Issue 5, 2011. October-November



Ketti Kvartskhava, Partner,
BLC Law Office

Georgia, like many small countries, is striving to carve a position in the market of innovative technologies by offering special incentives and benefits to the companies willing to expand to Georgia or locate a large part of activities in Georgia. Many companies consider developing countries as insignificant markets for innovative products and services. To combat this perception, developing countries use free zones to present unique opportunities for business. Free zones (sometimes called virtual free economic zones, virtual duty free zones, virtual tax free zones) - are specific areas where certain taxes or limitations on business or trade do not apply.

In order to enhance the business environment and foster the information technology sector, the Government of Georgia has undertaken an important step : adopting a law on the information technology zones, establishing information technology zones, while applying special tax regimes on certain transactions, namely the ones involving information technologies created by the Person of Virtual Zone (PVZ).

PVZ status can be granted to an IT company registered in Georgia, by following simple a registration procedure, conducted electronically. The status is granted to a legal entity engaged in activities relating to the study, support, development, design, production and implementation of computer information systems, which result in the creation of the computer software.

The Financial Analytical Service of Georgia (FAS) - -- grants applicants for PVS status. Together with the application, the FAS requires a list of the projects carried out by the applicant over the past three years (if any).

The FAS is authorized to request additional information on the IT activities of the applicant; all information is confidential. There is no registration fee and status is granted within 48 hours of submitting an application.

After conferring PVZ status, the FAS gives the applicant respective electronic certificate, authorizing the PVZ to enjoy respective tax benefits. PVZ does not need any licenses, permits or any other regulation documents for conducting its activities.

Within the special tax regime, finances will remain in the company, boosting its potential and strength - providing an extra incentive for companies to invest in Georgia.

A PVZ enjoys considerable tax benefits, among them: profits received by the PVZ from the supply of the information technologies outside Georgia are exempt from corporate profit tax and VAT; export of information technologies by the PVZ is exempt from texport tax; a PVZ may deduct the expenses related to the receipt of gross income from supplying of IT technology in and outside Georgia in proportion to the income generated from the supplies made in Georgia in its total gross income.

Although PVZ status is granted for the indefinite term, the law of Georgia on information technology zones stipulates that the status may be cancelled if it is being abused or used to evade taxes.

It is expected that this innovation will create an attractive environment for companies engaged in the IT sector to establish their presence in Georgia.