Virtual Zone Person - this is the status by which information and technology service companies (IT companies) can exempt from VAT (18%) and corporate income tax (15%) if the company provides its services to foreign customers located outside Georgia. It means that the IT company tax is 0%.
These tax benefits are defined by the Law on Information Technology Zones adopted in December 2010 and the Tax Code. According to the law, zero tax fee is adopted to support the development of IT services in Georgia.
The status of a virtual zone person is granted to the companies by the Ministry of Finance. According to Article 6, activities in the virtual zone shall comprise the economic activities of legal persons related to the production of ITs in the territory of Georgia.
More than 1,000 legal entities have been registered with this status in Georgia over the past 10 years. According to the code, the companies are not required to have employees directly in Georgia and to provide services directly from the territory of Georgia.
Davit Papiashvili, the managing partner of the auditing firm "Kreston Papiashvili", considers worn to impose past taxes on the companies now.
According to Papiashvili, the Tax Code does not say that a person in a virtual zone must provide services directly from Georgia, while the Law on Information Technology Zones itself states that for taxation, the state should be guided by a code that does not record that.
At the same time, Davit Papiashvili notes that the legislation on "Information Technology Zones" is flawed, as the code does not explain what it means to provide services directly from the territory of Georgia and what staff companies should have in Georgia in order to enjoy the established benefits. Therefore, the audit company calls on the state to correct the existing shortcomings.
“It is a sad reality that no one in the Revenue Service has mentioned the existence of this problem so far. The law itself is flawed and under the terms of this law, I do not consider it appropriate to claim past taxes for the companies. In such a difficult situation, it would be most reasonable for the Revenue Service to take responsibility and correct the flawed law,” said Davit Papiashvili.
