CFC rules in Georgia

[seabreeze]

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 the 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 is *not* usually foreign source income because you did it in Georgia.



Foreign source income is outside Georgian taxation whether you're tax resident or not. Local source income is inside Georgian taxation whether resident or not. Hence the description "territorial tax system". Some people think "foreign source" means whatever they want it to, but it usually doesn't.

I see a reference to spending only a month in Georgia. While work in Georgia is taxable, the Tax Code of Georgia mentions a number of days before a Permanent Establishment of a foreign company is triggered.

Correct, it mentions three months. I quote:


4. Notwithstanding the provisions of the first and second paragraphs of this article, a permanent establishment of a foreign enterprise in Georgia shall be the management of this enterprise by another person (another enterprise, subunit of this or of another enterprise or by a natural person who is not the person specified in the fifth paragraph of this article) on behalf and/or in the interest of the enterprise for over three months, except as provided for in the sixth and fifth paragraphs of this article.

And I would presume that means "within a tax period i.e. year".

 

[khinkali]

@Poem from the Tax Code of Georgia that I linked to. "Article 104 – Georgian source income". Note wording like "economic activity" that can be quite broad.

The interpretation is sometimes a bit softer. e.g. 104 "q) other income earned from carrying on activities in Georgia" seems not to apply to crypto mining or trading by a natural person, which is a huge bonus if confirmed to be true in all cases (anyone recommend me a lawyer who can get me a ruling on this?).

What I really wonder is what other people thought "foreign source" means. As if somehow people can just work for or manage a business and be tax free because of it's location of registration or bank account? The territorial taxation advantage is most obvious to people who receive passive income. e.g. if you have a portfolio of offshore shares and get dividends and sale proceeds, it's normally outside Georgian tax base.

@alexeikarp I don't know if the three months need to be within a calendar year. Also I'm wary of relying on the the English language version.

 

[Poem]

@Poem from the Tax Code of Georgia that I linked to. "Article 104 – Georgian source income". Note wording like "economic activity" that can be quite broad.

this

d) income earned from economic activity conducted in Georgia by a non-resident’s permanent establishment,

?

If yes, how about "permanent establishment"?

 

[Poem]

That is international taxation 101. Income is deemed sourced in the location where the actions leading to the generation of said income took place.

1) What does it have to do with with the definition that Georgia may have?

2) Imagine, that while in Turkey, a prospect contacted me via email. I said "yes, let's talk". Then I flew to Georgia and discussed a project by Skype with him while there, in a hotel or AirBnB. He's not in Georgia, nor a georgian. Then I began brain-storming of how to implement a project while in Georgia. Is this an aconomic activity already?
Then I flew to Brazil and was writing code while there. Then I flew to Kenya and finished writing code while there. Then I flew to Dubai and submitted the final version while there. Then I flew elsewhere, and received a payment to my bank acccount, while physically in that "elsewhere".
All online.

Where did economic activity take place? And how would I measure and put a price tag on the percentage of it that took place, if it really did, in Georgia? And how would I prove it? And would the tax man in Georgia verify it?

And that's only me, but there're, I imagine, thousands of people who can work this way too. Some may simply send a few email while in Georgia. Would that also oblige them to pay taxes in Georgia?

3) What would the tax man do - chase all those people accross the world to get them to pay taxes in Georgia?

 

[khinkali]

If yes, how about "permanent establishment"?

You can create a permanent establishment by working for or managing the company. Instead of you getting taxed personally, the company is. So it ends up being quite similar to being self employed (though a small sole trader probably pays less tax here).

If it's your company that you're managing and working for while in Georgia, then it's basically a Georgian company. Registering it somewhere else isn't particularly relevant, else all Georgian businesses would be registered in Dubai or somewhere and there would be no corporate or income taxes collected.

Most places don't tax you for checking your work email while on vacation (though I'd be wary of North Korea or California). I think that Georgia's 3 month grace period is more generous than most.

What is unusual in Georgia is that if you are resident in Georgia and do a month's work in Dubai, you'd not be be taxed for it in Georgia like you would be in most High Tax Countries. Also if you have passive income such as dividends from listed companies on overseas stockmarkets, that's not taxed either, even if you remit the money. And crypto of course.

 

[seabreeze]

You can create a permanent establishment by working for or managing the company. Instead of you getting taxed personally, the company is. So it ends up being quite similar to being self employed (though a small sole trader probably pays less tax here).

If it's your company that you're managing and working for while in Georgia, then it's basically a Georgian company. Registering it somewhere else isn't particularly relevant, else all Georgian businesses would be registered in Dubai or somewhere and there would be no corporate or income taxes collected.

Most places don't tax you for checking your work email while on vacation (though I'd be wary of North Korea or California). I think that Georgia's 3 month grace period is more generous than most.

What is unusual in Georgia is that if you are resident in Georgia and do a month's work in Dubai, you'd not be be taxed for it in Georgia like you would be in most High Tax Countries. Also if you have passive income such as dividends from listed companies on overseas stockmarkets, that's not taxed either, even if you remit the money. And crypto of course.

Re: One month in Dubai - That is, unless, you are engaged by the Dubai client when in Georgia as a Georgian self-employed person.

 

[seabreeze]

1) What does it have to do with with the definition that Georgia may have?

2) Imagine, that while in Turkey, a prospect contacted me via email. I said "yes, let's talk". Then I flew to Georgia and discussed a project by Skype with him while there, in a hotel or AirBnB. He's not in Georgia, nor a georgian. Then I began brain-storming of how to implement a project while in Georgia. Is this an aconomic activity already?
Then I flew to Brazil and was writing code while there. Then I flew to Kenya and finished writing code while there. Then I flew to Dubai and submitted the final version while there. Then I flew elsewhere, and received a payment to my bank acccount, while physically in that "elsewhere".
All online.

Where did economic activity take place? And how would I measure and put a price tag on the percentage of it that took place, if it really did, in Georgia? And how would I prove it? And would the tax man in Georgia verify it?

And that's only me, but there're, I imagine, thousands of people who can work this way too. Some may simply send a few email while in Georgia. Would that also oblige them to pay taxes in Georgia?

3) What would the tax man do - chase all those people accross the world to get them to pay taxes in Georgia?

Your attitude regarding the "Georgian tax man verifying something" is plain wrong. If there is any tax suspicion, the burden of proof is on you, buddy.

1) What does the definition of a generally accepted international taxation concept have to do with Georgia? If you can't figure this out, you are in trouble.

2) Your story serendipitously does not include mention of who YOU are (Company? Self employed? Person) where you made an OFFER , where the service agreement was signed and what address is mentioned in the agreement on your end. The bank account location, depending on national jurisdiction, could be a tell-tale sign too. Generally speaking, if you are self-employed you would have a greater difficulty sidestepping taxation requirements than if you're sidestepping PE risks.

3) I dunno, stick you with an imaginary tax amount and tax payable and then have you proove otherwise? If you run, they can red-list you too...

 

[Poem]

1) Then I'll give you the definition of the foreign-sourced income of Panama and ask you to apply it to Georgia.

2) What if I am all of those? And not only one company in one juridistion, but multiple ones in multiple jurisdictions. It depends on who asks me.

3) In other words, you have no answer

 

[Poem]

If it's your company that you're managing and working for while in Georgia,

Again - at what moment in time a person, who visits Georgia for a week or month, who has a foreign company, and stays in a hotel, converts from a tourist to the one "who runs and manages a foreign company while in Georgia"?

Most places don't tax you for checking your work email while on vacation (though I'd be wary of North Korea or California). I think that Georgia's 3 month grace period is more generous than most.

Well, who taxes action of checking emails? How could it be taxed at all?

 

[seabreeze]

@khinkali There has to be a point where one just gives up. I think there's plenty of info remaining in this thread for those who bother reading into it .

 

[khinkali]

At what moment? Well @alexeikarp already quoted the three months thing in the tax code but there are more details to consider depending on exactly what you do. You can read about it in the tax code.

Well, who taxes action of checking emails? How could it be taxed at all?

Perhaps you missed the word "don't" in my sentence. But like I said, North Korea might be another thing entirely!

 

[Poem]

Perhaps you missed the word "don't" in my sentence. But like I said, North Korea might be another thing entirely!

I haven't missed it Therefore, I asked "how could have it been otherwise"?

For, while physically in Georgia, in a certain sense anything you do online, or otherwise -- what incurrs mental effort, would be deemed work performed on the soil of Georgia, and as such should be taxed. You read a book? It approximates you to achiving your goal, in the future you'll yield money from the knowledge that's been aquared while you're physically in Georgia, hence, a tax also. All is according to the tax law of Georgia, no?

There used to be an unspoken and similar rule in Thailand, but around a year ago some big banana said that work performed online isn't considered to be work taxed in Thailand, right? I read it briefly

 

[khinkali]

How could it have been otherwise? I suggested that the North Koreans might notice what work you do from your laptop in Pyongyang, but the Georgian tax office won't monitor you so closely.

Your question about future earnings from reading a book? Most tax officials in most countries won't call that "economic activity". But if you're managing employees or dealing with clients or drop shipping, then you are running a business. Just as if you were doing it from New York or London. In London (if not UK domiciled) you could apply for remittance basis which would have some similarities to Georgia; offshore passive income might be tax free but working or managing a business - not so much.

There used to be an unspoken and similar rule in Thailand, but around a year ago some big banana said that work performed online isn't considered to be work taxed in Thailand, right? I read it briefly

Thailand is of similar in principal but also quite different, due to territorial taxation not applying to Thai citizens in most cases, high corruption but also very capable bureaucracy in some ways.

A few years ago the Chiang Mai immigration police rounded up digital nomads. While I think most people who read the law would say that they were technically in Thailand's tax base, the cops decided they were OK as they were each just doing individual freelance work or blogging or whatever. If I were running a successful multinational business from Thailand then I wouldn't expect the same outcome.

 

[Poem]

How could it have been otherwise? I suggested that the North Koreans might notice what work you do from your laptop in Pyongyang, but the Georgian tax office won't monitor you so closely.

Well, in North Korea there's, by the way, no income tax even for citiizens. The country is a tax heaven, I might move there.

-----

* if I go and I obtain a georgian Tax ID in their "House of Justice" in Tbilisi, will this alone bring me an additional liability in any way? I might use it later on but for now I'll just simply obtain it.
I'm not staying and don't plan to stay in the country for over that 1-2 months per year. And also I have 2 personal bank accounts here, the amounts I transact in them are relatively small, under $10k/year


* And what if I actually use that Georgian Tax ID somewhere? Will this overcomplicate my situation? Bankera-com, for instance, requires a Tax ID and some websites also do. And I'll probably specify my residency in Georgia at Bankera-com as I plan to open a biz account for my UK company with them. It'd be only to satisfy the requirements of those websites, because they require *some Tax ID*, and *some* residency.

But I'm not a resident in a proper sense, because I don't have a property here, nor do I actually live here for good either, nor do I plan to.

Simply speaking, without a gazillion of nuances....

 

[khinkali]

@Poem I never knew DPRK had no personal taxes. They can require you to "donate" property and labour though.

The tax id shouldn't give you any liability but might help connect the dots if you were hiding something. It's not a big deal, you need it to collect packages from the post office if over some small value, or containing alcohol etc. I don't have one because I didn't need one for ages (and then covid).

If you give your address as country X to a bank or EMI then they can report your information to country X - CRS or not, with or without a tax id depending on their policies. The tax id just makes you easier to match.

Tax residence in Georgia is another matter. I don't know what if any liabilities you get from tax residence (being a territorial tax system) but it can help justify that you're not tax resident somewhere else (much more powerful than a tax id).

But I don't understand your PE (not CFC) issues. If you have a UK company, where is it managed from and where is the work done from? If you use a Georgian address for the company's banking, then is it actually run from Georgia or if not can you justify that it isn't?

 

[Poem]

Untill recently I've been working as a digital nomad, as a solo-proprietor, and non officially. And the profits have been small enough, hence no problem. Recently I've opened a UK Ltd and plan to open UK Llp probably too, soon, because it'll be more efficient tax-wise.

Where is it managed from? Go figure I travel, a couple months here, then there, then else where...

Semi-officially, I'm in Georgia for now, and I've specified the country when I was registering a UK Ltd and a Wise biz account. But in really - not, I'd visit and stay here for 1-2 months per year at most. However, to them - UK companies agent Wize biz, Stripe -- and according to the papers I've given them - a proof of my *current address* in Georgia from a local bank here - all is good and satisfactory. After all, the documents are real and legit.



When I'll have reached higher profits, I'll set up a proper tax residency in Panama or Emirates, but for now I'm somewhat in Georgia, according to that proof of an address, and kind of nowhere in reality.

 

[seabreeze]

Untill recently I've been working as a digital nomad, as a solo-proprietor, and non officially. And the profits have been small enough, hence no problem. Recently I've opened a UK Ltd and plan to open UK Llp probably too, soon, because it'll be more efficient tax-wise.

Where is it managed from? Go figure I travel, a couple months here, then there, then else where...

Semi-officially, I'm in Georgia for now, and I've specified the country when I was registering a UK Ltd and a Wise biz account. But in really - not, I'd visit and stay here for 1-2 months per year at most. However, to them - UK companies agent Wize biz, Stripe -- and according to the papers I've given them - a proof of my *current address* in Georgia from a local bank here - all is good and satisfactory. After all, the documents are real and legit.



When I'll have reached higher profits, I'll set up a proper tax residency in Panama or Emirates, but for now I'm somewhat in Georgia, according to that proof of an address, and kind of nowhere in reality.

You don't need an LLP if your LTD is not UK tax resident. Just saying.

Tax domicile UK LTD. in Georgia and get Virtual Zone status (must check but should be possible)? Nomad worry-free (5% profit distribution tax) thereafter.

 

[biz1]

@alexeikarp can you detial the virutal zone status regime, would that be a replacement tax regime that would substitute tax policy Georgia would apply otherwise?


This is a great conversation. Has there been any thread where these same questions were discussed in question of say Malta, Switzerland, Gibraltar, Cyprus?

 

[backpacker]

Also if you have passive income such as dividends from listed companies on overseas stockmarkets, that's not taxed either, even if you remit the money.

In this context, has anybody ever investigated Article 82.t of the Georgian Tax Code? The mentioned article is used in connection with National Bank of Georgia (NBG) ordinance 108/04 which stipulates recognized exchanges. Even though quite a small list, it covers many major global exchanges.
The aforementioned can serve as an additional layer to protect against claims that a buy/sell operation on one of these NBG recognized exchanges is classified (for whatever reason) as Georgian source income.
Further thoughts are appreciated.

On a side note: Be careful with English version of the Tax Code provided by Revenue Service. As with many parts of this dubious "official" translation, it differs significantly from the original Georgian version. Always use the Georgian version to verify the English version.

 

[khinkali]

Article 82.t of the tax code is about an exemption for Georgian companies getting income from tradable securities, based on Georgian assets or debt. Georgian resident legal persons are usually taxed globally; the foreign source passive income exemption for natural persons is broader.

Always use the Georgian version to verify the English version.

Wise words. Also, Georgian lawyers don't always agree on the meaning.