Georgia Crypto Tax Guide 2024

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Country Georgia has caught the eye of the crypto world. Its low electricity prices, government openness to crypto, and special zones offering tax breaks create a buzz among miners, traders, and crypto-focused businesses.

Historically, Georgia offered a minimally regulated environment for cryptocurrency activity, including a lack of tax on trading. However, this landscape is evolving. Regulations implemented on January 1st now bring Georgia in line with Financial Action Task Force (FATF) guidelines.

Despite the regulatory updates, Georgia could maintain advantages for crypto-focused individuals and businesses. The country’s competitive energy rates attract miners, and it harbors potential tax-friendly zones that could benefit your operations. Depending on the circumstances, setting up a Georgia offshore company or an LLC in Georgia Tbilisi may provide tax advantages. Always seek guidance from a Georgian tax expert specializing in crypto tax in Georgia.

Overview of cryptocurrency regulations in Georgia

Cryptocurrency definition

Georgia’s law now defines cryptocurrency as an interchangeable digital asset intended for exchange and investment. This distinction means, that, unlike NFTs and collectibles, cryptocurrencies fall under the scope of the new regulations.

Cryptocurrency payments

While the Georgian Lari is the main currency, your payment options are still limited. Licensed Virtual Asset Service Providers (VASPs) are here to help! Think of them as the bridge between your crypto world and everyday spending, and ensure your crypto gets converted smoothly during transactions.

The purpose behind regulatory changes

Georgia’s taking crypto seriously, and that means new regulations. But don’t think of these changes as a roadblock — think of them as a roadmap for the future of cryptocurrency within the country. Let’s break down the key objectives behind these updates:

• Battling financial crime: Think of these regulations as making life difficult for criminals who want to use crypto for money laundering or funding terrorism. It’s about closing those loopholes.
• Transparency: The focus is on bringing transparency to the crypto market. Expect clearer identification of who’s involved and better tracking of transactions.
• Protecting Crypto Investors: Georgia wants to create a safer crypto landscape for individuals and businesses. Think fewer scams and less risk to your hard-earned investments.

What is a Virtual Asset?

• It exists only in the digital world, similar to a digital form of money.
• It’s interchangeable — each unit is essentially the same as others of the same type.
• It’s not unique, meaning it doesn’t represent a single, specific item.
• You can transfer or trade it electronically.
• People use it for investments and, in some cases, for making payments.

What a Virtual Asset ISN’T

• It’s not the same as government-issued currency, even if that currency has a digital form.
• It doesn’t include traditional securities like stocks or bonds.

Who can offer crypto services in Georgia?

Georgia’s regulations are specific about who’s permitted to provide virtual asset services:

• VASPs: Virtual Asset Service Providers must register with the National Bank of Georgia (NBG). This is the primary way to offer a broad range of crypto services legally.
• Limited Options for Financial Institutions: Existing players like commercial banks, micro banks, microfinance organizations, and brokerage companies can offer some crypto services, usually related to exchange and transfers. However, their scope is narrower than registered VASPs.

Important Restrictions

It’s illegal to provide virtual asset services in Georgia unless you fall into one of these two categories:

1. A VASP is officially registered with the National Bank of Georgia (NBG) .
2. An authorized representative of the existing financial sector with the specific legal right to provide such services.

Specific services allowed for financial institutions

While VASPs can potentially handle a wider range of crypto activities, financial institutions are usually limited to:

• Exchange Services: Facilitating trades between crypto and fiat currencies, different cryptocurrencies, or crypto and traditional financial instruments.
• Crypto Transfers: Enabling the secure movement of crypto assets.
• Storage and Administration: Providing safekeeping of crypto assets or the tools needed to control them.
• Essential Support: Offering additional services that directly support the above activities.

What are VASPs?

VASPs cover crypto-related activities, including exchanges, portfolio management, trading platforms, and certain initial offerings. In Georgia, they must register with the National Bank to operate legally.

Exemptions: Generally, individual miners, participants in mining pools, and individual traders do not require mandatory registration under these new regulations.

VASPs and enhanced responsibility

Georgia’s regulatory updates place VASPs front and center in the fight against illicit activities within the crypto space. Their new “Accountable Person” status comes with significant obligations.

Client Identification

VASPs must have reliable, independent methods to verify the identities of those they serve. Trusting surface-level information is no longer sufficient.

Revealing true ownership

It’s not enough for VASPs to know who’s on the paperwork. They must actively investigate to determine who ultimately benefits from or controls the crypto assets under their management.

Understanding client purpose

VASPs must grasp the reasons behind their client relationships. It’s about establishing the “why” behind the transactions, not just blindly facilitating them.

Transaction scrutiny

VASPs are expected to keep a close eye on transactions, especially those exceeding specific thresholds (currently 3,000 GEL, 1,000 USD, or 1,000 EUR). They may need to explain the origin of funds or assets if required.

The “Travel Rule”

VASPs have a role in making crypto less anonymous. To combat illicit use, they must collect and share information about senders and recipients of crypto transactions, enhancing traceability.

Existing clients

These new measures aren’t just for new clients! VASPs have until July 1st, 2024, to bring their existing client base into compliance.

VASP registration in Georgia

VASP registration in Georgia: process and cost

Applying to become a VASP in Georgia involves a few core steps. After submitting your information to the National Bank of Georgia (NBG), they generally have 60 calendar days to decide on your registration status. Occasionally, the NBG might extend this review period for another 60 days, with a clear explanation for the delay.

Registration approval

If approved, the NBG will grant you official VASP status. You’ll receive a formal document including your name, ID number, and the official registration date and number. The NBG will add this information to their VASP registry within two business days.

What if registration is denied?

If the NBG rejects your application, they provide a written explanation outlining the reasons behind the decision.

The cost of registration

Be prepared for a 5,000 GEL fee for the NBG to consider your VASP registration application. This fee is payable regardless of whether your application is approved or not.

Cryptocurrency Taxation and Financial Regulations

0% Capital gains tax

This is the sweet spot for most individual crypto traders in Georgia. They generally pay no tax on their crypto profits.

15% corporate income tax + 5% dividend tax

This applies if your crypto trading happens through a registered Georgian business (like an LLC). You’ll face a 15% corporate income tax on profits, plus an additional 5% tax when those profits are distributed to the owners.

Potentially 0% with small business status (SBS)

The National Bank of Georgia hasn’t yet decided whether they’ll classify crypto trading as a “currency operation.” If they do, it becomes a prohibited activity for those with SBS.

If crypto trading gets labeled a “currency operation” in the future, you could lose your SBS status. In the worst-case scenario, there might be retroactive back taxes to deal with. Unless you have other business income that qualifies for the 1% SBS tax rate, it’s simpler and safer to trade crypto as an individual without SBS.

Even if your crypto gains are tax-free, they still count towards the 500,000 GEL annual turnover limit for SBS. Exceed that, and you’ll lose your 1% tax status entirely. If you’re a crypto trader in Georgia, the safest bet is generally to avoid using SBS. This minimizes the risk of complications and potential future tax headaches.

Additional Considerations:

• Tax Residency: These rates generally apply to Georgian tax residents.
• Evolving Regulations: Crypto tax laws in Georgia are still developing. Staying informed is crucial.
• Professional Advice: Always consult with a Georgian tax expert for personalized guidance.

Achieving tax residency in Georgia

The 183-day rule

For those open to spending significant time in Georgia, the 183-Day Rule offers a straightforward path to tax residency. Simply residing within the country for at least half of 12 months is often enough to qualify.

Qualifying through the High Net Worth Individual (HNWI) Program

Georgia’s HNWI program is tailored to wealthy investors, including those with substantial crypto holdings. To be eligible, you must:

High-net-worth individuals

• Provide official documentation (with apostille or independent audit certification) proving either:
• Net assets exceeding GEL 3,000,000 (around EUR 750,000).
• An annual income of at least GEL 200,000 (approximately EUR 50,000) for the past three years.

Start a Georgian company

Establish a Georgian company (often an LLC) and open a corresponding bank account . This lets you fulfill the requirement of earning at least GEL 25,000 (about EUR 8,000) annually from Georgian sources.

Options for HNWI tax residency

Georgia offers two avenues for achieving HNWI tax residency:

The Remote (Without physical presence in Georgia)

Become a Georgian tax resident without setting foot in the country. Through a Power of Attorney, representatives handle the process — from submitting certified documents to securing your tax residency certificate (often within 7 days).

Relocating to Georgia

Choosing to live in Georgia can simplify the HNWI tax residency process. Obtaining a Georgian work visa and ID card often helps expedite the fulfillment of program requirements. Plus, you’ll experience Georgia’s vibrant culture firsthand.

Using Georgian banks for cryptocurrency transactions

Georgian banks can be a strategic tool for international crypto investors. Here’s a breakdown of the primary advantages and considerations when leveraging Georgian banking:

Why use Georgian banks for Crypto

• Fiat Access: Effortlessly convert your crypto holdings into traditional currencies (USD, EUR, GEL, etc.) for spending, reinvestment, or diversification purposes.
• Compliance Potential: Depending on your home jurisdiction, using a Georgian bank may simplify your tax reporting and compliance obligations related to crypto activities.
• Investment Diversification: Georgian banks open doors to other investment opportunities within Georgia and beyond, expanding your overall financial strategy.

Choosing the right Georgian Bank

• Do your research: Georgian banks differ in their openness to crypto clients. Thoroughly investigate account opening processes, debit card options, fees, and overall reputation with international customers.
• Prepare for KYC: Be ready to provide extensive documentation to prove your identity and the source of your crypto funds. This is standard practice to combat money laundering.
• Remote vs. in-person: Some banks may offer remote account opening with a Power of Attorney. Others might require a physical visit, especially for obtaining a traditional debit card.
• Anticipate questions: Banks will want to understand your crypto business and the origins of your wealth to mitigate their risk exposure.

How to register a crypto company in Georgia?

1. Define Your Business: Pinpoint your crypto niche (exchange, mining, blockchain development, etc.) and choose a suitable legal structure. LLCs and JSCs are popular choices for foreign investors within Georgia. (How to Register Company (LLC )
2. Official Registration: Submit your application to Georgia’s National Agency for State Registration. The convenience of online registration makes this process accessible even for those outside the country. Expect to provide typical incorporation documents, founder/director identification, and proof of a Georgian business address.
3. Secure Banking: Georgia boasts several banks receptive to the crypto sector. To open your corporate account, prepare company documents, founder/director passports, and a thorough business model description.
4. Taxes and Recordkeeping: Meticulous recordkeeping and timely tax filings are crucial. Georgia’s tax system is advantageous, featuring a flat 15% corporate income tax rate. Explore special economic zones for potential tax breaks.
5. Stay Compliant: Georgia’s crypto regulations are still developing, so vigilance is key. This includes obtaining licenses if your business involves activities like exchanges or trading platforms, with adhering to KYC/AML policies.
6. Protect Your Assets: Don’t overlook intellectual property (IP) safeguards and data protection. Georgia’s IP and data privacy laws align with international standards, offering a secure foundation for blockchain-based innovation.
7. Licensing Considerations: Certain crypto activities might require specialized licenses. Contact the National Bank of Georgia or other regulatory bodies to clarify any specific requirements for your business model.

What are the benefits of starting the crypto business in Georgia?

• Quick Setup: Georgia prioritizes efficient business processes. Clear legal frameworks and responsive government agencies help expedite company registration and secure necessary licensing.
• Budget-Friendly: Minimize your operational expenses with Georgia’s competitive business costs. Its favorable tax structure further maximizes your profits and enables reinvestment for growth.
• Accessible Startup: Georgia welcomes entrepreneurs. The absence of minimum capital requirements, especially in certain sectors, allows you to launch your venture sooner, regardless of your starting budget.
• Sensible Regulation: Georgia recognizes the need to balance innovation and consumer protection within the crypto space. Its regulatory approach aims for a clear and pragmatic legal environment, fostering confidence for legitimate businesses.
• Strategic Location: Position your business at the crossroads of Europe and Asia. Georgia’s geographic advantage opens doors to diverse markets and facilitates collaborations across continents.
• Tech Hub: Benefit from Georgia’s rapidly developing tech scene. Access a skilled workforce, cutting-edge resources, and a community driven by innovation — ideal for nurturing blockchain-based ventures.
• Supportive Environment: Discover a culture that embraces entrepreneurship. Georgia’s pro-business policies and welcoming environment offer the necessary support for your crypto business to flourish.

Tailored Services for Cryptocurrency and Tax Residency

At Gegidze , we understand the complexities and opportunities within Georgia’s evolving cryptocurrency landscape. We offer a range of services to guide you through the process, maximizing the potential of your investment:

Buy, Sell & Exchange Crypto

Our expertise helps you navigate crypto exchanges, secure storage solutions, and develop strategies tailored to your goals within the Georgian market.

Tax Residency Consulting

We’ll clarify the pathways to Georgian tax residency, outline the tax advantages, and assist with the application process to optimize your financial returns.

Banking and Financial Services

We’ll help you select the right Georgian banking partners, streamline opening bank account process and offer insights for secure and efficient crypto transactions.

Explore Opportunities in Both Georgia and Armenia

We also proudly offer our services in Armenia, where cryptocurrency regulations are continuously evolving. Our specialists can help you navigate this dynamic environment, mitigating risks and identifying potential opportunities.

Contact us here.