Relief from double taxation is one of the central tax issues of international economic activity: taxing the same income in two states places a significant financial burden on business. The Georgian Tax Code answers this problem with several instruments — the procedure for enjoying tax benefits under international double taxation treaties, the credit for tax paid abroad, and the mechanism for recalculating tax withheld at source. The precise application of these rules is exactly what distinguishes lawful tax planning from being taxed twice.
Benefits Under International Treaties
Under Article 125 of the Tax Code, the enjoyment of the tax benefit determined by international double taxation treaties, and the procedure for refunding tax paid in Georgia by a non-resident, are defined by an order of the Minister of Finance of Georgia. This means that the practical use of a treaty benefit — the list of documents, the refund procedure and the deadlines — is established by a single legal act. Where the treaty so provides, a non-resident may recover part or all of the tax withheld in Georgia.
Credit for Tax Paid Abroad
Article 124 of the Tax Code entitles an enterprise to credit profit tax paid outside Georgia, for the corresponding tax year, against profit tax paid in Georgia on income not received from a source in Georgia. The same possibility belongs to an enterprise taxed on distribution of profit: when paying profit tax on a dividend issued, it may credit the profit tax paid abroad on non-Georgian-source income. At the same time, the credited amounts must not exceed the amounts of tax that would have been levied on that profit in Georgia under Georgian rules and rates — the credit can never exceed the Georgian tax.
Taxation at Source and Recalculation
Article 134 of the Tax Code sets the rates for taxing a non-resident's income at the source of payment: royalties are taxed at 5 percent; amounts paid for international telecommunications and international transport services at 10 percent; income of non-resident sub-contractors in oil and gas operations at 4 percent; and other Georgian-source amounts at 10 percent. For persons registered in a preferential-tax country, a 15 percent rate applies in certain cases. The recalculation mechanism matters no less: a non-resident taxed at source may, by 1 April of the year following the reporting year, submit a declaration requesting recalculation and refund of the withheld tax, based on the difference between aggregate income and deductible amounts. The recalculated tax must not exceed the amount taxed at source.