Legal Foundations of Investor-State Disputes
A dispute between an investor and the state arises when a state action or decision affects the investor's rights — expropriation of property, the terms of compensation, repatriation of profits, or restrictions on activity. The substantive foundation of such disputes is embedded in the law on investment activity: it defines what counts as an investment, who is an investor, which rights and guarantees the investor receives, and under which conditions deprivation of property is permissible. Establishing a violation of precisely these norms reveals the state's obligation and creates the basis for a compensation claim.
The Concept of Investment and Protected Forms
An investment is every kind of property and intellectual value or right that is invested and used for the purpose of deriving possible profit in entrepreneurial activity carried out on the territory of Georgia. The law recognizes as such values monetary funds, shares, stocks and other securities; immovable and movable property — land, buildings, equipment; the right to use land or other natural resources, including concessions, patents, licenses, know-how and experience; and other property or intellectual values recognized by law. The first question in a dispute is often exactly this — the defense must establish that the disputed object was made through a form of investment protected by law.
The Investor and the Foreign Investor
An investor is a physical or legal person, as well as an international organization, carrying out investment in Georgia. A foreign investor is a citizen of a foreign state; a stateless person who does not permanently reside in Georgia; a Georgian citizen permanently residing abroad; and a legal entity registered outside the borders of Georgia. Investment may be made in an object of any form of ownership where investment is not prohibited by law; in certain objects specified by the law, investment is permissible only on the basis of a corresponding special permit or license. Correct determination of status defines which guarantees apply to the person — including the right of repatriation.
Rights and Guarantees of the Investor
In the course of investment and entrepreneurial activity, the rights and guarantees of a foreign investor may not be less than those enjoyed by physical and legal persons of Georgia, except in cases established by legislation. The investor may open current and other accounts in banking institutions in any currency, take loans from banking and financial institutions or from physical and legal persons, acquire securities and property; the rights of possession, use and disposal of the results of investment may be transferred to another person in the manner established by law.
One of the most significant guarantees of the foreign investor is repatriation: after payment of taxes and mandatory fees, the investor has the right to convert, at the market rate, profit derived from investments and other monetary funds and to repatriate them abroad without limitation. The law includes in such funds any contribution to the capital of an object created by the foreign investment, any profit and dividend, funds remaining after full or partial sale or liquidation, contractual payments including loan obligations, and royalties. The right of transfer may be restricted only by a court decision on the basis of law — in connection with bankruptcy, the commission of a crime, or non-performance of a civil obligation.
Inviolability, Expropriation and Compensation
An investment is fully and unconditionally protected. Its deprivation is permissible only in cases directly established by law, by a court decision or in a state of urgent necessity established by an organic law, and only with appropriate compensation. A decision on deprivation and the terms of compensation may be appealed in a Georgian court, unless the parties' agreement or an international treaty provides otherwise — this norm entrusts the choice of forum for resolving the dispute to the parties' agreement.
The compensation standard is likewise set by law: it must correspond to the real market value of the deprived investment at the very moment of deprivation, must be paid without any delay, and must include the loss the investor suffered from the moment of deprivation until payment of the compensatory amount. A foreign investor also has the right to convert the compensatory amount at the market rate in Georgian banking institutions and to transfer it abroad freely and without hindrance. Comparing the offered amount against these standards determines whether it is appropriate.
Frequently Asked Questions
What counts as an investment?
Every kind of property and intellectual value or right invested for profit in entrepreneurial activity — from monetary funds and shares to concessions and know-how.
Who is a foreign investor?
A citizen of a foreign state, a stateless person not permanently residing in Georgia, a Georgian citizen permanently residing abroad, and a legal entity registered abroad.
When is deprivation of property permissible?
Only in cases directly established by law, by court decision or in urgent necessity established by organic law, and only with appropriate compensation.
How is compensation calculated?
At the real market value at the moment of deprivation, paid without delay and including the loss suffered until payment.
How We Help on Legal.ge
The specialists of Legal.ge work on disputes between investors and the state: we establish the status of the investment and the fact of violation, assess the conformity of compensation with the market-value standard and conduct the case in the appropriate forum. Contact us — early and correct qualification of the dispute predetermines the recoverable compensation.