Virtual Zone or International Company: two Georgian IT regimes that are not interchangeable

The Virtual Zone regime dates to 2011 and sits in the Tax Code alongside the law on information technology zones. A qualifying Georgian company pays no profit tax on income from software it develops and exports, while anything sold inside Georgia is taxed at the standard rate. Distributions to the owner still carry 5 percent dividend withholding, reducible where a double tax treaty applies. The limit is in the definition: the status covers the study, design, development and introduction of software products, and does not stretch to consulting or hosting that produces no software of its own.

International Company status arrived in 2020 under Article 23¹ of the Tax Code and a government ordinance listing permitted activities. It taxes distributed profit at 5 percent instead of the standard 15, exempts dividends from the recipient's gross income, and — the part that usually decides it — charges 5 percent personal income tax on salaries rather than 20. Against that, the bar is higher: the applicant needs at least two years of experience in the permitted activity, at least 98 percent of income from qualifying work, and real operations in Georgia with properly qualified staff.

Neither regime is a mailbox arrangement. Both require the company to show that the work is genuinely performed in Georgia — by employees or engaged developers in the Virtual Zone case, by qualified staff and core operations in the International Company case. Salary costs paid to Georgian citizens and research spending can also reduce the distribution tax base for an International Company. Anyone comparing the two should start from what the business actually sells and where the people sit, not from the headline rate, and should take written advice before applying: the status is granted on the facts presented and can be revisited on them.