Is It A Good Time To Start Your Company In Georgia?
by Arnab Dey Starting a Business 26 November 2022
Differences in language, culture, business legislation, and customer habits might make it difficult to launch or grow a company in a foreign nation.
Moving into a developing nation, like Georgia increases the difficulty of doing business because of the country’s lack of developed infrastructure, its weak economy, and its untrained labor. Violence and political unpredictability are two other risks that may affect businesses.
It’s true that there are challenges when doing business in a developing country, but there are also opportunities that may not be there while doing business in a developed country.
There are some advantages and disadvantages of starting your company in Georgia right now. We’ll cover both of them and analyze whether or not it is great timing for running your own business in this country.
Pros of starting your company in Georgia
When it comes to the main advantages of running your business in Georgia, there are several pros that might come into your mind, including tax rate, talents, and so forth. Let’s start with tax rates.
In terms of tax rates, Georgia is one of the most favorable countries. Georgia has been using a new CIT system as of 1 January 2017. Essentially, the new law symbolizes the incorporation of the CIT system used in Estonia into the Georgian tax code.
Thus, gains are not subject to taxation until they are ultimately dispersed. The purpose of the new system is not to avoid taxes on profits but to postpone the time when taxation must be paid. Therefore, taxpayers are relieved of the burden of calculating taxable gross income and eligible deductions separately.
With a few exceptions, Georgia corporations do not have to pay corporate income tax on their profits until they are transferred to their shareholders. In the event that the business chooses to reinvest its earnings, it will not be required to pay any CIT on the new investment.
Gains from the sale of assets are not subject to any additional taxation in Georgia. After such a distribution, a 15% tax is due on the amount realized as part of the normal CIT regulations.
After a company has been granted Small Business Status, it is eligible for preferential tax treatment. This means that they cannot be used to adjust a person’s income from the past:
- 1% (On turnover up to 500,000 GEL per year);
- Or 3% (starts to apply after reaching the 500,000 GEL limit)
Since the beginning of 2022, in Georgia, many talents have flowed, which means that those who plan to start their company in Georgia, won’t only have a choice to search for talented people among the Georgian labor power, but can also choose from foreigners, who migrated in Georgia. In addition to that, as of 2022 the average salary in Georgia is 1250 GEL or approximately $450 per month, which means that companies don’t have to spend too much money when they hire people.
Cons of starting a company in Georgia
Even though starting a company in Georgia has some advantages, there are also several cons that should be taken into consideration. One of the main ones among others is increasing inflation. Georgia’s inflation rate in October 2022 was 0.5 percent higher than in the previous months.
The yearly rate of inflation was 10.6 percent. In terms of base inflation, In October 2022, the mentioned indication was passed. It was 7.3 percent higher than the previous year’s similar quarter.
As a result of the increasing inflation rate, the prices for services and goods have increased dramatically, which means that businesses have to pay extra money for the same things.
Because Georgia has the tendency of increasing prices and inflation rates, there is a bit of risk in starting a company in this country. Because of the increasing inflation, the prices for housing have escalated as well.
This means if you want to rent an office for your company, you need to pay more this year, compared to 2021. This tendency might be continuing.
The main reason why prices have expanded is not only the inflation rate but also the increasing number of immigrants, who have grown the demand for real estate. This, of course, based on the law of supply and demand caused the surge in housing prices.
Another main reason why you shouldn’t start a company in Georgia is local currency appreciation. Here, you cannot pay with another country’s currency, you should always convert your money into Georgian national currency.
As a result of the GEL’s volatile rate and the fact that it’s a weak currency, you might see some losses at some point. In addition to that, because of the poor monetary policy, GEL might become even weaker against the major currencies.
To conclude, starting your company in Georgia at this moment, has both advantages and disadvantages. Even though Georgian GEL is a volatile currency compared to major currencies, the low tax rate in the country makes it quite attractive for investors.