{"id":91083,"date":"2021-11-24T11:29:50","date_gmt":"2021-11-24T07:29:50","guid":{"rendered":"https:\/\/forbes.ge\/?p=91083"},"modified":"2025-08-15T12:41:03","modified_gmt":"2025-08-15T08:41:03","slug":"foreign-source-income-in-georgia","status":"publish","type":"post","link":"https:\/\/dev.forbes.ge\/en\/foreign-source-income-in-georgia\/","title":{"rendered":"Foreign Source Income in Georgia"},"content":{"rendered":"

Forbes Blog is a non-editorial category created by individuals with diverse interests and ideas. The texts published within this category represent the views of the authors and may not reflect the position of Forbes Georgia\u2019s editorial team.<\/em><\/p>\n

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What really is the \u201cforeigner source (tax-exempted) income\u201d for Georgian tax purposes?<\/strong><\/h5>\n

The common misunderstanding of the term\u00a0Foreign source income of individuals is exempted from personal income tax in Georgia<\/strong><\/p>\n

Georgia applies the so-called \u201cterritorial taxation principle\u201d for natural persons (individuals). In other words, individuals in Georgia are exempted from personal income tax on income received from non-Georgian (foreign) sources.<\/p>\n

The legal base of the tax exemption on foreign source income<\/strong><\/h5>\n

Article 82. 1 (u) of the Georgian tax codes<\/strong><\/p>\n

\u201c1. The\u00a0following\u00a0types\u00a0of\u00a0income\u00a0of\u00a0natural\u00a0persons\u00a0shall\u00a0be\u00a0exempt\u00a0from\u00a0income\u00a0tax:<\/em><\/p>\n

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  1. u)\u00a0income\u00a0(including\u00a0gain)\u00a0received\u00a0by\u00a0a\u00a0resident\u00a0natural\u00a0person,\u00a0which\u00a0does\u00a0not\u00a0belong\u00a0to Georgian source income<\/strong>\u201d. <\/em><\/li>\n<\/ol>\n

    Notably, the above-cited paragraph mentions \u201cresident natural person\u201d<\/em><\/strong> because the subject of personal income tax of resident individuals is worldwide income and they receive the exemption on foreign source income based on the separate, article 81, while the subject of personal income tax of non-residents is only Georgian source income<\/em><\/strong>. Thus, the final tax implication on foreign source income of resident and non-resident individuals are similar-0 to tax.<\/p>\n

    The term tax resident of Georgia<\/strong> is explained in another article which you can read <\/em>here<\/em><\/a>. <\/em><\/p>\n

    A major misunderstanding of the meaning of \u201cforeign source income\u201d in Georgia<\/strong><\/h5>\n

    There is a myth believed by many foreigners living in Georgia that \u201cAny income received from abroad is foreign source income, therefore, is fully exempted from personal income tax in Georgia\u201d<\/em>.<\/p>\n

    This is a huge misinterpretation of the law which might lead to many individuals facing problems with Georgian tax authorities (additional tax assessments and the sanctions which can also lead to criminal cases if the additional (not paid) tax liability is 100k GEL and more).<\/p>\n

    Bellow, I will provide a brief explanation of why any income received from abroad is NOT foreign source income, thus is NOT exempted from personal income tax in Georgia. <\/em><\/strong><\/p>\n

    Definition of \u201cforeign source income\u201d based on the Georgian tax code<\/strong><\/h5>\n

    Article #104 of the Georgian tax code is dedicated to determining a source of income for purposes of taxation in Georgia. We should rely on ONLY on article 104 of GTC when we analyze whether the income is the Georgian source or not.<\/p>\n

    Article #104 is very long and complicated, entirely discussing it would require writing more than 20 pages, so I will briefly analyze the most important and most frequently applicable paragraphs of this article which will hopefully demonstrate that the term \u201cforeign source income\u201d shall not be understood literally, as any income received from abroad.<\/p>\n

    Note: Article 104 does not directly provide the definition of \u201cforeign source income\u201d but explains what is a \u201cGeorgian source income\u201d and whatever is not a \u201cGeorgian source income\u201d is automatically a \u201cforeign source income\u201d, so if the income does not fall in neither paragraph provided in the mentioned article, it means that the income comes from the foreign source.<\/p>\n

    Article 104 of Georgian tax code:<\/strong><\/p>\n

    1.\u201cFor\u00a0the\u00a0purposes\u00a0of\u00a0this\u00a0Section,\u00a0Georgian\u00a0source\u00a0income\u00a0shall\u00a0be:<\/em><\/p>\n

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    1. c) income earned from the delivery of services in Georgia. For this purpose, unless otherwise provided by this article, services shall be deemed to be delivered in Georgia, if:<\/em><\/li>\n<\/ol>\n

      c.g) a service provider and a service recipient are in different states and the service provider is a Georgian resident<\/strong>, except where the service provider delivers services through its permanent establishment in another country that confirms the fact that the service provider has delivered services in another\u00a0country\u00a0(other\u00a0than\u00a0in\u00a0Georgia).\u201d<\/em><\/p>\n

      My understanding of the definition of the source of service fee (above paragraph) is the following: <\/strong><\/p>\n

      If a cross-border service delivery takes place and a service provider and service recipient are residents of different states, the income gained from this transaction shall be categorized as Georgian source income, if a provider is a Georgian resident and opposite, the income is a foreign source if a provider is a non-resident (with some exceptions).<\/p>\n

      Let put this in other words: based on the paragraph above, the service fee is Georgian source income if it comes from abroad <\/strong>and the service fee is foreign source income if it comes from Georgia<\/strong>. <\/em><\/p>\n

      For example, if a Georgian resident individual provides translation service to a French company, and a French company remunerates this service and transfers money to Georgia, this income is considered as Georgian source income regardless of the fact that the income was actually received from abroad because the service provider is Georgian resident<\/em><\/strong>.<\/p>\n

      As a result, that income is taxable in Georgia because it is not considered as a \u201cforeign source income\u201d.<\/p>\n

      So, as you see, the definition of \u201cforeign source income\u201d sometimes is understood opposite to literal meaning: If money is received from abroad, it is a Georgian source income and if money is paid from Georgian to abroad, it is a foreign source income.<\/p>\n

      Notably, the rule above has several exceptions (e.g., a permanent establishment in Georgia, accruing costs by a non-resident on Georgian territory for provision service to a resident, etc.) which even increases the number of cases when the income is considered as Georgian source.<\/p>\n

      The exceptional rules are not analyzed in this article. If you need more detailed analyses of article 104, please contact me here<\/a>.<\/p>\n

      Which type of income received from abroad is usually foreign source income?<\/strong><\/h5>\n

      The sub-paragraph \u201cc.g\u201d of article 104 which I briefly explained above, refer to service provisions and frequently are subject to different interpretations (complicated clause), however, there are types of incomes which with greater certainty are considered as foreign sources of income if they are received from abroad.<\/p>\n

      The non-exhaustive list of those types of incomes is following:<\/strong><\/p>\n