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Comprehensive Guide to Establishing a Limited Liability Company (LLC) in Georgia: Legal Framework, Compliance, and Tax Benefits.




Setting up a Limited Liability Company (LLC) in Georgia offers significant advantages for businesses, including favorable tax rates and straightforward compliance requirements. Here's a detailed overview of the legal framework, compliance obligations, and tax implications for establishing an LLC in Georgia.




Overview of a Georgian LLC


A Georgian LLC is a flexible business entity ideal for both local and international entrepreneurs due to its minimal formation requirements, ease of compliance, and favorable tax regime.




Legal Framework


Country Code: GE

Legal Basis: Civil law

Legal Framework: Civil Code, Law on Entrepreneurship of 1994

Company Form: Limited Liability Company (LLC)

Liability: Partners' liability is limited to their capital contributions.




Share Capital Requirements


Minimum Capital: No minimum capital requirement. Capital is divided into shares but cannot issue additional shares.




Shareholders, Directors, and Secretary


Shareholders: Minimum of one shareholder, who can be a natural or legal person, resident or non-resident. Shareholder details are publicly accessible.

Directors: At least one director required, who must be a natural person, resident or non-resident. Director details are publicly accessible.

Secretary: Optional but not mandatory.




Registered Address


Requirement: Must have a registered office in Georgia.




General Meeting and Compliance


Annual General Meeting (AGM): Usually required.

Electronic Signature: Permitted.

Re-domiciliation: Not allowed.

Annual Returns: Must submit tax returns and financial statements annually. Companies with significant assets, revenue, or employees must submit audited financial statements.




Taxation


Tax Residency: A company is tax resident if incorporated under Georgian laws or effectively managed in Georgia.

Basis of Taxation: Corporate income tax is levied on worldwide income.

Corporate Tax Rate: 15% on distributed profits. Retained profits are not taxed.

Capital Gains: Taxed as ordinary income upon distribution.

Dividends: Received by resident entities are not taxed.

Interest and Royalties: Taxed when distributed as dividends.

Withholding Taxes: Dividends paid to non-residents are subject to a 5% withholding tax, which may increase to 15% for low tax jurisdictions. Interest and royalties are subject to similar withholding rates.




Foreign-Source Income and Labor Taxes


Foreign-Source Income: Generally taxed when distributed as dividends. Tax credits are available for taxes paid abroad.

Labor Taxes: No social security contributions.




Losses and Inventory


Losses: May be carried forward for five years, or ten years in specific cases.

Inventory Valuation: Methods include individual accounting, weighted average cost, or FIFO.




Anti-Avoidance Rules


Transfer Pricing: Transactions between related parties must adhere to OECD principles and be documented.

Tax Credits and Incentives: Exemptions available for specific organizations and income types, including those in Free Industrial Zones.




Personal Income Tax


Tax Residency: Individuals residing in Georgia for at least 183 days are tax residents.

Income Tax: Taxed only on Georgian-source income at a flat rate of 20%. Dividends, interest, and rental income have reduced rates under certain conditions.




Other Taxes


Property Tax: Varies between 0.8% to 1% for individuals based on property value and household income. Companies pay 1% on the average annual residual value of fixed assets.

Land Tax: Rates vary by administrative unit and land type.

VAT: Standard rate is 18%, with certain exemptions.




Pros and Cons of a Georgian LLC



Pros


Favorable Tax Regime: Low corporate tax rate of 15% on distributed profits.

No Minimum Capital Requirement: Flexible for startups and small businesses.

Ease of Compliance: Minimal bureaucratic hurdles and electronic filings.

Publicly Accessible Information: Transparency in business operations.

International Trade Hub: Strategic location and favorable business climate.



Cons


Public Disclosure: Shareholders' and directors' details are publicly accessible, which may not suit all businesses.

No Re-domiciliation: Inward or outward re-domiciliation is not permitted.

Mandatory Annual General Meeting: Compliance requirement may be seen as a formality.




Conclusion


Establishing a Limited Liability Company (LLC) in Georgia provides significant advantages, including a favorable tax environment, ease of compliance, and strategic location. This makes Georgia an attractive destination for both local and international businesses.




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