Selling Real Estate and the Tax Under the Code
Income from the alienation of real estate is a taxable object for a physical person, and the tax side of this transaction is governed by Georgia's Tax Code: the law determines which types of income are exempt, who declares and by when, and when tax is withheld at source. The rate on alienation and the computation of the taxable object are established by the relevant provisions of the Code, while the foundation of this page consists of the norms governing exemptions, the declaration duty and the withholding rule. For a seller this means: when planning the transaction, it must first be determined whether the income falls within the exempt types, then — who bears the duty to declare, and finally — whether there is a withholder at source.
Exempt Types of Income
The following types of income of physical persons are exempt from income taxation, among others: state pension, state compensation, state academic and state scholarships, received grants, and certain other payments provided for by the budget. In the context of real estate, one specific exemption is particularly significant: the surplus received by a partner physical person through the transfer of real estate into ownership in exchange for a share, upon liquidation of an enterprise or reduction of its capital, is not taxed if more than 2 years have passed since the origination of the physical person's right of ownership in the enterprise's share. This means that a transfer occurring more than two years after acquisition of the share enjoys the exemption, while an earlier one is taxable — the time factor here directly determines the tax outcome. The exempt types also include benefit received from a state-founded non-entrepreneurial legal person within the framework of charitable activity, and benefit received from a charitable organization to finance the costs of treatment or medical services.
The Declaration Duty and Its Deadline
An income tax declaration is submitted to the tax authority by 1 April of the year following the reporting year by resident physical persons whose income is not taxed at the source of payment in Georgia, and by a non-resident physical person whose income received from a source in Georgia is not taxed at source. Income from the sale of real estate is typically of this kind: the payer does not tax it at the source of payment, so the seller declares it in the annual declaration by 1 April. Separate deadlines apply in special cases: an entrepreneur physical person, upon cessation of economic activity in Georgia, submits the declaration within 30 working days, and a person in dissolution — within 5 working days from registration of the commencement of the liquidation process. Missing the deadline entails a fine, and the substantive correctness of the declaration, together with these deadlines, determines the tax risk.
Withholding at Source
Withholding of tax at source is the duty of a tax agent — a legal person, enterprise, organization or entrepreneur physical person — in specified cases, including the payment of salary, pension, compensation of the value of services rendered and other payments established by law. In the sale of real estate, the buyer is, as a rule, not a tax agent, so no withholding occurs and the seller retains the duty of free declaration — this differs from the practice of countries where the buyer performs escrow settlement. Knowing this distinction is necessary so that the seller timely determines the amount payable to the budget and does not await a withholding that the law does not provide.
The tax accompanies the transaction: the deadlines and costs of re-registration are described in the transfer procedures package, and the market includes auctions too — material on buying real estate at an auction is in the acquisition and transfer section.
Frequently Asked Questions
When is the transfer of real estate for a share exempt?
When more than 2 years have passed since the origination of the physical person's ownership right in the enterprise's share — such surplus is not taxed.
When must I declare the sale income?
By 1 April of the year following the reporting year, if the income was not taxed at source.
Does the buyer withhold the tax?
As a rule, no — withholding at source concerns payments established by law, and the sale of real estate is not ordinarily among them.
What happens upon cessation of activity?
An entrepreneur physical person submits the declaration within 30 working days of cessation; upon commencement of liquidation — within 5 working days.
Is charitable benefit included in the exemptions?
Yes — benefit received from a state-founded non-entrepreneurial legal person within charitable activity, and benefit received to finance treatment costs, are exempt.
How We Help on Legal.ge
On Legal.ge we assist with the tax side of selling real estate: we determine whether your transaction falls within the exempt cases, compute the declarable income and prepare the declaration before the deadline. Declaration of sale income often turns on the difference between the market price and the amount reflected in documents, and that difference is precisely where an audit begins. Contact us before the transaction — the tax outcome must be computed in advance.