M&A Tax Structuring is a strategic planning process designed to shape merger and acquisition transactions in a way that achieves maximum tax efficiency within the legal framework. In Georgia, where the tax burden can vary significantly based on the deal format (e.g., share deal vs. asset deal), correct structuring directly impacts the return on investment and the final financial outcome. This service helps buyers and sellers choose the optimal legal and financial model to avoid unnecessary taxes, double taxation, and future fiscal risks. The involvement of a professional tax lawyer at the early stage of the deal is crucial.
Tax structuring services for M&A transactions involve multi-layered analysis and strategic advice. Key components include:
- Deal Format Selection: Analyzing whether a "Share Deal" or "Asset Deal" is better, considering VAT and Profit Tax implications.
- Holding Structure Creation: Planning an optimal corporate structure between Georgian and foreign jurisdictions to minimize dividend taxation.
- Financing Structuring: Determining the Debt vs. Equity ratio and optimizing interest expense deductibility.
- Reorganization Type Definition: Choosing the optimal method of merger, division, or conversion that benefits from tax exemptions.
- Exit Strategy Planning: Pre-calculating and minimizing expected taxes upon future exit from the investment.
Let's consider several common scenarios. First: An investor wants to buy a factory. If they buy the company's shares (Share Deal), they inherit all past tax liabilities but do not pay VAT. If they buy only the assets (Asset Deal), they avoid past risks but may face 18% VAT, increasing the deal cost. Tax structuring helps resolve this dilemma. Second scenario: A foreign company establishes a subsidiary in Georgia to manage other regional entities. Here, leveraging Double Taxation Avoidance Treaties is vital for dividend repatriation. Third case: A merger of two Georgian companies, where asset transfer must be documented so that it is not considered a taxable supply.
Georgia's legal framework allows for flexibility but requires detailed knowledge of the Tax Code of Georgia. Specifically, the Code defines rules for taxing asset transfers during reorganization (often exempting them from VAT). The Law on Entrepreneurs regulates the procedural part of reorganization, which is closely linked to tax consequences. Also important are International Double Taxation Treaties, which Georgia has signed with over 50 countries. These treaties often define tax rates on dividends, interest, and royalties during cross-border M&A deals.
The structuring process begins with understanding the client's commercial goals. Tax lawyers and consultants develop several alternative scenarios ("Step Plan"), comparing the tax leakage and risks of each. Then, the chosen model is detailed, tax clauses (Tax Indemnities, Warranties) are formulated in contracts, and, if necessary, an Advance Tax Ruling is obtained from the tax authority on complex issues. This ensures deal security and predictability.
Legal.ge offers access to highly qualified tax structuring experts. The specialists on our platform have experience in both local and international M&A transactions. They will help you create a business architecture that is not only legal but also financially most profitable. Don't leave money on the table due to poor planning—find your strategic tax advisor on Legal.ge today.
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