background image
4.1. Domestic PE of a Foreign Entity

According to the tax code, a permanent establishment (‘PE’) is defined as a fixed place of business through which the business of a person is wholly or partly carried on and includes the following:

a) place of management of a foreign entity;

b) a branch;

c) a representative office;

d) a department;

e) a bureau;

f) an office;

g) an agency;

h) a workshop;

i) a mine, pit or other place for extraction of natural resources;

j) construction sites, assembly or building facilities and the exercise of controlling activities connected with such facilities;

k) installations or sites, drilling equipment or ships used for surveying of natural resources, as well as the exercise of controlling activities connected with such facilities; and

l) any other separate unit or place of such enterprise’s activity.

In contrast, the following activities  do not constitute a permanent establishment  a foreign entity in Georgia:

• Activities performed through a professional mediator, agent or broker designated by law, who is not authorized to negotiate or sign a contract on behalf of such foreign enterprise; and

• The mere control of a Georgian enterprise or organization by a foreign enterprise.

Further, the following places of business are not considered as constitutive of a permanent establishmentof  the foreign entity in Georgia:

a) Using facilities for the storage or display of goods or merchandise belonging to the foreign enterprise;

b) Using a stock of goods or merchandise belonging to the foreign enterprise for storage or display;

c) Using facilities for procurement of goods or collection of information for the foreign enterprises;

d) Using facilities for the carrying out of activities of a preparatory or auxiliary character of interest to the foreign enterprise;

e) Using a place for the sole purpose of purchasing merchandise or collecting information for the enterprise;

f) Using a fixed place of business for the purpose of preparing and / or signing contracts on behalf of the foreign enterprise for the purpose of obtaining loans, providing goods or providing technical services; or

g) Using a fixed place of business for the combined exercise of the activities listed under (a) to (f) above.

The Georgian domestic law does not specifically include in its PE definition, the constitution of a service PE on the completion of a specified number of days. It also provides that the mere assignment of employees of a foreign enterprise to a resident enterprise does not constitute a PE, if the employees are under the control of the resident enterprise. However, a number of Georgian treaties (e.g. those with Singapore, the United Arab Emirates) provide specifically for service PEs, all of which require the physical presence of employee or personnel of the non-resident company for a prescribed period (6 months within any 12-month period) in Georgia. Certain tax treaties (e.g., those with China, Turkey, France) do not contain a specific service PE clause.