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Georgia Proposes Further Tax Cuts

by Tatiana Smolensky, Tax-News.com, Moscow

21 November 2008

Georgia's Finance Minister Nika Gilauri has proposed a reduction in the personal income tax rate from 25% to 20% and reduction in the dividend withholding tax rate from 10% to 5%. Both reductions are to take effect on January 1, 2009, subject to parliamentary approval.

This new initiative is an acceleration of the legally binding commitments, made earlier, to reduce the personal income tax rate to 15% by 2013 and to further reduce the dividend withholding tax rate to 0% by 2012. Legislation was passed earlier in 2008 setting a zero dividend tax rate with respect to publicly traded equities (defined as having free float in excess of 25%).

If this new initiative is passed into law by parliament, the taxation framework in Georgia will be as follows:

  • Flat income tax rate of 20%, applicable to local-source income, (foreign source income will not be subject to tax). The government plans to decrease this to 15% by 2013;
  • Corporate income tax will be set at 15%;
  • VAT will be set at 18%;
  • Property tax of 1% will be applied to self-assessed value of property, but only applicable to those with an annual household income exceeding GEL40,000 (USD28,185);
  • Interest income and dividend withholding tax rates decreasing from 5% in 2009 to 0% by 2012.
  • 0% withholding tax on dividends from publicly traded equities from January 1, 2009;
  • 0% withholding tax on interest income from bank deposits and publicly-traded debt securities from January 1, 2009;
  • No capital gains tax. Capital gains are to be included in the individual and corporate taxable base and taxed at 20% and 15%, respectively;
  • Individuals are exempt from tax on capital gains from disposal of assets held for two years or longer;

    • The Georgian government will not impose social insurance or similar taxes and set inheritance tax, wealth tax, stamp duties or other transaction-based taxes or levies at zero.

    Georgia has an extensive double tax treaty network with 24 countries, including 15 EU countries, most neighbouring countries, and key jurisdictions for financial and HNW investors, such as the United Kingdom and the Netherlands. Treaty negotiations are also underway with Switzerland, Cyprus and Singapore.

    “I am delighted that we have been able to accelerate the timetable for the further reduction in key tax rates. This will provide a significant stimulus for the economy in 2009 and beyond. Investors and high-net-worth individuals world-wide should take note that Georgia, over the last five years, has evolved into one of the most attractive low-tax jurisdictions in EMEA”, commented Mr Gilauri.

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