Is Georgia a Plan B Tax Haven of Your Offshore No-Tax Dreams?

Is Georgia a Plan B Tax Haven, Is Personal Income Taxable?

Is Georgia a Plan B Tax Haven? Is Personal Income Taxable?

Unfortunately, there is a lot of misinformation online regarding relocating to the country of Georgia and whether personal income earned in Georgia is tax-exempt (in Georgia). Unlike other countries such as the UAE, there is a personal income tax on income earned for taxpayers who consider Georgia their home. And, please beware of online marketers that make it seem like you can live there and earn income from outside of Georgia and still not have to pay local personal income tax on it because that is incorrect. The tax rate in Georgia on personal individual income tax is generally a 20% flat rate tax.

Income Earned in Georgia and Abroad

It is not uncommon for taxpayers to reach out to us to let us know they spoke with a company that purports to assist taxpayers with moving them offshore and living a nomadic lifestyle. One of the main countries that they try to sell the taxpayer on is Georgia. The problem is that these online slicksters do not explain the real-life consequences and tax implications of moving to Georgia. First, suppose you are considered a tax resident of Georgia (which simply means that you reside in Georgia for more than six months out of the year or you meet the high-net-worth test). In that case, you are taxed on both your local source and your foreign source income to the extent that the foreign source is earned through work and related earnings. For example, suppose you were living in Georgia as a consultant and you were earning income from outside of Georgia through your Georgia consultancy business. In that case, chances are you will still have to pay personal income tax in Georgia on those earnings.

Article 104 of the Georgia Tax Code

• • • Article 104 – Georgian source income 1. For the purposes of this Section, Georgian source income shall be:

    • a) income earned from employment in Georgia;

    • b) income or benefit earned from the supply of goods in the territory of Georgia;

    • c) income earned from the delivery of services in Georgia. For this purpose, unless otherwise provided by this article, services shall be deemed to be delivered in Georgia, if:

      • c.a) services are actually rendered in Georgia;

      • c.b) services are related directly to the immovable property located in Georgia;

      • c.c) services are related directly to the movable property located in Georgia;

      • c.d) services are related to the securities issued by a Georgian resident;

      • c.e) the place of actual delivery of services is Georgia and services are delivered in the sphere of culture, art, education, tourism, recreation, physical culture and sports;

      • c.f) the delivery of services is related to transportation of cargo or passengers, and the place of commencement and ending of transportation is Georgia;

      • c.g) a service provider and a service recipient are in different states and the service provider is a Georgian resident, except where the service provider delivers services through its permanent establishment in another country that confirms the fact that the service provider has delivered services in another country (other than in Georgia).

      • c.h) a service provider and a service recipient are in different states and the service provider delivers services in Georgia through its permanent establishment to an employee or otherwise (at the same time, the expenses related to the delivery of services by the service provider are incurred in Georgia irrespective of the place of actual payment of such expenses) that confirms the fact that the service provider has delivered services in Georgia.

    • d) income earned from economic activity conducted in Georgia by a non-resident’s permanent establishment, including income earned by a nonresident from the sale of identical (similar) goods in Georgia; as well as income from the services delivered in Georgia, which are identical or similar to the services delivered by a permanent establishment;

    • e) income from the cancellation of obligations as a result of writing off bad debts related to economic activity conducted in Georgia and income from the sale of fixed assets under Article 111(7) of this Code or income received as a result of compensation under Article 146 of this Code;

    • f) dividends received from a resident legal person, or income earned from the sale of shares of a resident legal person and/or a partner’s share in a legal person;

    • g) interest, provided the interest payer is a Georgian resident. At the same time, irrespective of whether the interest payer is a Georgian resident: http://www.matsne.gov.ge 20000000005001016012

      • g.a) interest shall be deemed as a Georgian source income if a non-resident person has a permanent establishment in Georgia to which the non-resident’s debt obligation is related and the interest expenses related to such debt obligation is attributed to the expenses of the permanent establishment, irrespective of whether such expenses have been incurred by the permanent establishment or not;

      • g.b) interest shall not be deemed as a Georgian source income if a non-resident person confirms that it has a permanent establishment in a foreign country to which the non-resident’s debt obligation is related and the interest expenses related to such debt obligation is attributed to the expenses of the permanent establishment, irrespective of whether such expense has been incurred by the permanent establishment or not;

    • h) pension or scholarship paid by a resident;

    • i) royalty, if the payer of such royalty is a Georgia resident. At the same time, irrespective of whether the payer of the royalty is a Georgia resident or not:

      • i.a) a royalty shall be deemed as Georgian source income if a non-resident person has a permanent establishment in Georgia with respect to which the obligation to pay royalty arose, irrespective of whether such expense has been incurred by the permanent establishment or not;

      • i.b) a royalty shall not be deemed as a Georgian source income if a non-resident confirms that it has a permanent establishment in a foreign country with respect to which the obligation to pay royalty arose, irrespective of whether such expense has been incurred by the permanent establishment or not;

    • j) income earned from the sale or assignment of rights existing or exercised in Georgia provided in Article 8(21) of this Code;

    • k) income earned from leasing movable property used in Georgia and/or from transferring any other contractual right of use;

    • l) income earned from immovable property located in Georgia and used for economic activity, including income from the sale of a partner’s interest in such property;

    • m) income earned from the supply of shares of or partner’s interest in an enterprise, more than 50% of the value of which assets is directly or indirectly created from the value of the immovable property located in Georgia;

    • n) income received from a resident enterprise or a non-resident’s permanent establishment in Georgia for management, as well as financial and/or insurance services (including reinsurance services);

    • o) income earned in the form of insurance premiums under risk insurance or reinsurance contracts made in Georgia;

    • p) income earned from the provision of transport services in international carriage between Georgia and foreign countries or from the provision of telecommunication services in international communication;

    • q) other income earned from carrying on activities in Georgia.

      •  In determining the source of income specified in the first paragraph of this article, the place of receipt of the amount of income shall not be taken into account.

      •  Georgian source income shall not include income earned from financial transactions and/or financial services between international financial companies.

Capital Gains Tax

Whether Capital Gains are taxable depends on the type of assets (private vs business) Georgia taxes business-related Capital Gains the same 20% as personal income. Capital Gains income in Georgia does not receive preferential tax as it does in the U.S.

Royalties, Real Estate, Pension and Other Taxes

Georgia may levy taxes on other types of income as well, such as royalties, real estate, pensions, and other taxes.

Planning on Skirting Georgia Law?

Unfortunately, foreign countries do not operate the same as the United States and if your goal is to move to Georgia and attempt to earn personal income from foreign sources without reporting it to the Georgian tax authorities, you may be setting yourself up for a potential criminal investigation, noting that foreign country criminal systems do not operate the same as the United States justice system.

Are You Still a U.S. Person?

If you are still considered a U.S. person, then you are going to be required to file a tax return in the United States to report this income as well and you may have a significantly higher tax rate in the United States which means you’ll be paying tax in both Georgia and the United States. If you are planning on expatriating first before moving to Georgia and terminating your US person status it is important to determine whether you will be a covered expatriate and the extent to which you’ll be paying exit tax at the time you were expatriate.

Late-Filing Disclosure Options

If a Taxpayer is out of compliance, there are various international offshore tax amnesty programs that they can apply to safely get into compliance. Depending on the specific facts and circumstances of the Taxpayers’ noncompliance, they can determine which program will work best for them. *Below please find separate links to each program with extensive details about the reporting requirements and examples.

Streamlined Filing Compliance Procedures (SFCP, Non-Willful)

The Streamlined Filing Compliance Procedures is one of the most common programs used by Taxpayers who are non-willful and qualify for either the Streamlined Domestic Offshore Procedures or Streamlined Foreign Offshore Procedures.

Streamlined Domestic Offshore Procedures (SDOP, Non-Willful)

Taxpayers who are considered U.S. residents and file timely tax returns each year but fail to report foreign income and/or assets may consider the Streamlined Domestic Offshore Procedures.

Streamlined Foreign Offshore Procedures (SFOP, Non-Willful)

Taxpayers who are foreign residents may consider the Streamlined Foreign Offshore Procedures which is typically the preferred program of the two streamlined procedures. That is because under this program Taxpayers can file original returns and the 5% title 26 miscellaneous offshore penalty is waived.

Delinquent FBAR Submission Procedures (DFSP, Non-Willful/Reasonable Cause)

Taxpayers who only missed the FBAR reporting and do not have any unreported income or other international information reporting forms to file may consider the Delinquent FBAR Submission Procedures — which may include a penalty waiver.

Delinquent International Information Returns Submission Procedures (DIIRSP, Reasonable Cause)

Taxpayers who have undisclosed foreign accounts and assets beyond just the FBAR — but have no unreported income — may consider the Delinquent International Information Return Submission Procedures. Before November 2020, the IRS was more inclined to issue a penalty waiver, but since then this type of delinquency procedure submission has morphed into a reasonable cause request to waive or abate penalties.

IRS Voluntary Disclosure Procedures (VDP, Willful)

For Taxpayers who are considered willful, the IRS offers a separate program referred to as the IRS Voluntary Disclosure Program (VDP). This program is used by Taxpayers to disclose both unreported domestic and offshore assets and income (before 2018, there was a separate program that only dealt with offshore assets (OVDP), but that program merged back into the traditional voluntary disclosure program (VDP).

Quiet Disclosure

Quiet disclosure is when a Taxpayer submits information to the IRS regarding the undisclosed foreign accounts, assets, and income but they do not go through one of the approved offshore disclosure programs. This is illegal and the IRS has indicated they have every intention of investigating Taxpayers who they discover intentionally sought to file delinquent forms to avoid the penalty instead of submitting to one of the approved methods identified above.

Late Filing Penalties May be Reduced or Avoided

For Taxpayers who did not timely file their FBAR and/or other international information-related reporting forms, the IRS has developed many different offshore amnesty programs to assist Taxpayers with safely getting into compliance. These programs may reduce or even eliminate international reporting penalties.

Current Year vs. Prior Year Non-Compliance

Once a Taxpayer missed the tax and reporting (such as FBAR and FATCA) requirements for prior years, they will want to be careful before submitting their information to the IRS in the current year. That is because they may risk making a quiet disclosure if they just begin filing forward in the current year and/or mass filing previous year forms without doing so under one of the approved IRS offshore submission procedures. Before filing prior untimely foreign reporting forms, Taxpayers should consider speaking with a Board-Certified Tax Law Specialist who specializes exclusively in these types of offshore disclosure matters.

Avoid False Offshore Disclosure Submissions (Willful vs Non-Willful)

In recent years, the IRS has increased the level of scrutiny for certain streamlined procedure submissions. When a person is non-willful, they have an excellent chance of making a successful submission to Streamlined Procedures. If they are willful, they would submit to the IRS Voluntary Disclosure Program instead. But, if a willful Taxpayer submits an intentionally false narrative under the Streamlined Procedures (and gets caught), they may become subject to significant fines and penalties. 

Need Help Finding an Experienced Offshore Tax Attorney?

When it comes to hiring an experienced international tax attorney to represent you for unreported foreign and offshore account reporting, it can become overwhelming for Taxpayers trying to trek through all the false information and nonsense they will find in their online research. There are only a handful of attorneys worldwide who are Board-Certified Tax Specialists and who specialize exclusively in offshore disclosure and international tax amnesty reporting.  *This resource may help Taxpayers seeking to hire offshore tax counsel: How to Hire an Offshore Disclosure Lawyer.

Golding & Golding: About Our International Tax Law Firm

Golding & Golding specializes exclusively in international tax, specifically IRS offshore disclosure.  Contact our firm today for assistance.