How a Double Taxation Treaty Works in Georgia
A double taxation agreement determines which state taxes which income and which concedes. But the treaty's text alone is not enough: the Georgian Tax Code for its part establishes how the agreement is applied in relation to Georgian taxes. Two principal mechanisms of application exist: the credit of tax paid abroad and the use of treaty-based relief by a non-resident.
Crediting Tax Paid Abroad
Article 124 of the Tax Code provides in detail: an enterprise is entitled to credit the profit tax paid outside Georgia, for the corresponding tax year, against the tax paid in Georgia on that profit, with respect to income not received from a Georgian source. The object of the credit is thus profit tax, and its operation extends to income from non-Georgian sources. For an enterprise taxed on distribution of profit there is a separate rule: such an enterprise, when paying profit tax on the dividend paid, is entitled to credit the profit tax paid abroad. The cap is set by law: the credited amounts must not exceed the taxes that would have been charged on that profit in Georgia under Georgian rules and rates. This cap means the credit can never be full in every case — its computation is not mechanical and rests on the precise qualification of each income's source.
Non-Resident Relief and Refund
The second mechanism concerns non-residents. Under Article 125, the manner of using the tax relief determined by international double taxation agreements and of refunding tax paid in Georgia by a non-resident is established by an order of the Minister of Finance of Georgia. In practice this means: a non-resident who received income from a Georgian source and paid tax on it in Georgia may, on the basis of the treaty-established relief, be entitled to claim a refund of the overpaid amount. The details of the procedure — the list of documents, deadlines, form — are determined by the minister's order, and ignorance of them puts the claim at risk of rejection.