Many Georgian Companies often use services offered by non-resident freelancers and foreign firms, which is subject to additional taxation called - Tax Deducted at Source. This article analyses cases in which TDS may occur based on the Georgian Tax Code.
Identifying Cases of Tax Deducted at Source
When a non-resident gets reimbursement for provided services, another side, namely the payer appears as a source of income for the non-resident. It is important to identify from where the service was received - the territory of Georgia or abroad. There is a commonly spread misperception that if a non-resident provides services from their own country, the income received from this service is not the Georgian source, while in reality, this is not the case.Receiving income on the territory of Georgia qualifies when an agreement with a foreign provider lists services as marketing, advertising, consulting, engineering, or a non-resident studies Georgian market, places advertisements for Georgian users, and conducts different projects in Georgia.The Payer is considered as the source of income, so tax payment liability relies on the payer. When a non-resident provides services such as management, financial, accounting, legal, or consulting - it lies on the services administered on the territory of Georgia.
What is the Source Tax Rate
Income received by a non-resident from a source that does not belong to a permanent establishment is taxed at the source of payment without tax deductions at such rates:
- royalties - 5%;
- for services of international communications, telecommunications and international transport - 10%;
- income from transactions with oil and gas - 4%;
- for all other payments (marketing, etc.) - 10%;
- when paid to offshore - 15%.
How to Deal with Controversial Situations
When considering a situation related to Tax Deducted at Source companies and auditors often have direct disagreements with the Tax Authorities. For any misunderstandings, we advise referring to the Tax Authorities for a written explanation.It is worth of consideration that, If the counterparty is a tax resident in the country with which Georgia signed an agreement of Double Taxation Avoidance, there is a possibility to avoid Tax Deducted at Source.The list of the countries that signed the Double Taxation Avoidance treaty with Georgia is available on the website of the Ministry of Finance of Georgia.