Correct calculation of income tax and pension contributions is the foundation of payroll administration: what counts as salary, which benefits are taxed and which are not, which exemption applies to a particular employee, and when the withheld tax must be transferred — all of this is established by the Georgian Tax Code. Under Article 101 of the Code, salary income includes any remuneration or benefit received from employment, including income from a previous workplace in the form of a pension or otherwise. Salary is thus not exhausted by monetary payment — every employer-granted benefit requires tax assessment.
Valuation of Benefits and Personal Use of a Car
The Code sets individual rules for valuing benefits: for a loan issued at a below-market rate — the amount corresponding to the interest payable; for a transfer of goods or services — the market price; for the transfer of housing — the annual market rent; for reimbursement of expenses — the amount reimbursed; for forgiveness of a debt — the amount of the debt; for insurance — the premium paid. A separate rule concerns personal use of the employer's car: the benefit is treated as salary and taxed by engine volume — above 3500 cubic centimetres at 300 GEL, 2500 to 3500 at 200 GEL, below 2500 at 100 GEL, and a hybrid at 60 GEL per month; this tax must be paid by the tax agent no later than the 15th of the month following the reporting month. Personal use of the employer's electric car is not taxed.
Rates and Items Excluded from Salary
Under Article 81 of the Tax Code, the taxable income of a natural person is taxed at 20 percent unless the Code provides otherwise; income from renting out residential space without deductions is taxed at 5 percent. At the same time, salary income does not include reimbursement of business trip expenses within the norm set by the Ministry of Finance, reimbursement of representation expenses, organized transport between home and work, a benefit received within compulsory insurance, and — importantly — pension contributions made by the employer and the state to the employee's individual pension account under the law on accumulated pensions. This means that accumulated-pension contributions do not increase the taxable salary base.
Exemptions and Pension Schemes
Article 82 of the Code contains a broad list of exemptions: income tax does not apply to grants received, state pensions, state compensation and state scholarships. In a voluntary private pension scheme, contributions of up to 6 000 GEL in aggregate per year are not taxed, and neither is the benefit received on participation when taken at pension age by programmed withdrawal or in annuity form. Separate exemptions are defined for specific categories: for veterans, single parents, adoptive parents and parents of many children permanently residing in highland settlements, taxable income of up to 3000 GEL per calendar year is not taxed; for persons with disability from childhood and certain highland residents — up to 6000 GEL; and for a resident of a highland settlement with one or two children, the tax on salary of up to 3000 GEL from a budget organisation is reduced by 50 percent. Where a person acquires more than one right to an exemption, only one — the highest — applies.
Withholding and the Payment Calendar
On payment of salary, income tax is withheld at source by the tax agent — a rule established by Article 154 of the Code. The withheld tax is transferred to the budget simultaneously with the payment of the amount; on request the employee receives a certificate indicating the income and the withheld tax; and information for the tax authority must be submitted no later than the 15th of the month following the month of withholding. A correct calendar — payment days, certificates and declaration deadlines — removes the most frequent payroll defect.
Frequently Asked Questions
Questions most often concern rates, the car benefit and pension exemptions.
What is the income tax rate on salary?
The general rate for a natural person's taxable income is 20 percent; in separate cases — for example on residential rental — 5 percent applies.
How is personal use of a car taxed?
By engine volume: above 3500 cubic centimetres — 300 GEL, 2500 to 3500 — 200 GEL, below 2500 — 100 GEL, hybrid — 60 GEL per month. Personal use of an electric car is not taxed.
Are pension contributions taxed?
Accumulated-pension contributions are not included in taxable salary, and contributions of up to 6 000 GEL per year in a voluntary private scheme are exempt.
Which exemptions apply to categories?
For a single parent and veterans — up to 3000 GEL; for disability from childhood — up to 6000 GEL; where more than one right exists, only the highest applies.
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