Georgia's Virtual Zone: 0% Corporate Tax for IT Companies

Georgia's Virtual Zone status is one of the country's most discussed tax incentives, particularly among tech entrepreneurs and IT companies. The headline benefit is compelling: 0% corporate income tax on profits derived from information technology services supplied outside of Georgia. But the details matter, and not every IT company qualifies.

To obtain Virtual Zone status, a company must apply to the Financial Analytical Service of Georgia (formerly the LEPL Revenue Service). The applicant must be a Georgian legal entity engaged in IT activities. The application requires a description of your business activities, and the approval process evaluates whether your activities genuinely fall within the scope of qualifying IT services.

Qualifying activities generally include software development, IT consulting, data processing, web development, and hosting services. The key requirement is that these services must be delivered to clients located outside of Georgia. Revenue from Georgian clients is taxed at the standard corporate rate.

Important limitations to understand: Virtual Zone status only exempts corporate income tax. VAT, personal income tax on employee salaries, and other taxes still apply. If you have employees in Georgia -- which most IT companies do -- you are still responsible for full payroll tax compliance.

The 0% rate applies to profit, not revenue. Your company still needs proper accounting to determine taxable profit, and the Revenue Service can and does review Virtual Zone companies to ensure compliance. Transfer pricing rules also apply if you transact with related parties.

Another nuance: dividend distributions from Virtual Zone profits to individual shareholders are taxed at 5%. So while the corporate level is tax-free, the individual level is not entirely exempt.

For many IT companies, the Virtual Zone combined with Georgia's low cost of living and growing tech ecosystem makes it an attractive base of operations. But the application process and ongoing compliance requirements are not trivial. We have seen applications rejected for insufficient documentation and companies lose their status for failing to maintain proper records.

EFS Group advises IT companies on whether Virtual Zone status is the right choice for their specific situation, handles the application process, and manages ongoing compliance including annual reporting and Revenue Service correspondence.