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Article Georgia: New Legislation Simplifies Tax Code

(Sept. 2, 2016) On May 13, 2016, the Parliament of Georgia unanimously approved amendments to the country’s Tax Code. (Law of Georgia No. 5092 on Amendments to the Tax Code of Georgia, MATSNE.GOV.GE (June 1, 2016) (official publication) (in Georgian).)

The amendments mainly address corporate income taxation of profit-sharing companies, aligning the national tax system with the corporate income tax. Under the new Law, which will enter into force on January 1, 2017, the income tax will be replaced by a profit-sharing tax at the rate of 15%, making the reinvested portion of company’s profit tax free. This new tax scale will be introduced gradually, depending on the type of business. Insurance and micro financing organizations, banks, pawn brokering businesses, public legal entities, and non-profit organizations will be the last to implement the new law, in 2019. The tax period for corporate income tax, which is now a calendar year, will be changed to one month. (Parliament Approves New Tax Code, MESSENGER, No. 95, at 3 (May 17, 2016), East View Universal Database (by subscription).)

Other adopted amendments will exempt imported goods from the value-added tax, and tax debt will be forgiven for about 100,000 taxpayers. Debt accumulated before 2011 will be written off completely, and taxpayers will not be required to pay penalties for tax debt accumulated after 2013. (Id.)

The newly adopted version of the Tax Code establishes the role of the Finance Ministry’s Revenue Service as the only government institution authorized to conduct tax inspections. This power is removed from the Finance Ministry’s Investigative Service (financial police) and other law enforcement services. Another development is the requirement that the Revenue Service obtain judicial authorization within 48 hours for all freezes of bank accounts. (Parliament Adopts Corporate Income Tax Reform Bill, CIVIL.GE (May 15, 2016), Open Source Enterprise, Document No. CER2016051625562135, online subscription database.)

Economists estimate that during the first two years of the tax reform, the government will receive approximately US$500 million less in corporate tax revenue, but it is believed that in the third and fourth year of the reform, this loss will be fully compensated by economic growth due to the stimulating effect of lower taxes. (Id.) The government said that these amendments are in line with the Association Agreement with the European Union and are aimed at increasing the liquidity of business assets and companies’ access to financial resources. (Parliament Approves New Tax Code, supra; Association Agreement Between the European Union and the European Atomic Energy Community and Their Member States of the One Part, and Georgia, of the Other Part, 2014 O.J. (L 261) 4.)

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