Tax system

Georgian tax model – benefits for local and international businesses

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According to the Doing Business Report commissioned by the World Bank,Georgia ranks 9th in the world in 2018 by ease of doing business. Moreover, Georgia is a country with the fourth smallest tax burden in the world, according to the Tax Misery Index Ranking by the Forbes Magazine, which is perfect rating for developing country.

The Government of Georgia is dedicated to a fair and transparent tax environment, protection of business interests and reliable tax administration system which is collected on both state and local levels here.

The country has only six taxes of which five (personal income tax, corporate income tax, Value added tax, excise tax and import tax) are on the national level and one – property tax is a local tax. Personal income tax, dividend and royalty is 5% and the most important, the country doesn’t have payroll, social security, capital gains, wealth or inheritance tax.

According to the Economic Liberty Act, Government is not allowed to increase national tax rates (except excise tax) or number of taxes without national referendum.

As for the individuals who are just starting economic activities in Georgia, they are required to register with the GTA prior to their start-up and obtain a Tax ID. Georgian citizen non-entrepreneur individuals may use a Personal ID and foreign citizen non-entrepreneur individuals have to register with the GTA prior to filing their annual personal income tax returns and obtain a Tax ID.

According to Tax Code of Georgia, if a company produces goods intended for export market, it can apply for a license about “Internal Processing Regime” to the Ministry of Finance. This license will grant the company a right to import raw materials without paying import/customs tax and VAT on these materials.

Furthermore, the Tax Code of Georgia gives an opportunity to the companies to use accelerated depreciation on capital assets (including full deduction during first year) and loss carry forward for corporate profit tax purposes (10 years).

Nowadays, Georgia has Double Taxation Avoidance Treaties with 52 countries and there’s no restrictions on currency convertibility or repatriation of capital and profit.

According to Global Corruption Barometer of Transparency International, 0% of interviewed reported paying bribe to the tax administration and World Economic Forum’s Global Competitiveness Report named Georgia among low tax rate countries, this information with all the above-mentioned data emphasize the simplicity and reliability of Georgian tax system for any interested person.

Author: Tamar Devdariani © BUSINESS GEORGIA

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Trade partners of Georgia

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The number of trade partners of Georgia has increased during the past decade which mostly was the result of signing an Association Agreement between the EU and Georgia on 27 June 2014. This agreement has entered into force since 1 July 2016 and today the EU is the main trade partner of Georgia.

The agreement introduced a preferential trade regime (Deep and Comprehensive Free Trade Area), which based on having better-matched regulations, increases market access between the EU and Georgia. It’s also noteworthy that Georgia has been a member of the World Trade Organization since 2000.

According to World’s Top Exports, Georgia shipped US$2.3 billion worth of products around the globe in 2017. The exact list showcasing 15 of Georgia’s top trading partner countries that imported the most Georgian shipments by dollar value during 2017 looks like this:

  • Russia: US$368.1 million (15.9% of total Georgian exports)
  • Turkey: $202.5 million (8.7%)
  • China: $191.6 million (8.3%)
  • Bulgaria: $173.2 million (7.5%)
  • Armenia: $153.5 million (6.6%)
  • Azerbaijan: $124.3 million (5.4%)
  • United States: $119.6 million (5.2%)
  • Ukraine: $90.8 million (3.9%)
  • Romania: $88.8 million (3.8%)
  • Italy: $65.7 million (2.8%)
  • Switzerland: $60.1 million (2.6%)
  • Spain: $58.9 million (2.5%)
  • Uzbekistan: $58.7 million (2.5%)
  • Iran: $58.2 million (2.5%)
  • Belarus: $47.4 million (2%)

Around 29% of Georgia’s trade takes place with the EU. As for EU export to Georgia, after the information given by European Commission, it is amounted to €1.96 billion in 2016. The key export products are mineral products, machinery and appliances, chemical products and transport equipment.

Georgia’s main imports are oil, motor cars, pharmaceutical products, wheat and meslin, sugar and electrical equipment. The list of main import partners includes – Russia, Turkey, Ukraine, Azerbaijan, Germany, USA and so.

On January 1, 2008, Georgia signed Free Trade Agreement with China too and became the first country from Caucasus region to have such a deal with it. According to this agreement – honey, wine, tea, mineral water, vegetables and other agricultural products will be exported to China with zero tariffs and without any more custom fees or transition period.

But this is not a first time when two countries forged strong ties. Following the information given by Georgian National Wine Agency, our wine was the most wanted export product lately and around 7,585,407 bottles of Georgian wine were exported to China last year. In general, exactly this country takes third place as the largest importer of Georgian wine.

The DCFTA and Free Trade Agreement with China allows Georgian trade-related laws to generally match internationally legal frameworks. Georgia’s adoption of leading trade countries’ approaches to policy-making will improve governance, strengthen the rule of law and offer more economic opportunities by expanding our marker. That will also attract foreign investments to Georgia.

 

Author: Tamar Devdariani © BUSINESS GEORGIA

Georgian Agriculture

Changing Agri-Business of Georgia

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Agricultural traditions are the main part of Georgian cultural heritage and mentality, as long as favorable climate with fertile soil make it one of the most productive economic sectors for the country and support production of a variety of high-value agricultural products including wine, nuts, citrus fruits, peaches, apricots, etc.

After signing a Deep and Comprehensive Free Trade Area (DCFTA) with the European Union in 2014, Georgia can produce agricultural products meeting the required safety and security standards and that makes it even more favorable for new investors of European markets, as longs as they can benefit from rising consumption on the local market, which is complemented by the Duty-free access to 900 million foreign markets under this agreement.

Georgia has emphasis on labor-intensive crops such as tea and grapes. In 2017, after the three-year study conducted by experts from seven countries, Georgia officially acknowledged as the cradle of wine and was invited to be a host of solo exhibition illustrating its oldest traditional viticulture and wine-making in Bordeaux, Paris.

Nowadays, wine export growth gives positive prospects to the sector, for instance after the data published in National Wine Agency of Georgia in January-February (2018) 10,8 mil. bottles of wine have been exported to 38 countries worldwide, that is 23% higher than the similar data of the last year.

There is fierce competition connected to the tea in Georgia, because  strong local manufacturers are not allowing the international players to take over tea entirely but as Euromonitor International reveals, consumers of tea in Georgia stay quite conservative and most brands produce only black or green tea.

According to the Strategy for Agricultural Development in Georgia for 2015-2020, it is estimated that 25% of Georgia’s total land area is classified as permanent pastureland and about 70-80% of pasturing is self-regulated among local and nomadic pasture users, which gives good grounds for stockbreeding, but without having strong supporting policies small farmers which make 95% of all farmers, typically cultivating around one hectare of land with low output aren’t able to compete with imported products, which except dairy food and beverages mostly relies on meat products, as well as grains and egg. Generally, Georgia imports 80% of its packaged food products which has a significant negative impact on its trade balance.

The Georgian government identifies agriculture as a priority for development and has also set up the Agriculture Investment Fund to support the sector by providing credits for farmers. The projects of building new agricultural products processing plants can get grant from the government with a total value of up to 250 000 USD. In addition to this, investor can symbolically buy state owned immovable non-agricultural property only for 1 GEL.

Government of Georgia intends to create a favorable business environment because full use of Georgian agriculture potential is vitally important for country’s economy, for this purpose, in 2015, Parliament passed a bill allowing foreigners to own the land but with certain limitations as long as foreigners now may own agricultural land if they inherit it, co-own the land through marriage to a Georgian citizen or by being a member of a Georgian citizen household or hold a residence permit.

Georgia has 22 micro-climates varying from cool and dry to warm and humid. These diversified micro-climates allow for a longer than normal harvesting season and a range of growing conditions. Soils are of volcanic origin in the river valleys, which tend to be quite fertile and reasonably easy to cultivate.

Country has easy and cheap access to water as well and the prices of other utilities such as energy and gas is low too, but on the other hand, according to the 2017 budget, by GEL 83,000,210 reduced agricultural financing resulted in decreased funding for financing programs like the agricultural development program, food safety, epizootic goodwill and plant protection, viticulture, implementation of scientific research activities and so on.

During the last years, as a result of good international cooperation, the positive tendencies are being observed in regard to expanding the export market, increase of production and attracting the investment in the agricultural sector. But local production is still under strong necessity of boosting as long as even though having rich resources, trade balance between import and export is still unenviable in Georgia.

Author: Tamar Devdariani © BUSINESS GEORGIA

Photo: Tamuna Ubiria © BUSINESS GEORGIA

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Georgian mineral and freshwater exports are growing annually

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Georgian mineral waters are very famous not only in Georgia but in foreign countries also. Especially this product is realized by summer because hot weathers make bad effect to people, so consumers need minerals to be strong enough. And it’s no surprise that entrepreneurs are preparing for this season and for exporting in all over the world. The bestselling mineral waters of Georgia are: Borjomi, Nabeghlavi and Likani.

Georgia had mineral water export growth in every year from 2010 to 2014 years. Witch had acted good for Georgia’s economy. The export of mineral water was increasing by 12% -25% annually until the opening of the Russian market, after the opening of the Russian market in 2013, the export of waters increased by 45%, and in 2014 the figure was $ 137 123 million. In 2014, the Mineral waters took fourth place in the export products list.

In 2015, due to the crisis in the Russian market, export indicators continue to decline.

  • 2010 – Export to $ 36 Million, increase by 33%
  • 2011 – Exports Increase $ 47 million, increase by 23%
  • 2012 – Exports amounted to $ 59 million, increase by 20%
  • 2013 – Exports amounted to 106 million, increase by 44%
  • 2014 – export $ 137 million, increase by 22%

From 2015 mineral and freshwater exports from Georgia are growing annually. According to the National Statistics Office of Georgia, in January-April 2017, 45.8 million liters of mineral and fresh water have already been exported, which is 18.4% more than the same period last year.

Below are the figures of mineral water export (2010-2017)

 

Photo: Lake Shaori. Racha, Georgia. 

             © Tamuna Ubiria 

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Georgia – Land of Golden Fleece

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Georgia is considered to be one of the oldest homelands of metal processing in the world. From the Copper-Bronze Age, when man acquired metal, it became the origin of the jewelry, especially the noble metals (gold and silver).

Examples of works by early Georgian goldsmiths were discovered during archaeological excavations, dating back to the 8th-6th centuries BCE, found on the territory of the ancient kingdom of Colkheti, known as Colchis. Burial mounds of ancient nobles on the sites of Vani and Sairkhe explain why Colkheti was referred to as Golden Fleece land, along with Mikena, Sardi, and Babylon in Greco-Roman sources.

Nowadays, Georgia is still rich in gold and this fact is reflected in high volume of export. During the last 7 years, Georgia has exported gold of USD 639, 923 500 64 and in 2017 price of exported gold was USD 64,656 600. This product is the 10th in the top export list of Georgia.

There are the couple of ores in the country, where gold can be mined: Madneuili, small town Kazreti and Ieli village Svaneti.  Rich Metals Group (RMG) is the one of the largest enterprises in Georgia and Caucasus region, engaged in mining activities in Bolnisi region, Georgia. JSC RMG Copper and LTD RMG Gold produce the copper concentrate and gold Dore alloys (half-fabricates) by mining and processing copper and gold containing ores. Currently, about 3000 employees work at the company, 90% of whom are local residents. 

Chart illustrates rates of exported gold (unwrought, semi-manufactured, in powder form) from Georgia, between 2010 and 2017. Units are presented in thousand US dollars.

The rate of export fluctuated, where the highest rates are shown in 2010 (about 117,647). In this period, gold export rates fell dramatically, up to 39,334. In 2015, rates improved slightly and reached almost 81,083. Unfortunately, in 2017 gold export decreased up to 700,771.

Overall gold import rate reached the peak in 2012 at a level 2,285, which fell dramatically in 2013(2.6) and remained stable until 2017 (24.1).

Eport Import

Georgia’s Export and Import in 2017

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According to the data released by the state statistics office of Georgia, in 2017 Import reached USD 7.9 billion, while exports of Georgia was USD 2.7 billion. It was largest figures for the last three years both for export and import. The lowest rate of export from Georgia was USD 2.1 billion in 2016.

The trade turnover with the EU-member states stood at USD 2.84 billion in 2017 and USD 2.78 billion in 2016, a 2% increase compared to 2016. For the last three year’s maximum rate of import was in 2016, USD 2.21 billion and export in 2017, USD 0.64 billion.

Horizontal bar chart shows statistics of export and import of Georgia, between 2012 and 2017. Values are shown in billions of US dollar.

Additionally, in 2017 Trade turnover with the Commonwealth of Independent States (CIS) was USD 3.54 billion, while in 2015 and 2016 was USD 2.8 billion and USD 2.71 billion. Georgian exports to CIS countries were up by 60% y/y to USD 1.18 billion and imports increased by 19.2% to USD 2.36 billion.

 

Georgia’s largest trade partners in 2017:

  1. Turkey – USD 1.58 billion
  2. Russia – USD 1.18 billion
  3. China – USD 1.18 billion
  4. Azerbaijan – USD 1.18 billion
  5. Ukraine – USD 569 million
  6. Armenia – USD 489 million
  7. Germany – USD 478 million
  8. The United States – USD 389 million
  9. Bulgaria – USD 334 million
  10. Italy – USD 286 million

 

Georgia’s 2017 top trading partners by exports:

  1. Russia USD 394 million
  2. Azerbaijan USD 272 million
  3. Turkey USD 216 million
  4. Armenia USD 208 million
  5. China USD 207 million
  6. Ukraine USD 124 million
  7. The United States USD 121 million
  8. Iran USD 76 million
  9. Switzerland USD 71 million
  10. Uzbek USD 64 million

 

Georgia’s 2017 top trading partners by imports:

  1. Turkey – USD 2.37 billion
  2. Russia – USD 788 million
  3. China – USD 732 million
  4. Azerbaijan – USD 609 million
  5. Ukraine – USD 455 million
  6. Germany – USD 433 million
  7. Armenia – USD 281 million
  8. The United States – USD 267 million
  9. Italy – USD 217 million
  10. Romania – USD 191 million

 

Georgia’s 2017 top exported products:

  1. Copper ores and concentrates USD 419 million
  2. Ferroalloys – USD 306 million
  3. Re-export of motor cars – USD 234 million
  4. Wine – USD 170 million;
  5. Medicines – USD 140 million
  6. Non-denatured ethyl alcohol and spirits – USD 126 million
  7. Mineral waters – USD 95 million;
  8. Hazelnuts – USD 83 million
  9. Chemical fertilizers – USD 76 million
  10. Raw or semi-processed gold – USD 70 million

 

Georgia’s 2017 top imported products:

  1. Oil and oil products – USD 696 million
  2. Cars – USD 474 million
  3. Petroleum gases – USD 350 million
  4. Medicines – USD 346 million
  5. Copper ores and concentrates – USD 338 million
  6. Mobile and other wireless phones – USD 204 million
  7. Cigarettes – USD 102 million
  8. Wheat – USD 98 million
  9. Automatic data processing machines – USD 96 million
  10. Trucks – USD 72 million
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Georgian Hazelnuts future and its global market share

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Protein rich hazelnuts are sweet tree nuts that grow in temperate zones and its mainly cultivated in Turkey, which produces about 60% of the world’s total production. Hazelnuts are used in products like, hazelnut oil, chocolate bars, spreads and coffee.

Georgia is considered as one of the largest suppliers of hazelnuts in the European market. In 2009-2012 Georgia was fifth among the exporting countries with the exception of the hazelnut export to the EU. Although Georgia is considered one of the biggest suppliers of nuts in the European countries, it does not take part in determining the price of the market.

According to FAO’s 2016 report, Georgia is the fourth in the world’s hazelnuts production share.

  1. Turkey – 59.9 %
  2. Italy – 12.2 %
  3. USA – 4.4 %
  4. Georgia – 4.3 %
  5. Azerbaijan – 3.4 %

Samegrelo-Zemo Svaneti, Guria and Imereti are the largest producers of nuts at the country level. These regions produce more than 80% of the hazelnuts in Georgia.

However, this statistic may soon change. Last year in Samegrelo, farmers weren’t able to harvest even half of what they got in 2016 and the prognoses are disappointing.

According to the National Statistics Office of Georgia, the income received from the hazelnut in three months amounted to $ 17 million, while last year it was $ 32 million. The price of hazelnut in Georgia is low and varies from 3 to 5 GEL. In the world market, its price is 6 dollars.

The National Food Agency issued a statement that the damage inflicted by the pesticide amounted to GEL 63 million. That’s why the government started a special program against Stink bug this year.

In June 2017 , hazelnut plantations were given a chemical treatment against the pests. In total, an area spanning 351 villages in the regions of Samegrelo, Guria and Adjara, 53,000 hectares of land was treated, including local plots of land of residents and corn fields. Local residents were given 230,000 liters of treatment and 21,000 traps for the insects.

“The first step is to improve the quality. The main reason for export reduction is the low quality and productivity.” Said Alexander Motserelia, Chairman of the “Nut Production and Exporters Association”.

Horizontal bar chart shows statistics of exported nuts from Georgia, between 2009 and 2017 (Jan-Nov). Export value is shown in millions of USD.

Overall, export rates have fluctuated during the time depicted on the graph. It peaked in 2014 and the lowest rates of exported nuts from Georgia were in 2009 and 2010.

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Georgian tea – with its old history & new investment opportunities

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Tea is the oldest Chinese culture, known in 1753 by a well-known Swedish botanist Carl Lynne, first described as a scientific name (Thea). Tea is one of the best soft and most common flavors in the world and has many medicinal properties.

The Georgian tea has a 170 years of history, starting in 19th century, when the first bushes appeared in Guria. In 1864, Mikhail Eristavi first presented a sample of Georgian tea at the Russian International Exhibition in Saint Petersburg, which laid the foundation for Georgian tea worldwide.

Later in 1920s, Georgian tea-growing was recognized as a special area of economic activity. The Tea and Subtropical Cultures Research Institute was founded in Anaseuli, West Georgia, where new varieties of the tea were cultivated, focusing on tender shoots and special aromas. In 20th century, Georgia drastically increased the volume of the tea production and it was a main supplier of the Soviet Union for decades.

Nowadays, Georgia is exporting its tea to the world. According to the official information, tea plantations are still around 19 K ha, out of which 2.4 K are exploited and the rest are covered with thorn birds.

“A couple of years ago, Georgian Tea Program was launched by Georgian Government which aimed to restore tea plantations. Approximately, one thousand hectares have been rehabilitated under the program. The state help for Georgian tea and support for agricultural cooperatives will be continued, tea leaf processing technologies will be further improved and developed that will later strengthen its positions in the international tea markets and increase its export”, said Levan Davitashvili, the Minister of Agriculture of Georgia.

The main exporting country of Georgian tea is Mongolia, where 435 tons (286 900) Georgian tea has passed till 2015.

The chart gives information about Georgia tea export statistics. It is clear from the chart that 2011 and 2012 was the best years for Georgia for last 7 years.

The value of USD 15.4 million tea was Exported and USD 45.2 million was imported from 2010 to 2016.

In addition, Georgia is starting to export 2 kinds of tea species to China, which was imported from China to Georgia many years ago. The reason is that this types of tea bushes no longer exist in China. However, China is also planning to cultivate tea plantations in Georgia, as they are strongly contented with quality of Georgian tea.

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The Free Trade Agreement between Georgia and China has commenced

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The Free Trade Agreement between the Government of Georgia and the Government of the People’s Republic of China came into force and is implemented on January 1, 2018. Georgia-China FTA  is the first FTA China has signed with Eurasian countries as well as the first Free Trade Agreement China has initiated and achieved since the Belt and Road Initiative was put forward.

In terms of the trade in goods, Georgia will impose zero tariffs on 96.5% of China’s products immediately, covering 99.6% of the total imports from China; China will impose zero tariff on 93.9% of Georgia’s products, covering 93.8% of China’s total imports from Georgia, of which 90.9% (taking up 42.7% of imports) will have zero tariffs immediately and the remaining 3% (taking up 51.1% of imports) will gradually have zero tariff within 5 years.

Georgian wine, mineral waters, honey, tea, fruit, vegetables and agricultural products will be exported to Chinese market of 1.4 billion consumers, with zero tariffs, without extra customs fees and without any transition period. In terms of trade in services, both sides will further open their markets to each other on the basis of their WTO commitments.

In addition Based on the FTA Agreement, tariffs on Georgian sparkling wine and still wine (less than 21 containers) will drop from the current 14% to zero, starting from the first day of next year. For still wine (over 21 containers), tariff will be cut from 20% to zero as well.

The reduction will surely boost Georgia’s wine exports to China, which has already become its third most important wine export market after Russia and Ukraine. For the 2017 year, China imported about 7,585,407 bottles of wine.

Georgia-China FTA will further improve the liberalization and facilitation of bilateral trade, and will build a more open, transparent and stable trading environment for enterprises, providing more quality and cheap products and services for people from both countries. By taking the opportunity of the effect taking of the agreement, China and Georgia will comprehensively improve both sides’ practical cooperation level, thus firmly promoting the Belt and Road construction and meet common prosperity.

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Georgian Mandarin export insights

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Georgian mandarin is cultivated in Western regions of Georgia, in Adjara, Guria, Samegrelo and Apkhazia.

Russia and Ukraine are leading Georgian mandarin export countries, followed by Armenia, Uzbekistan, Kazakhstan, Poland, Qatar and Belarus. In 2017 Georgia has exported 21 000 tons of standard mandarin to these countries. In addition, 7 700 tons of non-standard mandarins have already been processed in Georgia.

In 2016 The Ministry of Agriculture of Adjara payed 10 tetri in subsistence farms in 1 kg of non-standard mandarin, which remained in 2017 also.

Additionally, the export of citrus has significantly reduced in Russia from the de facto republic of Abkhazia. The reason was the harmful insect Asian Stink Bug and the damage has deteriorated the quantity and quality of the crop. In 2016, while Apkhazia exported about 60-68 tons daily to Russia, unfortunately this figure decreased to 25 tons in 2017.

Adjara situation was different. Avtandil Meskhidze, Agriculture Minister of Adjara said that Asian stink bug made minimal damage to mandarin in this region.

The 4 million GEL is envisaged in the 2017 state budget to fight against the Asian Stink Bug spread across Georgia. According to the Deputy Minister of Agriculture, Giorgi Khanishvili, the Ministry of Agriculture of Georgia plans to attract major funds through donor organizations.

110 thousand hectares of area, homestead plots and large arrays were treated in the municipalities of Samegrelo, Guria, Imereti and Adjara regions, where the invasive pest is widely spread, treatment activities were implemented through using special equipment, machinery, tractor aggregates and aviation under the frame of the state program – to fight against the Asian stink bug.