GILS Corporate law: Georgia
GEORGIA
(1) Forms of doing business and Establishment
1.1. What are the options for establishing a company's presence in a country (branch, representative office, subsidiary, etc.), and what are their key advantages and limitations?
The prevailing organisational and legal structure in Georgia is the limited liability company. Additionally, for foreign entities, separate divisions are established in the form of branches or representative offices. However, these divisions are not independent legal entities, and the latter solely fulfil representative functions without engaging in commercial activities. Establishing joint-stock companies is also feasible, characterised by maintaining a register of founders and certain management distinctions compared to LLCs. Other legal forms of organisations are less favoured.
1.2. What is the process for creating a legal entity or another form of presence in the country, including the laws to follow, legal entities to be considered, documents required, stages and terms for registration?
The state body responsible for registering legal entities, both commercial and non-commercial, as well as establishing a company's presence in the country (branch offices, representative offices), is the Register of Entrepreneurial and Non-Entrepreneurial Legal Entities within the State Register managed by the Ministry of Justice of Georgia ("Register").
To register a Commercial Entity in compliance with the Law of Georgia on Entrepreneurs and the Register's procedures, the following documents must be submitted:
- application (available in the registry's provided form);
- copy of the ID or passport of the applicant;
- notarized founding agreement/charter signed by all founders, unless all founders sign the document in the Register, in which case notarization is not required. Standard charter forms were endorsed by Minister of Justice Order #791 and can be accessed on the Register's electronic portal. A hardcopy of the standard charter is not necessary for registration. If the charter deviates from the standard, either the notarized charter or the one signed by the founders in the Register must be submitted along with other registration documents;
- consent from the individual vested with representative powers for their appointment to the relevant position;
- agreement or lease agreement consent from the premises owner or the rightful property holder where the legal entity's registered address is situated.
1.3. What additional authorizations/approvals are required to create a legal entity or start operations, and how do they vary depending on the type of business (if any)?
When registering in the Register legal entities will be assigned an identification code. Georgian legislation does not require obtaining any prior permission before registering a legal entity. Legal entities are registered for an indefinite period, unless otherwise stipulated by the charter, and there is no need for periodic renewal of their registration.
Registration of a legal entity in the Register implies both state and tax registration. Registration in the Register simultaneously means registration for tax purposes. No special registration or application to the tax office is required.
1.4. What are the most common types of Legal Entities in your country and the differences between them in terms of taxation, liability, and management?
Generally, private entrepreneurs and investors tend to establish companies in Georgia as either Limited Liability Companies (LLCs) or Joint Stock Companies (JSCs). Georgian legislation imposes restrictions whereby certain types of businesses can only be registered under specific organisational and legal structures. For instance, a commercial bank must be formed as a joint-stock company. From a legal standpoint, we cannot highlight significant disadvantages or advantages. The choice between establishing a JSC or LLC depends on the entrepreneur's individual goals and objectives. However, a JSC is a more complex form of corporate organisation in terms of the company's management structure.
In practice, the "simplest" form of a commercial structure is an LLC. The Law on Entrepreneurs does not specify a minimum capital requirement for an LLC, and its management structure may comprise two bodies: the general meeting of founders and the Director, who holds representative and executive powers.
Comparison of an LLC with a JSC
1. Unlike a JSC, an LLC does not require a minimum authorised capital, whereas establishing a JSC necessitates a minimum capital of GEL 100 000.
2. Unlike a JSC, an LLC is not obligated to maintain a register of shares.
3. The management structure of an LLC can comprise only two entities: a general meeting of founders and individuals authorised to wield management and representative powers.
In terms of taxation and liability, there are no notable distinctions. However, regarding management, there are several requirements specific to JSCs, not applicable to LLCs. These include stipulations for establishing certain management bodies, protocols for the sale and transfer of shares in the company's authorised capital, the necessity of maintaining a shareholder register, among others.
Regarding shareholder or participant liability in commercial entities, there are no significant deviations. The overarching principle governing liability for both entity types remains consistent: the entity is accountable for its obligations using all its assets, while shareholders or participants are not personally liable for the entity's debts.
1.5. What are the operating costs associated with the maintenance of a legal entity or presence in the country?
Always varying. For instance, if we're considering an LLC with just one employee and no operational profit yet, the primary expenditures, apart from office rent, would encompass accounting expenses (reporting and bank payments).
The cost of accounting services is determined by the volume of cash flow or material values, as well as the amount of accounting work, and the financial and economic activities of the enterprise.
Therefore, it is impossible to determine the average price at this stage. The average price for accounting services for a commercial structure, considering that the turnover of the commercial structure does not exceed GEL 1 million, will range fromUSD 500 to 1000.
The pricing policy is determined by the National Bank of Georgia. The established tariffs are as follows: individual client transfers - GEL 0.2 ; package transfers - GEL 0.2; individual transfer - GEL 0.1. See source: https://nbg.gov.ge/en/page/working-hours-and-service-fees.
According to our calculations based on publicly available sources, the average office rental rate is USD 50 per square metre per year. See the source: https://www.myhome.ge/ka/.
In major cities, depending on the location of commercial real estate, the rental price per square metre can range from USD 12 to USD 400 per year.
(2) General taxation issues
2.1. What tax obligations are associated with doing business in the country?
Payment of taxes on a monthly, quarterly, and annual basis, along with the submission of corresponding reports.
2.2. What tax and customs incentives are available in a country?
Various customs advantages are applicable to particular organisations based on their activity type and other factors. These benefits encompass special tax regimes (starting from 0%), a simplified taxation system, among others. As an illustration, refer to the table on the taxation of enterprises with different tax statuses.
2.3. What are the accounting and reporting requirements for different types of presence, and how often must they be submitted?
The financial reporting is regulated by the Law of Georgia on Accounting, Reporting, and Audit. The competent authority is the Service for Supervision of Accounting, Reporting, and Audit. Commercial Structures are required to submit financial statements to the Service by October 1 of each year following the reporting period, in the form prescribed by Georgian legislation.
2.4. What is the taxation of dividends for foreign investors?
The dividends at the source are subject to a tax rate of 5%.
2.5. What strategies exist for minimising tax liability when conducting international business?
Georgia has a double taxation avoidance agreement with various countries. The complete and updatable list of countries that have a double taxation avoidance agreement with Georgia is published on the website of the Ministry of Finance of Georgia: https://www.mof.ge/en/5128.
(3) Regulatory and miscellaneous
3.1. What are the general data protection and privacy requirements in the country, and how do they affect company operations?
In Georgia, the Law of Georgia on Personal Data Protection primarily regulates data protection and privacy. Here are the key provisions and their effects on business operations:
Consent: Before collecting, processing, or transferring personal data, companies are required to obtain consent from individuals. This impacts marketing strategies, customer relationship management, and data sharing practices.
Data Security: Companies must adopt adequate technical and organisational safeguards to protect personal data against unauthorised access, disclosure, alteration, or destruction. This influences IT infrastructure, cybersecurity measures, and data management policies.
Data Transfers: Transferring personal data outside of Georgia is permitted only to countries that provide sufficient data protection. If the protection is inadequate, additional measures such as standard contractual clauses or binding corporate rules might be necessary. This is particularly relevant for multinational corporations engaged in cross-border operations or data processing.
Data Subject Rights: Individuals have rights to access, correct, delete, or limit the processing of their personal data. Companies need to develop procedures to support these rights, affecting customer services, internal operations, and compliance initiatives.
Data Processing Limitations: Personal data must be processed in a lawful, fair, and transparent manner and only for specified, legitimate purposes. Companies must review and adjust their data handling practices to adhere to these standards.
Adhering to these data protection and privacy standards in Georgia is crucial for companies to reduce legal risks, maintain consumer trust, and preserve their reputation. Non-compliance can lead to severe fines and damage to the company's reputation, thus prioritising data protection in business practices is essential.
3.2. What labour law features should be considered when hiring local and foreign employees?
There are no special restrictions for hiring local employees. When hiring foreign nationals, the company shall ensure compliance with Georgian immigration law regarding work permits and residency permits. Different rules may apply depending on the nationality of the employee and the duration and nature of their employment.
In accordance with the Law of Georgia on the Legal Status of Foreigners and Stateless Persons, a work permit is issued to a foreigner engaged in labour or entrepreneurial activities in the territory of Georgia. Such an applicant must provide the Public Service Hall with information about their monthly income from entrepreneurial or labour activities in Georgia. This income cannot be less than five times the average subsistence minimum established in Georgia. The average subsistence minimum in Georgia is GEL 249.7.
3.3. What are the requirements for currency regulation and currency control?
There are no established currency control limits. The lari is the only currency permitted for transactions within Georgia, except in free industrial zones, duty-free shops, and cases specified by the National Bank of Georgia.
The bank is required to request additional copies of documents confirming the basis of the transfer from the paying economic entity if the amount of the transfer, expressed in foreign currency, exceeds: 1. the equivalent of GEL 100 000 and the transfer is made by a client classified as high risk, or the transaction is related to a high-risk jurisdiction or offshore zone; 2. the equivalent of GEL 150 000 and the transfer is made by a client classified as medium risk.
3.4. What corporate law features should be considered when planning mergers, acquisitions, and company restructuring in the country?
When strategizing mergers, acquisitions, and company restructuring in Georgia, it's imperative to take into account several key aspects of corporate law:
Evaluation of Company Structure: Crucial to this process is a thorough assessment of the current corporate frameworks of both the acquiring and target companies. Understanding the various legal entities recognized in Georgia, such as limited liability companies, joint-stock companies, and partnerships, is instrumental in determining the most appropriate course of action for the transaction.
Conducting Due Diligence: Undertaking exhaustive due diligence is paramount to uncover any potential legal, financial, or regulatory obstacles that could impact the transaction. This involves scrutinising corporate governance documentation, financial records, contractual agreements, intellectual property rights, and adherence to local regulations.
Acknowledgment of Shareholder Rights: Throughout the transactional journey, it's essential to recognize and uphold the rights and interests of shareholders.
Navigating Regulatory Approvals: Depending on the scale and nature of the transaction, securing approvals from regulatory bodies such as the Georgian National Competition Agency may be necessary.
Understanding Tax Implications: A thorough comprehension of the tax ramifications associated with mergers, acquisitions, and restructuring endeavours is indispensable for effective tax planning.
By carefully considering these facets of corporate law and seeking expert legal counsel, parties can successfully navigate mergers, acquisitions, and company restructuring initiatives in Georgia while ensuring compliance with relevant regulations.
3.5. What are the most efficient mechanics for disputes resolution?
In Georgia, the most efficient mechanics for dispute resolution typically involve a combination of legal processes and alternative dispute resolution methods. Here are some of the key options:
Litigation: This involves taking the dispute to court. Georgian courts have specialised chambers for commercial disputes, which can expedite the process. However, litigation can be time-consuming and costly.
Arbitration: Arbitration offers a private, out-of-court process for resolving disputes. Parties agree to submit their dispute to an arbitrator or panel of arbitrators, whose decision is binding. The advantage of arbitration is flexibility in procedure and confidentiality.
Mediation: Mediation involves a neutral third party helping parties reach a mutually acceptable resolution. While the mediator facilitates discussions, the parties themselves retain control over the outcome. Mediation can be particularly useful for preserving relationships and is less adversarial than litigation.
Authors:
Nanuka Chkuaseli.
