I have been reading mixed opinions about owning a foreign company while being a resident of the Republic of Georgia. The tax advisor expat hub . ge says once you're a resident of Georgia, any foreign corporations controlled by you are taxable in Georgia, Dubai FreeZone company for example. Some others like nomad capitalist .com says there are no CFC rules. Anyone looked into this issue in depth? Thanks.
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CFC rules in Georgia
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CFC rules cover undistributed assets of foreign low-tax companies, typically (though non necessarily) if you aren't actually running the company, or at least not running it from your country of residence.
There are no CFC rules in Georgia.
Notwithstanding, any company may be treated as a︀ Georgian tax resident company if you the people running it and taking decisions are located︁ IN Georgia when the decisions are being made. Such a company will then become liable︂ to Tax in Georgia.
The answer you are looking for is as follows:
You CANNOT︃ run your offshore company FROM INSIDE Georgia if you want it to be free of︄ Georgian tax.
Of course nuance is the name of the game here, but that's all︅ the free advice you're getting from me 😉.
There are no CFC rules in Georgia.
Notwithstanding, any company may be treated as a︀ Georgian tax resident company if you the people running it and taking decisions are located︁ IN Georgia when the decisions are being made. Such a company will then become liable︂ to Tax in Georgia.
The answer you are looking for is as follows:
You CANNOT︃ run your offshore company FROM INSIDE Georgia if you want it to be free of︄ Georgian tax.
Of course nuance is the name of the game here, but that's all︅ the free advice you're getting from me 😉.
What's the definition of an event when "a decision is being made"? What decision? What counts as a decision?
Does this mean, you claim, that a person could fly to Georgia for a couple of days, two weeks or one month, "make a decision", whatever the heck it means, in regards to his foreign company, leave Georgia and then had to pay taxes in Georgia too?
Does this mean, you claim, that a person could fly to Georgia for a couple of days, two weeks or one month, "make a decision", whatever the heck it means, in regards to his foreign company, leave Georgia and then had to pay taxes in Georgia too?
Would a holding company formed offshore (say UAE), which only retains some assets such as domain︂ names, IP or the like be ideal to avoid being considered being "run" from a︃ different jurisdiction? If the holding company does not require any day today operations, it would︄ be hard to prove it was controlled by the owner who lives somewhere else?
I quote from Page 9 here https://www2.deloitte.com/content/d...o Taxation and Investment in Georgia 2016.pdf :
Permanent Establishment (PE) Pursuant to the Tax Code a permanent establishment of a foreign enterprise or non-resident individual in Georgia︀ is recognized as a defined location on the territory of Georgia, through which they fully︁ or partially carry out an entrepreneurial activity, including activity conducted through an authorized person. The︂ following are specifically considered to create a permanent establishment: construction sites, assembly or building facilities,︃ and the exercise of controlling activities connected with such facilities; installations or sites, drilling equipment︄ or ships used for surveying of natural resources, as well as the exercise of controlling︅ activities connected with such facilities; a permanent base where a non-resident physical person carries out︆ entrepreneurial activity; place of management of a foreign enterprise, branch, representative office, department, bureau, office,︇ agency, workshop, mine, pit, other place for extraction of natural resources, any other separate unit︈ or place of such enterprise’s activity. If a foreign enterprise or non-resident physical person carries︉ out entrepreneurial activity in Georgia through an intermediary, agent or broker having professional status defined︊ by the Georgian legislation who is not authorized to conduct negotiations or sign agreements (contracts)︋ on behalf of this foreign enterprise or non-resident physical person, then the activities of such︌ an intermediary, agent or broker do not create a permanent establishment of this foreign enterprise︍ or nonresident physical person in Georgia. The ownership of property on the territory of Georgia︎ by a foreign enterprise, if other features of a permanent establishment do not exist, cannot️ be regarded as a basis for the creation of a permanent establishment. The fact of execution of an agreement by a foreign company, which envisages the joint activity of parties to the contract being performed, fully or partly, on the territory of Georgia, can not be regarded as a 10 basis for the creation of a permanent establishment. The mere fact of the assignment by a foreign enterprise of its staff for employment in another enterprise or organization on the territory of Georgia, if other features of a permanent establishment do not exist, does not lead to the creation of permanent establishment, if such employees︀ will act on behalf of that enterprise and protect the rights of the enterprise where︁ they are assigned. An establishment of a Georgian enterprise in Georgia is not considered a︂ PE of foreign company if it is used only to do the following: store or︃ demonstrate goods or products belonging to the foreign enterprise; keep a stock of goods or︄ products belonging to the foreign enterprise only for the purpose of their processing by another︅ person; purchase goods or products or collect information for the foreign enterprise; any other activities︆ that are preparatory or auxiliary in nature coming from the interests of the foreign enterprise;︇ on behalf of a foreign company for the preparation and/or merely signature of loan agreements,︈ contracts for the supply of goods or which have the nature of technical services. A︉ permanent establishment of a foreign enterprise in Georgia is considered as such from the time︊ of its registration with the tax agency, providing it with relevant authority or commencing of︋ representational activities. The responsibility to register a permanent establishment of a foreign enterprise lies with︌ the tax authority, which is responsible for creating the relevant registry. The procedure for running︍ the registration and a registry is developed by the Ministry of Finance of Georgia.
To make a long story short, if you have a permanent address available to you in︎ Georgia (your home?) and you conduct activities which amount to controlling your company from this️ location (signing contracts via email, sending instructions, engaging the company verbally in writing or otherwise from that location etc.) then it is likely that the company will de facto have a PE in Georgia. In theory, you would need to register your foreign Co and pay an equitable amount corporate Tax in GE (may be complex since a lot of expenses are deemed distributions according to Georgian tax law).
Permanent Establishment (PE) Pursuant to the Tax Code a permanent establishment of a foreign enterprise or non-resident individual in Georgia︀ is recognized as a defined location on the territory of Georgia, through which they fully︁ or partially carry out an entrepreneurial activity, including activity conducted through an authorized person. The︂ following are specifically considered to create a permanent establishment: construction sites, assembly or building facilities,︃ and the exercise of controlling activities connected with such facilities; installations or sites, drilling equipment︄ or ships used for surveying of natural resources, as well as the exercise of controlling︅ activities connected with such facilities; a permanent base where a non-resident physical person carries out︆ entrepreneurial activity; place of management of a foreign enterprise, branch, representative office, department, bureau, office,︇ agency, workshop, mine, pit, other place for extraction of natural resources, any other separate unit︈ or place of such enterprise’s activity. If a foreign enterprise or non-resident physical person carries︉ out entrepreneurial activity in Georgia through an intermediary, agent or broker having professional status defined︊ by the Georgian legislation who is not authorized to conduct negotiations or sign agreements (contracts)︋ on behalf of this foreign enterprise or non-resident physical person, then the activities of such︌ an intermediary, agent or broker do not create a permanent establishment of this foreign enterprise︍ or nonresident physical person in Georgia. The ownership of property on the territory of Georgia︎ by a foreign enterprise, if other features of a permanent establishment do not exist, cannot️ be regarded as a basis for the creation of a permanent establishment. The fact of execution of an agreement by a foreign company, which envisages the joint activity of parties to the contract being performed, fully or partly, on the territory of Georgia, can not be regarded as a 10 basis for the creation of a permanent establishment. The mere fact of the assignment by a foreign enterprise of its staff for employment in another enterprise or organization on the territory of Georgia, if other features of a permanent establishment do not exist, does not lead to the creation of permanent establishment, if such employees︀ will act on behalf of that enterprise and protect the rights of the enterprise where︁ they are assigned. An establishment of a Georgian enterprise in Georgia is not considered a︂ PE of foreign company if it is used only to do the following: store or︃ demonstrate goods or products belonging to the foreign enterprise; keep a stock of goods or︄ products belonging to the foreign enterprise only for the purpose of their processing by another︅ person; purchase goods or products or collect information for the foreign enterprise; any other activities︆ that are preparatory or auxiliary in nature coming from the interests of the foreign enterprise;︇ on behalf of a foreign company for the preparation and/or merely signature of loan agreements,︈ contracts for the supply of goods or which have the nature of technical services. A︉ permanent establishment of a foreign enterprise in Georgia is considered as such from the time︊ of its registration with the tax agency, providing it with relevant authority or commencing of︋ representational activities. The responsibility to register a permanent establishment of a foreign enterprise lies with︌ the tax authority, which is responsible for creating the relevant registry. The procedure for running︍ the registration and a registry is developed by the Ministry of Finance of Georgia.
To make a long story short, if you have a permanent address available to you in︎ Georgia (your home?) and you conduct activities which amount to controlling your company from this️ location (signing contracts via email, sending instructions, engaging the company verbally in writing or otherwise from that location etc.) then it is likely that the company will de facto have a PE in Georgia. In theory, you would need to register your foreign Co and pay an equitable amount corporate Tax in GE (may be complex since a lot of expenses are deemed distributions according to Georgian tax law).
That is true. But then, the reality of the control of this entity should reflect this too. So either get a foreign trustee director (acting solely) or get 2/3 directors (you being 3) from a jurisdiction where you do not︀ reside (and where you do not fear tax consequences). In the latter option as well︁ as if you decide to remain a sole director yourself, be prepared to show all︂ the corporate documentation surrounding how all appropriate decisions took place IN the foreign company's jurisdiction︃ (board subjects submission, debate, resolutions on all key questions) and at least a couple of︄ times a year.
That's what you've stated initially - "if one has a permanent address in Georgia such︁ as a home, lives there and ALSO runs a foreign compny...". But if an address︂ is temporal, such as rented property or flat, and one lives there temporarily, for instance,︃ for 1-3 months per year...
All in all, it's disappointing that "experts" like <<snippet>>.com and others just say, your "foreign income is tax free in Georgia" or "Georgia has no CFC laws", when it's not true. Even being a freelancer or day trader, if you're performing the activities from the territory of Georgia, that activity is taxable in Georgia. Whether the Georgian govt can or will enforce the laws, one should be aware of the laws one is breaking.
I don't get why say that simply *staying* in Georgia for some time, such as weeks or even months, while running a foreign company makes one liable to taxes in Georgia? Provided that you then said than one ALSO has to have a permanent address in Georgia and be somehow connected to the country, in order to become liable to taxes. Those two things contradict each other
@andrew28fl nomad bla bla . c o m are a cesspool of misinformation. As are a lot of offshore company peddlers in general. The whole subject︀ is complicated and thousands of experts internationally have been working hard for going on two︁ decades to close all international taxation loopholes whilst trying not to damage the economy.
Once again, I invite you to read and make sure you understand the difference between a︂ CFC and a Permanent Establishment of a foreign Co in you country of residence. It︃ is both true that Georgia has a territorial tax system and no notion of CFC.︄ These are very important ingredients to thousands of recipes that would, in effect, not result︅ in any Georgian taxation, legally. Notwithstanding, the idea of "I moved to Georgia so no︆ more tax for me" is an illusion at face value.
Once again, I invite you to read and make sure you understand the difference between a︂ CFC and a Permanent Establishment of a foreign Co in you country of residence. It︃ is both true that Georgia has a territorial tax system and no notion of CFC.︄ These are very important ingredients to thousands of recipes that would, in effect, not result︅ in any Georgian taxation, legally. Notwithstanding, the idea of "I moved to Georgia so no︆ more tax for me" is an illusion at face value.
You're right. I meant that if you spend more than 183 days in Georgia, then your foreign income such as consultation fees and any foreign corporations you control/own/manage are all within Georgian tax net.
Once again, more complicated than that.
Consultation fees - look at the double tax treaty between GE and country you are consulting to. Most times, would be taxable in GE, however, if performed on location in excess of a certain number of months, may become taxable in client country instead.
Foreign corporations - dividends from companies that you own, that are outside GE and that you do not manage from GE should be tax free.
Consultation fees - look at the double tax treaty between GE and country you are consulting to. Most times, would be taxable in GE, however, if performed on location in excess of a certain number of months, may become taxable in client country instead.
Foreign corporations - dividends from companies that you own, that are outside GE and that you do not manage from GE should be tax free.
Dear @Poem the assumption in this thread was that the foreigner would rent a place in Georgia and, well, more or less live there.
The question you raise is a complex one with much nuance in every specific case.
I do not pretend to be an expert in︀ Georgian law, and such finer things do, typically, require a local expert that I could︁ refer you to.
Notwithstanding,
- You do not have to be a Georgian tax resident︂ to be liable for your Georgian-sourced income.
- (This does not directly concern you) If︃ you provide independent services from the territory, you must register as a self-employed entrepreneur and︄ pay tax on Georgian-sourced income (work performed when in Georgia). A holiday, since you use︅ the term, does not usual foresee a large extent of work.
- In regard to︆ companies: I was citing one of many possible scenarios where it would be obvious that︇ there is a PE risk. The scenario that you describe, whilst could be seen as︈ functional in some countries, appears to be not so in Georgia because the threshold to︉ be considered a PE appears to be very low. Read the PE section here:
https://forbes.ge/international-aspects-of-georgias-tax-legislation/
Nevertheless, it should be kept in mind that some kind of spontaneous government enforcement of︊ these rules, particularly in regard to a tourist, would be very, very unlikely.
The question you raise is a complex one with much nuance in every specific case.
I do not pretend to be an expert in︀ Georgian law, and such finer things do, typically, require a local expert that I could︁ refer you to.
Notwithstanding,
- You do not have to be a Georgian tax resident︂ to be liable for your Georgian-sourced income.
- (This does not directly concern you) If︃ you provide independent services from the territory, you must register as a self-employed entrepreneur and︄ pay tax on Georgian-sourced income (work performed when in Georgia). A holiday, since you use︅ the term, does not usual foresee a large extent of work.
- In regard to︆ companies: I was citing one of many possible scenarios where it would be obvious that︇ there is a PE risk. The scenario that you describe, whilst could be seen as︈ functional in some countries, appears to be not so in Georgia because the threshold to︉ be considered a PE appears to be very low. Read the PE section here:
https://forbes.ge/international-aspects-of-georgias-tax-legislation/
Nevertheless, it should be kept in mind that some kind of spontaneous government enforcement of︊ these rules, particularly in regard to a tourist, would be very, very unlikely.
Or perhaps people come here and drastically misattribute what others have said?
"No CFC laws" does *not* mean "no PE laws".
"Foreign source" income is not taxed in Georgia. This does not mean "income remitted to a foreign bank account" and it does not mean "income attributed to a foreign corporation". Being a freelancer, if you're performing the activities from the︀ territory of Georgia it is *not* foreign source income because you did it in Georgia.︁ Also if you manage or work for a foreign company while in Georgia, that is︂ *not* usually foreign source income because you did it in Georgia.
Foreign source income is outside Georgian taxation whether you're tax︆ resident or not. Local source income is inside Georgian taxation whether resident or not. Hence︇ the description "territorial tax system". Some people think "foreign source" means whatever they want it︈ to, but it usually doesn't.
I see a reference to spending only a month in︉ Georgia. While work in Georgia is taxable, the Tax Code of Georgia mentions a number︊ of days before a Permanent Establishment of a foreign company is triggered.
"No CFC laws" does *not* mean "no PE laws".
"Foreign source" income is not taxed in Georgia. This does not mean "income remitted to a foreign bank account" and it does not mean "income attributed to a foreign corporation". Being a freelancer, if you're performing the activities from the︀ territory of Georgia it is *not* foreign source income because you did it in Georgia.︁ Also if you manage or work for a foreign company while in Georgia, that is︂ *not* usually foreign source income because you did it in Georgia.
Foreign source income is outside Georgian taxation whether you're tax︆ resident or not. Local source income is inside Georgian taxation whether resident or not. Hence︇ the description "territorial tax system". Some people think "foreign source" means whatever they want it︈ to, but it usually doesn't.
I see a reference to spending only a month in︉ Georgia. While work in Georgia is taxable, the Tax Code of Georgia mentions a number︊ of days before a Permanent Establishment of a foreign company is triggered.
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