The Two Tax Axes of the Export Model
A live-dealer studio serving foreign operators rests, in Georgian tax law, on two axes: the object of profit taxation and the operations taxable with VAT. Article 97 of the Tax Code of Georgia provides: the object of taxation with profit tax for a resident enterprise is distributed profit; an expense or other payment not connected with economic activity; the gratuitous supply of goods/provision of services and/or transfer of funds; and representative expenses above the established limit.
In studio practice this list creates three sources of risk: planning the distribution of dividends within the parent group, controlling the deductibility of intercompany payments, and the fact that gratuitous service — for example, demonstration sessions for a partner — becomes an object of taxation. Therefore contractual discipline, where every service is substantiated and priced, is the precondition of a clean tax base.
Non-Resident Connections and the Permanent Establishment
The non-resident norms of the same article matter for the export model: for a non-resident enterprise carrying out activity in Georgia through a permanent establishment, the object of taxation is determined by the expenditure of that non-resident or its permanent establishment arising from the activity of the permanent establishment. From the side of the foreign operator, income received from a source in Georgia that is not attributed to a permanent establishment is taxed at source without deductions, under the corresponding rule established by the Code.
This is precisely where the contractual architecture of the studio resonates: if representatives of the foreign operator permanently work in Georgia with the studio, the question of its permanent establishment may arise — and managing this risk is done by contractual formulations, before the tax authority draws its conclusion.
The VAT Layer — Determining the Border
Article 159 provides: operations taxable with VAT are the supply of goods and the provision of services by a taxable person for consideration, within economic activity, on the territory of Georgia, as well as the import of goods. A supply of goods or provision of services directly connected with another type of supply, or of an auxiliary character to it, is considered part of the principal operation.
For an export studio the decisive question is the border: the place of provision of the service. A service provided within economic activity on the territory of Georgia is regarded as a taxable operation, and the detailed rules for determining the place of provision are defined by other norms of the Code — therefore taking the service to foreign business-to-business operators outside the scope of Georgian VAT always requires exact verification of those rules, not intuition.
The Architecture of Contracts
From the two tax axes, the contracts of an export studio are written down in four blocks. First: the description of the service — what exactly the studio performs, where and for whom; this description is the first contested point of both VAT and permanent-establishment risk. Second: pricing and costs — the substantiation of intercompany payments is the basis of deductibility control. Third: intellectual property and the use of the brand. Fourth: the block of concessions — the allocation of taxpayer status in disputed cases.
A separate note concerns the specifics of non-monetary expenditure: under the corresponding norms of the Code, where payments are made in non-monetary form the object of taxation is determined at the market price of the goods supplied or services rendered — which makes the transfer-pricing assessment of intercompany sessions, equipment swaps and barter arrangements an ongoing concern. Documentary discipline here creates the model of a tax audit: the studio whose contracts describe the boundaries correctly from the outset passes the audit as a procedure; the one whose formulations are vague — as a risk.
Finally, the interrelation of the axes must enter the model as well: the cleanliness of the profit object rests on the correctness of the VAT border, and vice versa — an error on one axis is reflected on the other. Best practice therefore is a two-axis control table: for every contract — the status, basis and responsible role for both taxes. At audit time this table becomes the map of substantiation and needs no further explanations.
Frequently Asked Questions
What is the object of taxation for a resident enterprise?
Distributed profit, expenses unconnected with activity, gratuitous supply or transfer, and representative expenses above the limit — per the list of Article 97.
When is an operation taxable with VAT?
When a taxable person, within economic activity on the territory of Georgia, supplies goods or provides services for consideration, and also on import.
Why does the permanent establishment matter?
Because its existence moves the taxation of a non-resident to expenditure arising from the activity of the permanent establishment, and managing that border is done by contractual formulations.
How should a service be described in a contract?
Precisely, with territorial and functional boundaries — this is the first line of defence for both the VAT border and a tax audit.
How We Help on Legal.ge
We will review the two tax axes of your studio — profit tax and VAT — build the four-block architecture of contracts and prepare you for an audit. Contact us on Legal.ge — in the export model, tax cleanliness begins with the contract.