One of the main subjects that concern both crypto miners and traders is cryptocurrency taxation. One sector that creates a lot of outrage among taxpayers is the presence of value-added tax, VAT, and also tax levies on goods and services. One of the latest countries that have made crypto-fiat transactions free from any such tax in Georgia. This has been the case in several jurisdictions. And what’s more, is that there is no crypto regulation and all investors are free to do what they want, however, the only thing they can’t do is use cryptocurrency as a legal tender for the purchase of goods and services.Â
VAT-free crypto exchange
Both companies and individuals who are involved in trading digital coins (crypto) in Georgia are not required to pay VAT to the central administration in Tbilisi. This came as a result of an order from the country’s Minister of finance whose goal was to address certain issues regarding taxation of individuals involved in mining or trading cryptocurrencies. It was enforced in June 2020.
According to reports from Forbes Georgia, the citizens of the South Caucasian Republic engaged in the mining and exchange of coins locally are not required to pay VAT. Also, it is said that citizens involved in such transactions will be spared from income taxes or pay very insignificant amounts, which is a big plus for investors in this jurisdiction. As per the orders, the local currency will remain the only legal tender, and Bitcoin or any other cryptocurrencies will not be used in this regard and can’t be used for the payment of goods and services. And that’s the same for foreign currency too.
If mining companies are registered abroad, they are required to pay VAT. Thus most investors mining and trading in Georgia have their companies registered in Georgia and take this advance to move abroad and exchange under this capacity, although the same could not be said for other countries (that is, the VAT-free policy). One aspect of Georgia that has attracted so many foreign investors is the cheap electricity of its power stations. This has made the country a hotspot for mining in the region for some years now. That is why many companies in the region might relocate their headquarters to other countries while maintaining their Georgian operations.
IT and international companies established in Georgia are subject to paying 5% withholding tax. Also, these companies are required to pay a 15% corporate tax if their dividends are not reinvested, this also includes local gambling companies. If you take a look at this Crocobet overview, you will realize that a lot of individuals prefer conducting their business operations in Georgia.
The selling of cryptocurrencies by individuals
The Georgian tax code provides that all individuals involved in the selling of cryptos will be taxed only on their income obtained while in Georgia. The Georgian Tax Code exempts incomes that were not obtained in Georgia, thus taxes will only be paid by individuals if their income is derived from a Georgian source. This is what makes Georgia more attractive in this sector because global taxations do not apply to individuals in the region.
The provisions of the GTC gives definitions for the various types of incomes that are considered to have been received in Georgia, or from a Georgian source. The types of individual incomes that do not fall in this category are listed in Article 104 of the GTC stating that there is an exemption for income made out of Georgia. This implication of the definition of cryptocurrency meant that even the profits from selling it will not be considered to be derived from a Georgian source.
Selling of Cryptocurrency by legal entities
Unlike private individuals, legal entities in the country are taxed on their global income. Thus companies are subject to a 16% corporate income tax on their profits made from selling cryptocurrency. The is a corporate income tax (CIT) system in Georgia that is worth noting, which is similar to that provided by Estonia. Georgian companies, in particular, do not pay corporate income tax on their annual profits; rather, they pay the ICT only when the dividends are distributed. This means that Georgian companies do not distribute profits, but they rather reinvest it, and as such no corporate income tax is paid for reinvested income.
Establishing a company in Georgia is a very simple process and there a no restrictions for foreign shareholders. Another point that is worth noting is that the is no minimum capital requirement. And the registration of a company can be done in as little as one working day.
Bottom line
The Georgian crypto environment is very conducive for both mining and trading. The provisions of the tax system make it even more so. And what is more interesting about the provisions is that if an individual becomes a resident in Georgia, they are not required to pay taxes on the profits from selling cryptocurrencies, and there will be no VAT for such transactions. For crypto companies established in Georgia, there is no VAT payable from their profits but they are required to pay a 15% corporate income tax and 5% withholding tax, which will be due if the company’s dividends are distributed to shareholders.
Also, the selling of hash power is considered as providing electronic service and no VAT will be paid for it as well if it is sold by a Georgian to a non-resident. Despite that, the reverse is true for a situation where a Georgia resident buys hash power from other countries. Also, about 10% of withholding tax, might be prevented through the use of any relevant tax treaties that the Georgian government might have signed with any of such countries. With all these said, there is no donut that Georgia is a crypto haven. This comes as no surprise as several renowned companies are located in the Eastern regions of the country. There is a US-based company called Bitfury that actively operates in the region.
