The Legal Nature of the Free Industrial Zone
In Georgian law a free trade zone means a free industrial zone — that species of free zone foreseen by the Customs Code where additional conditions and tax benefits operate. Under the relevant law it is a part of the territory of Georgia with defined borders and a special status conferred by law, allocated for a fixed term for economic activity, within which persons are subject to a special economic and legal regime.
Two decisive details define the zone's administrative face: the powers of municipal organs do not extend to the free industrial zone, and the zone may be created on any territory whose area exceeds 10 hectares, except for protected territories defined by Georgian legislation. The entrance and exit of the zone are determined under the rules of customs legislation, and a customs checkpoint is arranged there.
The Creation Procedure and the Organizer's Role
A free industrial zone may be created on the initiative of the Government of Georgia or at the request of a physical or legal person — the organizer. For the creation of the zone the organizer must submit a guarantee whose amount and conditions are determined by a Government resolution on the rules of creation, arrangement and functioning of free industrial zones. Both the decision on creating the zone and the general rules of its functioning are determined by the Government.
In practical terms this means that for an investor the correct planning of the guarantee and a well-founded submission of the request are decisive: the law assigns to a Government resolution the details that shape the project's financial model and timelines, and those details must be aligned in advance.
Enterprise Status and Permanent Establishments
A free industrial zone enterprise may be an enterprise of any organizational-legal form and form of ownership registered in the zone under the general norms of enterprise registration. Business in the zone is conducted by enterprises registered there, while enterprises registered outside the zone — Georgian and foreign alike — operate in it through permanent establishments. The exception covers Georgian enterprises carrying out the distribution of electricity, water and natural gas, communications and sewage services and related activities.
It is equally important that a zone enterprise operating on the rest of Georgia's territory, that is, outside the zone, acts as a permanent establishment of a foreign enterprise. The organizer and the administrator, for their part, do not constitute a zone enterprise and must be registered elsewhere in Georgia — a nuance that frequently becomes a source of errors when group structures are planned.
The Tax Regime and Customs Benefits
The economic appeal of the zone is summed up in its tax package. Tax matters in the zone are regulated by the Georgian Tax Code and the Customs Code. Profit received by a free industrial zone enterprise is exempt from profit tax, except for the case provided for by the same Code. The introduction of foreign goods into the zone is not taxed with value added tax, operations carried out in the zone are not taxed with it either, and property existing in the zone is exempt from property tax.
On the customs side: the introduction of foreign goods into the zone is exempt from import duty, and the import of goods produced in the zone into the rest of Georgia's territory is likewise exempt from import duty. Settlements in the zone are made in any currency, including between a zone enterprise and a Georgian enterprise. Employees, for their part, pay income tax on the basis of income declaration. The licensing regime is described separately: by a Government resolution it is possible to abolish the obligation to obtain a license or permit for particular activities in the zone, or to introduce a simplified procedure for obtaining one.
Permitted Activities and the Certificate of Origin
Any production of goods, processing or provision of services is permitted in the zone, except for the activities restricted by law. The use of a building for residential purposes is impermissible in the zone — a barrier designed to protect the industrial purpose of the zone. For goods produced in the zone, the Revenue Service — a public law legal entity within the governance of the Ministry of Finance of Georgia — issues a certificate of the appropriate form confirming the Georgian origin of the goods, which creates an additional legal basis for entering international markets.
Frequently Asked Questions About Free Zones
Which territory can be declared a free industrial zone?
Any territory whose area exceeds 10 hectares, except protected territories defined by legislation. The powers of municipal organs do not extend to the zone.
Who decides on the creation of a zone?
The Government of Georgia — on its own initiative or on the basis of an organizer's request. The organizer must submit a guarantee whose amount and conditions are determined by a Government resolution.
From which taxes is the zone exempt?
Profit received by a zone enterprise is exempt from profit tax, the introduction of foreign goods and operations in the zone from value added tax, property from property tax, and imports from import duty.
Can buildings be used for residential purposes in the zone?
No — residential use of buildings is impermissible in a free industrial zone, although any production, processing or provision of services is permitted within the limits set by law.
How We Help on Legal.ge
We help investors and groups prepare free industrial zone projects: we assess the compliance of the territory and status, prepare the organizer's request and guarantee package, plan the structure of enterprises and permanent establishments, and analyse the use of tax benefits. Contact us — a zone project begins with the right legal assembly.