Business law in Georgia
Business Law in Georgia is based on a combination of civil law, commercial law, and international agreements. The legal system in Georgia has undergone significant reforms, especially after gaining independence from the Soviet Union in 1991. These reforms have modernized and liberalized the business environment, with Georgia striving to create a business-friendly climate to attract both local and foreign investment.
Here’s an overview of business law in Georgia:
1. Legal Framework
The legal system in Georgia is largely influenced by civil law principles, with written codes and statutes as the primary sources of law. Some key sources of business law in Georgia include:
- The Constitution of Georgia: The Constitution provides the foundational principles of law in the country, including the protection of property rights, economic freedoms, and fair competition.
- The Civil Code of Georgia: Governs private law, including contracts, property, and torts. It forms the basis for commercial transactions and agreements in Georgia.
- The Commercial Code of Georgia: Specifically regulates business activities, including the formation, operation, and dissolution of businesses. It also covers commercial contracts, agency, and commercial obligations.
- The Tax Code of Georgia: Provides regulations concerning business taxes, including corporate income tax, VAT, and personal income tax.
- The Labor Code of Georgia: Governs employment relationships, including worker rights, salaries, and working conditions.
- The Law on Entrepreneurs: Regulates the creation, structure, and dissolution of business entities in Georgia. This law applies to both local and foreign businesses.
- Intellectual Property Laws: Protect intellectual property rights, including patents, trademarks, and copyrights.
- International Agreements: As a member of the World Trade Organization (WTO) and the European Union’s Eastern Partnership, Georgia has signed various international agreements affecting business law, trade, and investment.
2. Types of Business Entities
In Georgia, businesses can be structured in several forms, and the most common include:
a. Sole Proprietorship (Individual Entrepreneur)
- The sole proprietorship is the simplest business structure, where an individual owns and operates the business.
- The individual has unlimited liability for the business’s debts and obligations.
- Registration is simple and requires minimal paperwork, though the individual must register with the Revenue Service for tax purposes.
b. Limited Liability Company (LLC)
- The LLC is a popular choice for small and medium-sized businesses in Georgia.
- Shareholders’ liability is limited to their contributions.
- An LLC can be formed by one or more individuals or legal entities.
- The minimum share capital for an LLC is 1 GEL (approximately $0.30), making it accessible for entrepreneurs.
- LLCs are governed by a management structure with one or more directors, and the business must be registered with the Revenue Service.
c. Joint-Stock Company (JSC)
- The JSC is typically used for larger businesses or businesses that want to raise capital by issuing shares.
- The minimum capital required for a JSC is 100,000 GEL (approximately $30,000).
- Shareholders' liability is limited to the amount they invested.
- JSCs are regulated by the Commercial Code of Georgia and must have a board of directors and general shareholders' meetings.
d. Branch of a Foreign Company
- Foreign companies can establish a branch or a representative office in Georgia.
- A branch is not a separate legal entity and is subject to the same tax laws as domestic businesses.
- A representative office is limited to conducting marketing or non-commercial activities and cannot engage in profit-generating activities directly.
e. Partnership
- A partnership involves two or more individuals or entities that agree to operate a business together.
- There are several types of partnerships under Georgian law, including general partnerships and limited partnerships. In a general partnership, all partners have unlimited liability, while in a limited partnership, only the general partner has unlimited liability, and the limited partners are liable to the extent of their contributions.
3. Business Registration and Licensing
Starting a business in Georgia involves several steps for registration and licensing:
- Business Registration: To register a company in Georgia, the business must be registered with the Revenue Service. The registration process is relatively quick, often completed within a few days, and is primarily done online.
- Tax Registration: Businesses must obtain a Taxpayer Identification Number (TIN) from the Revenue Service and fulfill their tax obligations.
- Licensing: Certain industries, such as financial services, energy, alcohol production, and tourism, require additional licenses or permits from the relevant regulatory bodies. For example, companies in banking or insurance need approval from the National Bank of Georgia.
4. Taxation System
Georgia has simplified its taxation system in recent years to attract investment. The key taxes affecting businesses include:
a. Corporate Income Tax (CIT)
- The standard corporate income tax rate in Georgia is 15% on business profits.
- Georgia has a participation exemption for dividends, meaning that dividends received by Georgian companies from other Georgian companies are exempt from tax.
- The “Estonian Model” is also applied to businesses: profits are not taxed until they are distributed (i.e., only dividends or profits paid to shareholders are taxed).
b. Value Added Tax (VAT)
- The standard VAT rate in Georgia is 18%.
- Some goods and services, such as medical supplies and books, are exempt from VAT or subject to a reduced rate.
c. Personal Income Tax (PIT)
- The personal income tax rate in Georgia is a flat 20% for individuals earning above a certain threshold.
- The tax rate for income from dividends, interest, and royalties is 5%.
d. Property Tax
- Property tax applies to real estate owned by businesses. The rates vary based on the location and value of the property.
e. Other Taxes
- Withholding Taxes: For certain cross-border payments, Georgia applies withholding tax on interest, royalties, and dividends paid to foreign entities. The rate is generally 5%, though it may vary depending on tax treaties with the home country of the recipient.
f. Tax Incentives
- Georgia offers several tax incentives to encourage investment, such as tax exemptions for companies operating in Free Industrial Zones and special economic zones.
- Small businesses with annual revenues below 500,000 GEL may qualify for preferential tax treatment, including exemptions from VAT and reduced corporate tax rates.
5. Labor Laws
The labor laws in Georgia are governed by the Labor Code of Georgia, which provides protections for employees and outlines employer obligations. Key provisions include:
- Employment Contracts: Employment contracts must be written and specify key terms such as duties, salary, working hours, and termination procedures.
- Working Hours: The standard working week in Georgia is 40 hours (typically 8 hours a day for 5 days).
- Minimum Wage: There is no statutory minimum wage in Georgia, though employers must ensure that salaries are competitive and fair.
- Paid Leave: Employees are entitled to 24 days of paid annual leave. Additional leave may be granted for maternity and sick leave.
- Social Security Contributions: Employers and employees must contribute to the state social security fund, which covers pensions and healthcare.
- Termination: Employers must follow strict procedures when terminating employees, particularly in the case of dismissal. Severance pay may be required depending on the terms of the employment contract.
6. Intellectual Property (IP)
Georgia offers protection for intellectual property through national laws and international agreements, such as the Paris Convention. Key forms of IP protection include:
- Trademarks: Trademarks can be registered with the National Intellectual Property Center (Sakpatenti). The registration process is straightforward and can be done online.
- Patents: Inventions can be patented under the Patent Law of Georgia. Patents are valid for 20 years.
- Copyright: Authors automatically receive copyright protection for original works of literature, music, art, and software. Registration with Sakpatenti is optional.
- Trade Secrets: Businesses can protect confidential information through non-disclosure agreements and other legal means.
7. Foreign Investment and Economic Incentives
Georgia encourages foreign investment through liberalized policies and incentives, including:
- Investment Promotion Law: Foreign investors are encouraged through tax incentives, free industrial zones, and reduced regulatory burdens.
- Free Industrial Zones: Businesses established in these zones can enjoy tax exemptions, customs duty exemptions, and other advantages, such as VAT exemptions on imports and exports.
- Bilateral Investment Treaties (BITs): Georgia has signed BITs with several countries to promote and protect foreign investments.
8. Dispute Resolution
Disputes in Georgia can be resolved through:
- Judicial System: Commercial disputes can be resolved in the Georgian courts. The court system is generally considered independent, although businesses often use alternative dispute resolution (ADR) mechanisms.
- Arbitration: Georgia is a member of the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention). Arbitration is a popular method for resolving international disputes.
- Mediation: Mediation is increasingly being used in Georgia as an alternative to litigation.
Conclusion
Business law in Georgia provides a favorable environment for both local and foreign businesses, with low taxes, easy business registration processes, and incentives for investment. The tax system is straightforward and designed to promote growth, especially with the adoption of the Estonian tax model for corporate taxation. Additionally, the labor laws are balanced to ensure employee protection while providing flexibility for businesses. Intellectual property is well-protected under national laws and international treaties.
RELATED Blog
0 comments