How to become "Virtual Zone Person in Georgia and what benefits you ca...
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 lawsCompanies 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
VZPFirst 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 nuancesThe 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
statusAs 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.
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