The status of Virtual Zone for IT companies in Georgia

Georgia is becoming a popular country for doing business. It offers great flexibility in the creation and management of companies. The absence of exchange control rules, the free entry and exit of foreign capital, the relatively low cost of services, the stability of the banking system, its geographical location,  bridge between Europe and Asia, all make Georgia an attractive destination for international and EU companies. 

The Special Status of Virtual Zone Entity is intended for companies and freelancers who wish to set-up their IT activity in Georgia while offering their products and services abroad.

Georgian legislation defines the activities of a Virtual Zone Entity very widely as "any legal entity related to Information Technology". However, according to the law, a VZE must integrate into its activity "any process of research, development, support, design, production and implementation of digital information systems, software production, applications, services and be the owner of intellectual property rights for the product or service concerned". It can therefore be said, on the basis of this definition, that any online product/service produced and provided by a Virtual Zone Entity in Georgia can be considered as an "information technology activity".

The Virtual Zone Entity is becoming a very interesting new solution for IT companies developing an offshore client-base from Georgia.

Some key features of the Virtual Zone Entity

• The income of a VZE is exempt from VAT (18%) and Corporate Income Tax (15%) if the company provides its services to foreign customers outside Georgia.
• Only dividends distributed (to a non-resident natural or legal person and shareholder) are taxed at 5%.
• If such dividends are distributed to a foreign shareholder, the taxation of the latter in the country of his or her tax residence must be determined taking into account the provisions of the double taxation agreement between Georgia and his or her country of residence (if it exists).
• Dividends distributed in Georgia to a Georgian shareholder will not be included in its tax base.
• If the income of the Virtual Zone Entity is not distributed as dividends, there will therefore be no further taxation in Georgia.

For the Georgian State, it is essential that a foreign investor can enjoy all the advantages of doing business in Georgia without having to come to or settle in Georgia. This is why the director of the Virtual Zone Entity can be a foreign national, residing in Georgia or outside Georgia. The latter can then manage his IT company remotely. 

It is not necessary to have salaried staff in Georgia, with the exception of the company's accounting (very simple and very cheap). This director is appointed at the moment of the company's registration at the House of Justice in Tbilisi. 

For more information, it's here.