As per an analysis by the Site Selection magazine and the Area Development Magazine, Georgia is an economy that has ranked first for eight consecutive years for ease of doing business. This research was based on announced projects, a favorable taxation system, and government support.
The consistent ranking reflects a longstanding reputation of a business-friendly economy, sound economic development policies, and strong business development support. Such favorable parameters have attracted businesses globally to expand their operations and incorporate their subsidiary businesses in Georgia.
Setting up a subsidiary in Georgia is a fairly complex and long-drawn process due to the country’s subsidiary laws and other compliance requirements. Therefore, businesses must ensure that they are well aware of the subsidiary system in Georgia.
What are the Types of Subsidiaries in Georgia?
There are three types of subsidiaries:
Wholly owned subsidiary
A wholly owned subsidiary in Georgia is when the parent company owns 100% of the business. The parent company has complete control of the company, which includes operations, decision meeting, board seats, and voting rights.
Partly owned subsidiary
A partly owned subsidiary is an entity when the parent company has 49% of the ownership in the subsidiary’s stock. Although the parent company does not completely control the operations of a partly owned subsidiary, they have controlling votes in decision making.
Joint venture subsidiary
A joint venture is a type of subsidiary where two different companies own 50% of the subsidiary’s stocks. Business operations, decision-making, and voting rights are equally divided among parent companies.
How to Set Up a Subsidiary in Georgia?
The process of setting up a subsidiary business in Georgia depends on factors such as the type of entity and the location.
One of the most popular types of Georgian subsidiary is an LLC, especially for foreign investors and international businesses looking to expand. An LLC offers you the freedom to operate in Georgia while protecting the parent company from the decisions made.
There are certain steps that a foreign investor must take to set up a subsidiary in Georgia (especially an LLC):
You must first register the company via the LEPL National Agency.
The LEPL National Agency is a Public Registry which ensures that your business is legally registered and authorized to operate.
You must submit all the statutory documents related to the company to the Public Registry to ensure that the documents are publicly available.
The second step to incorporating a foreign subsidiary in Georgia is to prepare a charter (alternatively known as articles of association). Providing a Charter is a mandatory step for all subsidiary businesses in Georgia.
A charter outlines all specific information that helps a subsidiary gain a legal personality.
As a parent company or a foreign investor you must provide the following information:
- Name of the subsidiary (that is publicly and formally recognized by respective authorities)
- Registered legal entity business address and the headquartered address (all subsidiaries must have a registered address)
- Contact details of the business, such as an email address, phone number, website details, etc.
- Details of the stakeholders, shareholders, and corporate details (in case the founder is a separate legal entity)
- In cases where the founder is a different entity, additional information on the trading name, the company, registration details, representatives, identification code, etc., must be submitted to the Georgian authorities.
Once the subsidiary is registered as a limited liability company, an investor, or a parent company, you must present the company’s charter details (or the articles of association).
All businesses are also required to furnish the managers’ personal details, such as their phone numbers, email addresses, residential addresses, etc.
Additionally, the founders must sign the charter.
You must create and maintain a stamp that helps you deal with civil counteragents, banks, and tax authorities.
When setting up a subsidiary business in Georgia, you must notarize and legalize all documents executed overseas. This can be done through a public notary in Georgia.
An important aspect to note is that if the documents are prepared overseas and sent from a foreign jurisdiction, an official translation must be done into Georgia, and a notarized version of the documents is mandatory.
The subsidiary laws in Georgia vary based on location as different regions follow variations of the law. Therefore, you must consult with a relevant professional—a lawyer and an accountant—who will be able to guide you on the applicable law.
Benefits of Setting Up a Georgian Subsidiary
Although Georgia is known for its ease of doing business due to its business-friendly taxation system and government support, there are several other benefits of setting up a subsidiary here:
One of the biggest advantages of setting up a subsidiary in Georgia is its risk-free business structure, as the decisions and the steps taken by a subsidiary are independent of the parent company. A subsidiary enjoys separate management rights in comparison to its parent company.
Separate legal entity
A subsidiary can be a limited liability company. It will be considered a different entity from its parent company while recognized as a Georgian company.
The assets, liabilities, and operations are independently run compared to its parent company.
A subsidiary can avail itself of certain tax incentives prescribed by Georgia’s tax laws for resident companies.
Flexible identity opportunities
A subsidiary is one of Georgia’s most preferred business structures when considering customer perception. This is because some partners and customers would conduct business with a legal entity registered in Georgia that complies with the company laws and has all the necessary knowledge about the local markets.
Documents Needed to Open a Subsidiary in Georgia
Along with the documents mentioned in the previous sections, there are certain documents that a foreign investor must submit when incorporating a foreign subsidiary in Georgia:
- All company members must sign a ‘Decision’ and file it when registering the subsidiary as a legal entity.
- A Certificate of Registration must be submitted if another legal entity has founded the subsidiary.
- A document stating the appointed director and the director’s written consent is mandatory. The document must also state the duties and functions of the appointed director.
- Supporting documents that provide evidence of the company’s official address, such as a rental agreement
- Proof of the registration fee charged by the respective Georgian institutions
What Business Forms can Georgian Subsidiaries Take?
When opening a subsidiary in Georgia, foreign investors must choose one of the following forms of business entities:
Limited liability company (LLC)
A limited liability company (LLC) is a type of business structure where the personal liability of the founders, promoters, board members, and employees is limited. An LLC in Georgia also enjoys certain tax benefits.
Joint stock company
A joint stock company in Georgia is when its capital is divided into multiple shares, quantity, and class determined by the company’s by-laws. The type of shares varies based on their voting rights; however, one share is equivalent to one vote.
International trading company
An international trading company in Georgia is a business entity that covers its clients’ operations and procedures relating to imports and exports. They ensure they cover all operations, including finding global markets and brand representation.
International financial company
As laid down by the Georgian legislation, an international financial company is a financial institution that has been granted its status and can be compared to an international business company. However, an international financial company is restricted within the finance industry.
Free trade zone company
Activities and operations carried out within the free zones in Georgia require a valid license. Local and foreign businesses can operate within the free zone with all the necessary permits and licenses.
Industries that are allowed within the free zone include:
- Manufacturing trade (local and international)
- Any kind of service (only internationally)
- Consulting services
Georgia has three free zones:
- Poti Free Industrial Zone
- Tbilisi Free Zone
- Hualing Kutaisi Free Industrial Zone.
Branch office: A branch is an extension of a foreign parent company. As laid down by the Georgian law, a branch office does not carry a separate legal personality. It only represents the parent company in the form of a sub-unit.
A representative office is a legal entity that a bank opens to conduct non-transactional and marketing operations.
Georgian Subsidiary Laws
The Georgian subsidiary laws that apply to LLCs favor investors looking to expand their business operations in the economy. All foreign investors and parent companies must comply with the following:
- A minimum of one shareholder and one director (both of whom can be foreign residents)
- A document that entails the shared capital (the laws do not stipulate the amount)
- Submission of financial statements to the respective tax authorities on an annual basis
There are tax exemptions laid down for multiple tax schemes for foreign-sourced income.
You must comply with the requirements after setting up a subsidiary in Georgia. Certain post-incorporation compliance requirements must be adhered to:
- Set up and keep the corporate records book updated
- Maintain up-to-date bylaws
- Conduct regular annual general meetings
- Notice of meetings must be given (when applicable)
- Maintain accurate minutes of meetings
Taxes on Subsidiaries in Georgia
Relevant taxation regulations will apply, given that a Georgian subsidiary is incorporated to generate revenues and commercial activities.
Georgian subsidiaries are treated the same as local businesses established in Georgia. This implies that investors and parent companies must register for a set of taxes to ensure compliance.
The relevant tax regulations apply:
- Once the subsidiary company reaches a turnover of GEL 100,000, registering for Value Added Tax (VAT) is mandatory.
- A subsidiary company is liable to pay corporate tax of 15%
- Employment taxes collected (for non-residents) as a part of withholding of taxes
- The scope of withholding of taxes also expend to dividends, interests, and royalties
Tax Incentives for Businesses Setting Up a Subsidiary in Georgia
Certain subsidiary businesses in Georgia qualify for state tax exemptions and credits.
The Georgian tax department offers tax exemptions to businesses:
- Expenses incurred by the international, budgetary, and charitable organizations that support the goals and objectives of their organizational activities.
- Distribution of their profits earned and costs incurred by Free Industrial Zone (FIZ) enterprises for their operational activities.
- Distributing their profits earned by a special trading company by conducting permitted operational activities. However, this does not include profits earned by a supply of a fixed asset as a part of their economic activity for over two years.
- Profit taxes are exempt for Special Trading Companies.
The following rules apply to businesses operating under the Free Industrial Zone (FIZ):
- Income earned from permitted activities is exempt from corporate income tax.
- Businesses importing foreign goods are VAT-exempt and free of customs duties.
- Operations are VAT-exempt Businesses are exempt from property tax.
- Businesses importing goods from a non-FIZ region of Georgia are exempt from import tax.
- The tax rate for businesses operating in the FIZ is 4% of the market price of their products supplied.
Other Important Considerations
When looking at expanding your operations in Georgia, you must consider and evaluate all the procedures, any additional documents to submit, and all compliance aspects.
The estimated time and the expenses for the incorporation process is a crucial factor to account for as it helps create a framework for an incorporation process. This includes calculating startup capital and recurring expenses. You must ensure that your finance department processes the necessary budgets for the incorporation process.
Consulting with your legal and accounting team will help set up a subsidiary in Georgia smoothly.
How can Multiplier’s Employer of Record Help You Hire & Expand in Georgia?
Georgia is an economy known for its business-friendly environment due to its tax incentives and government support.
However, setting up a subsidiary in Georgia can be tricky, given several factors such as keeping track of the changing laws, complying with the regulatory requirements, the time and cost to set up a subsidiary, and ensuring you have the right team.
This is where partnering with a global employer of record (EOR) can help.
Multiplier is a global employer of record that offers the infrastructure to employ talent in the country without the need for the employer to start a subsidiary in Georgia. You can now test new markets like Georgia and set up teams in different countries by attracting talent at cheaper costs.
Talk to our experts to expand into Georgia!