Resident companies are subject to CIT on their worldwide income derived from within and outside Georgia. Under the new tax regime (see Sec. 5.), the corporate tax is not due on actual profits but on distributions and deemed distributions of income. The following are treated as distributions or deemed distributions of income and, consequently, are subject to corporate tax:
- Dividends paid to shareholders in any form
- Payments made to non-resident company from profits of a PE
- Transactions between resident related parties (not subject to tax on distributed profits i.e. covered under old regime) where the contractual value of transaction is different than the market price
- Cross border transactions with related parties which are not at arm’s length
- Transactions entered into with parties / company exempt from profit tax, if the contractual value of transaction is different than the market price
- Expenses incurred or other payments made which are not related to economic activities, such as
- Undocumented expenses
- Interest expense on loans at a rate higher than the annual threshold rate declared by the Ministry of Finance of Georgia
- Payments / transactions with a company located in a low-tax jurisdiction, or a person not subject to tax under the tax code of Georgia, subject to certain conditions
- Capital contributions or payments made for participating in the equity of a nonresident company or a person not subject to tax under the tax code of Georgia
- Representation costs exceeding higher of, 1% of income received or 1% of expense incurred in the previous year, is considered as distribution of profits
- Goods and services supplied not for earning profit or income such as
- Gratuitous supply of goods or services rendered to another person
- Shortage of inventory or fixed assets at the time when such shortage is identified
- However, there are certain exceptions, such as
- Donations made to charitable organizations not exceeding 10% of the net profit of preceding calendar year
- Transfer of goods or funds which have already been taxed at source
- Gratuitous supply of goods and services or transfer of funds to government, municipalities or legal entities of public law
Dividend income received from a resident company and non-resident company (except companies registered under low tax jurisdictions) is not considered as distribution of profits and hence, not subject to CIT.
If resident companies distribute dividends on or after 1 January 2017 from profits that relate to period prior to 1 January 2017, then the tax paid on such profits can be offset against the tax liability of the prior period.
Capital Gains are not subject to tax under the new tax regime, until they are distributed. Under the old tax regime, capital gains were taxed as ordinary income.