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Free Zone 2022: Review with Examples

A free zone is a specially designated part of Georgia’s customs territory.

At the entry and exit points of a free zone, as well as along its boundaries (perimeter fence), the movement of persons, goods and/or vehicles, and the control of goods located in or stored within the free zone are carried out by the customs authorities.

The introduction of non-domestic goods into a free zone, without payment of import duties or the application of trade defence measures, is not regarded as placing those goods under the customs procedure of release for free circulation. Accordingly, no import duties are levied on such goods.

When Georgian goods are placed under the relevant procedure, the provisions of Georgian customs legislation applicable to the export procedure for similar goods are applied.

Goods may be placed under the free zone procedure for an indefinite period.

Please note that failure to comply with or breach of the requirements of Georgian customs legislation constitutes a customs offence, for which the relevant liability is provided.

Free Industrial Zone

A Free Industrial Zone is:

A type of free zone in which additional conditions and tax incentives are in force;
A part of the territory of Georgia with defined boundaries and a special status granted by law.

A Free Industrial Zone is designated for a specified period for the purposes of economic activity, and within its territory persons are subject to a special economic and legal regime.

Note: Settlements may be carried out in any currency:

in a Free Industrial Zone;
between a Free Industrial Zone enterprise and a Georgian enterprise.

Activities in a Free Industrial Zone are carried out by enterprises registered within that zone.

Enterprises registered outside a Free Industrial Zone (both Georgian and foreign) carry out activities within the Free Industrial Zone through permanent establishments registered in that zone, except for Georgian enterprises providing electricity, water, natural gas distribution, telecommunications, sewage services, and related activities within the Free Industrial Zone.

A Free Industrial Zone enterprise operating in other parts of Georgia (outside the Free Industrial Zone) is treated as a permanent establishment of a foreign enterprise, and may take any organisational and legal form and ownership structure, provided that it is registered in the Free Industrial Zone in accordance with the rules for enterprise registration established under Georgian law.

There are four Free Industrial Zones operating in the territory of Georgia:

Poti Free Industrial Zone;
Kutaisi Free Industrial Zone;
Kutaisi Hualing Free Industrial Zone;
Tbilisi Technology Park Free Industrial Zone

Permitted activities in a free zone

It is permitted to bring into, store, process, supply and/or provide services in a free zone any goods, as well as to remove any goods from a free zone, provided that such activities are not prohibited under Georgian law.

Prohibited activities in a free zone

The following are prohibited in a free zone:

the use of buildings for residential purposes, as well as the construction of permanent and temporary structures intended for residential and hotel use;
the production of weapons and ammunition, and the trade in weapons and ammunition;
the production of nuclear and radioactive substances, and the trade in nuclear and radioactive substances;
the import, storage, production and/or sale of narcotic drugs and psychotropic substances;
the import, storage, production and/or sale of tobacco products and/or raw tobacco.

Note: This prohibition does not apply to the import of tobacco products and/or raw tobacco intended solely for on-site consumption. Moreover, such importation is not considered an export of goods.

The introduction of goods into a free zone

The following may be placed in a free zone:

goods imported from foreign countries;
foreign goods brought in from other parts of the customs territory of Georgia;
foreign goods which have been placed under a customs procedure that was terminated by their entry into a free zone;
Georgian goods.

When foreign goods are placed in a free zone, the customs procedure applicable to those goods is designated as the free zone procedure.

The placement of Georgian goods in a free zone is carried out in accordance with the export procedure.

When the free zone procedure is applied to foreign goods, the following is carried out:

presentation of the goods;
general declaration;
issuance/closure of the registration certificate;
submission of a simplified customs declaration.

When presenting Georgian goods at a customs checkpoint of a free zone for placement in the free zone, the declarant has the right to:

declare the goods by submitting a consignment note/wood consignment note or a tax document, or
submit a simplified customs declaration.

The submission of a customs declaration and the declaration of goods may be carried out:

after the goods have been brought into the customs territory of Georgia;
in advance (before the goods are brought into the customs territory of Georgia), not earlier than 45 calendar days prior. If the goods are brought in later than 45 calendar days after the registration of the customs declaration, the goods must be re-declared.

Documents for completing a customs declaration may be submitted:

in electronic form – without leaving the office, via the Revenue Service website, by uploading the application and accompanying documents through the authorised user page of the taxpayer.

See applications:

In such cases, a customs officer at the customs clearance authority completes and registers the customs declaration for the goods and sends the registered declaration to the declarant electronically via the authorised user page of the taxpayer.

in material form – by submitting the accompanying documents for the goods in physical form at an economic customs zone or another place of customs clearance.

The completion and registration of a customs declaration for goods may also be carried out by a person authorised to access “eCustoms”, without contacting the customs clearance authority, at any time convenient for them.

When pre-declared goods are brought into the customs territory of Georgia, the customs checkpoint is notified of the code of the customs clearance authority and the registration number of the customs declaration.

At the customs checkpoint, the following is carried out:

identification of the means of transport;
identification of the consignor of the goods;
identification of the consignee of the goods;
verification of the identification devices on the motor vehicle.

If there is no violation of customs legislation and no more than 45 calendar days have passed since the registration of the customs declaration, the goods and the means of transport, without being assigned a customs corridor, are moved to the designated customs checkpoint of the relevant Free Industrial Zone.

Please note! In the case where free zone procedure pre- declared together with goods transport there are also in the means is placed other customs procedure pre- declared goods which are released via the “green” or “blue” channel, customs authority consent without such goods transhipment / unloading and goods transporting means of transport placed on customs identification removal is permitted only in the free zone procedure pre- declared goods destination place presentation/declaration and goods customs declaration assessment number assignment after.

removal of goods from a free zone

The removal of goods from a free zone is carried out:

by exporting it from the customs territory of Georgia, or
by transferring it to another location within the customs territory of Georgia.

Documents for completing a customs declaration may be submitted:

in electronic form – without leaving the office, via the Revenue Service website, by uploading the application and the accompanying documents from the authorised taxpayer user page.

See applications:

in paper form – by submitting the accompanying documents for the goods in physical form at an economic customs zone or another place of customs clearance.

The export of goods from a free zone to another country is permitted:

under the export procedure – in the case of goods placed in a free zone under the export procedure, or goods produced in a free zone;
under re-export – in the case of goods placed under the free zone procedure.

In the case of re-export from a free zone, a re-export notification is submitted to the customs authority, which is completed in the form of a registration certificate.

When goods located in a free zone are transferred to another part of the customs territory of Georgia as foreign goods, the formalities established by customs legislation for the import of foreign goods into Georgia (including determination of the customs procedure) are applied. It is also possible to request amendments electronically:

Overview of the Free Industrial Zone for 2023.

What state taxes are payable by the company G Energy registered in a Free Industrial Zone of Georgia?

Withholding tax at the source (income tax) – in the case where it declares its intention (by application) to pay the income tax on remuneration paid to a natural person directly to the State Treasury and to declare it itself. Otherwise, the payment and declaration of taxes must be carried out by the natural person receiving the remuneration.

Attention!

If a company registered in a Free Industrial Zone does not express such a desire and does not agree to pay the income tax itself, then the income tax will automatically be paid by the employee receiving the salary.

Example 1:

If G Energy (from its branch registered in Georgia) is to transfer a salary of 100 GEL to the Georgian resident Giorgi Maisuradze, and it has also agreed by application that the income tax would be paid by G Energy and not by Giorgi Maisuradze:

G Energy must pay Giorgi Maisuradze a salary of 80 GEL;

G Energy must pay 20 GEL into the State Budget (80 + 20 = 100 GEL // 20% of 100 = 20 GEL).

Example 2:

If G Energy (from its branch registered in Georgia) is to transfer a salary of 100 GEL to the Georgian resident Giorgi Maisuradze, and it has not agreed by application that G Energy would pay the income tax instead of Giorgi Maisuradze;

G Energy must pay Giorgi Maisuradze a salary of 100 GEL;

G Energy must pay 0 GEL into the State Budget.

Example 3:

If G Energy (from a branch registered outside Georgia) is to transfer a salary of 100 GEL to the Georgian resident Giorgi Maisuradze, and it has not agreed by application that G Energy would pay the income tax instead of Giorgi Maisuradze;

This case is governed by the tax code of the country where G Energy has its officially registered branch.

VAT (reverse charge) – when a company registered in a Free Industrial Zone pays for services to a non-resident person of Georgia, the FIZ-registered company is subject to VAT under the “reverse charge” mechanism.

The object of taxation is:

the remuneration for services provided by a Free Industrial Zone to a non-resident person of Georgia.

Income tax (non-resident) – when a company registered in a Free Industrial Zone pays for services to a non-resident person of Georgia, the FIZ-registered company is subject to non-resident income tax.

The object of taxation is:

the remuneration for services provided by a Free Industrial Zone to a non-resident person of Georgia.

Attention!

In the case of VAT (reverse charge), it is important whether the place of supply of services is within Georgia or outside the borders of Georgia.

If a non-resident of Georgia provides services within the territory of Georgia, it is subject to 18% VAT.

If a non-resident of Georgia provides services outside the territory of Georgia, such services are not subject to VAT under Georgian legislation.

International transportation is also exempt from VAT (reverse charge).

In the case of non-resident income tax, it is important which country’s tax resident is providing the services to us.

If the services are provided by a resident of a country with which the State of Georgia does not have a Double Taxation Avoidance Agreement, then such income is taxed at a 10% income tax rate.

If the services are provided by a resident of a country with which the State of Georgia has concluded a Double Taxation Avoidance Agreement, then such income is not subject to income tax under Georgian legislation.

Example 4:

G Energy (from its branch registered in Georgia), for the purpose of paying for services (except for international transportation services), must pay an amount to a non-resident of Georgia (when the place of service is Georgia), for example to a company or resident of the USA, 1000 USD:

G Energy must pay the US resident 900 USD;

G Energy must pay 10% to the State Budget of Georgia, i.e. 100 USD (because there is no Double Taxation Avoidance Agreement between Georgia and the USA).

G Energy must pay 18% VAT to the State Budget of Georgia, i.e. 180 USD (reverse-charge VAT).

Total: 1180 USD

Example 5:

G Energy (from its branch registered in Georgia), for the purpose of paying for services (except for international transportation services), must pay an amount to a non-resident of Georgia (when the place of supply of services is not Georgia), for example to a company or resident of the USA, 1000 USD:

G Energy must pay the US resident 900 USD;

G Energy must pay 10% to the State Budget of Georgia, i.e. 100 USD (because there is no Double Taxation Avoidance Agreement between Georgia and the USA).

G Energy must pay 0 USD in VAT to the State Budget of Georgia (because the place of supply of services is not Georgia).

Total: 1000 USD

Example 6:

G Energy (from its branch registered in Georgia), for the purpose of paying for services (except for international transportation services), must pay an amount to a non-resident of Georgia (when the place of supply of services is Georgia), for example to a company or resident of Ireland, 1000 USD:

G Energy must pay the Irish resident 1000 USD;

G Energy must pay 0 USD in income tax to the State Budget of Georgia (because there is a Double Taxation Avoidance Agreement between Georgia and Ireland).

G Energy must pay 18% VAT to the State Budget of Georgia, i.e. 180 USD.

Total: 1180 USD

Example 7:

G Energy (from its branch registered in Georgia), for international transportation services, must pay an amount to a non-resident of Georgia, for example to a company or resident of the USA, 1000 USD:

G Energy must pay the US resident 900 USD;

G Energy must pay 100 USD in income tax to the State Budget of Georgia (because there is no Double Taxation Avoidance Agreement between Georgia and the USA).

G Energy must pay 0 USD VAT to the State Budget of Georgia (because international transportation is exempt from VAT).

Total: 1000 USD

Example 8:

G Energy must pay the Irish resident 1000 USD;

G Energy must pay 0 USD to the State Budget of Georgia (because international transportation is exempt from VAT).

Example 9:

G Energy (from a branch registered outside Georgia), for the purpose of paying for services, must pay an amount to a non-resident of Georgia, for example to a company or resident of the USA or to a resident of Ireland, 1000 USD:

This case is governed by the tax code of the country where G Energy has its officially registered branch.

Calculation of a FIZ enterprise – A FIZ enterprise is obliged, in the case of supplying goods (by way of a consignment note) to a person registered under Georgian legislation (other than a FIZ enterprise), to pay a percentage of the income received/receivable from the supply of goods (in the case of free-of-charge supply of goods – the market value of such goods).

Calculation of a FIZ enterprise – In the case of supply of goods (by way of a consignment note) by a person registered under Georgian legislation (other than a FIZ enterprise) to a FIZ enterprise (except for electricity, water and natural gas intended for on-site consumption and/or production), the FIZ enterprise is obliged to pay a percentage of the market value of the supplied goods.

Example 10:

G Energy (a branch registered in Georgia) supplied goods worth 1,000 GEL to a Georgian resident company under a consignment note:

G Energy will pay 4%, i.e. 40 GEL.

Example 11:

A Georgian resident company supplied goods worth 1,000 GEL to G Energy (a branch registered in Georgia) under a consignment note:

G Energy will pay 4%, i.e. 40 GEL.

For companies registered in a Free Industrial Zone – for G Energy, where are the taxes payable under Georgian legislation paid?

To the State Treasury of Georgia, to treasury code: 101001000; the unified tax code.

Which state taxes is the company G Energy, registered in a Free Industrial Zone of Georgia, exempt from?

Profit tax – a FIZ enterprise is exempt from profit tax if it has earned this profit from activities permitted within the Free Industrial Zone.

Example 12:

G Energy (a branch registered in Georgia) received a profit of 10,000 GEL:

G Energy will pay 0 GEL in profit tax to the State Budget of Georgia.

Value Added Tax (VAT) – operations in a Free Industrial Zone are not subject to VAT; also, the import of foreign goods into a FIZ is not subject to VAT.

Example 13:

G Energy (a branch registered in Georgia) received revenue of 100,000,000 GEL:

G Energy will pay 0 GEL in VAT to the State Budget of Georgia.

Example 14:

G Energy (a branch registered in Georgia) imported goods worth 5,000 USD:

G Energy will pay 0 USD import VAT to the State Budget.

Property tax – property located in a Free Industrial Zone is not subject to property tax.

Example 15:

G Energy’s (branch registered in Georgia) property amounts to 50,000,000 USD.

G Energy will pay 0 USD property tax to the State Budget.

Import duty – import operations in a Free Industrial Zone are exempt from import duties. In particular: the import of foreign goods into a Free Industrial Zone; the import (entry) of goods produced in a Free Industrial Zone from the Free Industrial Zone into other territories of Georgia, outside the Free Industrial Zone.

Example 16:

G Energy (a branch registered in Georgia) imported goods worth 5,000 USD:

G Energy will pay 0 USD import duty to the State Budget.

Free Zone 2022: Review with Examples

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