Specifics of Taxation of Electronic Services in Georgia

1) What qualifies as electronic services for tax purposes? Is there a list of such services?

Electronically supplied services are those delivered over the internet or an electronic network, that are essentially automated, require minimal human intervention, and cannot be provided without information technology. These include:

a) Supply of digital products, including software and its updates; b) Services enabling presence on an electronic network (e.g., websites, webpages); c) Services automatically generated by a computer in response to user input; d) Granting the right to offer goods/services on an online marketplace where transactions are processed automatically and parties are notified via auto-generated emails; e) Internet Service Provider (ISP) packages where telecommunications is only an ancillary component (i.e., bundles going beyond mere internet access to include content pages, gaming portals, hosting, online forums, etc.).

Specific examples covered:

a) Website/software hosting and remote maintenance

• Web hosting; automated remote software maintenance; remote system administration; online data storage and retrieval; online supply of memory space.

b) Software and updates

• Access to and download of software (including accounting, antivirus, etc.) and updates; ad-blockers; downloadable drivers; automatic online installation of web filters and firewalls.

c) Images, text, and information / database access

• Desktop themes; photos, graphics, screensavers; e-books and digital publications; online newspaper/magazine subscriptions; web statistics; online news, traffic, and weather; automatically generated legal/financial data (e.g., live stock data); advertising space on websites (including banners); use of search engines and online directories.

d) Music, films, games, and broadcasting

• Download/access to music, ringtones, jingles, and melodies; downloadable games; automated online multiplayer games; on-demand radio/TV programs from a provider's catalog (e.g., paid radio/TV); streaming of radio/TV not broadcast simultaneously on traditional networks; transmission of audio/audiovisual content without editorial responsibility of a media provider; redistribution of a media provider's content by third parties.

e) Distance learning

• Automated distance learning dependent on the internet, requiring minimal or no human intervention, including virtual classrooms (excluding cases where the internet merely connects teacher and student); online workbooks completed and graded automatically.

2) Is a foreign company providing services electronically required to register for VAT purposes?

A foreign taxable person is not required to register as a VAT payer; however, the obligation to calculate and pay VAT arises if the place of supply of the digital services they provide is Georgia, and the transaction is not subject to the reverse charge mechanism.

For the purposes of VAT reporting and settlement with the budget in Georgia, such a taxable person completes the registration form via the VAT portal available on the website of the Revenue Service of Georgia.

3) How is the place of supply of electronic services determined?

The place of supply of electronic services is the customer's country, so foreign businesses supplying Georgian customers (individuals) are subject to Georgian VAT. For B2B supplies to Georgian businesses, the foreign supplier doesn't charge Georgian VAT - the Georgian recipient self-accounts via reverse charge.

4) What VAT rates apply to electronic services?

Electronic services in Georgia are taxed at the standard VAT rate of 18%.

5) Are there any thresholds for mandatory tax registration?

For mandatory VAT registration there is no threshold applicable to electronic services. Providers are subject to VAT from the first transaction.

6) What reporting and filing obligations apply to providers of electronic services?

A foreign taxable person supplying digital services in the territory of Georgia must:

a) Maintain records of the digital services it supplies in Georgia;
b) Retain accounting documentation for 3 years from the end of the year in which the services were supplied, to enable verification of the tax liability;
c) File a tax return for each reporting period via the personal account on the VAT portal of the Revenue Service website, no later than the 20th day of the month following the reporting period, and pay the tax no later than the last day of that same month. The tax liability is considered fulfilled on the date the payment is credited to the relevant Treasury account.

The tax authority informs foreign taxable persons of their VAT obligations by publishing information on the Georgian Revenue Service website and/or through other means.

7) What are the risks and penalties for non-compliance with tax rules?

Standard tax fines and penalties are applicable for non-compliance:

• 0.05% for VAT outstanding amount for each day of overdue.
• Penalty from 10% to 50% for VAT understatement calculated from payable VAT.

Author: Sofia Roinishvili