Georgia's two IT tax statuses are not interchangeable — and the difference is substance

Virtual Zone Person dates to 2011 and is narrow by design. It covers a Georgian entity that develops software and exports it; profit from that qualifying export is exempt when it is distributed, while anything sold domestically stays on the standard footing. Consulting or hosting that does not actually produce software generally falls outside the status. Dividends paid out of a virtual zone company carry the standard 5% withholding tax, which a double taxation agreement may reduce if that treaty's residence and beneficial-ownership conditions are met.

International Company status was introduced in 2020 and works differently: instead of an exemption, it sets corporate income tax on distributed profit at 5% against the standard 15%, and personal income tax on salaries at 5% against the standard 20%. Dividends are excluded from the recipient's gross income. There is also property tax relief on qualifying assets, and salary costs for Georgian citizens plus qualifying research and development spending reduce the distribution tax base, which in some structures pushes the effective rate below 5%. The permitted activity list is broader than the virtual zone's.

International Company status is not open to a newly formed shell. The applicant needs at least two years of experience in a permitted activity — directly, through a represented non-resident parent, or through a majority-owning partner enterprise — and at least 98% of its income must come from that activity. Core activities must be carried out in Georgia with adequately qualified staff; that is an explicit substance test, and the status is granted and revoked by the government on application through the Revenue Service. Virtual Zone status has its own version of the same requirement: the IT has to be produced on Georgian territory, by employees or contracted developers who are really there.

First, the substance requirement has teeth. Since 2021 the Revenue Service has denied virtual zone exemptions in audits where in-country development could not be evidenced, a position some holders dispute — so documentation of where and by whom the code is written is part of the structure, not paperwork to tidy up later. Second, neither status touches VAT. Services supplied to foreign customers are generally outside Georgian VAT under the ordinary place-of-supply rules, whichever status a company holds, and that is a separate analysis from profit tax. Which status fits depends on the shape of the business: export-focused development with a small team tends toward the virtual zone, while substantial Georgian employment or a broader regional service mix tends toward International Company.