworthy?︂ Interested in knowing your opinion as you have experience with some of them.

I am not there yet,︄ but it`s a good idea.

 

[khinkali]

@Bagpacker you HODLers are the most annoying people to be around. "Dude, just go back‌ to 2010 and buy loads of BTC for peanuts like I did. You'd be mad‍ not to!" 😛 (no jealousy of course)
Start the thread!

From his website and his articles he is on the list of people⁠ I'd consider. But anyone you talk to who's been here long enough tells me that⁤ you can get different answers to the same question.

$3k isn't much for a binding⁣ ruling. Surely we can find a few folk to spread the cost - I'd happily⁢ chip in. If someone gets the Golden Ticket, then that paves the way. I get︀ that @Bagpacker is skeptical, but even at 50/50 chance it's worth asking. The fact that︁ you're not actually here (or even worse, here illegally thanks to SARS COV 2) makes︂ you a good candidate. Nothing to lose?

 

[backpacker]

Think about your previous post (dated 16-May-2021)⁤ and ask yourself. The answer is quite obvious.
Look at it this way: He does⁣ not have an office. No physical contact, no law firm attached. You can check his⁢ website and try to find anything more then email or phone ... . Honestly, that︀ is not the type of advisor I do want to work with. Moreover, there is︁ no law firm attached. He will not be able to defend you whenever something goes︂ wrong.
Look for something with more substance if you want to do serious business. A︃ law firm is a must-have!
I agree with @khinkali on this! Read:
Too much attention is not a good idea. Hence, if︉ somebody applies for an ATR it should preferably be a person who is not yet︊ a tax resident.
The other option would be to tell the law firm to apply︋ in their own name and keep the clients' name out of the game. For this︌ situation a simple one-man-show tax advisor is anyway not suitable.
Considering the most recent downward move of️ the crypto market I would strongly suggest to not only concentrate on this segment. If‌ somebody applies for such an ATR then it would be wise to include traditional financial‍ instruments (FOREX, securities traded/listed outside of GE ... ) as well.
At some point you⁠ might be happy to have alternative trading options in more traditional financial instruments. There should⁤ also be more people willing to chip in, as far as I can see on⁣ this board.

 

[backpacker]

@khinkali
It seems you like the idea of broadening the scope of a potential Advance‌ Tax Ruling (ATR).
Traditional financial instruments already have a bunch of rulings. Otherwise local financial‍ institutions would have refrained from actively publishing tax information to their clients. Hence, a knowledgeable⁠ tax advisor (lawyer) might be able to just open his drawer and pull out the⁤ respective ordinance.
True. However, the cost of a tax advisor and a lawyer also needs to be considered.⁣ The lawyer could be asked to apply for the ATR if nobody else wants to⁢ put his name in letterhead.

Now lets start asking around who might be interested in︀ sharing the financial burden (alphanumeric order): @11111 , @Almouk , @alexeikarp , @Bagpacker , @Georgiabus , @khinkali
Guys, your vote please!

 

[backpacker]

@khinkali
We already have this vote running for three days. Nobody else except you and‌ me seems to be interested. How to continue from here?

 

[seabreeze]

Sorry just saw this.
As of now, Georgia is outside scope of interest for me⁠ in regard to Crypto.
Kind regards

 

[khinkali]

@Bagpacker it's timescale. I'm not allergic to spending $3k for a chance of a crypto-tax‌ golden ticket, but the timing is subject to development and other issues. I see this‍ as about where to live in 2022.

 

[backpacker]

Just found this⁠ in an old tax booklet (dates back to year 2014):
The RS is authorized to⁤ issue an advance tax ruling upon the taxpayer’s
request. The ruling will communicate the GTA’s⁣ view about the tax-
payer’s reporting obligations and tax liabilities arising out of the transac-⁢
tions that either have already been carried out or will be carried out in
the future. An advance tax ruling may also be issued for determination
of HS code or︀ country of origin of the goods.
An advance tax ruling is issued within 90 days︁ of the submission of the
request by the taxpayer and is in effect only for︂ the latter. If the person
acts in accordance with the advance tax ruling, the︃ GTA will not impose
additional taxes or tax sanctions later.
An advance tax ruling becomes︄ invalid if:
• The facts and circumstances mentioned in the advance tax ruling are
different from actual ones
• The provisions of the TCG, upon which the advance tax ruling︅ is
based, have been abolished or amended
An advance tax ruling on HS code or︆ country of origin of the goods
should be issued before filing the customs declaration at︇ the customs
border of Georgia and is valid for three years, provided that the actual︈
data and information about declared goods fully corresponds to the
information on the basis on︉ which the ruling was issued. An advance tax
ruling can be appealed by the taxpayer.︊

That makes it pretty much worthless if not every taxpayer applies on his/her own. The︋ request has to be written in such detail that it can not be applied to︌ more then one person/situation. It would not even make sense if a lawyer applies in︍ order to protect your name.
Furthermore, the two sentences with bullet points do not give︎ much confidence in the future value of such an ATR. It is for sure no️ Golden ticket.

Perhaps best for you to rethink strategy and jurisdiction. Also take into account‌ the strange VZE situation which confirms my doubts regarding the reliability of the Georgian legal‍ system.
You can still contact a good tax advisor to get a more professional for⁠ educational purposes.

High time for you to decide.

 

[khinkali]

An ATR is of course‌ not a public ruling it's for the individual circumstances. If someone in your circumstances gets‍ one, then the odds on your $3k being worthwhile go up. Rather than multiple people⁠ asking for the same ruling and getting the same unwanted answer. The VZE situation is⁤ an example of why you might want an ATR. If you'd asked for a ruling⁣ on the basis of a Georgian VZE using Upworkers in 5 countries to develop software⁢ for export, then you would either know you're going to pay 20% or move the︀ business to some freezone or other IP box type jurisdiction.

I'm not settled on jurisdiction︁ yet and have six months to commit. I like the look of Cyprus residence and︂ IP box company but bookkeeping could be an issue (tax on distribution can be be︃ much simpler) and you get hammered for tax on any personal trading in your own︄ name. Dubai lacks exchange coverage, but then Georgia does as well.