Territorial Taxation for Individuals in Georgia | Foreign Source Income Tax Exemption in Georgia

Описание: Georgia applies a territorial taxation system for individuals, which means that a person is generally taxed in Georgia only on Georgian-source income, while foreign-source income may be exempt from Georgian personal income tax.
However, this does not mean that “income received from foreign clients” or “money transferred from a foreign bank account” automatically qualifies as foreign-source income for Georgian tax purposes.
To understand what is considered Georgian-source income, we need to refer to Article 104 of the Georgian Tax Code, which provides the legal definition of Georgian-source income. Based on this definition, we can also determine what types of income may be treated as foreign-source income (and potentially benefit from the foreign income tax exemption in Georgia).
Georgian-source income: important rule for service income
A key point under Article 104 is that service income received by a Georgian tax resident may still be considered Georgian-source income, even if the client is located abroad.
This means that if you live in Georgia or plan to relocate to Georgia, a “0% personal income tax” approach may not apply to your active service income.
In such cases, some individuals may consider the “Small Business” tax regime, where taxation can be 1% under specific conditions. Please note that:
• the 1% rate generally applies to annual turnover up to 500,000 GEL
• slightly exceeding the threshold in one year may not revoke the status
• the regime does not apply to all types of activities (certain professional services are excluded, such as consultation, HR, architecture, etc)
• income may be reclassified as employment income (20%) in higher-risk cases (for example, when services are provided to only one client, especially if there was a prior employment relationship).
Territorial taxation in Georgia and passive income
Territorial taxation for individuals in Georgia is most beneficial when the income is passive income from abroad, such as:
• dividends
• royalties
• capital gains from selling stocks
• crypto taxation in Georgia (capital gains from selling cryptocurrency)
In many cases, capital gains on stocks in Georgia and capital gains on crypto in Georgia may be exempt from Georgian personal income tax because of qualification as foreign-source income.
However, the correct tax treatment can depend on the definition of stocks, crypto and whether the activity is viewed as passive investing or a more active trading/business activity, which requires careful analysis.
Dividends and Royalties as Foreign-Source Income
Dividends and royalties are often treated as foreign-source income when received from abroad, but only if the payment qualifies as a dividend or royalty based on both:
• the legal form, and
• the economic substance of the transaction.
In addition, when determining whether dividend or royalty income qualifies as foreign-source income for Georgian tax purposes, it is recommended to assess whether the income includes any active elements and, if so, to what extent.
Personal income tax Exemption on foreign source income for individuals in Georgia-Summary
Georgia can be a highly attractive jurisdiction for individuals seeking a 0% personal income tax outcome on certain types of foreign-source passive income, including dividends, royalties, capital gains on stocks, and crypto.
However, in practice, the qualification of income as foreign-source income is not always straightforward, and there are important nuances that may impact tax liability.
For this reason, we strongly recommend consulting with a Georgian tax expert before relying on the foreign income tax exemption. In some situations, applying for a tax ruling may be the best option to achieve higher clarity and reduce tax risks.
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