CFC rules in Georgia

[mastaplan]

@mastaplan I could be wrong but I think the posts were mostly about trading goods or providing services.

The situation is different for financial trading. I don't have the level of clarity I want yet, but I am quite optimistic that some kinds of trading as a natural person are outside the scope of Georgian taxation.

@khinkali OK, thanks for clarifying. I'll also keep researching this about Georgia. I would not be doing much 'operating' of a foreign company whilst there if trading as a natural person. But I would not want to risk having to pay corporation tax on revenues that the company receives whilst I am there. If both of these points come good then Georgia could work.

 

[mastaplan]

CFC rules cover undistributed assets of foreign low-tax companies,

There are no CFC rules in Georgia.

Notwithstanding, any company may be treated as a Georgian tax resident company if you the people running it and taking decisions are located IN Georgia when the decisions are being made. Such a company will then become liable to Tax in Georgia.
The answer you are looking for is as follows:
You CANNOT run your offshore company FROM INSIDE Georgia if you want it to be free of Georgian tax.

Foreign corporations - dividends from companies that you own, that are outside GE and that you do not manage from GE should be tax free.

I'd like to ask a clarification about CFC vs PE rules. You mention CFC covers undistributed assets and Georgia has no CFC rules. But that due to PE you cannot run a foreign company from inside Georgia and be free of Georgian tax.

I've heard somewhere that corporation tax only applies to Georgian companies if money is taken out. Is this correct? Does this only apply if you actually take a dividend? If someone operated a company from within Georgia whilst tax resident there, but did not actually take any payment from the company, would the company still need to pay corporation tax in Georgia?

If not, then one could live in Georgia and operate a foreign company for a year or two provided they weren't being paid an income from it. But I might have been misinformed.

 

[backpacker]

I was thinking of moving to Georgia and trading through a company so I am glad to have seen this thread.

I had understood that trading a personal account was untaxable though. What is the concern around trading personal accounts? Is the concern mainly for people doing HFT or shows 'badges of trade' as per HMRC guidance?

In case you talk about fiat:

If you studied this thread from the first page up until the last you will have figured out that there is no concern around trading personal accounts, as long as it is not High Frequency Trading (HFC) and as long as you do not live from the monies such an account produces.

The following website is from the Internet Archive -> GALT & TAGGART (second paragraph of second column) . This is just one example of many.
They recently launched an "enhanced" new website and stopped advertising tax benefits in preparation for an alignment with EU- and OECD rules (GE starts CRS in 2023).
Up until about a year ago one large Georgian Bank even gave out small booklets to its "wealth clientele" with practical explanations regarding Taxes & Banking/Brokerage. The tax code has not changed much since then ... .

At least my posts were intended to tell people to keep it reasonable. The Georgian tax code and the legal system of this country are immature at best. If you overstretch it you become a target and it will take you a long way (and a whole lot of money) to get things straight.
As long as you only do a few transactions every month + keep it simple + can proof that you do not use the proceeds for your daily living expenses (i.e. keep them outside of GE in your personal bank/brokerage account) I do not see a problem.

 

[backpacker]

I've heard somewhere that corporation tax only applies to Georgian companies if money is taken out.

See -> Parliament approves new Tax Code Georgia welcomes Estonian Taxation Model and -> Georgian Profit Tax Reform

 

[mastaplan]

@Bagpacker Thanks for sharing this and your thoughts in this thread, really helpful.

In my case I would be trading mostly crypto. I have crypto both personally and in companies. Not HFT, just 1-3 trades per week, sometimes with leverage.

From all the above, it sounds like trading a personal crypto portfolio would not be taxed. (even if taking a small amount for living expenses?). Likewise trading crypto in a foreign company but not distributing profits would also not incur taxes in Georgia.

If this is all possible I would consider doing this in Georgia for two or three years, living modestly and grow capital, not distributing profits until a later date when I might move to a more favourable jurisdiction for that or stop managing the company.

I might be missing something, but it sounds compliant at this point in time. I could use some professional advice.

 

[khinkali]

@mastaplan for crypto you should look into Public Decision 201 from the Revenue Service. While it mostly talks about VAT and mining, it also says that profits from crypto are not subject to income tax for private individuals. Companies pay 20% on distribution.

If you are thinking in a UK sense, badges of trade are not just about the frequency of trading but also how organised you are about it. The idea behind the Georgian tax treatment is different. It's not so much "are you doing business?" by trading as "are you doing it in Georgia?". I've spoken to professionals who believe that crypto trading is not Georgian source income, regardless of frequency.

But interpretations can change (like the recent, retroactive interpretation of work needing to be done on Georgian soil to count for Virtual Zone treatment, which rightly upset people). My feeling is that it's best to get a binding ruling before deciding how long to stay here, but other people have suggested not to worry because nobody in the Georgian tax office has any interest in people trading crypto on foreign exchanges.

 

[mastaplan]

@mastaplan for crypto you should look into Public Decision 201 from the Revenue Service. While it mostly talks about VAT and mining, it also says that profits from crypto are not subject to income tax for private individuals. Companies pay 20% on distribution.

If you are thinking in a UK sense, badges of trade are not just about the frequency of trading but also how organised you are about it. The idea behind the Georgian tax treatment is different. It's not so much "are you doing business?" by trading as "are you doing it in Georgia?". I've spoken to professionals who believe that crypto trading is not Georgian source income, regardless of frequency.

But interpretations can change (like the recent, retroactive interpretation of work needing to be done on Georgian soil to count for Virtual Zone treatment, which rightly upset people). My feeling is that it's best to get a binding ruling before deciding how long to stay here, but other people have suggested not to worry because nobody in the Georgian tax office has any interest in people trading crypto on foreign exchanges.

Thanks for this. I'm mostly confident that personal crypto trading would be OK in Georgia. I'm now trying to figure out the best company setup since I will also have crypto stored in a company and might also buy property through a company. If the rules begin to change I can always go somewhere else.

About UK badges of trade, I've gone over this guidance from HMRC and it doesn't give much confidence either way. They say 'only in exceptional circumstances' would it be considered 'trading.' I think they prefer it to be treated as investment rather than trading because losses are less flexible. I'm banking on reporting mine as investment profits too. I'm not aware of any cases yet where they have disputed this and made someone pay income tax on their crypto trading, but the guidance is only a couple of years old. It would set a scary precedent if they began taxing people as though it was income.

 

[khinkali]

I've gone over this guidance from HMRC and it doesn't give much confidence either way

If you don't have an office for trading and don't employ people you should be able to trade merrily in the UK with just CGT, especially if you have any other type of employment. Like you mentioned, it doesn't normally help HMRC to move you from CGT to income tax. Also any gains since you last traded a coin don't attract CGT if you then move away for five tax years.

For the company set up, your preferred exchanges might come into it. Some exchanges are more hassle with company KYC. Also some exchanges can be picky about jurisdiction. UAE seems limited; Cyprus or Gibraltar better supported and still quite low tax.

If you trade from a foreign company and do the work in Georgia, then you create a PE here as discussed above. But if you generate undistributed profits and then move somewhere like Cayman or Dubai to cash out in the following year, did you owe any GE taxes? I don't remember anyone asking this before. Not that Georgia is necessarily able to enforce, but still I am intrigued. The Tax Code of Georgia seems to be offline at the moment; maybe that's a sign too.

 

[mastaplan]

If you don't have an office for trading and don't employ people you should be able to trade merrily in the UK with just CGT, especially if you have any other type of employment. Like you mentioned, it doesn't normally help HMRC to move you from CGT to income tax. Also any gains since you last traded a coin don't attract CGT if you then move away for five tax years.

That's good to know. I also only trade with about 20% of my holdings so it would be a bit harsh for them to argue income tax and base it on the cost basis of my whole portfolio which I mostly bought at much lower prices.

I've stopped trading with my personal pot as I maxed out the CGT allowance for this year. I am trading crypto within companies though and need to figure a way to extract that.

I'll pay the CGT on gains made this tax year, then be non-resident for 5+ years as of next tax year.

For the company set up, your preferred exchanges might come into it. Some exchanges are more hassle with company KYC. Also some exchanges can be picky about jurisdiction. UAE seems limited; Cyprus or Gibraltar better supported and still quite low tax.

I will trade mostly on FTX and Binance. If I could choose only one it would be FTX. I've been sold HK but that doesn't seem a good fit for trading. I've also been heavily sold Panama, but I'm not looking to 'disappear' or give the impression that I am. I'm also told Panama can be tricky if buying property or transferring money to a personal account.

FTX doesn't mention restrictions on UAE on their site. Obviously 0% tax would help with compounding!

I also have crypto stored in UK companies as above which I would need to extract somehow or take a hit on the tax in the UK when I pay out.

So I am still exploring options on the company front.

If you trade from a foreign company and do the work in Georgia, then you create a PE here as discussed above. But if you generate undistributed profits and then move somewhere like Cayman or Dubai to cash out in the following year, did you owe any GE taxes? I don't remember anyone asking this before. Not that Georgia is necessarily able to enforce, but still I am intrigued. The Tax Code of Georgia seems to be offline at the moment; maybe that's a sign too.

That's a good question. I had assumed not. If this was the case then I wouldn't choose Georgia. I'll try to find out.

 

[khinkali]

@mastaplan if you think your portfolio will go up then surely you want to take the hit as early as possible?

FTX prediction markets would certainly be out of bounds for UAE due to strict gambling regulations. Otherwise you should be OK.

 

[mastaplan]

@mastaplan if you think your portfolio will go up then surely you want to take the hit as early as possible?

FTX prediction markets would certainly be out of bounds for UAE due to strict gambling regulations. Otherwise you should be OK.

That's the dilemma. I am thinking I can transfer it out of my UK company into a foreign company. Some say this is absolutely possible and assure me that most people do it . Others say you would need to perform services to the UK company, which I could do. I am waiting on a consultant to come back to me on this. If none of this is at all possible I and the others involved would be better off taking the hit now.

Thanks, sounds like UAE corp + residence somewhere like Georgia might work then.

 

[khinkali]

@mastaplan do I understand correctly that you want to transfer lots of crypto out of the UK and deduct the invoices from your new offshore company against your UK corporation tax?

"Hello Mr Tax inspector, I made £x from trading crypto but then I bought some very expensive Web design from my new Belize IBC so there's no taxable profit". "Oh that's OK then you don't need to pay anything". Simple!

If there are others involved, and all friends, did you consider a Gibraltar private fund? 10% tax but I'm looking into it because it seem easier to set up.

 

[mastaplan]

I see your point Depends how much is 'a lot' of crypto! At current prices we're probably not talking more than could reasonably be invoiced out if I continue to work for the company. Although it might be pushing it, and in six months the value could be a lot higher. On the other hand, taking out whilst resident in UK would be taxed at a much higher % than waiting until I am non-resident. Argh.

 

[khinkali]

Argh

I feel you.

I'd go for the clean break. Take the tax paid money. Put HMRC behind you. Never look back. Compound. I have deep psychological issues relating to HMRC so I might not be impartial.

 

[mastaplan]

I feel you.

I'd go for the clean break. Take the tax paid money. Put HMRC behind you. Never look back. Compound. I have deep psychological issues relating to HMRC so I might not be impartial.

Wise words. Better to just make sure everything is done right going forward. At this rate I think it might be better to pay dividends at eoy rather than income now, but we'll figure it out. Cheers.

 

[backpacker]

Article 82.t has been translated in a way that it no longer reflects its true meaning. The first sentence of Article 82 (1) starts with: "The following types of income of natural persons shall be exempt from income tax : ... ". Further down, subparagraph t1 in the messed English translation indeed mentions "income gained by a resident legal person". However, it should mean "Income received from ...".
The example of subparagraph t1 specifically refers to listings on the A- and B-Segment of the Georgian Stock Exchange (GSE). This can be verified by checking subparagraph t2 which refers to interest received from these GSE listed securities (mostly local bonds like M2 or Georgian Leasing).
Then comes subparagraph t3. This one is used in connection with NBG ordinance 108/04.

The aforementioned is not so much about the exemption of foreign sourced income. It is about the exemption of Georgian sourced income which -at an earlier stage- had been foreign sourced income:
For many years it was a problem for Georgian local brokerage companies to be competitive when operating under a tax code that only qualifies Non-Georgian sourced income as tax exempt. 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.

An unintended consequence of the aforementioned is that it gives an additional layer of safety, even for somebody who only uses direct foreign based brokerage like eToro or NAGA.


This is a huge problem in Georgia: Present the very same case to six different lawyers and get six different answers. Same is valid for tax advise. It is the consequence of an extremely immature legal system.

Since it has been discussed in this thread at length I will put it here:
I came across a new offer from Bank of Georgia where they introduce stock trading (note the word "trading") in US-shares, directly through their online banking system. The interesting part is a broad based tax advice which they use as a marketing tool. You can find it here გზა სულ არის, არ გაჩერდე! (scroll down to the centre of the website and look up "Favourable tax conditions").
Of course, it would not be Georgia without a significant mistake : The Georgian tax code does not distinguish between citizen and resident when it comes to capital gains!

Read this in context with my aforementioned post and you understand where they base their claim on.

 

[bizman]

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.

what did you figure out? Did you ask a professional tax advisor in Georgia to help you with the correct answer?