Income from renting out commercial space — an office, retail, industrial or storage area — falls under the Georgian Tax Code into income from economic activity: the Code's relevant norm lists income from property granted under leasing, usufruct, lease, rent or any similar form in exactly that category. At the same time, commercial leasing fundamentally differs from residential letting: the preferential 5 percent rate is tied by law to renting for residential purposes, so a physical person letting commercial space reports under the general rule. The second key dimension is the 100 000 GEL VAT threshold, exceeding which triggers a registration obligation within 2 working days. Below we explain each element and show what tax support for commercial leasing on Legal.ge includes.
The 20 Percent Rate and Declaring Lease Income
The first part of the rate article of the Tax Code taxes a natural person's taxable income at 20 percent, unless otherwise provided by the Code. The 5 percent preference under the second part of the same article applies only to income from renting out residential space to an organisation, legal entity or individual for residential purposes — it does not extend to commercial-purpose space. Consequently, the lease income of a physical person letting commercial space is taxed at the general 20 percent rate, unless the Code provides a special rule for the case.
Being classified as economic-activity income places the lessor under a reporting obligation: lease income must be reflected in the annual income tax declaration. The format and deadlines for the declaration are determined by other provisions of the Code and by orders of the Minister of Finance, so the specific calendar dates must be re-checked each year. Where deductions are applied, the computation becomes more involved: the 20 percent is calculated on the base that remains after the deductions allowed by law, and properly documented expenses play the decisive role here.
The 100 000 GEL Threshold and the 2-Working-Day Obligation
For commercial leasing, the mandatory VAT registration threshold is the most visible source of risk. Under the first part of the VAT registration article of the Tax Code, a taxable person is obliged, from the day the total amount of his or her VAT-taxable operations over any continuous 12 calendar months exceeds 100 000 GEL, to apply to the tax authority for VAT registration no later than 2 working days. This is not a calendar-year threshold — the continuous 12 months can start at any moment, so the dynamics of lease income must be monitored at a monthly level.
Moreover, the obligations to report and pay VAT arise precisely from the moment of the operation by which the total exceeded 100 000 GEL — the payer becomes accountable inclusive of that operation. When computing the threshold, operations exempt from VAT under the Code are not counted, with exceptions: among them, exempt operations related to financial or immovable property where carrying them out is the person's main activity, and the export of goods. This nuance matters precisely for persons dealing in leases, and miscalculating it frequently leads either to over-registration or to delay. At the same time, the law allows voluntary registration — in that case the person is treated as a payer from the day of application, but no later than the mandatory registration deadline.
Ending VAT Payer Status — When and How
If your turnover has decreased and you no longer exceed the threshold, the law provides for the possibility of cancelling the registration. Under the relevant norm of the Code, if over the last 12 calendar months the total amount of a person's taxable operations without VAT does not exceed 100 000 GEL and 1 year has passed since the date of the person's last VAT registration, the person may apply to the tax authority requesting cancellation. With the person's consent, the tax authority also has the right to cancel the registration on its own initiative regardless of those requirements.
The registration is cancelled by law: upon liquidation of an enterprise/organisation — from the date of deregistration in the state/commercial register; upon a person's death — from the date of death; upon a person's statement or consent — from the first day of the month following the written application or consent; and upon the opening of a bankruptcy regime — from the publication of the relevant ruling. The cancellation procedure is determined by the Minister of Finance, so the formal details of the application are set by ministerial order.
A Non-Resident Lessor — Taxation at Payment Source
If the commercial space is let by a non-resident and the rent is paid by a physical person, the law taxes this income at payment source: income of a non-resident from a source in Georgia that is not attributable to a permanent establishment is taxed without deductions, and the amount of lease services paid to a physical person — at the rate determined by the rate article of the Tax Code, which for commercial leasing means the general 20 percent rate. This rule settles the tax liability at the very moment of payment instead of leaving it to the lessor, and ignoring it breeds disputes in lease relationships.
The law also gives the non-resident a recalculation option: a non-resident receiving this category of income is entitled, by 1 April of the year following the reporting year, to submit a declaration requesting recalculation and refund of the withheld tax. In that case the non-resident's taxable income is determined as the difference between the gross income received and the deductible amounts provided by the Code, and the amount to be refunded cannot exceed the tax charged at source. For a non-resident lessor with documented expenses this mechanism is a tangible relief — one that requires timely planning.
Frequently Asked Questions
Below we answer the questions lessors ask us most often about commercial space leasing.
Can income from leasing commercial space be taxed at 5 percent?
No. The preferential 5 percent rate under the Tax Code is tied precisely to renting out residential space for residential purposes. Income of a physical person letting commercial-purpose space is taxed at the general 20 percent rate, unless otherwise provided by the Code.
When does VAT registration become mandatory?
When the total amount of VAT-taxable operations over any continuous 12 calendar months exceeds 100 000 GEL. From the day of exceeding you must apply to the tax authority within 2 working days, and the reporting obligation arises from the very operation that crossed the threshold.
Are VAT-exempt operations counted toward the threshold?
As a rule, no — exempt operations are not included in the total. The exceptions include exempt operations related to financial or immovable property where they are your main activity, and the export of goods — those categories do count toward the threshold.
Can I end my VAT payer status?
Yes, if over the last 12 months your total taxable operations without VAT do not exceed 100 000 GEL and 1 year has passed since your last registration. Upon application, the registration is cancelled from the first day of the following month.
I pay rent to a foreign owner — who pays the tax?
If the non-resident's lease income is not attributable to a permanent establishment and the payer is a physical person, the tax is withheld at payment source, without deductions, at the rate set by the rate article. The contractual price should reflect this obligation, so the tax clause must be settled in advance when fixing the lease terms.
How We Help on Legal.ge
On Legal.ge you are served by a tax law specialist who, within the commercial leasing support package: confirms the applicable rate and assesses the effect of deduction-based taxation; prepares the annual income declaration; monitors the rolling 12-month total and the 100 000 GEL threshold monthly; prepares the VAT registration application within the 2-working-day window as the threshold approaches; manages the deregistration process when turnover shrinks; and, for non-resident lessors, handles withholding at source and recalculation by 1 April. We can meet in the office or online — book a consultation and receive a tax plan calculated for your lease portfolio.