Detailed Guide to Individual Property Taxes in Georgia

Original Source

Introduction

Considering buying property in Georgia? Great choice! The process of registering real estate is quite straightforward with minimum bureaucracy involved. However, is registering the new property all that needs to be done? No, it is not!

Let’s talk about taxes. You may be subject to property taxes once you become the owner of a real estate property in Georgia. But don’t worry, taxes in the country are low and easy to manage.

What are property taxes in Georgia? We will explain everything clearly so you know exactly what to expect.

Overview of Property Taxes in Georgia

In Georgia, property owners are subject to three main forms of taxation:

1. Property Tax
2. Income Tax on Property
3. Value Added Tax (VAT)

Let’s take a look at all of them one by one.

When you’re running a business in Georgia, you’ll require dependable tax accounting assistance. Gegidze agency offers a wide range of services to assist you, including Tax Optimization for individuals and companies in Georgia.

What is Property Tax?

Many people wonder if Georgia has a property tax. The answer is yes, Georgia does have a property tax, which is an annual tax based on the estimated market value of your property. In Georgia, property taxes are calculated at a standard rate of 1% of the property’s value.

You’re responsible for determining your property’s market value. While there’s no formal appraisal process, it’s crucial to be honest in your assessment. The Revenue Service of Georgia (RS) trusts your judgment but can investigate if they suspect undervaluation.

Who Are Property Taxpayers in Georgia?

When it comes to property taxes, taxpayers can be both resident and non-resident individuals who own taxable property in Georgia. Tax Code of Georgia defines what property can be taxed.

But when does someone become responsible for property tax? Let’s dive into “house taxes in Georgia”.

Who is liable for property tax in Georgia?

If you’re a physical person (that includes individual entrepreneur in Georgia), and meet these conditions, you’re on the hook for property tax:

1. Taxable Property Ownership: If you, as a natural person, own a property (taxable) in Georgia and in the previous year the total income of your family was over 40,000 GEL, then it’s time to pay property taxes .
2. Land Ownership: If you own agricultural or non-agricultural land in Georgia that isn’t exempt from property tax, you’ll need to budget for property tax on it.

What Should be Taxed with Property Tax for Physical Person?

• Any real estate you own, including unfinished construction.
• Certain vehicles specified under Code 8703 like yachts, helicopters, and airplanes.
• Property you lease from a non-resident.
• Assets used in your economic activities, including equipment and leased property.

What Should be Taxed with Property Tax for business?

In Georgia, the property tax system for companies like LLC and in general for businesses is quite similar to that for individuals. Here’s a breakdown of what’s subject to property tax for businesses:

• Buildings and land used for business operations.
• Structures under construction.
• Machinery, equipment, inventory, and office furniture used for business.

Tax Rate and Exemptions

• Standard Rate: The standard property tax rate for businesses is also 1% of the property’s assessed market value. If you thinking opening a company in Georgia here is a full guide on How to register company (LLC) in country Georgia.
• Land Tax: Similar to individuals, non-agricultural land owned by businesses has the average property tax in Georgia, and it is taxed at a flat rate of 0.24 GEL ($0.09 USD) per square meter.
• Exemptions: Some types of businesses or properties might be eligible for exemptions or reduced rates. Georgia has several Special Economic Zones (SEZs), also known as Free Industrial Zones (FIZs)

Exceptions for Property Tax

1. Agricultural Exemptions:

include crop cultivation, animal husbandry, horticulture and other agricultural activities.

For example, a Georgian farmer who owns and operates a vineyard for wine production is exempt from paying property tax on that land.Note: foreigners aren’t able to buy agricultural property in Georgia.

2. Special Economic Zone (SEZ) Incentives:

For example, a foreign investor buying investment property in Georgia and setting up a manufacturing plant in the Poti Free Industrial Zone (FIZ) can benefit from significantly reduced property tax rates or even complete exemptions (Special Economic Zone (SEZ).

Note: Virtual zone status in Georgia is a specific tax break for IT companies operating internationally (0% corporate tax; 0% VAT; 5% capital gains tax on dividends; and no annual license fees.)

3. Green and Sustainable Projects:

Property invested in renewable energy sources such as solar and wind, energy-efficient buildings, and other environmentally friendly initiatives.

For instance, a company that installs solar panels on the roof of its factory in Tbilisi may qualify for a property tax reduction as a result of its investment in renewable energy.

4. Tourism Promotion in Georgia:

Hotels, resorts, and other tourism-related businesses in Georgia, a country celebrated for its rich tourism industry, have a unique opportunity. Buying property in Tbilisi, the capital, or in specific regions designated for tourism development, can lead to a significant benefit: exemption from property tax.

For instance, a newly constructed hotel in Batumi, a popular tourist destination on the Black Sea coast, might be granted a temporary property tax exemption to encourage investment in the local tourism industry.

5. Technology and Innovation Hubs:

Technology parks, research centers, and other facilities.

For example, a tech startup operating in a co-working space provided by the Georgian Innovation and Technology Agency (GITA) could be eligible for reduced property tax rates to support its growth.

Note: In order to improve Georgia’s business environment, attract international companies, and, in essence, turn Georgia into a regional hub, the Georgian government allows to obtain “international company status” for international companies to benefit from tax breaks.

While a regular company pays 15% for corporate income tax, with applying IT international company status business pays only 5%.

6. Cultural and Historical Preservation:

Officially recognizing properties as cultural heritage sites or landmarks of historical significance.

For example, a historic mansion in Tbilisi’s Old Town, designated as a cultural heritage site, might be exempt from property tax to ensure its upkeep and restoration.

7. Small Business Support:

The activity involves supporting small businesses, especially those situated in underdeveloped or rural areas, with the aim of stimulating local economies, generating employment opportunities, and fostering entrepreneurship.

For instance, a small bakery located in a rural village might qualify for a reduced property tax rate as a means of incentivizing the growth of local businesses.

Overview of Income Tax on Property in Georgia

What Kind of Income Should Be Included When Declaring Property Tax in Georgia?

When declaring property tax, it’s essential to include all types of income received by you and your family during the calendar year. Here’s what you need to know:

Taxable Income from Economic Activities:

Any income you make from your business operations, whether it’s through trade, services, or other activities.

Income Not Related to Economic Activities:

This includes any other income or benefits you receive that aren’t tied directly to your business.

Accrued Salary:

The total salary you or your family members earn within the tax year.

Let’s break it down:

Imagine David, who works in Georgia, and his family’s income for the year 2023.

• David earned 20,000 GEL (approximately $7,547 USD) in salary.
• He received 6,000 GEL (approximately $2,264) in dividends from his investments.
• His spouse earned a taxable income of 12,000 GEL (approximately $4,528) from running a small retail business.
• David also won a travel voucher worth 8,000 GEL (approximately $3,019) in a contest.

To calculate the total income for David’s family for 2023:

20,000 GEL ($7,550) + 6,000 GEL ($2,265) + 12,000 GEL ($4,530) + 8,000 GEL ($3,020) = 46,000 GEL (approximately $17,360).

Since the total family income is 46,000 GEL (approximately $17,360), which is above the 40,000 GEL (approximately $15,150) threshold, David must submit the annual property tax declaration by October 1, 2024.

Who is Considered a Family Member of a Natural Person?

In Georgia, the definition of a family member for property taxation purposes includes the natural person, their spouse, children (including stepchildren), parents (including stepparents), siblings, grandparents, and grandchildren who live permanently with the property owner and engage in shared household activities. These conditions must be met for a family member to be considered for property taxation purposes.

Income Tax from Renting Property in Georgia

The tax rate of Georgia’s income tax rental property depends on who you rent to:

• Individual Tenants: If you rent to an individual for residential purposes, you’ll pay a flat 5% tax on your total rental income. You cannot deduct any expenses.
• Business Tenants: The tax rate is 20% on your net rental income (after deducting expenses like repairs and maintenance). If you’re a registered individual entrepreneur, you are responsible for paying this tax. Otherwise, the business renting your property pays it.

Overall, buying rental property in Georgia can be an excellent investment opportunity, thanks to the country’s growing economy, stable political environment, and favorable tax regime.

Income Tax from Selling a Property in Georgia

If you sell your property within two years of buying it, you’ll owe income tax on the profit you make. The tax rate is:

• 5% for residential property (house or apartment)
• 20% for commercial property (office, land, etc.)

Important Note: If you hold onto your property for more than two years before selling, you are exempt from income tax on the profit (capital gain).

Exemption After a Waiting Period

Property owners can completely avoid paying capital gains tax on the sale of property if they have owned the property for more than two years? This incredible tax benefit means you pay 0% income tax on the capital gain if you hold the property for at least two years before selling it.

Taxation Within Two Years

If you sell the property within two years of purchasing it, the capital gain (the difference between the buying and selling price) is subject to income tax. The rate of this tax depends on the type of property:

The Tax Rate for buying Residential Property

(House or Apartment) in Georgia is 5%. For example: If you bought a residential property for 100,000 GEL (approximately $33,333) and sold it within two years for 120,000 GEL (approximately $40,000), the taxable gain would be 20,000 GEL (approximately $6,667). The income tax on this gain would be 5%, amounting to 1,000 GEL (approximately $333).

The Tax Rate for buying Commercial Property

(Office, Land for Investment, etc.) in Georgia is 20%. For example: If you bought a commercial property for 200,000 GEL (approximately $66,667) and sold it within two years for 250,000 GEL (approximately $83,333), the taxable gain would be 50,000 GEL (approximately $16,667). The income tax on this gain would be 20%, amounting to 10,000 GEL (approximately $3,333).

When and Where to Pay Income Tax from Selling Property in Georgia

The deadline for both declaring income from selling property and paying the associated income tax is April 1st of the year following the sale.

For example, If you sell a property in August 2024, your income declaration and tax payment are due by April 1st, 2025.

Where to Pay:

You can complete this process through the following channels:

1. Online: This is the most convenient way. You can submit your declaration and make your payment electronically through the Revenue Service of Georgia’s website. You’ll need a Georgian bank account to make the online payment.
2. In-Person: You can visit a branch of the Revenue Service of Georgia in person to file your declaration and make your payment. Be sure to bring all necessary documentation, such as proof of the property sale and your identification.
3. Authorized Representative: If you’re unable to handle the process yourself, you can grant a Power of Attorney to a trusted representative. a tax advisor specializing in Georgian law like Gegidze agency ensures you remain compliant, avoid penalties, and take advantage of all available deductions.

Important Considerations:

• Two-Year Exemption: Remember, if you held the property for over two years before selling, you are exempt from income tax on the profit.
• Tax Rates: If you sold the property within two years of purchasing it, the tax rates are as follows:
• 5% for residential property (house or apartment)
• 20% for commercial property (office, land, etc.)

Step-by-Step Guide to Paying Income Tax Online:

• Access the RS Website: Visit the Revenue Service of Georgia’s website and log into your personal account. If you don’t have an account, you’ll need to create one.
• Locate the Declaration Form: Find the relevant section for declaring income from property sales.
• Fill Out the Declaration: Provide all required information, including details about the property sold, the sale price, and any applicable deductions or exemptions.
• Calculate the Tax: The system will automatically calculate the amount of income tax due based on the information you provide.
• Make the Payment: Use your Georgian bank account to transfer the tax amount to the state treasury account (account number 101001000).
• Submit the Declaration: After making the payment, submit your completed declaration electronically.

VAT (Value Added Tax) for Real Estate Owners in Georgia

VAT on Rental Income

In Georgia, when an individual’s rental income exceeds 100,000 GEL over the last rolling 12-month period, they must register as a VAT payer. This registration is mandatory, and the individual is required to pay VAT on the income generated from renting out their property.

VAT on Property Sales

VAT on property sales applies only if the property is sold as part of a business activity. This means that if buying and selling apartments is your business, you need to register for VAT and pay VAT on the sales. However, for individuals selling their own real estate (where it’s not a business activity), there is no obligation to register for VAT or pay VAT on the sale.

What is the VAT Rate?

The VAT rate in Georgia is 18%.

When and Where to Pay VAT

• Declaration Deadline: VAT declarations must be submitted by the 15th of each month. This means that unlike property tax or income tax for individuals, VAT is declared and paid monthly.
• Submission: The VAT declaration should be submitted using your personal page on the Revenue Services of Georgia website. Access to this page can be obtained by visiting a branch of the Revenue Services or by sending a proxy with a notarized Power of Attorney.
• Payment: Once the declaration is filled and submitted, you can pay your VAT by transferring the funds from your Georgian bank account to the state treasury account (account number 101001000).

Frequently Asked Questions about Property Taxes in Georgia

How much is personal property tax in Georgia?

In Georgia, there isn’t a separate “personal property tax” like in some other countries. Instead, property tax is levied on the assessed value of real estate you own, including land, buildings, and structures. The standard rate for this property tax is 1% of the assessed market value.

However, non-agricultural land is taxed at a flat rate of 0.24 GEL ($0.09 USD) per square meter per year, regardless of its market value.

Certain types of movable property used for business purposes, such as machinery, equipment, and inventory, may also be subject to property tax.

How to Pay Property Taxes in Georgia?

Property tax declarations and payments are typically due by October 1st of each year. The most convenient way to fulfill this obligation is through the Revenue Service of Georgia’s online platform. You’ll need a Georgian bank account to make the electronic payment to the state treasury.

Alternatively, you can visit a local Revenue Service branch in person to submit your declaration and make the payment.

How can I save on property taxes in Georgia?

Here are some potential ways to save on property taxes in Georgia:

• Low-Income Exemption: If your total annual income (including your family’s income) is below 40,000 GEL (approximately $15,500 USD), you are completely exempt from paying property tax.
• Accurate Property Valuation: Ensure you accurately assess your property’s market value. While undervaluing might seem tempting, it could lead to audits and penalties. If you’re unsure, consider consulting a real estate appraiser.
• Business Tax Incentives: If you own a business, explore potential tax incentives and exemptions based on your industry or location. Georgia offers various programs to support businesses, which could include property tax reductions.

Who is exempt from paying property taxes in Georgia?

The following groups are exempt from paying property taxes in Georgia:

• Low-Income Individuals: If your total annual income (including your family’s income) falls below 40,000 GEL (approximately $15,500 USD).
• Owners of Agricultural Land: Agricultural land used directly for farming activities is generally exempt from property tax.
• Certain Businesses: Businesses operating in Special Economic Zones (SEZs) or those involved in specific activities like renewable energy, tourism, or technology may be eligible for full or partial exemptions.

Does Georgia have a property tax?

Yes, Georgia does have a property tax. It’s calculated at 1% of your property’s assessed market value.

Navigating the Business Landscape in Georgia: Cultural Nuances & Legal Complexities

Beyond these advantages, relaxed tax rate, simplified business registration, reduced bureaucracy, open market policies, and strategic location, the legal complexities and cultural nuances of the region remain a main difficulty in doing business in Georgia.

Most business is done using the Georgian language, and official laws and rules are written in Georgian as well. On the recommendation of the International Trade Administration, before doing any big business deals, it’s a good idea to talk to a lawyer who’s allowed to work in Georgia.

By understanding these cultural nuances, Gegidze Agency can help companies navigate business interactions in Georgia and the Caucasus Region more effectively. Alongside with HR, tech, finance, tax and design solutions, Gegidze agency takes pride in providing companies with legal services as well.