Georgia VAT Rules for Non-Resident Digital Services

With a relatively small population of nearly 4 million and a digital economy facing structural challenges that limit growth and broader adoption, Georgia attracts little attention. Additionally, weak inventory management and relatively low consumer confidence constrain e-commerce development.

However, despite the significant digital divide, particularly between urban and rural areas, local consumers purchase digital services from foreign businesses. This prompted the government to introduce VAT rules and regulations targeting these providers to ensure they pay due VAT and to level the playing field between local and foreign digital businesses.

Georgia’s VAT Legislation for Digital Services

Georgia's VAT framework is set by the Tax Code, supplemented by detailed rules issued by the Ministry of Finance and the Revenue Service. The Tax Code recognizes digital services as services supplied through the internet or an electronic network where the nature of the supply is essentially automated, requires minimal human intervention, and cannot be supplied without information technology.

The scope includes a broad range of digital products and services. As explained by the Revenue Service, digital services include services that create or support a business or personal presence online, and services automatically generated by computer systems based on information entered by the customer. The definition also covers online marketplace services where users can offer goods or services for sale through an automated bidding process.

Furthermore, the supply and updating of software, including downloadable business and accounting programs, antivirus software, ad-blocking tools, device drivers, and automated online installation of website filters and firewalls, fall within the scope of the definition. 

Digital content is similarly covered, including downloadable images, electronic books and publications, online newspapers and journals, website statistics, news, traffic and weather information, automatically generated financial or legal information, online advertising space, and the use of search engines and internet directories. 

Entertainment and media services are also included, covering the online supply or download of music, films, games, gambling and games of chance, as well as access to radio and television programmes and other audio or audiovisual content delivered through the Internet or similar networks. Finally, the definition includes certain forms of distance education.

VAT rules vary significantly depending on whether the customer is an individual or another business entity. While non-resident providers are liable for VAT on B2C transactions, a reverse-charge mechanism applies to B2B transactions, meaning the Georgian customer may be responsible for accounting for the VAT.

Key VAT Rules and Requirements for Non-Resident Providers

Since the Georgia VAT framework does not define a VAT registration threshold for non-resident digital service providers, registration is required from the first B2C sale to a local consumer. The registration must be completed through Georgia's dedicated VAT Portal on Digital Services. To navigate the portal, non-resident providers must first obtain a User Number and Password by completing the registration form available on the portal.

Once a User Number is obtained, non-resident digital providers use it to identify themselves on the VAT Portal, file VAT returns, and pay VAT. Once registration is complete, foreign digital service suppliers must apply a standard 18% VAT rate on digital services. 

The reporting period for non-resident digital-service providers is a calendar quarter. VAT returns must be submitted through the VAT portal no later than the 20th day of the month following the relevant quarter, while VAT must be paid no later than the last day of that month. The payment obligation is considered fulfilled only when the amount is credited to the relevant State Treasury account of Georgia’s Ministry of Finance. 

Payments may be made only in US dollars (USD), euros (EUR), or Georgian lari (GEL). The payment currency is selected when registering for VAT. Once selected, the currency cannot subsequently be changed, so non-resident digital service providers should consider their preferred payment currency carefully at the time of registration.

Georgia does not impose specific record-keeping requirements solely for indirect tax, but businesses must retain documents needed to determine taxable transactions and establish VAT liabilities. These may include primary accounting documents, accounting registers, VAT invoices, customs or commodity declarations, contracts, and other transaction-related records.

VAT records may be maintained either in Georgia or abroad. If records are kept outside Georgia, the taxable person must provide them to the Revenue Service upon request, generally within five days, although this period may be extended following a written request. The general record-retention period corresponds to Georgia’s three-year statute of limitations for indirect tax purposes.

Common Compliance Issues for Foreign Digital Service Providers

Georgia applies a range of penalties for late registration, late payment, filing and reporting errors, and fraudulent transactions. Late VAT registration is subject to a penalty of 5% of VAT-taxable turnover, excluding exempt transactions, generated during the entire period the business operated without registration.

Late payment interest arises from the day after the payment deadline at 0.05% of the overdue VAT amount for each day of delay, with the payment day itself also treated as an overdue day. Late VAT returns submitted within two months are subject to a 5% penalty of the VAT payable, while delays exceeding two months result in a 10% penalty.

Penalties for understated VAT depend on the extent of the understatement. Where the understatement does not exceed 5% of the reported VAT, the penalty is 10% of the understated amount. If the understatement is between 5% and 20%, the penalty increases to 25%.  Other, more severe, cases are subject to a 50% penalty. However, no penalty applies to incorrect information if the taxable person submits an amended return or calculation before receiving notification of a tax audit or tax violation from the Revenue Service.

Harsher penalties apply to fraudulent VAT claims: claiming input tax credits based on fictitious transactions, agreements, or documents can result in a penalty of 200% of the credited VAT amount. Similarly, issuing a false invoice or an invoice based on fictitious transactions or agreements can result in a penalty equal to 200% of the VAT stated on the invoice.

Georgia VAT Compliance Takeaways

Foreign businesses supplying digital services to customers in Georgia should first determine whether their services fall within the Georgian definition of digital services. Also, they must determine whether their customers are located in Georgia. 

The detailed administrative rules provide several indicators for determining the recipient's location. These include the location of the financial institution or electronic payment operator used for the transaction, the customer's location, the IP address of the device used to receive the service, and the country code of the telephone number used to purchase the service or make the payment.

Where the special non-resident digital-services regime applies, the provider must use Georgia's dedicated VAT portal to register, charge VAT at the 18% rate, maintain appropriate records, submit accurate quarterly VAT returns, and make timely payments.