Despite the fact that cryptocurrency has long been a legal means of payment, there is still no global understanding of how to classify and effectively tax this large element of income of individuals and entities. The main purpose of cryptocurrency taxation is to combat the illegal turnover of funds.
Georgia has gone a long way to become one of the most popular countries for crypto. The country enjoys a relatively good environment for crypto mining. Taxes are not high as well. In this article, we will have a case study of Georgia’s crypto adoption.
Georgia is one of the world's leading countries in cryptocurrency mining. This year Georgia took 3rd place, behind only China and Venezuela. Affordable electricity prices and loyal tax policies attract entrepreneurs from all over the world to Georgia to mine cryptos.
The Ministry of Finance in 2019 published a public decision on taxes applicable to cryptocurrencies in Georgia. According to the ruling:
Georgia does not participate in the automatic exchange of financial information, which guarantees confidentiality for assets.
It is important to know that Georgia plans to start exchanging banking data on the CRS protocol in 2023, but there is no reliable information on this issue yet.
Georgia has one of the most liberal laws when it comes to online gambling. The country enjoys a huge number of people involved in online gambling. According to Onlinecasinos.ge one of the most popular sources of information for online casinos in the country, the cryptos have been actively used for gambling in this industry.
If an individual becomes a resident of Georgia, it will not be subject to income tax received from the sale of cryptocurrency, the same applies to VAT, which does not apply to such a transaction.
The profit received from the sale of the cryptocurrency by a Georgian company is subject to 15% corporate income tax.
It should be noted that Georgia has a special system similar to Estonia. If a Georgian company decides not to distribute the profit, but to reinvest it, they do not pay corporate tax on the reinvested amount. In the case of distribution of dividends at the source, a 5% tax on payment is applied in addition to 15% corporate tax.
According to the country's tax laws, VAT is imposed in two cases: the provision of goods and the provision of services in Georgia. The VAT rate is 18%. In addition, money is not considered a commodity, so transactions with money are not subject to VAT.
According to the decision, the sale of any cryptocurrency (exchange it for Georgian or other currency) has the same character as the exchange of money. As a result, the sale of cryptocurrency is not considered a VAT-free transaction.
If the one who receives and uses electronic services are residents of Georgia, this service is inherently rendered in Georgia, and vice versa, if the person who receives and uses electronic services are not residents of Georgia, then such a service is considered provided outside the country.
The sale of hash power does not fall under VAT if the resident of the country sells it to a non-resident, and is subject to VAT if the resident buys it from a non-resident. Finally, the sale of hash power to a resident is subject to VAT, which is 18%.
Payments to non-residents for services are subject to taxation at the source at the rate of 10%, if such income received by a non-resident is considered to be received from a Georgian source. Whether the sale of hash power from abroad to Georgia is a source of income for Georgia, and it depends on the specific facts and circumstances. An important factor is the sale of goods, which means that it is unlikely that it can be subject to taxation, which applies to the services of transactions.
Georgia has agreements on avoiding double taxation with 56 countries. It can be used in cases where a resident of Georgia pays non-residents for hash capacity or vice versa. The resident country of the service provider is granted the exclusive right of taxation, except when there is a permanent representation in another country, which should not be given the nature of the transaction. In the case of tax agreements, there should be no tax levied when payment for the purchased hash capacity is made from Georgia abroad
As you may have noticed mining, sale, and exchange of cryptocurrency in Georgia is possible on quite loyal terms, but still has many nuances. This field in Georgia is rapidly developing and more innovations are yet to come for the country.
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