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  • BDO Tax & Legal Newsletter / January 2020 No.1
Newsletter:

BDO Tax & Legal Newsletter / January 2020 No.1

20 January 2020

Mariam Khuskivadze / Manager, TAX |

Amendment to the law

Taxation of the dividends at the source

By the Law of President of Georgia (N5499-Is, 11.12.2019) the amendment was made to the Georgian Tax Code, article 130, paragraph 41. According to the edition being in force until the amendment dividends earned by a member of an agricultural cooperative from the cooperative up to January 2023 was not taxable by withholding tax and was not included in gross income by the person earning the dividends.

The amendment defines that only the income earned from solely agricultural activity shall not be subject to the distribution as dividend. However, the distribution of dividends from other activities related to the improvement of the economic and social conditions of the cooperative owners will be subject to taxation at the source of payment.

The amendment came into force on 1 January 2020.

Market activity regulations

By the Law of President of Georgia (N5626-Is, 19.12.2019) the amendment was made to the transitional provisions of Georgian Tax Code, in particular:

  • Paragraph 15 - natural persons not using hired labor and conducting economic activity from a movable point of sale including a counter, located on the territory of a market (bazaar), except persons granted a status of Small Business or registered or obliged to be registered as a VAT payer, shall be exempt from the obligation to use cash registers, until 1 January 2022 (before the amendment the deadline was 1 January 2020)
  • Paragraph 42 - any person (other than organizing trade in agricultural produce) who organized a bazaar before 1 January 2018 shall be obliged no later than 1 January 2022 to fully provide non-stationary trading places in the market area with cash registers. According to the edition being in force before the amendment the deadline was defined 1 January 2020
  • Part 111 was added, which stipulates that the sanctions imposed on a person having the status of a market organizer shall be suspended until 1 January 2022 in case of non-compliance with the obligations and requirements of the tax legislation.

The amendment came into force on 27 December 2020.

Definition of terms

According to the law №5677 of the president of Georgia issued on 20 December 2019 amendment was made to the definitions of dividend and interest of the Georgian Tax Code (hereinafter GTC).

According to the amendment compensation paid by seller/lender to the buyer/borrower during Repo agreement, Securities lending and financial pledge is defined as dividend, which is received from the securities during the period of validity of such transactions.

The amendment the following is also defines as interest:

  • Part of the difference (the amount of interest accrued and unpaid until the time of delivery of securities) between the selling price and the purchasing price of the securities
  • Difference between the selling price of securities within a Repo agreement and the pre-agreed purchase price of it or quivalent of any other debt security
  • Compensation that is paid by seller/lender to the buyer/borrower during Repo agreement, Securities lending and Financial pledge and is the interest accrued on the securities during aforementioned transactions and actually received by the buyer.

The amendment came into force on 14 January 2020.

The new terms and related regulations

Law №5677 of the president of Georgia issued on 20 December 2019 stipulates amendment to the GTC and defines new terms and related regulations. The terms are as follows:

  • Repo agreement, Reverse Repo agreement
  • Securities lending (loaning a stock)
  • Financial Pledge
  • Derivative

Regulations concerning new terms were defined by the amendments made to the articles 136, 148 and 149 of the GTC, namely:

  • The person shall determine amount of the income as well as expense generated within derivatives in accordance with International Accounting Standards. In addition, the Minister of Finance of Georgia is authorized to determine certain cases during which this rule shall not apply
  • Value of supplied/redeemed debt securities upon delivery to a third party of initially purchased/delivered debt securities by buyer/borrower within Repo agreements, securities lending or financial pledge and the price of the securities in each case shall be determined by the seller/lender at the market price initially supplied
  • The interest received by the buyer after the purchase of the debt securities, which is a part of the purchase price, shall be considered as a percentage which will reduce the value of the securities and will not be included in the buyer's total income
  • In order to determine the taxable income there shall not be taken into account gain or loss if the loan secured under a repo agreement, securities lending or financial pledge is supplied and is returned to the seller/borrower at the pre-agreed purchase price of it or its equivalent of any other debt security.

The amendment came into force on 14 January 2020

Tax exemption from VAT and Import duty

According to the law N5444-Is (10 December 2019) amendments have been made to article 168 and 199 of GTC. According to the amendment supply and/or importation of goods designated for therapeutic/medical purposes for tobacco addiction, based on the list determined by the joint order of the Minister of Internally Displaced Persons from the Occupied Territories, Labor, Health and Social Affairs of Georgia and the Minister of Finance of Georgia shall be exempt from VAT without the right of deduction and from Import duty.

The law came into force on 12 January 2020.

Supply of bulk tobacco products in certain cases

By Decree N388 (13.12.2019) of the Minister of Finance of Georgia, an amendment has been made to Decree N996 (31.12.2010) “Tax Administration” of the Minister of Finance of Georgia. In particular, an amendment has been made in article 772 which determines supply of bulk tobacco products in certain cases.

According to the edition being in force until the amendment came into force the harvesting and initial processing of tobacco products in Georgia specified under the code 2401 of the National Commodity Classification of Foreign Economic Activities (raw tobacco, tobacco waste) did not constitute manufacturing of tobacco products. The amendment determined that manufacturing of tobacco products also shall not be:

  • In respect of imported goods - initial processing, chopping and initial packaging of raw tobacco, pipe tobacco and the rest of the smoking tobacco which is made by the importer
  • In respect of locally harvested goods - the harvesting, initial processing and chopping in Georgia of tobacco products specified under the code 2401 of the National Commodity Classification of Foreign Economic Activities (raw tobacco, tobacco waste) in order to supply them to the manufacturer determined by abovementioned article (772).

The amendment came into force on 17 December 2019 applying to legal relationships arising from 21 November 2019.