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.