The Legal Regime for the Taxation of Pension Savings
The Tax Code of Georgia governs the taxation of pension savings through two distinct regimes: one applies to participants of the funded pension scheme, the other to voluntary private pension schemes. The law determines which contributions and benefits are exempt from income tax, which cases remain taxable, who acts as tax agent and how units of investment funds are taxed. This page explains these rules as written in the Code, so that retirement decisions rest on an exact legal foundation.
Exemptions and Exceptions in the Funded Pension Scheme
Exempt from income tax are the pension contributions made to the individual pension account of a participant of the funded scheme, the benefit accrued on them, and the pension or pension assets paid out under the relevant legislation. The exemption has exceptions: taxable is the amount of an erroneously or excessively paid contribution to be returned to the participant, with the accrued benefit; the amount corresponding to a contribution returned to an employee who has left the scheme, with the accrued benefit; and the amount corresponding to pension assets returned upon permanently leaving Georgia. In these cases taxation follows the rate determined by another provision of the Code — a circumstance that matters for those who terminate participation or leave the country.
The Rules of the Voluntary Private Pension Scheme
In a voluntary private pension scheme, exempt is the pension contribution made by or on behalf of a participant up to a total of 6 000 GEL per year. The benefit received as a result of participation is also exempt — except where pension assets are withdrawn before certain events defined by law. Untaxed likewise is the receipt, upon reaching pension age, early retirement or disability, of the assets recorded on the personal pension account through programmatic withdrawal or as an annuity. In the case of a lump-sum payment — apart from a withdrawal of the pension by the beneficiary — the contributions made within the exemption are taxed at the relevant rate of the Code.
Withholding at Source and the Duties of the Tax Agent
Withholding at source is the duty of the tax agent, including the person who pays a pension — except a pension paid within the state social security system. The function also rests with the asset management company, the insurer or the pension company when disbursing assets from the personal account of a participant of a voluntary scheme, and with the Pension Fund of Georgia when transferring or paying assets credited to an individual account of the funded scheme. The tax agent must remit the withheld tax to the budget at the same time as the payment, or by the end of the relevant month where remuneration is non-monetary; upon payment of salary it must, on request, issue a certificate indicating the withheld tax. The certificate is submitted to the tax authority no later than the 15th day of the month following the withholding, and the declaration for each reporting period within the same deadline.
Particulars of Taxation Connected with Investment Funds
When investing pension savings, the rule for investment funds is essential: the profit and loss of a collective fund is treated as received by each unit holder, proportionally to the units held. Unit holders report independently; neither the fund nor the management company acts as tax agent. A dividend paid by an investment company to a physical person is taxed at source at 15 percent, or at 5 percent where the company invests only in bank deposits or financial instruments. The surplus from the supply or redemption of a unit is likewise taxed at 15 percent, or 5 percent for the same investment profile. Exempt, meanwhile, is the income from the sale of a unit issued through a public offering on an organized market.
Frequently Asked Questions
Below are the answers to the most frequent questions on the taxation of pension savings.
Which contributions are exempt in a voluntary scheme?
A pension contribution made by or on behalf of a participant up to a total of 6 000 GEL per year is not subject to income tax.
When are amounts of the funded scheme taxed?
On the return of an erroneous or excessive contribution, of a contribution to an employee who has left the scheme, and of assets upon permanently leaving Georgia — including the accrued benefit.
Who withholds the tax on pension payments?
The payer of the pension (other than a state social security pension), the asset management company, the insurer, the pension company or the Pension Fund of Georgia — depending on the payment.
How are units of an investment fund taxed?
The profit and loss of the fund is attributed to the unit holders, who report independently; a dividend and the surplus from a sale are taxed at 15 percent, or 5 percent for a fund invested only in deposits and financial instruments.
How We Help on Legal.ge
The tax law specialists of Legal.ge will help with the tax aspects of retirement planning: we assess the exempt limits of contributions, explain the tax consequences of withdrawals and assist with reporting connected with investment funds. Contact us — an exact legal picture changes the value of every retirement decision.