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Investitionsmöglichkeiten

www.investingeorgia.org

www.privatization.ge

www.investmentguide.ge

www.fgb.ge

www.mof.ge
 

TEN REASONS TO INVEST IN GEORGIA

1.      Political and Liberal Economic Reforms

2.      Attractive Macroeconomic Environment

3.      Competitive Trade Regulations

4.      Liberal Tax Code

5.      Privatization of State Property

6.      Modernized  Business Licensing System

7.      Reformed Technical Regulation System

8.      Strategic Geographic Location

9.      Competitive Banking Sector

10.  Georgia – A Country of Ancient Culture and Traditions

 

Georgia is a bridge connecting several economic regions and is a particularly important transit country. Located at the crossroads of Europe and Central Asia, it serves as a natural transport corridor. Georgia is the shortest transit route between the West and Central Asia for transportation of oil and gas as well as dry cargo.

Reforms and initiatives, carried out by the Georgian Government since 2003, aiming at improving investment climate in the country,  produced positive results as evidenced from international studies and evaluations:

 

  • FDIs in 2005 amounted to 449.8 ml. USD (499 ml. USD in 2004). The decline from the previous year was caused by the completion of Baku-Tbilisi-Ceyhan oil pipeline construction project, however non-pipeline investment increased by 44 ml. USD from 139 ml. USD in 2004 to 183 ml. USD. FDIs in 2006 amounted to 1,147 ml. USD.

Countries’ Share in the Stock of FDI in 2006

 

 

Country

Volume (mln USD)

% of total

UK

182.1

16

USA

181.9

15

Kazakhstan

152.3

13

Turkey

127.0

11

Azerbaijan

76.5

7

Norway

76.6

7

Virgin islands

47.7

4

Cuprus

47.3

4

Italy

46.1

4

Russia

27.9

3

France

17.2

2

 

  • Foreign Direct Investments from EU member countries in 2006 amounted to 383,7 ml. USD (that on 140 ml. USD increase a parameter of the last year). Despite a nominal growth, however, the EU share in total investments sharply dropped in both annual and quarterly terms. This can be explained by the fact that the South Caucasus (Shah-Deniz) gas pipeline entered the final phase of its construction.

 

Direct Investments by EU Countries in Georgia (ml. USD)

 

 

Countries

2003

2004

2005

2006

Total

340,0

499,1

449,8

1,147

EU

95,8

195,6

243,7

383,7

Austria

18,1

23,1

14,7

10,7

Czech Rep.

0,2

0,3

1,2

4,9

Denmark

0

0

0,3

42,3

UK

37,7

87,9

132,9

182,1

Germany

4,1

5,1

5,0

20,4

Ireland

0,037

0,041

0,592

1,2

Italy

15,8

32,4

22,8

46,1

Cuprus

0,7

21,3

47,5

47,3

Luxembourg

0,2

0,3

0,5

0,3

Netherlands

0

0

0,5

7,7

Poland

0

0

0,3

0,5

Greece

1,9

2,2

2,2

2,5

France

16,7

22,9

14,4

17,2

Sweden

0,081

0

0,1

0,2

Hungary

0,034

0

0,3

0,3

EU share (%)

28

39

54

33

 

  • Georgia came second on the list of the 12 top reformer countries in terms of improved business environment in the Doing Business 2006 Report of the International Finance Corporation (IFC).
  • Georgia was removed from the list of variable risk countries in terms of investment risk and investment insurance opportunities by the UK Export Credit Guarantee Department (ECGD) in 2004.
  • According to the World Bank 2005 Report on the Investment Climate, Georgia was granted 2nd place in the world by the intensity of reforms;
  • According to the Heritage Foundation’s Index of Economic Freedom for 2006, Georgia improved its rating by 28 places compared to 2005 shifting to the 68th place from “mostly unfree” to “mostly free”. According to the study most EU countries have the same degree of economic freedom.
  • After assessment of Georgian Financial Service reform achievements International Company “Standard and Poor’s Rating Service” granted B+ Credit Rating with the long term improvement prospects;
  • WB, IMF and other international financial organizations assess Georgian Financial Indicators for 2005 as successful ones;
  • EBRD Transition Report 2005 indicate Georgia as a best performing one in terms of improvement of Tax Administration among the Countries with Transition Economies;
  • According to EBRD Transition Report 2005 Georgia is a second (after Slovak Republic) among the Countries with Transition Economies in terms of improvements related to corruption.
           
  •  According to the World Bank Report "Doing Business 2007”, Georgia is the top reformer worldwide of the year 2006.

Georgia is the top reformer, improving in 6 of the 10 areas studied by Doing Business. It reduced the minimum capital required to start a new business from 2,000 lari to 200 (85 USD). Business registrations rose by 20% between 2005 and 2006. Reforms in customs sphere simplified trade related procedures. It took 54 days to meet all the administrative requirements to export in 2004-it now takes 13. The time to resolve simple commercial disputes fell from 375 days to 285.

Georgia’s new labor regulations help workers move to better jobs. The social security contributions paid by businesses decreased from 31% of wages to 20%, making it easier for employers to hire new workers. Unemployment has fallen by 2 percentage points. 

Georgia climbed far in the rankings on the ease of doing business. Its ranked 112 in 2004. This year it ranks 37.

In 2005 Georgia enacted a new Tax Code that significantly reduced tax types and rates. It introduced flat taxes and significant procedural and institutional innovations. It levies only 7 taxes, including those collected by the central state, such as income, profit, social, excise and value-added taxes, and local taxes such as property and gambling business taxes.

Income tax

·        The income tax rate is 12%.

·        Dividends and interest paid to individuals by a company are subject to 10% taxation.

·        Income tax payers are residents and non-resident individuals receiving income in Georgia.

 

Profit tax

·        The profit tax rate is 20%.

·        Profit tax is paid by Georgian and foreign enterprises receiving income in Georgia.

·        A taxpayer may carry losses forward for 5 years and deduct them from the revenues of the following years.

 

Value-added tax

·        VAT rate is 18%.

·        VAT is paid by those whose income exceeds 55169 USD per year and by importers.

·        VAT paid for investments in fixed assets and for export is refunded to the entrepreneur within 1 month and in other cases within 6 months.

 

Excise

·        Fixed excise taxes are applied to alcoholic beverages, tobacco products, passenger cars, oil products and scrap metal exports

·        Excise taxes range from:

o       Alcoholic beverages from 0,06 USD to 2,76 USD (per liter)

o       Tobacco products from 0,019 USD to 0,5 USD (per cigarette) and from 0,08 USD to 0,5 USD (per box)

o       Oil  products from 66.20 USD to 220.68 USD (per ton)

o       Passenger cars from 0,44 USD to 0,83 USD (per engine cubic meter)

o       Export of ferrous and non-ferrous metals – 13.8 USD (per ton)

 

Social Tax

·        The social tax rate is 20%.

·        An employer pays social tax on employee salaries and a natural person on annual taxable income.

 

Property Tax

·                    Property taxes are levied by local authorities and the rates differ according to property type within the ceilings provided by the Tax Code.           

·                    The property (except land) tax rate for enterprises and entrepreneurs (natural persons) is no more than 1% of the property value.

·                    The tax on real estate (except land) for natural persons ranges between 0.05% - 0.8% of the property market value in compliance with annual income.

·                    The property tax on motorcars for natural persons varies between 2. 76-165, 5 USD based on the car’s age and engine size.

·                    The base rate on agricultural land ranges between 4, 41-31, 44 USD per hectare according to administrative units.

·                    The annual base rate on non-agricultural land is 0, 13 USD per square meter.

 

Gambling Business Tax

  • The gambling business tax is applied to income from lotteries, casinos or other gambling businesses.
  • The gambling business tax rates vary according to types of gambling businesses. Local authorities determine the rate within particular territorial units.

 

Procedural and Institutional Novelties in the Tax Code

 

  • Liberalized Tax Sanctions
    • Fines were reduced almost 2.5 times and a 0.07% daily (annual 24%) interest rate is applied instead of the previous 0.15% daily (annual 54%) rate. 
    • A taxpayer may adjust and correct his/her tax declaration without penalty, if the correction is made before a notice of inspection.
    • In the case of tax violation, financial sanctions are applied first and criminal prosecutions are initiated only in case of non-payment or repeated violations.

 

  • Simplified System of Tax Disputes
    • The term for appealing to the Ministry of Finance of Georgia has been limited to 2 months and a council for consideration of tax disputes has been created in the Ministry of Finance. A taxpayer may file a lawsuit at any stage of the process.
    • The term for consideration of an appeal by the court has been limited to 2 months.

For more information on tax regulations see www.mof.ge

 

Privatization of State Property

Privatization is one of the most dynamic processes underway in the post-revolutionary Georgia. The process is aimed at attracting private capital to state owned assets in order to introduce efficient management, increase investment and boost economic growth and jobs creation. It is guided by the following principles:

 

  1. Attract Local and International Private Capital

The Government of Georgia received 270.5 mln USD from the privatization process in 2004-2005. That exceeds privatization income from 2000-2003 by almost 8.6 times.

 

  1. Efficient Use of all Resources Available in Georgia

At this stage Georgia’s privatization policy is mainly targeted towards the sale of large enterprises. Privatization of hydro power generation plants, energy distribution companies and telecommunication enterprises is planned in 2006. Privatization of land and forest resources will gradually be implemented as well. Today 74.8%, of agricultural land and 2,5 mln hectares of forests are under state ownership. In 2005, the law on privatization of state-owned agricultural land was passed in order to promote efficient use of land plots through private ownership and increased efficiency in the agricultural sector.

 

  1. Jump-start Economic Growth

The main target of large-scale privatization is to jump-start economic growth through private sector development. Post-privatization investments of 300 mln USD are expected over the next two years in assets privatized during 2005.

 

  1. Flexibility - Use Various Methods of Sale

To promote an efficient privatization process the Government of Georgia utilizes various methods to privatize state-owned property such as tender, auction, lease and redemption, and direct sale.

 

  1. Transparency - www.privatization.ge

To ensure a high level of fairness and transparency, the Government of Georgia actively works towards establishing international contacts with interested organizations and potential investors. A special web-site, www.privatization.ge, has been created to provide privatization-related information.

 

  1. Fairness – Equal Opportunities for all Potential Buyers

Any Georgian or foreign person or company has the right to take part in the privatization process in compliance with the laws of Georgia. 

 

  1. Dynamism –A 2-3 Year Process

The most active phase of the privatization process, which started in the second half of 2004, will be finished in 2006. This year Georgia plans to privatize 14 companies operating in telecommunication, energy generation and distribution spheres. The full list of the companies that will be privatized consists of 800 assets.

Modernized Business Licensing System

According to the new system of business licensing, effective from 2005, the total number of licenses or permits has been reduced to 144 (92 licenses and 52 permits).  This represents only 16% of the licenses and permits existing before 2005.

 

Licenses and Permits Required Only for:

  • Safety and health protection
  • Security of living conditions and cultural environment of individuals
  • Protection of state and public interests

 

Main Innovations of the New System

  • One Stop Shop – a business applies only to one body.
  • “Silence is consent” – if no reasonable rejection is given within a predetermined time limit, the license/permit is deemed issued by the licensing authority.
  • Simplified procedures for license issuance if a license seeker demands issue of a license for a particular business and has another license in the same sphere of business activity.

 

General Application Requirements to obtain a License/Permit

  • A written  application, specifying the type of license/permit requested

·        Identification card

  • Document confirming payment of license/permit fee

 

Additional Requirements

  • These requirements are regulated by special laws, taking into account the specific nature of the type of business.

 

Terms for Issue of Licenses and Permits

  • A license will be issued within 30 days from receipt of the application, and a permit will be issued within 20 days.
  • Licenses for utilization of natural resources are issued only by auction. 

 

Reformed System of Technical Regulation

Removal of technical barriers for Georgian products and services on the international market is vital for future economic development. To attain this goal, Georgia has initiated standardization, metrology and accreditation system reforms aimed at:

 

  • Breaking technical barriers in international trade
  • Ensuring a viable investment environment
  • Full protection of consumers’ interests 
  • Increased accessibility of Georgian products into foreign markets
  • Fulfillment of World Trade Organization obligations to transfer from mandatory standards to voluntary standards
  • Reduced corruption
  • Transparency of service in technical regulation area

 

The aim of the Georgian Government is creation of an efficient technical regulation system, and market control and supervision system that clearly delineates the functions of supervision and control authorities. This will prevent duplication of functions and make the activities of control authorities more transparent.  

 

Innovations of the Reform

The first positive yields of these reforms directly address well-known WTO and EU requirements: (1) transition to voluntary standardization and certification, and (2) establishing two independent institutions, the National Agency for Standardization, Technical Regulations and Metrology, and a National Accreditation Center.

 

What is New for Entrepreneurs?

Introduction of voluntary standardization enables entrepreneurs to: 

  • Select any international or country specific standards, register in the National Agency for  Standardization, Technical Regulations and Metrology, and use the standards selected in his/her business.
  • Develop own standards for new products, register in National Agency and use in his/her business.
  • Receive consultations for selection and development of standards.

 
 

 

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