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Georgian tax news, June-July 2012

June-July 2012

Double Tax Treaties

Parliament by its resolutions No.6614 and No.6615 has ratified the memorandums on the amendments to the treaties on the avoidance of double taxation of income and capital gains and the prevention of tax evasion between Georgia, Austria and Latvia. The effective dates of the ratified treaties will be known once the governments of the countries exchange the notes.

In June 2012, the President of Georgia signed a Decree No.498 ordaining the government to start negotiation on the memorandum of amendments introducing changes in the double tax treaty with Turkey.

Amendments to the Tax Code

In June 2012, the Parliament of Georgia adopted the laws No.6446 and No.6444 on Amendments and Addenda to the Tax Code of Georgia. These amendments clarify a number of articles and introduce additions to some chapters of the Tax Code. The most noteworthy changes are the following:

  • A new definition and provision on a Tourism Enterprise was added to the tax law. The law sets forth the rules for obtaining / withdrawing the status of a Touristic Enterprise and the list of operations that are permitted or forbidden for the company;
  • Georgian source income payment by a local entity to a non-resident service supplier that is registered in a favorable taxation or offshore jurisdictions defined by the Government of Georgia is subject to withholding tax at the flat rate of 15 percent;
  • The Minister of Finance of Georgia is entitled to introduce, determine the rules of issuance and use of an invoice that will contain data and replace a waybill and tax invoice (including special tax invoice). The issuance/non-issuance of this new invoice will result in the same tax consequences that is applicable to the waybill and tax invoice (including special tax invoice) now;
  • Means of transportation registered in Georgia, which were temporary removed from Georgia’s customs territory, on the condition of return and were processed, when returning to Georgia will be subject to import tax, taking into account the difference between tariff values of removed processable and returned processed means of transportation;
  • As of 31 December 2012, accumulated unpaid amounts of interests for individuals or non-resident entities (that is not attributable to permanent establishment of non-residents), which were deducted from their taxable gross income during the period from 1 January 2006 to 1 January 2011 are treated as paid interests for tax purposes in December 2012. In this case, the tax agents are liable to withhold and pay the tax at the rate of 5%, however after the actual payment of the interests during the following months/years, the payment will not be subject to the tax.
Amendments to the Instructions on Administration of Taxes

With effect from July 2012, the Minister of Finance issued Orders No.209 and No.220 approving amendments to the instruction “On Administration of Taxes”. These amendments clarify the rules related to the issuance and return of excise stamps from/to the Revenue Service, as well the rules of labeling them on different excisable products. Herewith, Appendix № IV-03- application for purchasing excise stamps was updated.

Amendments to the Instructions on Tax Control Procedures

With effect from June 2012, the Minister of Finance of Georgia issued Orders No.164, No.165 and No.166 and introduced changes and amendments to the instructions “On the Rules of Selecting the Persons for Performing Tax Control, Current Control Procedures, Writing-off Inventory, Measures of Enforced Collections of Tax Liabilities and Handling of Tax Offence Cases”. These amendments clarify a number of articles of the instructions. According to the changes, a legal entity is entitled under the contract signed with Revenue Service to register/ withdraw cash control machines from Register, seal it in accordance with the rules or remove detailed information from fiscal memory in case of damage. Such legal entity should have at least 5 years experience in the technical field of cash control machines.

Instructions of the Revenue Service

In July 2012, the Revenue Service of the Ministry of Finance of Georgia issued instructions on application of Articles No.176 and No.174 of the Tax Code of Georgia. The instructions include comments of the Revenue Service and situational examples related to Reverse charge VAT and creditable amount of input VAT on purchased fixed assets, if such assets were used and/or will be used in VAT exempt transactions without correct input VAT.

Rates and Fees of Services Rendered by the Revenue Service

By the Resolutions No.214, No.215 and No.227 the Government of Georgia has introduced changes to the instructions “On Rates and Fees for Services Rendered by the Revenue Service” and updated rates and payment terms for services rendered by the Revenue Service.