Table 1.4.1.2 summarizes the asset categories into which fixed assets subject to depreciation are grouped.
Table 1.4.1.2: Summary of Asset Categories
Group
Types of Fixed Assets
Percentage Depreciation
1
Passenger automobiles, automobile and tractor equipment for use on roads, special instruments, miscellaneous accessories, computers, peripherals and equipment for data processing and storage.
20
2
Automotive transport, trucks, buses, special automobiles and trailers, machines and equipment for all sectors of industry and the foundry industry, forging and pressing equipment, electronic equipment, construction equipment, agricultural machines and equipment, office furniture.
15
3
Railway, sea, and river transport vehicles; power machines and equipment; turbine equipment; electric motors and diesel generators; electricity transmission and communication facilities; pipelines.
8
4
Buildings and structures
7
5
Assets subject to depreciation not included in other groups.
10
Source: Tax Code.
Buildings and structures are each depreciated separately, whereas the other asset groups are depreciated using the balance of the asset group at the end of the tax year. The balance of the asset group is adjusted for purchases, sales, and repairs. The maximum deduction for repair expenses is 5 percent of the balance of each asset group. Any repairs that exceed 5 percent are added to the balance of the asset group and depreciated as such.
Physical persons who incur a loss in a tax year (i.e., deductions exceed gross income) and who are not connected to employment may not deduct such losses from employment income, but may carry forward and deduct the loss from non-wage income for a period up to 5 years after the tax year in which the net loss occurred. Legal persons who incur a loss in a tax year may carry forward and deduct losses from profit for a period of up to 5 years after the tax year in which the net loss occurred.
Tax credits are subtracted directly from the tax liability. There is a tax credit against Georgian taxes for income and profit taxes paid outside of Georgia, as long as the credit does not exceed the amount of tax charged in Georgia.
A taxpayer may record income and expenses under either the cash basis method or accrual basis method of accounting, but must use the same method for both accounting and tax purposes, and must use the same method throughout the tax year. A physical person must keep records using the accrual basis method for income from entrepreneurial activity.
Profit taxes must be paid in three installments based on the profit tax liability of the previous year. These are:
· Before May 15th: 30 percent of the previous year’s tax liability
· Before August 15th: 30 percent of the previous year’s tax liability
· Before November 15th: 40 percent of the previous year’s tax liability.
Taxpayers who have no taxable income in the previous year make payments according to the actual income of the previous quarter.
Installment payments may be reduced if current year income is expected to be at least 30 percent less than income of the previous year. Permission of the head of the tax agency, requested 1 month before the date of payment is required to do so. Resident legal persons and nonresident legal persons who have income from a Georgian source that is not taxed at the source of payment must submit a tax return before April 1st of the year following the year of the reporting year to the tax agency at the place of registration. Before the due date of a profit tax return, the taxpayer may apply to a tax body for an extension of time to submit the return.
Profit taxpayers who cease their entrepreneurial activity in Georgia must submit an income tax return to the tax agency within 30 days of ceasing activities. Legal persons who decide to liquidate must immediately notify the tax service in writing of their plans to liquidate and must file a profit tax return within 15 days of the decision to liquidate.
Value Added Tax. Value added tax (VAT) is collected at every stage of production and distribution. Persons or enterprises with annual taxable turnover less than 24,000 GEL per year are not required to register with the tax authority and pay VAT, although they may.
An enterprise charges VAT on its sales and pays VAT to the suppliers of materials and providers of services it receives. The enterprise then accounts to the tax department for the difference between the tax that it charged on its sales and the tax that it paid on the goods and services supplied to it. This difference usually results in a net payment to the budget, but in some circumstances it can result in a credit to the enterprise.
An enterprise registered for VAT that carries out a taxable transaction is required to prepare and issue a tax invoice to the person who receives goods or services. VAT invoices are purchased from respective regional tax offices at a cost of 0.18 GEL per invoice. The purchaser is given two copies of the invoice and both the seller and the purchaser must submit one copy to their local tax agencies for control purposes. Buyers and sellers are required to submit VAT declarations every month, no later than the 15th of the month following the reporting period. The total VAT an enterprise pays to the budget each month is the total VAT charged on its outputs (sales) less the total (allowable) VAT paid on its inputs (purchases) during that month. VAT paid on inputs can be credited against VAT paid on outputs if inputs are used for economic activities (offset for charities, entertainment, representative expenses are not allowed) and the enterprise has an invoice of paid VAT. VAT paid on exempt goods or on automobiles cannot be offset. If the input tax exceeds the output tax, the enterprise receives a credit for the excess. VAT on taxable imports is levied and collected by customs agencies.
The VAT rate in Georgia is 20 percent. A zero percent rate applies to exports and the categories of goods and services identified below. Annex D provides a list of VAT exemptions.
Exemption means that producers or suppliers of exempt goods and services do not charge VAT on their output, but cannot claim a credit on the VAT paid on inputs used to produce the exempt output.
Social Taxes. Social taxes include both social and employment taxes and are imposed on monetary and non-monetary wages and other forms of compensation paid to employees, as well as on income earned by physical person entrepreneurs from their economic activities. The social tax rates are summarized in Table 1.4.1.3.
Table 1.4.1.3: Social Tax Rates
Taxpayers
Taxes Paid by Employers and Entrepreneurs
Taxes Paid by Employees
Social Tax
Employment Tax
Social security Tax
Physical person entrepreneurs and legal persons who pay wages to employees.
Physical person entrepreneurs and legal persons who pay physical persons for services.
27%; not less than 16 GEL per month
1%
Physical persons who receive remuneration as employees or on a contract basis.
1%
Physical person entrepreneurs.
27%, not less than 16 GEL per month
1%
Physical persons who carry out non-entrepreneurial economic activities in Georgia.
27%, not less than 16 GEL per month
1%
Source: Tax Code.
Social taxes must be paid by:
· Physical person entrepreneurs and legal persons who make wage payments to employees working in Georgia or who make payments to physical person who render services in Georgia
· Physical persons receiving remuneration from employment or the performance of services
· Physical person entrepreneurs who conduct entrepreneurial activity in Georgia
· Physical persons who perform non-entrepreneurial activity in Georgia, including lawyers, doctors, notaries, and other professions.
For public organizations of disabled persons as well as enterprises that have a workforce of 70 percent or more disabled persons and pensioners, the 27 percent tax rate is reduced to 10 percent.
Employers who pay wages to employees or to individuals performing services must remit social taxes to the tax administration at the time that wages are paid. Employees’ social taxes are withheld and remitted along with the employer’s social tax payment. Employers are required to submit their social tax returns before the 15th day following the reporting month.
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