Foreign Direct Investment — the Georgian Tax Interface
Georgia's investment regime is open: there is no law imposing special screening or capital requirements on foreign investors, and what actually governs a foreign investor is the interface of the Tax Code: the denial of a permanent establishment for mere shareholding, taxation only through an establishment or at source, the 5 percent dividend withholding rate, source rates and treaty relief. The state-treaty layer is treated on another page; here the carrier is the Tax Code. Note also that foreign investment-treaty frameworks are not Georgian domestic law — the page is carried by Georgia's open-entry, tax-interface regime.
No Establishment from Mere Shareholding
The Tax Code's permanent-establishment rules contain the investor's principal protection written directly into the text: the ownership by a foreign enterprise of Georgian shares or units does not by itself create a permanent establishment. Portfolio and holding structures remain outside the tax net: owning a share in a Georgian company does not create a production or tax presence. On this norm the residency discussion also turns: the form of the investor's entry into the Georgian market decides whether it falls into the tax net only when it carries on real activity.
At the same time, the list of what is equated to a permanent establishment is broad: a construction site, an assembly or installation object and the supervisory activity connected with them; a rig or a ship used for the exploration of natural resources; the permanent base of a non-resident individual; and the place of management, a branch, a representation or any other subunit. And more: the management of the enterprise carried out by another person in its name and interests for more than three months is itself deemed a permanent establishment — prolonged management service must therefore never be confused with the neutrality of mere ownership.
Who Is a Taxpayer and When
A non-resident enterprise pays profit tax only on income derived from the activity of a Georgian permanent establishment or received from a Georgian source. Income from the realization of shares not attributable to a permanent establishment is taxed on the difference between the aggregate annual income and related deductions — this is the holding-exit formula when the investor sells the Georgian company to a third person.
The Code also gives an additional instrument to the non-resident with source-taxed income: until 1 April of the year following the reporting year it may submit a declaration demanding the recalculation and refund of the withheld tax. In that case its taxable income is determined as the difference between the aggregate Georgian-source income and the deductible amounts provided by the Code, and the tax paid may not exceed the amount taxed at source.
Dividend and Source Rates
Dividends paid by a resident enterprise to a non-resident enterprise are taxed at source at a rate of 5 percent of the amount payable — the basic price of repatriation from a Georgian holding. The general source-taxation regime governs other Georgian-source income: royalty at 5 percent, international telecommunications and international transport services at 10 percent, income of non-resident subcontractors in oil and gas operations at 4 percent, other Georgian-source amounts at 10 percent, and salary income under the general salary rules. In investor modelling these figures set the total cost of repatriation. Remember the exceptions as well: for a person registered in a preferential-tax country the Code gives a special rule that must always be verified before application; and dividends received by a resident physical person and taxed at source are not subject to further taxation — a rule that simplifies the calculation for small shareholders.
Treaty Relief
Double-taxation treaties give non-residents beneficial relief: a treaty removes or limits the source rate, and the investor's final cost is determined by the treaty of its country of residence. Before applying treaty relief the domestic rules must be verified — the determination of the investor's residence and the procedure for applying the relief are administratively regulated.
Frequently Asked Questions
Below we summarise the questions that arise most often in practice on this topic.
Does shareholding create a permanent establishment?
No — a foreign enterprise's ownership of Georgian shares or units does not by itself create one.
What is the dividend tax?
5 percent of the amount payable at source — before applying treaty relief.
How is a share exit taxed?
Where not attributable to an establishment, on the difference between aggregate annual income and deductions.
How does a treaty work?
It removes or limits the source rate; application begins with the determination of residence under the domestic rules.
Can withheld source tax be recovered?
Yes — a declaration for recalculation and refund may be submitted until 1 April of the following year; the taxable income is then determined as the difference between aggregate income and deductions.
How We Help on Legal.ge
Our team will help you model the investment structure — from assessing permanent-establishment risk to calculating repatriation — and apply treaty relief. Contact us on Legal.ge: each layer of the structure — entry, holding and exit — is verified separately against the text of the Code, and precisely this distinguishes the prepared investor from improvisation.