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.
Import Relief for Grant-Financed Goods
The third direction concerns goods brought in from abroad. Imports are, first, exempt from the import tax where the goods are imported for the elimination of the consequences of natural disasters and catastrophes, as well as for humanitarian assistance. Two further reliefs matter directly for grant projects. The import of goods envisaged by the grant agreement is exempt, in the manner determined by a decree of the Government of Georgia. And the import of goods financed by grants, or by a preferential credit issued by a state organ of a foreign country or by an international organisation, is exempt where the credit contains a grant element of not less than twenty-five percent. The grant element is calculated by the Ministry of Finance of Georgia in accordance with a resolution of the Parliament of Georgia: the correct calculation of that element in the project documentation determines whether the import qualifies, and it should be obtained before shipping rather than at the border.
The Concept of an Organisation for Tax Purposes
For grant-receiving organisations, Article 30 of the Code defines the concept of an organisation for tax purposes. An organisation includes non-commercial legal persons, public or religious organisations and institutions created under Georgian or foreign law, branches and other analogous subdivisions of foreign organisations through which they carry on activity in Georgia, budgetary organisations, public-law legal persons, and international organisations together with diplomatic missions and consular posts. Where an organisation carries out economic activity, the part of its property and activity directly connected with that activity is treated as the property and activity of an enterprise, and where such separation is impossible the proportionate share of income received from the economic activity is applied. For a grant-receiving non-commercial organisation this separation is decisive: commingling grant flows with commercial flows will reflect both on reporting and on the availability of tax reliefs.
Frequently Asked Questions
Below we answer the questions that grant recipients most often raise at the tax-planning stage.
Is a received grant subject to income tax?
No. Article 82 exempts a received grant from income taxation; the benefit received from a state-founded non-commercial legal person within charitable activity is likewise exempt.
Can VAT paid on goods acquired under a grant be recovered?
Yes. The grant recipient may credit or refund the VAT paid on goods or services acquired within the grant agreement by submitting a tax invoice or a payment-confirmation document to the tax authority within three months of the end of the month of the taxable operation.
When does the law exempt the import of a grant project from tax?
Where the goods are envisaged by the grant agreement in the manner determined by a government decree, or are financed by a grant, or by a preferential credit containing a grant element of not less than twenty-five percent.
How We Help on Legal.ge
Tax support for a grant project requires precise command of the relevant norms of the Tax Code and of the documentary deadlines attached to them. On Legal.ge you can consult an experienced tax lawyer who will assess the structure of your grant, guide you through the VAT credit or refund procedure, and protect your interests in dealings with the tax authority. Fill in the request form on the site and receive qualified assistance.