Tbilisi (GBC) - Problems faced by companies with the status of a virtual zone person of Georgia from 2021 to the present day, and the main reasons, approaches of the Tax Administration of Georgia regarding the taxation of profits of a person of the Virtual Zone in 2020-2022, the position of the Business Ombudsman and the importance to clarify the relevant legislation – these are the issues that Shorena Kopaleishvili, Chairperson of the Association introduced to Mr. David Songulashvili, Chair of the Sector Economy and Economic Policy Committee of the Parliament of Georgia.

The last meeting of the chairman of the Association and the Chair of the committee, which is organized and supported by the European Business Association, took place on February 27.

Virtual zone persons and Association – unresolved Issues

The Association of Georgian Virtual Zone Persons unites foreign companies that operate under the Law of Georgia “On Information Technology Zones” and decide to start their activities in Georgia in connection with the benefits established by this law. According to this law, adopted in 2010 the profit received by a legal entity with the status of virtual zone persons from the delivery of information technologies outside of Georgia is exempted from profit tax and in some cases is taxed at 5% of the dividend income. Many companies have taken advantage of this privilege and have been operating uninterruptedly in Georgia for years, where they have created many high-paying jobs.

For companies with the above status, the situation changed in 2021, when the tax approach to taxation was changed without any communication with business (said in Association and the same information is provided in the appeal to the parliamentary committee). This was followed by large-scale audits, and companies were fined millions of lari.

The Revenue Service determined by the following circumstances as the main arguments for imposing fines: it cannot be confirmed that companies created information technologies in Georgia, they do not have capital in Georgia and they do not have employees of the relevant profile. In response, the Association states that no current law specifies which norm in the law explains and/or defines the fact of creating information technologies in Georgia and that the company must have capital.

What does the business require?

The member companies of the Association believe that this difficult situation should be resolved by adjusting the legal norms and establishing clear definitions in the relevant law, so that in the future the parties no longer interpret the law.

The light at the end of the tunnel

Mr. Davit Songulashvili, the Chairman of the Committee has expressed his readiness to study the issue more comprehensively and has also made the decision to get acquainted with the position of the Ministry of Finance of Georgia regarding the expediency of legislative changes as soon as possible. A further strategy of cooperation was planned.

It is significant that the Business Ombudsman, in his position and assessments, shared the main concerns of the business, his position in writing is submitted to the parliamentary committee.

Shorena Kopaleishvili has once again emphasized the vital importance of defining the legislation in a way that does not allow for interpretation and with the precise meaning that ensures the stable functioning of business and the tax interests and goals of the country.