Forbes Blog is a non-editorial category created by individuals with diverse interests and ideas. The texts published within this category represent the views of the authors and may not reflect the position of Forbes Georgia’s editorial team.
IT companies in Georgia can benefit from attractive tax incentives offered through 3 special regimes: the Virtual Zone Person (VZP) status, the International Company (IC) status and Innovative startup company status. These frameworks are designed to support businesses engaged in software development and other qualifying IT services by offering reduced tax rates and other tax benefits.
In this article, the author analyzes and compares the Virtual Zone Person (VZP) and International Company (IC) statuses. Whether you are launching a new information technology company or already operating an IT firm in Georgia, understanding the eligibility criteria and strategic advantages of these tax regimes is essential for maximizing tax efficiency and making informed decisions about your business structure, while avoiding unexpected negative consequences in the future.
Tax Benefits of Virtual Zone Person vs. International IT Companies in Georgia
| Comparison of Tax Incentives for Virtual Zone Persons vs. International Companies in Georgia | |||
| Type of Tax | Virtual Zone Persons (VZPs) | International IT Companies (ICs) | Standard Georgian company |
| Corporate Income Tax (CIT) | 0% | 5% | 15% |
| Wage Tax | 20% | 5% | 20% |
| Dividend Tax | 5% | 0% | 5% |
| Property Tax | Up to 1% | 0% | up to 1% |
| Value Added Tax (VAT) | General VAT rules applicable (not specific to Virtual Zone Persons) | General VAT rules applicable (not specific to International IT Companies) | The standard VAT rate in Georgia is 18%. However, under the general VAT rules, services provided to a foreign company (i.e., a company incorporated and managed outside Georgia) in a B2B transaction are not subject to VAT in Georgia. |
| Decease of a taxable base of CIT | NO | Yes — by the amount of salaries paid to employees who are Georgian citizens and tax residents, and by the amount of research and development expenses | NO |
Key Requirements for Tax Benefits of Virtual Zone and International IT Companies in Georgia
| Additional Preconditions for Obtaining the Status and Lawfully Enjoying the Tax Benefits under the Virtual Zone IT Company and International IT Company Regimes | ||
| Criterion | Virtual Zone Person (VZP) | International IT Companiy (IC) |
| Precondition of Two Years’ Experience in Providing Eligible IT Services | In practice, not strictly required or enforced | Yes – it is required both by law and in practice. Alternatively, two years of experience of the parent foreign company (or foreign head office in case of Georgian branch) is accepted |
| Local Economic Substance Requirement | Not strictly required. According to the internal guidelines of the Georgian Revenue Service (GRS) currently in force and current practice, local substance is not strictly required, provided that a reasonable (market-level) salary or service fee is paid to a software developer employee or contractor of the VZP (regardless of their place of residence) and that such payment is taxed at source at the applicable tax rate in Georgia. | Local presence of employees is strictly required. According to currently applicable practice, the staff of an International IT Company must be physically located in the territory of Georgia for most of the tax year |
| Qualified IT Services | Software development and supplementary services (as defined by the applicable guideline) are eligible. Software licensing may also qualify if post-sale support is included as a significant component of the license agreement and the software is developed in Georgia | A broader list of eligible IT services is outlined in Georgian Government Decree No. 619 |
| Restriction on Receiving Non-Eligible Income | The law does not establish any prohibition on receiving income to which the tax benefits granted to a VZP do not apply | It is permissible to receive additional income from activities that are different from, but ancillary to, the permitted IT services, provided that the income from such activities does not exceed 2% of the income derived from the permitted activities |
| Requirement to Provide Services from Georgia to Clients Abroad | Yes, it is explicitly required by law | Yes. While not explicitly required by law, it is enforced in practice |
Registration of Virtual Zone Person in Georgia
There is no specific zone in the territory of Georgia where a VZP must be registered. First, you incorporate an ordinary Georgian company (such as an LLC or JSC). After registration, you separately apply for Virtual Zone Person status through the LEPL Financial-Analytical Service of the Ministry of Finance of Georgia and receive an electronic certificate confirming the status.
Taxation and Tax Benefits for Virtual Zone IT Companies in Georgia
In this section, we provide information on the legal framework, applicable tax rates, preconditions, and other key aspects related to the taxation of Virtual Zone IT companies in Georgia.
Taxation of Virtual Zone IT Companies in Georgia- Legal Framework
The taxation of Virtual Zone IT companies in Georgia is regulated by the following legal acts:
- The Tax Code of Georgia;
- The Law of Georgia on Information Technology Zones;
- Government Decree №49 – “On the Rules and Conditions for Granting the Status of a Virtual Zone Person and the Designation of the Competent Authority”;
- The Internal Guideline of the Georgian Revenue Service on the taxation of Virtual Zone Persons.
Tax Rates for Virtual Zone IT Companies
Virtual Zone Persons (VZPs) in Georgia benefit from a full exemption from corporate income tax (CIT), meaning they pay 0% instead of the standard 15% on qualifying income earned from permitted IT services provided to foreign clients.
However, VZP companies remain subject to all other taxes applicable to regular Georgian companies, including:
- 20% wage tax on employee salaries;
- Pension Fund Contributions – 4% total (2% employer + 2% employee), depending on the residency and/or citizenship of an employee;
- 5% dividend tax – on profit distributions to individuals or non-residents. The rate may be reduced to 0% if a relevant double taxation agreement applies
- Value-Added Tax (VAT) – 18% rate, generally 0% on provision of cross-border B2B services under standard VAT rules (not specific to VZP status);
- 5% Withholding Tax – on royalties paid to non-residents, unless exempt under a relevant double taxation treaty;
- 18% reverse VAT on services received from non-resident individuals or companies (typically deductible in the same month if the VZP is VAT-registered, and therefore often resulting in no fiscal impact);
- 10% withholding tax on service fees paid to non-residents, if such fees are considered Georgian-source income under Article 104 of the Georgian Tax Code, unless exempt under a relevant double taxation treaty.
- Up to 1% property tax, where applicable;
- Other standard taxes and payments – applied in the same way as to regular Georgian companies (e.g., LLCs, JSCs).
Which IT Services Qualify for Virtual Zone Tax Benefits in Georgia?
Not all IT activities qualify for the Virtual Zone Person (VZP) tax incentives in Georgia. Eligible activities are limited to:
- Software development, along with directly related services such as maintenance, support, and updates;
- Software licensing, but only if the software is developed in Georgia and the license agreement includes substantial support and maintenance services.
IT activities that do not lead to the creation of software generally do not qualify for the VZP tax exemption.
According to the current internal guidance of the Georgian Revenue Service, support and maintenance services are treated as equivalent to software development when they constitute a significant part of the software license agreement.
Additional Eligibility Requirements for Virtual Zone IT Tax Benefits
To qualify for the corporate income tax (CIT) exemption under the Virtual Zone Person (VZP) status in Georgia, an IT company must meet the following preconditions:
- Hold a valid VZP certificate (a necessary but not sufficient condition on its own);
- Engage in eligible IT activities, as outlined above;
- Provide Eligible IT services from the Georgian-registered VZP entity to clients located outside of Georgia;
- Develop software within the territory of Georgia– This criterion is considered satisfied even without a local business presence, provided that market-level salaries or service fees are paid to VZP employees or contractors and are taxed at source in Georgia, as outlined in the internal guidance of the Georgian Revenue Service (GRS)
Registration of International IT Company in Georgia
Similar to a VZP, an IC is not a specific legal form of entity in Georgia. First, you register an ordinary Georgian company (such as an LLC or JSC). After registration, if a foreign shareholder (or the head office, in the case of a Georgian branch) demonstrates at least two years of experience in providing eligible IT services (see more details above), you may apply for International Company status with the Georgian Revenue Service almost immediately after incorporation.
If the required two years of experience is not demonstrated by the foreign parent company or the head office, the company must first accumulate the two-year experience and only then apply for International IT Company status.
Alternatively, since the two-year experience requirement does not strictly apply to a VZP, a company may obtain VZP status during the first two years and subsequently apply for International Company status.
You can read more about the business registration process in Georgia in the author’s blog HERE.
Tax Implications for International IT Companies in Georgia
In this section, we provide information on the registration process of International IT Companies in Georgia, their eligibility for the International Company (IC) status, and the criteria that must be met to benefit from the applicable tax exemption
(H3) Taxation and Tax Incentives for International IT Companies in Georgia – Legal Framework
The taxation of International IT companies in Georgia is governed by the following legal acts:
- The Georgian Tax Code;
- Decree No. 619 of the Government of Georgia, “On Defining the Status of an International Company, Determining Permitted Activities, and Approving the List of Specific Expenses”;
- Order No. 996 of the Ministry of Finance.
Unlike the case for Virtual Zone Persons (VZPs), the Georgian Revenue Service (GRS) has not yet published internal guidelines regarding the taxation of International Companies. However, such guidance is expected to be issued in the future.
Which IT Services Qualify for International Company Tax Benefits in Georgia?
Government Decree No. 619 of Georgia provides a detailed list of IT activities that qualify for International IT Company status. Notably, Georgian legislation does not provide a similarly comprehensive list of eligible IT activities for Virtual Zone Person (VZP) status, and the IC regime applies to a much broader range of IT services than the VZP regime.
Requirements for Obtaining/keeping International IT Company Status
To obtain and lawfully maintain International Company status, an IT firm must demonstrate the following:
- Provision of eligible IT services (GRS expects that such eligible IT services are provided from Georgia abroad).
- At least two years of experience in providing eligible IT services. Alternatively, this requirement can be met by demonstrating that the foreign parent company (or foreign head office, in the case of a Georgian branch) has at least two years of relevant experience;
- Employment of staff with relevant work experience, who are physically present in the territory of Georgia for most of the year.
- Not receiving income from activities other than eligible IT services exceeding 2% of the income derived from eligible IT services (see details above).
Tax Rates for International IT Companies in Georgia
International IT companies in Georgia benefit from a reduced 5% corporate income tax on distributed profits—compared to the standard 15% CIT rate. This preferential rate applies only to the profit generated from eligible IT activities while the company holds the International Company (IC) status. Moreover, the CIT base can be further reduced by deducting:
- Salaries paid to Georgian citizens who are also Georgian tax residents
- Eligible research and development (R&D) expenses
Key tax benefits for International IT companies in Georgia include:
- 5% Corporate Income Tax – on distributed profit (standard rate: 15%)
- 5% Wage Tax – on employee salaries (standard rate: 20%)
- 0% Dividend Tax – on dividends paid (standard rate: 5%, unless exempt under an applicable double taxation agreement)
- 0% Property Tax – on property used for permitted activities, excluding land (standard rate of property tax: up to 1% of the balance value).
In addition to these tax benefits, International IT Companies are subject to other general taxes and payments applicable to all standard entities in Georgia, as outlined above for VZPs.
Tax Incentives for Freelance Software Developers and One-Person IT Companies in Georgia
Individuals engaged in software development and related IT services without employing others may benefit from Georgia’s favorable tax regimes in two possible ways. They can obtain Virtual Zone Person (VZP) status as a single-person IT company, or they may qualify for the “small business” status, which allows for 1% personal income tax—eligibility for both options should be assessed individually with a tax expert.
In the author’s opinion, the International IT Company regime is not intended for single-person entities, based on the legislative purpose behind it; however, this limitation is not explicitly stated in Georgian tax law.
Virtual Zone IT Company vs. International IT Company Tax Advantages in Georgia — Summary
The Virtual Zone Person (VZP) and International IT Company (IC) are two distinct preferential tax regimes designed to support and attract IT businesses in Georgia. Both offer significant tax advantages but differ in eligibility requirements, application complexity, and the scope of available tax incentives.
The VZP status is generally easier to obtain and maintain, making it particularly suitable for individual software developers and small IT businesses—especially those not planning to relocate all their staff to Georgia.
In contrast, the International Company regime offers broader and more favorable tax benefits but involves stricter qualification criteria. The two key requirements include: (1) demonstrating at least two years of experience in providing eligible IT services, and (2) ensuring the physical presence of employees in Georgia. This regime is typically intended for larger IT companies that have already relocated, or plan to relocate, their personnel to Georgia.
For solo developers, the VZP status or the “small business” regime (which offers a 1% personal income tax rate) may be the most advantageous option. However, the optimal tax structure should always be assessed on a case-by-case basis.
About the Author: Gela Barshovi is a certified tax accountant in Georgia with expertise in both Georgian and international taxation. He is the founder of TPsolution LLC, a Tbilisi-based consulting and accounting firm. TPsolution, represented by Gela, provides legal services (including support in obtaining VZP or IC status), as well as tax, accounting, and reporting services to International IT Companies and Virtual Zone Persons.
