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.
Automatic Exchange of Information
Another direction of international cooperation is the automatic exchange of information on financial accounts: under the corresponding norm of the Tax Code, a reporting financial institution must carry out the procedures required by the common reporting standard and submit to the tax authority information on each reportable financial account of a resident of the relevant jurisdiction. The information is submitted after the end of the calendar year to which it relates, but no later than 30 June of the following calendar year. The tax authority may request additional information within a reasonable period of at least 15 calendar days, and a transaction concluded to avoid the reporting obligation does not release the person from it. Tax transparency is thus the indispensable backdrop of any double taxation management.
Frequently Asked Questions
Double taxation questions most often concern credit limits, rates and refund deadlines. Short answers on these topics are collected below.
Can tax paid abroad be credited?
Yes — an enterprise may credit profit tax paid outside Georgia for the corresponding tax year where the income is not from a Georgian source. The credited amount must not exceed the tax levied in Georgia.
At what rates is a non-resident taxed at source?
Royalties at 5 percent, telecommunications and international transport services at 10 percent, oil and gas sub-contractor income at 4 percent, and other Georgian-source amounts at 10 percent.
When can withheld tax be refunded?
A non-resident may submit a declaration by 1 April of the year following the reporting year requesting recalculation and refund; the recalculated tax must not exceed the amount taxed at source.
How does the automatic exchange of information work?
A reporting financial institution submits information under the common reporting standard to the tax authority by 30 June of the following year, and avoiding the reporting obligation through artificial transactions is impossible.
May tax paid abroad be credited?
Yes — an enterprise may credit profit tax paid outside Georgia, for the corresponding tax year, against income not received from a source in Georgia.
How We Help on Legal.ge
The Legal.ge team approaches double taxation issues in every detail: we analyse the applicable international treaty, the credit limits and the refund procedure. Get qualified assistance with tax planning and the preparation of declarations on Legal.ge. Crediting operates within the corresponding tax year. The applicability of a treaty is verified separately in each case, as is the residence status of the recipient.