Dividend Tax in Georgia

Overview of Dividend Taxation in Georgia

In Georgia, the taxation of corporate dividends is integrated into a modernized distributed-profit tax system, commonly referred to as the Estonian Model (introduced in 2017). Under this system, corporate profit generated by a Georgian business entity is subject to 0% Corporate Income Tax (CIT) as long as profits are retained or reinvested in the business. Tax liabilities are triggered only upon the distribution of dividends or equivalent deemed distributions.

When a Georgian enterprise pays dividends, two separate tax elements come into play:

1. Corporate Income Tax (CIT): Levied at a rate of 15% on the grossed-up distributed profit base (calculated as net distributed dividend divided by 0.85).

2. Dividend Withholding Tax (WHT): Levied at a flat rate of 5% on the gross dividend amount payable to individual shareholders (resident or non-resident) and non-resident legal entities.

Applicable Tax Rates and Mechanism

• Standard Withholding Tax Rate: 5% (Article 130, Tax Code of Georgia).
• Withholding Agent: The distributing Georgian entity acts as the tax agent, withholding the 5% tax at the source and remitting it to the Revenue Service of Georgia by the 15th day of the month following the distribution.
• Taxation of Resident Individuals: Dividends received by a tax-resident individual from a resident company are taxed at the source via the 5% WHT. This income is explicitely excluded from the individual's gross income and requires no further personal income tax (PIT) payment or reporting in annual declarations.
• Taxation of Non-Resident Shareholders: Non-resident individuals and non-resident companies are subject to the same 5% withholding tax rate at source, unless reduced or exempted under a relevant Double Taxation Treaty (DTT).
• Inter-Company Dividends (Domestic): Dividends distributed by one resident Georgian legal entity to another resident Georgian legal entity are exempt from both corporate income tax and dividend withholding tax at the time of inter-company payment.

Foreign-Sourced Dividend Income

Under Article 82 of the Tax Code of Georgia, income received by a tax-resident physical person from foreign sources is exempt from personal income tax. Consequently, foreign-sourced dividend distributions received by Georgian tax-resident individuals generally enjoy exemption from local personal income tax, provided the income legally qualifies as foreign-source under tax law classifications.

Double Taxation Avoidance

Georgia maintains active Double Taxation Treaties (DTTs) with over 55 jurisdictions. Under these treaties, non-resident shareholders may benefit from reduced withholding tax rates or tax credits in their home country, depending on the specific treaty terms and ownership percentages.

A Georgian limited liability company (LLC) earns a net profit of 100,000 GEL from commercial property operations and decides to distribute the entire profit to its sole foreign individual owner. The tax calculation functions as follows:

1. Gross Profit Base Adjustment: The company calculates the grossed-up dividend distribution base for CIT purposes (100,000 / 0.85 = 117,647 GEL).

2. Corporate Income Tax (15%): CIT paid by the company amounts to 17,647 GEL (15% of 117,647 GEL).

3. Dividend Withholding Tax (5%): From the net dividend of 100,000 GEL, the company withholds 5% (5,000 GEL) as dividend tax and pays it directly to the Georgian Revenue Service.

4. Net Distribution: The investor receives 95,000 GEL directly into their bank account. No further income tax is owed in Georgia by the individual recipient.