CFC rules in Georgia

[backpacker]

I don't know if I could have some problems as well to get the tax certificate -which you need for send to your country of origin and not being taxed more there- considering you are taxed at 0% finally, I suppose they should issue it if you stay over 183 days on Georgia and that it seems residence permit is not an issue as Georgia is offering visas for a year and as much as I know can be renewed when you get out of the country.

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 to not -accidentally- receive the wrong status.
If you do not want to answer these questions you can try the following:

1. Come to Georgia on whatever visa/stamp you like,
2. Be here for a month to get an idea of the place,
3. Then go to a certain local pawnshop (it's also an exchange booth) and open what they call "Golden Bond". Read the last sentence on the page of that pawnshop/exchange booth.
4. Do not put too much 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 receive will be taxed.
6. You will be issued a piece of paper which is your tax certificate,
7. After being in the country for several months (just count >183 days in any rolling 12-month-period) go to RS once again and apply for the certificate of tax residency 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 is only one single stock which fits into this category. Everything else listed on that Exchange is either a Foreign Entity or are local debt securities.

I wrote to Georgian Department of Revenue

Sorry guys, that is completely wrong and a big mistake! This is not some rich Western country were everything runs like clockwork and 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 somebody on your side who is able to stand up for you. By writing to them you will soon get a feeling who suits you best.

how is Georgia taxing a natural person who trades foreign listed stocks or foreign currencies, on a foreign exchange without interacting with Georgian Lari

I explained it randomly in an earlier post. That is valid for local Georgian brokerage companies who offer these services on foreign stock markets:

If a Georgian tax resident opens an account with a Georgian local broker (white label), dividends and capital gains from buy/sell operations would always be transformed into Georgian sourced income due to the fact that the Georgian broker receives everything in his account and then distributes to his clients on local sub-accounts.
The list of NBG ordinance 108/04 in connection with subparagraph t3 eliminates that disadvantage to a certain degree.

Furthermore, one of the large Georgian banks has issued a tax booklet for its ("preferred") customers which gives clear guidance regarding the term "Georgian sourced income" in connection with "Financial Instruments (Interest Income, Capital Gains, Dividend Income". It says:
"Income (interest, dividend, capital gain) earned from foreign securities is considered to be foreign sourced income.
Income that should be considered as a Georgian sourced:

• Dividend by the resident 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 trades won't be considered "private" when you exceed a certain -still generous- amount of trades per annum.
There is also a big difference if you remit or use any of that money for daily living expenses (no matter if locally or abroad). If you can proof that you live in Georgia only from money which was already within Georgia before you became tax resident + that you did not touch funds/gains you do have abroad, it massively supports (and simplifies) the argument of foreign sourced income.

The best would be to maintain your life in Georgia by generating local sourced interest income from a simple bank deposit. Then do not withdraw anything abroad (just keep it in the foreign brokerage account and do your stock trading) and good is it.
It would not be much different from a "private investment fund".

writing about this topics in Bloomberg, so he must be informed

You can visit his website and look up the article "Georgia's welcoming international freelancers-what they can enjoy and should pay attention to" (dated Jul 25, 2020) scroll down to "0% taxation" and read the subparagraph in its entirety.
Compare with what I wrote above, study the tax code in itself, read 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 its intention can also be seen in light of the various South African farmers who have been encouraged to move to Georgia (look it up, worth studying) and farm in Kakheti and other areas of the country in return for easy access to residence permits.
This is past tense - times have changed!

 

[khinkali]

Reason: A pawnshop is not considered to be a bank. It means the interest you receive will be taxed.

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

trade a local share (stock) of a Georgian Resident Legal Entity on the Georgian Stock Exchange

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

The difference in all of this is of course the sheer number of trades.

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

big difference if you remit or use any of that money for daily living expenses

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

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

Of course I am sure we 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 respect of the individual tax payer.

 

[backpacker]

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

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. That was the time when lights went off for GSE.

where did you find that Georgia has this law or interpretation?

Georgia does not have this law. However, the interpretation is out there. Please read the entire part of my writing and see it in context with the word "argumentation".
It has been explained to somebody who wanted to settle down in Georgia but was actually quite young (at that time he was only 34 years of age). His idea was to own nothing in GE (no bank account, no investment). He wanted to live in GE just by withdrawing monies from an ATM. His actual income he wanted to generate through day-trading via a foreign broker. He has been told that this won't fly. Reason: He would have lived off monies through day-trading (= too much activity, professional equipment) + He can not ring-fence the proceeds out of that day-trading because he was planning to live solely from ATM withdrawals with direct link to that brokerage account.
The only solution would have been to ring-fence everything, have sufficient monies in Georgia before becoming tax-resident and live off the interest these monies generate on a local Georgian bank account.
I can only explain it that way and to me it makes sense to keep that in mind. The local tax code 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 . To all others I can say: I wish you luck.

"badges of trade"

Off topic: This is one of the most overlooked wordings in Malaysia.

 

[seabreeze]

Your post

Pleasurable reading material, thank you.

 

[khinkali]

(= too much activity, professional equipment)

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]

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?

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 refer to the tax code and perhaps to decision 201 without elaborating any further. They do not do the job of a tax advisor free of charge.

If you ask for a ruling it will certainly take several months.
In any case should you contact a professional who can formulate your request for a binding ruling. The answer always depends on 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 or income from economic activity that just happens to be in crypto. I can see how the tax inspector might think "don't bother me with this ****, crypto is offshore and 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 specifically so that International economic activity can be located in Georgia, outside the tax base in the hope that it attracts some business that otherwise would have been somewhere else. There is so much conflicting advice about FZEs but I still hear recommendations for taking that route.

Recent comments from the ruling party have indicated a possible change of tune. The (IMO wrongly) retroactive changes to VZE tax treatment reinforce my view that it's better be sure than live in grey area. My own history with tax authorities makes me deeply 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 know 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 confirmation in reasonable time - for a fee. It is not against Georgia's national interest to 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. Obviously 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]

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 refer to the tax code and perhaps to decision 201 without elaborating any further. They do not do the job of a tax advisor free of charge.

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 and to probe that I really wrote to them and got a response. You have a pretty decent translation using Google Translator.

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


სსკ-ის 79-ე მუხლის მიხედვით, საშემოსავლო გადასახადის 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 მიერ მიღებული შემოსავალი (მათ შორის, სარგებელი), რომელიც არ განეკუთვნება საქართველოში არსებული წყაროდან მიღებულ შემოსავალს;

სსკ-ის 104-ე 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 დეპონირებული რომელიმე ანგარიშზე ფინანსურ ინსტიტუტში და, როგორც წესი, მისი ემიტენტის დადგენა შეუძლებელია. ასევე, პრაქტიკულად შეუძლებელია ოპერაციის 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 საქმიანობა არ ხორციელდება საქართველოს ტერიტორიაზე და ასეთი ოპერაციით მიღებული შემოსავალი არ მიეკუთვნება საქართველოში არსებული წყაროდან მიღებულ 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 იურიდიული 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]

This question was done in January of 2020.

Thanks for posting this extract. When did you receive this answer? Shortly thereafter?
The answer is basically this:

Revenue Service (RS) will simply refer to the tax code and perhaps to decision 201 without elaborating any further. They do not do the job of a tax advisor free of charge.

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 due to the constraints in its definition. We discussed that already at length and I expressed my reservations quite clearly.

Recent comments from the ruling party have indicated a possible change of tune.

Spot on!

I don't know how you can be quite so certain about it taking "several months".

I asked my tax advisor out of curiosity. That was about four years ago. He also mentioned that it is highly dependent on the merits of the case.
If you want a more recent indication, look up the following article via Google: "Georgia: a low-tax European country with much to offer investors" (dated September 2, 2019), scroll down to "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]

those of us with an interest in it should chip in (after agreeing the wording with a local tax expert)

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]

Thanks for posting this extract. When did you receive this answer? Shortly thereafter?
The answer is basically this:

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 many doubts about this.

The guy I talked in previous mails that worked for RS and 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.

So, who wants to start organising something?

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)

who wants to start organising something?

Start the thread!

do you consider his local firm trustworthy

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 get that @Bagpacker is skeptical, but even at 50/50 chance it's worth asking. The fact that you're not actually here (or even worse, here illegally thanks to SARS COV 2) makes you a good candidate. Nothing to lose?

 

[backpacker]

I told to him again that my intention was not forming a company or make a real state investment, so please let me know before taking consulting for not waste my time and money. No answer.

do you consider his local firm trustworthy?

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, that is not the type of advisor I do want to work with. Moreover, there is no law firm attached. He will not be able to defend you whenever something goes wrong.
Look for something with more substance if you want to do serious business. A law firm is a must-have!

The fact that you're not actually here (or even worse, here illegally thanks to SARS COV 2) makes you a good candidate. Nothing to lose?

I agree with @khinkali on this! Read:

This is not some rich Western country were everything runs like clockwork and 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.

Too much attention is not a good idea. Hence, if somebody applies for an ATR it should preferably be a person who is not yet a tax resident.
The other option would be to tell the law firm to apply in their own name and keep the clients' name out of the game. For this situation a simple one-man-show tax advisor is anyway not suitable.

$3k isn't much for a binding ruling. Surely we can find a few folk to spread the cost - I'd happily chip in.

Considering the most recent downward move of 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.

$3k isn't much for a binding ruling.

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 in 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]

@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?

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]

@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.

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 or country of origin of the goods.
An advance tax ruling is issued within 90 days of the submission of the
request by the taxpayer and is in effect only for the latter. If the person
acts in accordance with the advance tax ruling, the GTA will not impose
additional taxes or tax sanctions later.
An advance tax ruling becomes 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 ruling is
based, have been abolished or amended
An advance tax ruling on HS code or country of origin of the goods
should be issued before filing the customs declaration at the customs
border of Georgia and is valid for three years, provided that the actual
data and information about declared goods fully corresponds to the
information on the basis on 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. The request has to be written in such detail that it can not be applied to more then one person/situation. It would not even make sense if a lawyer applies in order to protect your name.
Furthermore, the two sentences with bullet points do not give much confidence in the future value of such an ATR. It is for sure no 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]

effect only for the latter

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 the business to some freezone or other IP box type jurisdiction.

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