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  • March 7, 2024
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During the month of February 2024 Amendments to the tax legislation of Georgia

Kreston Georgia continues to review tax law changes and updates. This time, we offer an overview of the legislative news introduced in the month of February 2024.

 

Table of Contents

1. Amendments to the law of Georgia 

1.1 About the introduction of container fee 

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

2.1 Deregistration of a person as a VAT payer during a tax audit 

2.2 Change regarding the calculation of the amount of VAT charged by the method of withholding tax 

2.3 Changes in the list of goods whose supply and/or import are exempt from VAT 

2.4 Adjustment of the customs value of goods based on the rules of assessment of international controlled operations 

3. Changes in the orders of the head of the revenue service 9

3.1 Amendment to the rule for releasing a person from relative sanctions based on Articles 274 and 282 of the Civil Code 

3.2 A new example of methodical indication of VAT (guarantee obligation) 

 

1. 1. Amendments to the law of Georgia

1.1.1. About the introduction of container fee

From February 2024, 1, an amendment to the Law of Georgia "On Local Fees" came into force. A new 5 was added to Article 12 of the Law3 Article and defined new local permit fees - "container fee".

The payer of the container fee is the carrier of goods, whose ownership and/or use is the container loaded with goods brought into the sea port in the territory of Georgia/out of the sea port in the territory of Georgia.

The amount of container fee should not exceed 1 GEL for 30 container.

The carrier shall be exempted from payment of duty for the container:

  • by which only goods moved for the purpose of liquidation of natural disaster, accident and disaster, as well as humanitarian aid were brought into the customs territory of Georgia;
  • by which the goods intended for the official use of diplomatic missions of foreign countries and equivalent missions, as well as for the personal use of diplomatic personnel and administrative-technical personnel of these missions (including family members living with them) were brought into the customs territory of Georgia.
  • The transportation of goods by sea began before February 2024, 1, and which were brought to the customs territory of Georgia by sea transport no later than April 2024, 30.

In connection with the mentioned change, on the basis of Resolution No. 2024 of the City Council of Batumi Municipality of February 26, 2, a container fee was introduced in the territory of Batumi Municipality and the fee rate for 1 container was set at 30 GEL.

For detailed information about the change, see the link:

https://matsne.gov.ge/ka/document/view/6003342?publication=0

https://matsne.gov.ge/ka/document/view/6115191?publication=0

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

1.2.1. Deregistration of a person as a VAT payer during a tax audit

On February 2024, 6, an amendment to the "Tax Administration" instruction approved by Order No. 996 of the Minister of Finance was published and entered into force immediately after publication. In particular, to Article 47 of the Order, which regulates the procedure for canceling registration as a VAT payer, a new paragraph 8 has been added, according to which, during a tax audit, after the mandatory registration of a person as a VAT payer, cancellation of registration will be possible at the moment of the emergence of such a right , in case of the appropriate consent of the taxpayer.

As we know, according to the current legislation, one of the grounds for the obligation to register as a VAT payer for a person is exceeding 12 GEL of VAT-taxable turnover during 100 continuous calendar months. And, the grounds for cancellation of registration are turnovers less than the mentioned limit (000 GEL) in the last 12 continuous calendar months and not less than 100 year has passed since the last registration as a VAT payer. As is known, according to the old approach of the Revenue Service, if during the tax audit, after the obligation to register as a VAT payer arose, the right to cancel the registration also arose, the tax authority would only register the person as a VAT payer and the registration would not be canceled. Accordingly, the person was considered a VAT payer for the entire audited period, regardless of whether he had the right to cancel the registration or not.

Example: The person's inspection period includes the period from January 2021, 1 to December 2023, 31. According to the inspection data, the person is obliged to register as a VAT payer in the month of May 2021. Also, according to the inspection data, in the month of February 2023, the basis for cancellation of the VAT payer registration was established for the person (the turnover of the previous 12 continuous calendar months does not exceed 100 thousand GEL and more than 2021 year has passed since the last registration as a VAT payer in May 1).

The old approach: The authorized person (auditor) will register the person as a VAT payer and consider him as a VAT payer until the end of the period to be checked. Accordingly, for the period from May 2021 to December 2023, the auditor determines the person's tax liabilities in the VAT section.

A new approach: The auditor will obligatorily register the audited person as a VAT payer in the month of May 2021. However, it will also, if the person consents, cancel his VAT registration from February 2023 (the moment when the right to cancel registration arises). Accordingly, according to the factual circumstances of the discussed example, the person's tax obligations in the VAT section are determined only in the period from May 2021 to February 2023, instead of the full auditable period.  which will result in the accrual of less tax and penalty amounts.

Therefore, after the above-mentioned change, in the case of mandatory registration of a person as a VAT payer by the auditor during the tax inspection, the taxpayer has the right to request the authorized person to cancel the registration as a VAT payer from the moment of occurrence of the relevant circumstances.

For detailed information about the change, see the link:

https://matsne.gov.ge/ka/document/view/6097258?publication=0

1.2.2. Change regarding the calculation of the amount of VAT charged by the method of withholding tax

On February 2024, 6, an amendment to the "Tax Administration" instruction approved by Order No. 996 of the Minister of Finance was published and entered into force immediately after its publication, which refers to the calculation of the amount of VAT accrued by the method of withholding tax.

According to the amendment, 73 of the instruction2Article that regulates  A new subsection "g" was added to certain cases when VAT can be calculated on a basis different from that defined by the first part of Article 176 of the Tax Code of Georgia.

With the implemented change, the taxpayer, in the case of registration as a VAT payer, has the opportunity to be considered as a VAT payer the amount of VAT accrued by the method of withholding tax and reflected in the calculation before registration, if the person has the right to consider the said amount in the established manner (it is used in transactions subject to VAT) VAT- After registering as a payer. In addition, the calculation is not carried out according to the calculation in which 3 years have passed since the end of the calendar year of the implementation of the taxable operation.

Corresponding changes have also been made in the VAT declaration appendices and filling rules. In particular, VAT declaration appendix No. III-25:

  • 4 was added to Part III of Annex "A" (Amount to be deducted from VAT)1 a line in which the VAT reflected in the calculation of the amount of VAT charged by the withholding tax method is indicated;
  • Part IX has been added to Annex "B", which reflects the amount of VAT reflected in the calculation of the amount of VAT charged by the withholding tax method, which is subject to deduction.

For detailed information about the change, see the link:

https://matsne.gov.ge/ka/document/view/6097207?publication=0

1. 2.3. Changes in the list of goods whose supply and/or import are exempt from VAT

Published on February 2024, 20, entered into force immediately after its publication and will apply to relations arising from January 2024, 26, the change in the joint order of the Minister of IDPs from the occupied territories of Georgia, Labor, Health and Social Protection and the Minister of Finance of Georgia dated December 2020, 29 N01-132/N "On the list of goods regarding the approval, the supply and/or import of which is exempted from value added tax".

As you know, according to Article 172, Part 4, Sub-Clause "J" of the Civil Code, the supply of pharmaceutical products manufactured by a pharmaceutical company or its own manufactured goods for medicinal/medical purposes is exempted from VAT. By the above-mentioned order N01-132/n.

Also, the order N01-132/n defines the list of goods whose import is exempted from VAT, and the supply is exempted from VAT without the right of deduction, in accordance with Article 171, Part 1, Sub-paragraph "G" of the Civil Code and Article 173 Based on part 1.

As a result of the changes made, certain commodity codes were added to the list of raw materials and substances included in groups 28 and 29 of the national commodity nomenclature of foreign economic activity, whose import and supply are exempted from VAT (without the right of deduction), intended for medicinal/pharmaceutical purposes, Some of them were removed from the list:

Also, with the new edition, a list of goods intended for medicinal/medical purposes, the import and supply of which are also exempt from VAT (without the right of deduction), was formed.  The following subsections of paragraph 3 of the first article:

a) tests classified in commodity heading 3822;

d) nitrile gloves classified in commodity subheading 4015 11 000 00;

i) non-contact thermometers classified in commodity subheading 9025 19 000 09;

LA) 3822 19 000 00 Applicator reagent for collecting saliva/saliva classified under commodity subheading.

In addition, the following subsections of paragraph 1 of Article 1 of the list of pharmaceutical products manufactured in Georgia by a pharmaceutical company or its own production, the supply of which is exempted from VAT, were established with the new edition:

a) tests classified in commodity heading 3822;

d) nitrile gloves classified in commodity subheading 4015 12 000 00;

i) 9025 19 000 09  Non-contact thermometers classified under commodity subheading;

LA) 3822 19 000 00 Applicator reagent for collecting saliva/saliva classified under commodity subheading.

For detailed information about the change, see the link:

https://matsne.gov.ge/ka/document/view/6105097?publication=0

1.2.4. Adjustment of the customs value of goods based on the rules of assessment of international controlled operations

It was published on February 2024, 16, and the amendment entered into force immediately after publication   In order No. 257 of the Minister of Finance of Georgia, "On the approval of instructions on the movement and clearance of goods in the customs territory of Georgia". In particular, subsection "b" of Article 8, Part 14 of the Order No. 4 Appendix was formed with a new edition and also a new subsection "c" was added, on the basis of which the corresponding obligation to adjust the customs value of goods and charge tax in case of an international controlled operation was established.

As you know, according to Chapter XVI of the Tax Code, an international controlled operation (the so-called transfer pricing) is considered an operation that is concluded:

  1. between a resident person of Georgia and his dependent non-resident person;
  2. between a resident of Georgia and a resident of a country with preferential taxation (so-called offshore).

As it is known, during such transactions, the resident person of Georgia, within 30 days after the request of the tax authority, is obliged to submit relevant documentation, which will confirm that the price of the concluded transaction corresponds to the so-called The market principle, or roughly speaking, the market price. In the event that the compliance of the mentioned transaction price with the market principle is not confirmed, the revenue service can impose a profit tax and sanction amount on the company, for example, in the case of "expensive purchase" of goods/services purchased from the above-mentioned persons or "cheap sale" of goods/services to such a person. However, it should be noted that, for example, in the case of imported goods, there was no direct reference in the legislation regarding the use of the mentioned approach, for example, in relation to import VAT.

According to the implemented change, in the case of a transaction made at a price different from the market price of the controlled operation, a tax and sanction may be imposed on a person, e.g. Even in the case of a commodity operation, for example, an import operation.

In particular, according to the amendment, in case of purchase of goods from a mutually dependent person, based on the rules of evaluation of international controlled operations, by the parties:

  • If the original value of the goods increases, then the customs value determined by the customs declaration must be corrected by making an amendment to the corresponding customs declaration. In addition, when the post-release control of the goods is carried out at the initiative of the customs authority, the declarant will be held responsible under the Customs Code of Georgia, and when such control is carried out based on the written statement of the declarant about making changes to the customs declaration, the declarant will not be held responsible.
  • If the original value of the goods is reduced, then the customs value determined by the customs declaration is not subject to adjustment and the declarant will not be held liable under the Customs Code of Georgia.
  • It turns out that if the importer has purchased the goods from a mutually dependent person or the so-called From a person registered in the offshore zone and after import it is determined that the purchase price of these goods is less than the market value determined according to the chapter of the controlled operation, in case the taxpayer does not correct the customs declaration, the revenue service will, for example, charge import VAT and the corresponding sanction amount from the difference amount.

It should be noted that in the version of the order before the change, the issue of increasing/decreasing the value of the goods recorded in the customs declaration and charging taxes/sanctions related to import was not separately discussed in the case of buying goods within the controlled operation. However, a general case was considered, according to which a person was obliged to apply to the customs authority in order to change the customs value of the goods.

For detailed information about the change, see the link:

https://matsne.gov.ge/ka/document/view/6105465?publication=0

1.3. Changes in the orders of the head of the revenue service

1.3.1. Amendment to the rule for releasing a person from relative sanctions based on Articles 274 and 282 of the Civil Code

On February 2024, 5, the order of the Head of the Revenue Service No. 9021 was published and immediately after its publication, an amendment was made to "Approval of Methodical Instruction on the Implementation of Separate Measures by the Tax/Customs Authority".

As we already know, the above-mentioned methodological reference regulates the bona fide taxpayer on the basis of Articles 274 and 282 of the Civil Code, in particular, for violation of the declaration/calculation period and for activities without registration as a VAT payer.  from specified sanctions  dismissal, on the basis of part 269 of Article 7 of the Civil Code.

The above-mentioned amendment was applied to Appendix No. 2 of the order, in particular, a note was added to subsection "a" of the first paragraph, according to which, for the purposes of exempting a person from the relative sanction based on Articles 274 and 282, existing debt/fee up to 1 GEL is not taken into account.

In addition to the above, the rule for calculating the sanction has been clarified in the case when a person is exempted from the sanctions defined in Articles 274 and 282 and he subsequently submits clarified declarations, where the tax/fee to be paid is clarified by more than 50%. According to the methodological instructions, the person will be charged with a sanction  From the amount of the difference between the adjusted tax declaration/calculation and the tax declaration/calculation presented before it for the same reporting period. It should be noted that before the change in the order, the rule for calculating the sanction mentioned the word "difference amount", which in itself also means the amount of the difference between the specified and the previous declaration. However, the above-mentioned amendment clarified the said rule of calculation of the chargeable sanction in order to avoid ambiguity.

In addition, Article 5 of the Annex was changed and a new Article 5 was added1 Article. In particular, according to the current approach before the change, if several tax declarations/calculations of the same type and reporting period are presented during the day, the first tax declaration/calculation was the last presented as of 24:00 hours of the day. According to the amendment, the mentioned approach will be changed and if several tax declarations/calculations of the same type and reporting period are submitted, the primary tax declaration/calculation/primary data shall be the tax declaration/calculation/primary data for which the service department has submitted the tax declaration/calculation/primary data according to Article 274 of the Tax Code of Georgia. And on the basis of the first part of Article 282, the first decision on exemption from fine was made. And, in the event that the taxpayer submits several tax declarations/calculations/appeal statements for the same accounting period, and the appeal period established by the Tax Code of Georgia has not passed by the date of the decision on exemption from fines based on Article 269, Part 7 of the Tax Code , the service department makes a decision according to the procedure established by this appendix, both on exemption from the penalty determined by the declaration/calculation/appeal statement, on which the complaint has been submitted, and also on exemption from additional accrued amounts.

We remind you that on the basis of the methodological reference approved on the basis of the order of the head of the revenue service, the following requirements are necessary to exempt a person from the sanction for the violation of the deadline for submitting the tax declaration/calculation specified in Article 274:

  1. At the time of making the decision on the offense report or the exemption from the penalty, the person should not have a recognized tax debt/recognized fee.
  2. The person must not have committed the same act within 12 calendar months as of the day before the late submission of the tax return/calculation

and defined by Article 282  In order to be exempted from the sanction of violation of VAT requirements, it is necessary to:

  1. as a VAT payer  Mandatory  Registration  Without  The activity must be revealed directly by the taxpayer, based on the appropriate application to the tax authority
  2. At the time of making the decision on the offense report or the exemption from the penalty, the person should not have a recognized tax debt/recognized fee.
  3. After a person submits an application to the tax authority (for the purposes of this appendix, hereinafter referred to as an application) for mandatory registration as a VAT payer, but before issuing a corresponding tax offense report on the fact of activities without mandatory registration as a VAT payer, the person must submit an appropriate VAT declaration
  4. In the application submitted to the tax authority for compulsory registration as a VAT payer, the person must record the VAT taxable turnover made in the month of submission of this application (from the beginning of the month of application to the moment of application)

For detailed information about the change, see the link:

https://www.matsne.gov.ge/ka/document/view/6094770?publication=0

1.3.2. A new example of methodical indication of VAT (guarantee obligation)

On February 2024, 12, an amendment was made to the order of the Revenue Service N 2681 - "On the approval of the methodical instruction on value added tax" and a new example N9 was added to the general part of Appendix 3 of the methodical instruction - "Delivery of goods", which discusses the repair of damaged goods under the warranty obligation or The issue of VAT taxation of substitution.

According to the condition of the example, taxable person A is a retail supplier of computer equipment manufactured by taxable person B in the territory of Georgia. According to the agreement between them, the manufacturer's warranty applies to the products sold. A has signed an agreement with taxable person C to repair computer hardware in case it is found to be defective. A personal computer is delivered to the customer for 5900 GEL, which will be subject to VAT taxation by A at the time of delivery. The mentioned computer was found to be defective and the terms of the warranty were extended, and the costs incurred within the warranty were reimbursed by the manufacturer - B. In particular, let's consider two cases where the computer was subjected:

Option I: repair carried out by C for 1180 GEL (motherboard replaced).

  • Computer repair services are provided by C to A, which is a VAT taxable operation (VAT - 180 GEL). And, A is authorized to calculate VAT in the amount of 180 GEL.

Option II: Replacement with a new computer at no additional charge.

  • The replacement of a defective computer with a new one does not constitute an additional VAT taxable operation, because the said supply derives from the warranty obligation and its value is reflected in the contract related to the sale of the defective computer to the consumer.

For detailed information about the change, see the link:

https://infohub.rs.ge/ka/workspace/document/48ebe7c1-497c-448b-8f2f-72d2689f9ef0

Creston Georgia Ltd

managing partner                                                             Davit Papiashvili

Head of Tax Audit Department                     Chabukiani from Rusu


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