Profit Tax Rates
Under Article 98 of the Tax Code, the profit tax rate is 15 percent. The choice of rate depends on the activity: profit from oil and gas operations under existing agreements is taxed at 10 percent where the agreement was concluded before 1 January 1998; the taxable profit of a banking institution, credit union, microfinance organization or loan-providing entity is taxed at 20 percent. The profit of an organizer of electronically organized gambling or totalizator games with the participation of foreign citizens is taxed at 5 percent in that part, while taxable profit from a slot-machine hall is taxed at 20 percent. The first step of optimization is therefore the correct classification of the activity and the corresponding rate.
Distributed Profit and Dividends
Under Article 98-1, distributed profit is profit distributed by an enterprise to its partner as a dividend, in monetary or non-monetary form. Not treated as distributed profit are payments on liquidation or buy-back of shares not exceeding the contribution to capital (placed and emission capital); the transfer of assets to the state or municipality on a capital reduction where more than 50 percent of the shares belong to the state or municipality; the distribution of a dividend received from a foreign enterprise — except from a person registered in a low-tax jurisdiction; and a payment made by transferring shares of the same enterprise, except a share security issued through a public offering and admitted to trading on an organized market.
At the same time, a transaction with a related or exempt person whose price differs from the market price, where the relationship influences the outcome of the deal, is deemed a distribution of profit, the amount being the difference between the prices. A controlled transaction whose terms do not correspond to the market principle is likewise deemed distributed profit, in the amount of the correction computed under the procedure established by the Code. Pricing policy with participants thus directly affects the taxable base.
Dividends, Interest and Royalties at Source
Under Article 130, dividends paid by a resident enterprise to an individual, a non-commercial legal entity or a non-resident enterprise are taxed at source at a 5 percent rate. Not taxed at source are dividends paid to the state; dividends received by a member of an agricultural cooperative until 1 January 2028, except out of profit from the activity defined by the law on agricultural cooperatives; dividends paid by banking institutions out of profit of 2023 and subsequent periods; dividends of gambling organizers out of profit of 2025 and subsequent periods; and a dividend received from an enterprise of a free industrial zone.
Under Article 131, interest is taxed at source at 5 percent; not taxed are interest from a licensed financial institution, interest paid to the state and interest on loan securities listed on a recognized foreign stock exchange. Under Article 132, royalty paid to a resident individual is taxed at source at 20 percent — except to an individual registered as a VAT payer. Dividends, interest and royalty taxed at source are not included in the recipient’s gross income again and are not subject to further taxation.
Profit Pulled out of a Permanent Establishment and Related Rules
Under Article 98-1, distributed profit for a non-resident’s permanent establishment means a payment made from the profit of that establishment to the non-resident — that is, profit pulled out of the permanent establishment. The establishment is also attributed the profit it could have received as an independent enterprise carrying on the same or similar activity under the same or similar conditions. For identification purposes, when a dividend is distributed, the amount of the dividend received from a foreign enterprise is deemed paid first. An entrepreneur individual who received royalty taxed at source may credit the amount paid into the budget; interest received from a licensed financial institution is not included in the recipient’s gross income where the recipient is not itself such an institution.
The Legal Boundaries of Optimization
Knowing the rates and computations allows the base to be legitimately reduced: choosing the moment of dividend payment, using payments not taxed at source, and documenting market prices in transactions with related persons. These norms are established by Articles 98, 98-1, 130, 131 and 132 of the Code, and their misuse ends in sanctions — every scheme must therefore first be checked against the norm.
Frequently Asked Questions
Below we answer the questions most frequently raised about profit tax optimization.
What rate applies to profit tax?
Generally 15 percent; 20 percent for banks and loan-providing entities; 10 percent under oil and gas agreements concluded before 1 January 1998.
What is the dividend rate at source?
5 percent on dividends paid to an individual, a non-commercial legal entity or a non-resident.
When is a dividend not taxed at source?
Inter alia, when paid to the state, to a member of an agricultural cooperative until 1 January 2028, and out of banking profit of 2023 and subsequent periods.
Which payments are not treated as distributed profit?
Payments on liquidation or buy-back within the amount of the contribution, the transfer of assets to the state on a capital reduction with state ownership, and the subsequent distribution of a dividend received from a foreign enterprise.
How is royalty taxed?
Royalty paid to a resident individual is taxed at source at 20 percent, except to an individual registered as a VAT payer.
How We Help on Legal.ge
On Legal.ge we help enterprises with legitimate profit tax optimization: mapping the applicable regime, analyzing dividend flows and checking transaction prices against market. Contact our team.