Tbilisi (GBC) – "Virtual Zone Person" (VZP) is a status granted to Georgian and international companies operating in the field of information technology (IT) to obtain tax benefits. According to the legislation of Georgia, a certificate is issued to the companies receiving the status as confirmation of such status.
The fact that international companies are very interested in this status is evidenced by today's situation - more than 1,200 companies have been granted the status of Virtual Zone Person in Georgia. This sector forms an important part of the high-income middle class in Georgia, which is the best tool for improving the socio-economic background. The high salaries paid by companies with VZP status circulate in the real economy of the country. In addition to this, the most sought-after, highly qualified IT specialists are in demand on the world market today. These professionals are no longer forced to leave the country in search of better pay.
Briefly about tax benefits and regulatory laws
Companies with the status of a "Virtual Zone Person" are exempt from profit tax on the profits they receive from the creation of software products (for example, a website, mobile application, or software) for foreign customers. That is, in this case, we are talking about the profit obtained from the exported digital product.
The activity of a Virtual Zone Person in Georgia is mainly regulated by 4 legal acts. These are: the Tax Code of Georgia; the Law of Georgia "On Information Technology Zones"; Resolution N49 of the Government of Georgia dated January 26, 2011 "On the rules and conditions for granting the status of the Virtual Zone Person and determining the person granting the status of the Virtual Zone Person" and the instruction "On administration of payments" approved by the order of the Minister of Finance of Georgia dated December 31, 2010, N996.
However, laws and instructions, like in all other areas, need constant attention, refinement, and adaptation to modernity. It is practically impossible to work in this direction for companies with VZP status individually. It was to protect their interests, to communicate constructively with the governmental structures, and, as a result, to create a favourable working environment for these companies, that the decision was made regarding the creation of the Association of Georgian Virtual Zone Persons. The Association was headed by highly qualified lawyer and lobbyist Shorena Kopaleishvili. Ms. Shorena's active cooperation with the Ministry of Finance and the Business Ombudsman has also yielded results, and fine sanctions previously charged to the VZP status companies were either nullified or reduced to a minimum.
In addition to the above-mentioned activities, the Association actively provides consultations to those companies that are interested in receiving the status of a Virtual Zone Person.
The path from a company subject to standard taxation to a VZP
First of all, let's determine which law entitles the company to enjoy tax benefits in Georgia - according to the 35th - 36th parts of Article 8 of the Tax Code of Georgia, a Virtual Zone Person is a legal entity that carries out information technology activities and has been assigned the appropriate status.
A company interested in the status of a Virtual Zone Person in Georgia must first apply to the Financial-Analytical Service. For this, the candidate electronically fills out the application form posted on the official website of the Financial-Analytical Service (www.fas.ge).
The representative of the company must attach to the application a list of information technology projects implemented by the company during the last three years.
After that, the company is granted the status of a Virtual Zone Person no later than 10 working days after making the application. The electronic certificate confirming the status of the Virtual Zone Person is issued by the agency no later than 2 working days after the decision is made. The status of the Virtual Zone Person is issued for an indefinite period.
A few more legal nuances
The legislation of Georgia does not define the concept of a software product and the regulations related to its creation. At the same time, the law of Georgia "On copyright and related rights" recognizes the concept of computer programs. Specifically, according to Sub-paragraph “j” of Article 4 of this law, a "computer program" is a set of instructions expressed in words, codes, chips or in any other machine-readable form, which enables a computer to achieve certain results. The term also includes preparatory material for a computer program design.
As in "computer program," software generally refers to a program or set of programs that contains instructions necessary for the computer itself to operate or instructions to perform other tasks. Software is independent of hardware (computer devices), and it is through it that computers can be programmed.
Which product of the VZP company is not subject to the tax exemption?
To comply with the activities within the status of the Virtual Zone Persons, the company's activities must involve the implementation of such activities in the field of computer information systems, which are used in the creation and(or) development of software. Accordingly, if this activity is limited to the electronic provision of services defined by the company using various hardware and software, the purpose of which is not to create a software product, the profit received from such activity will not be considered a profit received from the provision of information technologies, and therefore, the tax relief established by sub-paragraph “P” of Article 99 of the first part of the Tax Code cannot be applied to the distribution thereof.
Easier way to get VZP status
As already mentioned above, the best way to simplify the process of obtaining the status of the Virtual Zone Person and to understand all the necessary details in advance is to go through consultations with the Association of Georgian Virtual Zone Persons. Here you will get full information not only on the procedures for obtaining the status but also on the nuances related to further operation in the Georgian market under the existing regulations, the knowledge of which will make it significantly easier to manage your business under the status of a VZP.
