The Tax Treatment of State Grants in Georgia
A state grant is a significant financial resource, but the relationships it creates cut across three distinct tax regimes: the income-tax treatment of the grant received, the credit or refund of value added tax paid on goods and services acquired under the grant, and the relief from import tax on grant-financed goods. This page explains each of these directions on the basis of the specific norms of the Georgian Tax Code. Two boundaries should be stated at the outset. The procedure for awarding state grants — who awards them, under what priorities and by what procedure — is governed by budget legislation and government acts and lies outside the Tax Code; what follows is the law that applies once the grant has been received. And "federal grants" is a term of federal systems of government: Georgia is a unitary state, and the grants discussed here are state and international grants governed by Georgian tax law.
Exemption of Grant Income from Income Tax
Article 82 of the Tax Code exempts defined categories of income of natural persons from income taxation, and a received grant stands in the first rank of that list — alongside the state pension, the state compensation and state scholarships, and amounts received for assistance and one-off disbursements from budget appropriations or budget reserve funds. When a person receives a grant, that amount does not enter the income-tax base and no additional tax arises on it. The same article exempts the benefit received from a non-commercial legal person founded by the state within charitable activity, as well as the benefit received from a charitable organisation for the financing of medical treatment or medical services. Applying these exemptions correctly requires documentary confirmation that the income was indeed received as a grant or one of the enumerated benefits, which makes the grant file itself a tax matter.
Credit or Refund of VAT Paid on Grant-Financed Purchases
The second direction concerns value added tax. Article 181 of the Code provides that a grant recipient who acquired goods or services within the framework of the grant agreement is entitled to credit or refund of the VAT paid on those goods or services, on the basis of a tax invoice, or of a document confirming payment of VAT into the budget under reverse charge, submitted to the tax authority. The exercise of this right is tied to a strict deadline: the corresponding document must be submitted within three months of the end of the month in which the taxable operation was carried out; missing it creates a real risk of losing the entitlement. The refund of the VAT amount in these cases follows the general procedure established by the Tax Code: the grant recipient uses the ordinary refund procedure, but the basis of the claim is precisely the acquisition made under the grant agreement.