Amendments to the tax legislation of Georgia during the months of November and December 2022

Kreston Georgia continues to review tax law changes and updates. This time, we offer an overview of legislative news introduced in the months of November and December 2022.

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 1. Changes in the Tax Code of Georgia. 

1.1. Important changes in the tax code. 

1.2. Sanctions were defined for the transportation of a pharmaceutical product without a bill of lading. 

1.3. Change in Income Tax Exemption. 

1.4. In the automatic VAT refund calculation, the amounts available as of December 31 of each year are zeroed. 

2. Changes in the orders of the Minister of Finance of Georgia. 

2.1. Public decision on the taxation of the difference between the weights of goods when importing grain. 

2.2. Public decision on goods exempted from VAT

1. Changes in the Tax Code of Georgia

1.1. Important changes in the tax code.

From January 2023, 1, an important change in the Tax Code of Georgia will come into force. The change mainly touched on the following three issues:

• Tax benefits and other regulations that were determined until January 2023, 1, after the change, were extended until January 2026, 1.
• The rules of taxation of the financial sector have been changed.
• The so-called profit tax of insurance organizations. The transition to the Estonian model has been postponed until January 2024, 1.

Consider each of them in detail:

1. Tax benefits and other regulations, which were determined until January 2023, 1, were extended until January 2026, 1 after the change. In particular, the following articles were formed with the new edition

1.1 The following subsections of the first part of Article 82 of the Civil Code (exemption from income tax):

k) Taxable income received by a person employed in agricultural production from the primary supply of agricultural products produced in Georgia by a person employed in agricultural production until January 2026, 1 is exempt from income tax, if the total income received from such supply during the calendar year does not exceed 200 GEL.

c) The salary paid by an individual employed in agricultural production within the scope of this activity until January 2026, 1 is exempted from income tax, if the total income received by the employer from the said activity does not exceed 200 GEL.

U²) income received in the form of interest from debt securities issued by a resident legal entity through a public offering in Georgia before January 2026, 1 and admitted to trading on an organized market recognized by the National Bank of Georgia is exempt from income tax.

1.2. The following subsections of the first part of Article 99 of the Civil Code (exemption from profit tax):

f) The distribution of profits received from the primary delivery of agricultural products produced in Georgia by the agricultural cooperative before industrial processing (before the change of the commodity code) and the expenses incurred/imposed taxes within the scope of the same activity, which are provided for in Article 2026 of this Code, are exempted from profit tax. with subsections "b"-"d" of the first part.

M²) income received by a non-resident in the form of interest from a debt security issued by a resident legal entity through a public offering in Georgia before January 2026, 1 and admitted to trading on an organized market recognized by the National Bank of Georgia, which does not belong to a permanent establishment of this non-resident in Georgia, is exempt from profit tax.

1.3. Article 100 (joint income) of the Civil Code, Part 4, Sub-Clause "g":

Until January 2026, 1, the supply of agricultural products produced in Georgia and/or the provision of services related to this activity between the agricultural cooperative and its members (owners) is not subject to reflection in the joint income.

1.4. Article 130 of the Civil Code (taxation of dividends at the source of payment)¹ Part:

Dividends received by a member of an agricultural cooperative from this cooperative until January 2026, 1 (except for dividends received in accordance with the Law of Georgia "On Agricultural Cooperatives"

from the profit received from the activity provided for in paragraph 6 of Article 2) shall not be taxed at the source of payment and shall not be included in the joint income of the person receiving the dividend.

1.5. Article 199 of the Civil Code (exemption from import tax), subsection "i":

Until January 2026, 1, the import of tobacco raw materials is exempted from import tax.

1.6. Article 206 of the Civil Code (exemption from property tax) "J¹Sub-paragraph:

Until January 2026, 1, property owned by an agricultural cooperative used in agricultural activities (except land) and movable property leased for the same activity are exempted from property tax.

1.7. The following parts of Article 309 of the Civil Code (transitional provisions):

15) Until January 2026, 1, an individual who does not use the labor of a hired person and carries out economic activity from a non-stationary trading place located in the territory of the market, including a counter, is exempted from the obligation to use a cash register, except for an individual who has been granted a small business license. status or which is registered or required to be registered as a VAT payer in accordance with this Code.

24) Until January 2026, 1, a natural person who carries out the activity provided for by code 55.2 of the "Georgian National Classifier of Economic Activities", in particular, short-term rental of a place of residence owned by him, will be taxed with a fixed income tax if he is not voluntarily registered. The total amount of transactions carried out by him as a VAT payer or as part of this activity during any continuous 12 calendar months does not exceed 100 GEL.

42.e) The person who was engaged in the organization of the fair (except for the organization of trade in agricultural products) before January 2018, 1, is obliged to fully provide the non-stationary trading places located in the territory of the fair with control and cash registers no later than January 2026, 1.

111) Part 262 of Article 5 of this Code (Obligations of a person with the status of fair organizer) and 290² (Failure to fulfill the requirements established by the tax legislation of Georgia by a person with the status of fair organizer) Article shall be suspended until January 2026, 1.

131) 164 of this Code¹  Part 2 of the article and subsection "kh" of part 172 of article 4 are applied to the import of goods carried out from January 2026, 1. In addition, the amount subject to VAT when importing goods until January 2026, 1 (the value of the goods for customs purposes) includes the import tax due to Georgia, except for VAT.

132) Until January 2026, 1, the import of goods is exempt from VAT in accordance with the requirements of subsections "d" and "o" of Article 199 of this Code, taking into account the note of the same article, except for the import of goods from a free industrial zone.

1.8. Section 310 of Article 4 (Final Provisions) of the Civil Code:

The following articles shall be suspended until January 2026, 1:

• The import of goods exempted from import tax in accordance with the 173th book of the Customs Code of Georgia, except for the import of goods from TIS, is exempted from VAT under Article 10 of the Sub-paragraph "S" of the Civil Code.
• Goods exempted from customs obligations provided for by the Customs Code of Georgia are exempted from the import tax under subsection "S" of Article 199 in accordance with the conditions defined by the same Code.

2. The rule of taxation of the financial sector has been changed. In particular, the change will affect banking institutions, credit unions, microfinance organizations, and lending entities.

Articles 97 and 98 of the Civil Code have been revised with the new edition, according to which the taxable profit of a banking institution, credit union, microfinance organization, lending entity is taxed at 2023% from January 1, 20, and the difference of the calendar year is subject to taxation with profit tax. between the total income received during the year and the amounts of deductions provided for in this Code.

Also, part 130 was added to Article 8 of the Civil Code, according to which the dividend issued by a banking institution, credit union, microfinance organization, lending entity from the profits belonging to the year 2023 and subsequent periods is not taxed at the source of payment and is included in the joint income of the person receiving the dividend. will not turn on. In addition, in part 309 of Article 99 of the Civil Code, it was written that the distribution of the dividend received from the mentioned person from the profits belonging to the periods after January 2008, 1 is not considered as profit distribution, while the distribution of the dividend to them is considered as profit distribution.

Also, Article 109 and Article 141, Parts 4 and 5 were established with a new edition. As a result, from January 2023, 1, the banking institution, credit union, microfinance organization will deduct possible loan loss reserves from joint income and recognize accrued interest on loans as income according to International Financial Reporting Standards (IFRS), instead of according to the rules established by the National Bank of Georgia, as it was until 2023. was happening In this regard, another change was made in Article 309 of the Civil Code and part 134 was added, according to which, on the basis of Article 109 of this Code, a banking institution, credit union, microfinance organization may deduct reserves for possible loan losses from joint income in 2023. As a result of the repeal of the rule in effect before January 1, taxable profit/income resulting from the difference in reserve balances arising in the reporting period of 2023 is taxed at 15%. The Minister of Finance of Georgia is authorized to determine the rules of application of this part.

3. The so-called profit tax of insurance organizations. The transition to the Estonian model has been postponed until January 2024, 1. In this regard, the following clauses were added to Article 309:

94¹) the insurance organization is taxed with profit tax according to the object of taxation provided for in the first part of Article 97 of this Code from January 2024, 1.

95¹) until January 2024, 1, the object of taxation of insurance organization's profit tax is the difference between the total income received during the calendar year and the amounts of deductions stipulated by this Code.

95²) until January 2024, 1, a legal entity that carries out licensed insurance activities has the right to deduct from the total income of the reporting year the "insurance/standing losses, net" of the same reporting period, calculated according to the rules established by the National Bank of Georgia, except for income from regression and salvaged property.

99¹) Dividend distribution received from the insurance organization from the profits belonging to the periods from January 2008, 1 to January 2024, 1 is not considered as profit distribution. And, the distribution of dividends to the insurance organization from the profits belonging to the periods from January 2008, 1 to January 2017, 1, as well as the distribution of dividends to the insurance organization from the profits belonging to the periods from January 2017, 1 to January 2024, 1, until January 2024, 1 are considered as profit distributions.

1.2 Sanctions for transportation of pharmaceutical product without waybill are defined.

Article 286 of the Tax Code of Georgia (transportation, sale and accounting of goods without documents) was included change, which will be implemented from March 2023, 15.

The change refers to the measures of responsibility in case of transporting a pharmaceutical product subject to the reference price for business activity (a pharmaceutical product defined as such in accordance with the Law of Georgia "On Medicines and Pharmaceutical Activities") without a bill of lading, not issuing it when the buyer requests a bill of lading, or refusing to accept a bill of lading when purchasing goods. In particular, a person will be fined 1,000 GEL for committing such an act, 15,000 GEL in case of repeated commission, and 30,000 GEL for the third and subsequent commissions.

Also, in the case of a pharmaceutical product subject to the reference price, the sanction is applied even if the registration number of the pharmaceutical product, the unit price of the pharmaceutical product and/or the actual address of the party participating in the economic operation are not or are incorrectly indicated in the bill of lading. In addition, as we know, with the record before the change, which remains unchanged, the basis of the sanction may also be not indicated in the bill of lading or incorrectly indicated: the date and/or number of the document; name, identification number or name and surname of the party participating in the economic operation, personal number; Product name and/or quantity.

1.3 Change in Income Tax Exemption

On December 2022, 27, an amendment to the Tax Code of Georgia was published, according to which, starting from January 2025, 1, subsection "k" will be removed from Article 82 of the Civil Code (exemption from income tax), and as a result, there will no longer be an exemption from income tax for compensatory feeding of blood given to an individual (donor) Amount issued. Accordingly, such compensation for individuals will be subject to income tax from January 2025, 1. 

1.4 In the automatic VAT refund calculation, the amounts available as of December 31 of each year are zeroed.

On December 2022, 13, an important change was published and put into effect in the Order N405 of the Minister of Finance of Georgia "On approval of the rules and conditions for the automatic refund of overpaid amounts to be returned by declaration of value added tax".

The change affected the automatic calculation method of refundable VAT. In particular, the overpaid amount calculated in the calculation as of December 31 of each year will be subject to reduction in the calculation no later than the first working day of the following year.

The said amendment means that in case of reflecting the amounts in the VAT calculation, if the person has not automatically returned the surplus arising from the VAT declaration before the end of the year, i.e. before December 31, the said amount will be automatically deducted by the end of the year and it will no longer be automatically returned from the following year. It turns out that in this case, the person has only one way to return the said excess, that is to apply to the Revenue Service with a statement "Refunding the amount of overpaid tax and/or sanction", which in many cases causes certain difficulties for the person.

2. Changes in the orders of the Minister of Finance of Georgia

2.1. Public decision on the taxation of the difference between the weights of goods when importing grain.

On November 2022, 28, a new public decision of the Minister of Finance of Georgia regarding the taxation of the difference between the weights of goods when importing grain was published and entered into force. In particular, the public decision determines the issue of taxation of the difference between the weight of the goods at the port of unloading and the port of loading when importing grain to Georgia under CIF conditions.

In accordance with Article 8, Part 11 of the Civil Code, a deficit is a lack of tangible assets and/or fixed assets identified (including through inventory) when compared with the taxpayer's accounting records.

According to Article 8, Part 28 of the Civil Code, commodity value is raw materials, materials, semi-finished products, spare parts, containers and finished products (goods) used by a person in the course of ordinary economic activity according to IAS.

98 of the Civil Code³ According to part 2 of the article, the loss of commodity-material value and/or fixed assets provided for by this Code is considered to be the free supply of these goods at the moment of its detection and, accordingly, based on subsection "c" of part one of Article 97 of the Civil Code, it is taxed with profit tax, And according to subsection "h" of part 160 of Article 3 of the Civil Code, the loss of goods is considered a VAT-taxable operation.

Despite the fact that at the end of loading the goods into the ship, the ship's trunks are sealed at the port of loading, the goods are weighed on a calibrated scale in the port, and the cargo is unloaded in the port area by the forwarder under customs control, when importing grain to the ports of Georgia under CIF conditions, there may still be a difference between the weights recorded at the ports of loading and unloading . The reasons for the difference between the weights of goods can be as

Technical as well as natural, such as the weighing of goods on different scales, the method of calibrating these scales, the natural properties of grain, such as drying, changes in moisture content, etc.

This public decision refers to the non-recognition of such a difference as a disadvantage. In particular, when the contract for the delivery of goods with the supplier is signed under the Incoterms CIF conditions and the delivery of the goods to the port of unloading of the recipient is ensured by the supplier, the disposal of the goods by the recipient is carried out only after the unloading of the goods, in the amount of the weight specified in the general act, therefore the said goods, before their disposal by the recipient/unloading of the goods , should not be considered as the commodity value of the recipient of these goods.

Therefore, when importing grain on CIF terms, due to the difference between the weights of the goods at the ports of loading and unloading, the recipient of the goods does not incur any tax liability in terms of profit tax or VAT.

1.2 Public decision on goods exempted from VAT.

On November 2022, 28, another new public decision of the Minister of Finance of Georgia was published and entered into force, regarding the goods exempted from VAT under Article 172, Part 4, Sub-paragraph "u" of the Civil Code. In particular, according to the mentioned article, as we already know, the supply of agricultural products produced in Georgia (except eggs and raw, fresh or chilled domestic chicken) is exempted from VAT before its industrial processing (before changing the commodity code).

In the public decision, the issue of VAT exemption of the following types of goods supply operation is considered:

a) Delivery of slaughtered animals _ Because the termination of the life process of a biological asset is one of the fruits of the biological asset

On the other hand, fruit production is one of the results of agricultural activity. Based on the above, the products obtained by terminating the life process of an animal as a biological asset are considered agricultural products, and thus, the supply of a slaughtered animal according to subsection "u" of part 172 of Article 4 of the Civil Code, Exempted from VAT with right of deduction.

ბ¹) delivery of hatched (fresh), live, chilled fish _ Agricultural activities also include aquaculture, including fish farming. Accordingly, hatched fish is a product obtained as a result of the termination of the life process of a biological asset (getting a fruit) before its industrial processing (before changing the commodity code). In addition, according to the national commodity nomenclature of foreign economic activity, chilled fish is assigned the same commodity code as fresh fish. Thus, the delivery of gutted (fresh) and chilled fish according to Article 172, Part 4, Sub-Clause "u" of the Civil Code, Exempted from VAT with right of deduction.

ბ²) delivery of frozen fish _ This product is obtained as a result of industrial processing (the commodity code is changed), as a result, it is not covered by the benefit provided for in subsection "U" of Article 172 of the Civil Code and, accordingly, the supply of frozen fish Not exempt from VAT.

c) supply of agricultural products obtained as a result of biological transformation of imported biological assets _  Agricultural products are products obtained as a result of the transformation of any biological asset and the management of fruit production. And, the product obtained as a result of agricultural activities carried out in Georgia, namely, the product obtained as a result of the biological transformation of a biological asset carried out in Georgia, as well as the removal of products from it or the management of the termination of its life process, is considered to be an agricultural product produced in Georgia. Based on the above, the tax relief provided for in subsection "U" of Article 172, Part 4 of the Civil Code applies to the importation of biological assets carried out in Georgia.

on the supply of agricultural products obtained as a result of biological transformation and the aforementioned Exempted from VAT with right of deduction.

d) Delivery of agricultural products in packaged/priced form _ Packaging/pricing of agricultural products produced in Georgia, when the packaging material is auxiliary to the main operation - the supply of products, is not considered industrial processing for the purposes of subsection "u" of part 172 of Article 4 of the Civil Code, and accordingly, agricultural products produced in Georgia Delivery in packaged/priced form (both individually and several types of products together). Exempted from VAT with right of deduction.

Creston Georgia Ltd

Managing Partner / Davit Papiashvili

Head of Tax Audit Department / Chabukiani from Rusu