Israel – Georgia Tax Treaty

Business Activity in Georgia

Georgia is known for the attractive investment opportunities it offers, characterized by business-friendly reforms, solid economic policy, and stable institutions. Moreover, the country’s favorable geographic position, low-level of bureaucracy in administrative procedures, open trade policy, and access without tariffs to markets make Georgia a reliable business partner to invest in and work with.

Georgia uses a simplified tax system and currently has signed tax treaties to avoid double taxation with 58 countries. Its main powerhouse sectors of economy include agriculture, mining, manufacturing, and tourism. Hence, the exports of the country mainly rely on agricultural produce, textiles, and minerals, while imports largely consist of machinery, vehicles, and oil products. Most relevant trade partners include USA, Turkey and Russia. Currently, Georgia’s policies are focused on technological advancement.

Bilateral Agreements Between Georgia and Israel

Several agreements were signed between Israel and Georgia:

1. International Investment Agreement
2. Double Taxation Agreement

International Investment Agreement

The International Investment Agreement between the states of Israel and Georgia, was signed on June 19^th, 1995, and became effective as of February 18^th, 1997. It marks a significant stride in economic cooperation between the two nations. This agreement aims to enhance mutual economic benefits by creating favorable conditions for investments from either country within the other’s territory.

To read the agreement in English, please click here.

Convention on the Prevention of Double Taxation

The agreement between the governments of Israel and Georgia regarding the avoidance of double taxation was signed on May 11^th 2010 and entered into force on December the 31^st, 2011.

The agreement aims to prevent double taxation of income earned in one country by a resident of the other country. The agreement also aims to uphold cooperation between Israel and Georgia in the administration and enforcement of their respective tax laws. The agreement covers taxes on income, including taxes on gains from the sale of movable or immovable property, and taxes on capital. It also includes provisions for the exchange of information between the tax authorities of Israel and Georgia.

To read the agreement in English click here.

Applicability of the MLI

Both Israel and Georgia have signed the “Multilateral Convention to Implement Tax Treaty-Related Measures to Prevent Base Erosion and Profit Shifting” (MLI). Both Israel and Georgia signed the agreement on June 7, 2017, and they respectively ratified it on September 13, 2018 and July 1, 2019.

Residency for Tax Purposes in Georgia

Residence of an Individual

According to Georgian Law, a taxpayer will be considered as Georgian resident when spends 183 or more days within any 12-month period ending in the tax year in Georgia, or is abroad for Georgian public service. This includes time spent outside Georgia for treatment, leisure, business trips, or education but excludes time spent in Georgia for diplomatic or consular roles, as an international organization employee, while in transit, or for treatment or leisure. Each day in Georgia counts towards the 183 days, regardless of its length.

To read about how an individual is considered a resident of Israel, click here.

Residency of a Company

In Georgia, a legal entity shall be considered a tax resident if the place of business and/or management is based in Georgia.

To learn about how a company is considered a resident of Israel, click here.

The Tax System in Georgia

The Tax authority in Georgia is called Revenue Service.

Income Taxation: 20%

Taxation of Companies and Branches:15%/20%

VAT: 18%

Capital Gains Tax: 20%

Withholding Tax

Inheritance Tax and Estate Tax in Georgia

Georgia does not apply inheritance or estate tax.

Relocation to Georgia

Moving your business to Georgia has several advantages, mainly due to the favorable investment climate in the country, the legal framework that supports foreign investments, and a variety of financial incentives. Some of the key benefits to doing business in Georgia include:

• Skilled Workforce – Georgia has a young, motivated, and multilingual workforce, with most fluent in English and Russian. About 55% of the 1.5 million workers are under 44, making them adaptable and dynamic.
• Economic Growth – Georgia’s economy is stable, with a 10.4% GDP growth in 2021, and steady growth expected in the coming years, creating a good environment for businesses.
• Low Labor Costs – Average monthly salaries are about USD 600, making labor costs very affordable for businesses. In addition, the government’s investment in vocational education ensures a continuous supply of skilled professionals, tailored to meet industry-specific needs.
• Low Taxes & Trade Agreements – A flat 20% income tax, 0% on reinvested profits, and free trade agreements with the EU, China, and more, offer businesses significant tax benefits and market access.
• Strategic Location & Infrastructure – Georgia connects Europe, South Caucasus, and Central Asia, with excellent infrastructure, ports, airports, and pipelines.
• Ease of Business – No visas for 98 countries for up to a year, and easy administrative processes make it simple for businesses and employees to settle.
• Georgia has a Jewish population of around 1,500 Jews, who are considered to be one of the oldest Jewish groups in the Diaspora. The Jewish community in Georgia is represented by the Jewish Community of Georgia, the Georgian affiliate of the World Jewish Congress.

Real Estate Taxation in Georgia

In Georgia, real estate taxation is levied on a variety of assets such as real estate, vehicles, and equipment. For enterprises, the property tax rate is a maximum of 1% of the property’s average annual net book value, with specific multipliers for assets acquired in different years. Leased property tax for enterprises is also capped at 1%, while for leasing companies, it’s 0.6% of the initial book value.

For natural persons, the tax rate varies based on family income, ranging from a minimum of 0.05% to a maximum of 1% of the property’s market value. Income calculations for tax purposes consider sources like salaries and business income.

Property tax is calculated annually, with legal entities required to file returns and pay taxes by April 1st, and natural persons by November 1st. However, there are exemptions, including for properties used for specific purposes like education, healthcare, and agriculture, or owned by certain groups like war veterans or high-mountain residents. Land used for public utilities and infrastructure is also exempt.

Transfer of Funds from Israel to Georgia

According to section 170(a) of the Israeli income tax ordinance, any transfer of payment to a non-Israeli resident is subject to 25% of withholding tax. The tax authority can allow, under certain circumstances, to reduce or dismiss the withholding tax. Our firm handles withholding tax matters with the Israeli Tax Authority.

Due to the fact that both countries have a tax treaty with each other, one can submit a declaration form (2513/2 form – Statement regarding a payment to a foreign resident that is exempt from withholding tax), and under certain circumstances, there is a possibility to transfer the payment without the withholding tax and the approval of the Tax Authority.

In providing advice regarding the transfer of money abroad, in addition to the issue of withholding tax, our office handles the requirements of the foreign banks, such as an accountant’s approval regarding the payment of taxes and examines additional actions required in light of the uniform standard of CRS between the countries – automatic exchange of information between countries which is carried out first through the banks and then between the tax authorities of each two countries.

The banks raise many difficulties and charge high fees for converting shekels into other currencies, so it is important to consult before transferring the funds – Contact us.

For more information on money transfers abroad, click here.

Types of Business Entities in Georgia

The main types of legal entities in Georgia include:

Individual Entrepreneur – If an individual operates a business on their own, they are directly responsible for any debts incurred. There is no legal distinction between their personal and business assets.

General Partnership (GP) – In both a general partnership and within the general partners of a limited partnership, all partners share the responsibility for the company’s debts and obligations together. Each partner is directly and fully liable for their personal assets. Agreements between partners that contradict this liability are not valid against third parties.

Limited Partnership (LP) – A limited partnership is a business entity where multiple individuals (who could be either natural or legal person) engage in entrepreneurial activities using a shared company name. In this type of structure, the liability of general partners towards the partnership’s creditors are restricted to a predetermined guaranteed sum.

Limited Liability Company (LLC) – A limited liability company restricts its liability to its own assets, and it can be established by a single individual. Agreements between partners to reduce their liability are not valid with external parties, and the company’s capital is divided into transferable shares.

Joint-Stock Company (JSC, corporation) – A joint-stock company’s capital is divided into shares defined by its governing document, which can set a minimum value. The company’s liability is limited to its assets, and shareholders are not personally responsible for its obligations. When setting up a joint-stock company, the initial investment can be of any chosen amount.

Cooperative – A Cooperative is established by members to focus on their labor activities, income improvement, and fulfilling their interests, rather than primarily pursuing profit. A cooperative’s responsibility to its creditors is restricted to the cooperative’s own assets.

Incentive Laws in Georgia

Georgia has various incentive laws and programs aimed at attracting foreign investment, supporting economic development, and fostering entrepreneurship. Here are some common types of incentive laws and programs in Georgia:

Free Industrial Zones (FIZs): Georgia has several Free Industrial Zones where businesses can enjoy tax exemptions, simplified customs procedures, and various other incentives.

Real Estate Investment: There are incentives for real estate developers and investors, including tax exemptions on income generated from the sale of residential properties in certain cases.

Renewable Energy: Georgia has been encouraging investment in renewable energy projects, offering feed-in tariffs and other incentives to promote the development of renewable energy sources.

Tourism Development: The Georgian government has been actively promoting tourism, and there are incentives available to businesses in the tourism and hospitality sector such as development of tourism infrastructure and marketing incentive programs.

Agrobusiness: The country is focused in promoting agrobusiness initiatives, especially for products such as fruits, vegetables, and nuts. The government has launched the Partnership Fund, which supports agricultural projects that cannot be completed with only the participation of the private sector.

Digital Innovation: Recently, the country has boosted innovation through public support programs and infrastructure investments, including initiatives like Georgia’s Innovation and Technology Agency (GITA), Startup Georgia, Women Startup and etc. These efforts aim to transform knowledge and innovations into commercial success across the economy.

Georgia Double Tax Treaties