Rates: General and Preferential
Income tax planning begins with the exact rates: the taxable income of an individual is taxed at 20 percent unless the Tax Code provides otherwise. That is the general rule, but the law also contemplates several preferential rates: income received by an individual from renting residential space to an organization, legal entity or individual for residential purposes, where that individual claims no deductions from this income, is taxed at 5 percent; and the excess income received by an individual from the supply of a residential flat (house) with the land plot attached to it, as well as from a motor vehicle, is likewise taxed at 5 percent.
Differentiated rates are the first planning instrument: the same economic result — income from property, for instance — may carry considerably less tax depending on the legal form chosen, which is why the choice of form is the central question of tax planning. The computation of excess income is defined by the corresponding norm of the Code, so the figures are best calculated before a sale is even intended.
Exempt Incomes of Social Purpose
A whole range of socially oriented incomes is exempt from income tax: received grants, state pensions, state compensation, state academic scholarships and state scholarships; a benefit received within charitable activities from a non-commercial legal entity founded by the state, and a benefit received from a charitable organization to finance treatment or medical services; alimony; the value of property received on the ground of divorce; and the awards received by athletes, coaches and medical staff of national teams for victories or prize places at the Olympic Games, chess Olympiads, world and European championships and comparable events.
The essence of this list is clear: incomes of social purpose and rewards for sporting achievement are removed from the tax base altogether. For planning purposes it matters that the exemption is automatic — it requires no separate application or condition, being established by the law itself.
Exemptions on the Sale and Gift of Property
Excess income from the supply of property is often not taxed at all: exempt are the excess from the sale of a residential flat (house) with the land attached that has been owned for more than 2 years; the excess from the sale of a motor vehicle owned for more than 6 months from the registration of the right of ownership; and the excess from the supply of any other asset owned for more than 2 years, provided the asset was not used in economic activity before its supply.
The exemptions for gifts and inheritance are layered as well: the value of property received by gift or inheritance during a tax year by heirs of the first and second rank is not taxed at all; property received by gift from other sources is exempt up to a value of 1000 GEL (except from an employer); and for heirs of the third and fourth rank the annual exemption threshold is 150 000 GEL. The circle of close relatives and the value of the property are thus the two principal variables of the decision.
Pension, Agricultural and Other Special Exemptions
Pension instruments also enjoy fiscal favour: the pension contribution made to the account of a participant of the funded pension scheme, the benefit accrued on it and the pension paid in accordance with the law are not taxed; in a voluntary private pension scheme, contributions made by or for a participant up to a total of 6000 GEL per year are exempt, as is the benefit received from the scheme in the manner prescribed by law.
Several special rules deserve separate mention: the taxable income of a person employed in agricultural production from the first supply of agricultural produce manufactured in Georgia is exempt where the total annual income from such supply does not exceed 200 000 GEL — this exemption operates until 1 January 2028; lottery winnings are exempt up to a value of 1000 GEL; and income received by a resident individual that is not attributable to a source in Georgia is not taxed at all — the territoriality principle, under which income from foreign sources creates no personal income tax liability.
Special Taxation Regimes
The Tax Code also contemplates special taxation regimes: they include individuals holding micro-business status, entrepreneurial individuals holding small-business status, and persons holding the status of a fixed-tax payer. These statuses replace the general income-tax regime with special conditions, and obtaining one is often precisely the choice that significantly reduces the tax burden for small businesses. The conditions and limits of each status are defined by other norms of the Code, so the selection of a status proceeds from the structure of income.
Frequently Asked Questions on Income Tax Planning
At what rate is income taxed?
Generally at 20 percent; income from renting residential space and the excess from the supply of a flat, land plot or vehicle — at 5 percent.
When is the excess from a sale of property untaxed?
For a flat — when owned for more than 2 years; for a vehicle — more than 6 months from registration; for another asset — more than 2 years and not used in economic activity.
How are gifts and inheritances taxed?
For first- and second-rank heirs — without limit; otherwise up to 1000 GEL per year; for third- and fourth-rank heirs — up to 150 000 GEL.
Which regimes exist for small businesses?
The statuses of micro business, small business and fixed-tax payer.
How We Help on Legal.ge
Income tax planning requires an analysis of the structure of income, precise application of differentiated rates and exemptions, and selection of a special regime. The Legal.ge team will review your income, assess the use of exemptions and help you choose a status. Contact us — we will build a tax plan grounded in your interests.