The tax system of a country plays a crucial role for both individuals and legal entities. In many cases, the legislative regulation of the tax system determines whether a country is attractive to foreign investors as well as to domestic business entities.

Given the specific nature of business activities, the issue of value-added tax (hereinafter - VAT) is of particular importance. VAT is one of the main general state taxes in Georgia, and a proper understanding of its mechanism is essential for both local and international enterprises.

The legislative characteristics governing VAT has a significant influence on the operations of business entities. In addition to being one of the main sources of state revenue, VAT in Georgia also serves as an indicator of business transparency and accountability.

What is VAT and who is liable to pay it?

The main regulatory legislative framework of the tax system of Georgia, along with relevant subordinate and international acts, is established by the Tax Code of Georgia. It is this code that defines the concept of value-added tax (VAT). According to Article 156, Paragraph 2 of the Tax Code of Georgia, VAT is a tax set on the consumption of goods/services, which is directly proportional to the price of the goods/services.

Pursuant to Paragraph 3 of the same Article, the obligation to pay the VAT shall arise at all stages of supply of goods/provision of services, including the retail supply.

A VAT taxable person (the ‘taxable person’) shall be considered any person who, at any place, independently performs any type of economic activity, irrespective of the purpose and result of the activity. Therefore, every person engaged in economic activity, except in cases expressly provided for by law, is considered a VAT taxable person.

The obligation to calculate and pay VAT arises for a person registered or required to be registered as a VAT payer, except in cases where such an obligation arises without the requirement of VAT registration. It is also noteworthy that individuals whose income does not exceed 100,000 GEL during any 12 calendar months can voluntarily register as VAT payers.

However, for person whose turnover exceeds 100,000 GEL, registration as a VAT payer is mandatory.

Current VAT Rates and Categories in Georgia

Under the current regulation, the VAT rate in Georgia is 18%. From the moment of registration as a VAT payer, the taxpayer is assigned either a qualified or non-qualified VAT payer status.

Initially, upon registration as a VAT payer, a person is granted the status of a non-qualified VAT payer. This status is also assigned to an individual who previously held the status of a qualified VAT payer but has failed to submit a tax declaration or calculation for any continuous period of 12 calendar months, provided that at least 6 calendar months have passed since such status was granted. A person registered as a VAT payer is generally considered a qualified VAT payer, except in cases where the person holds the status of a non-qualified VAT payer.

To obtain the status of a qualified VAT payer, the interested person must submit an application to the Revenue Service, accompanied by the relevant documentation confirming their business activities. The Revenue Service shall review the submitted application and, if the established requirements are met, grant the person the status of a qualified VAT payer.

A person with qualified VAT payer status benefits from a legislative and practical privilege known as the right to deduct VAT, which allows them to avoid multiple taxation of the same value and ensures that VAT is ultimately paid only on the added value, making it a favourable approach for business entities.

Common VAT Mistakes to Avoid in Georgia

As previously noted, the obligation to calculate and pay VAT arises for a person registered or required to be registered as a VAT payer.

However, in practice, this particular issue is often associated with common mistakes in Georgia. Specifically, in some cases, business entities fail to register as VAT payers even when such registration is legally required, which exposes them to potential tax risks. Another common mistake concerns the declaration and payment of VAT, when taxpayers either fail to submit their VAT returns or to settle the declared tax amount within the prescribed deadlines.

It is also noteworthy that while incorrect payment of VAT constitutes one issue, the underlying cause of such errors frequently stems from the fact that entrepreneurial entities initially determine the value of taxable transactions incorrectly. This, in turn, result in the erroneous calculation and payment of the VAT amount derived from the value.

How „Justice League“ Can Help You Stay Tax Compliant

The law firm “Justice League” ensures that you are informed of all legislative updates and prepares the relevant legal opinions to ensure that your business activities comply with the applicable legislation.

The firm also provides to assess whether your current operational status is in full conformity with the statutory requirements. “Justice League“ will provide you with legal consultation on tax-related matters and help you conduct your business activities in compliance with tax legislation.

Regard to existing legal issues, “Justice League” will ensure the protection of your rights and find a quick and simple solution to the problem. Accordingly, the ,,Justice League” stands ready to assist you and provide professional services should you require legal advice or VAT consulting in Georgia.