Virtual Zone Person Status in Georgia: 0% tax on exported IT

Georgia has a long-standing preferential tax regime for software businesses: Virtual Zone Person (VZP) status. A legal entity holding VZP status benefits from no profit tax on profit earned from supplying outside Georgia information technologies developed by it. VAT is not levied on the supply outside Georgia of IT created by a Virtual Zone Person, and no export duties apply to the export of such IT from Georgia’s customs territory.

What is the virtual zone status ?

A virtual zone is defined as a Virtual Zone Person or an aggregate of Virtual Zone Persons. A Virtual Zone Person is a legal person engaged in IT activities and holding the appropriate status. VZP is therefore a special status granted to a legal entity rather than a separate legal form.

The Law defines information technologies (IT) as the study, support, development, design, production and introduction of computer information systems, as a result of which software products are obtained.

Importantly, the Law provides that activities in the virtual zone comprise the economic activities of legal persons related to the production of IT in the territory of Georgia. This territorial element is relevant when assessing whether a company’s activities fall within the scope of the VZP regime.

The tax benefits

Article 3 of the Law sets out the principal tax benefits available to a Virtual Zone Person. The following are not subject to taxation:

• Profit tax on profit earned from supplying, outside Georgia, information technologies created by the Virtual Zone Person;

• VAT on the supply, outside Georgia, of information technologies created by the Virtual Zone Person;

• Export duties on the export of such information technologies from the customs territory of Georgia.

The Tax Code further provides that profit (distribution of profit) earned from the supply outside Georgia of information technologies developed by a Virtual Zone legal entity is exempt from profit tax.

In practical terms, the core benefit is therefore a 0% profit tax treatment for qualifying profit from IT developed by the Virtual Zone Person and supplied outside Georgia, together with no VAT on such foreign supplies. Other taxation matters concerning Virtual Zone Persons are governed by the Tax Code of Georgia.

IT companies considering this regime often compare it with International Company Status, which offers a 5% profit tax rate, but operates under different eligibility, permitted-activity and substance requirements.

The export condition

The tax benefit is tied to two key conditions: the information technologies must be developed by the Virtual Zone Person and supplied outside Georgia. The exemption therefore does not extend to IT supplied to customers within Georgia.

The Tax Code expressly exempts profit (distribution of profit) earned from the supply outside Georgia of information technologies developed by a Virtual Zone legal entity. Accordingly, where a company has both Georgian and foreign customers, the VZP exemption applies only to the qualifying profit attributable to IT supplied outside Georgia; income from domestic supplies does not benefit from the VZP profit tax exemption.

The Law on Information Technology Zones also contains a proportionality rule for expenses related to income from supplying IT both within and outside Georgia, linking deductible expenses to the share of income earned from supplies within Georgia.

In practical terms, VZP status does not make all of the company’s income tax-free. The preferential treatment is specifically tied to qualifying IT developed by the Virtual Zone Person and supplied outside Georgia.

What is not exempt

The VZP regime is narrower than it may first appear. Its preferential treatment applies specifically to qualifying IT developed by the Virtual Zone Person and supplied outside Georgia; it does not provide a general exemption from all taxes payable by the company, its employees or its shareholders.

Salary income remains subject to personal income tax under the ordinary rules, and mandatory pension contributions may also apply where the employee falls within Georgia’s funded pension system.

Dividends are not covered by a special VZP dividend exemption. Although qualifying profit from foreign supplies of IT is exempt from profit tax at the company level, dividends subsequently paid to a natural-person shareholder or a non-resident enterprise are generally subject to 5% withholding tax, in accordance with the ordinary rules of the Tax Code.

Likewise, domestic supplies of IT and income from activities that do not fall within the VZP exemption remain subject to the ordinary tax rules.

Regulatory benefits

In addition to its tax benefits, the Law provides Virtual Zone Persons with a simplified regulatory framework. Under Article 4, Virtual Zone Persons are exempt from special regulations and do not require licences, permits or other regulatory documents to carry out their activities.

This exemption relates specifically to the regulatory treatment of activities performed under the VZP regime and should not be understood as an exemption from generally applicable Georgian legislation.

How the status is granted

Under Article 5 of the Law, Virtual Zone Person status is granted by a person designated by the Government of Georgia. The detailed procedure and conditions for obtaining the status are established by an ordinance of the Government.

In practice, applications are administered by the LEPL Financial-Analytical Service of the Ministry of Finance of Georgia and submitted electronically.

The Law establishes clear statutory timeframes: VZP status must be granted no later than 10 working days after the application is submitted, and an electronic certificate confirming the status must be issued within 2 working days after the status is granted.

Substance matters in practice

VZP status alone does not automatically make a company’s income tax-exempt. The exemption applies to information technologies created by the Virtual Zone Person, while the Law defines activity in the virtual zone as economic activity related to the production of IT in the territory of Georgia.

This means that a company relying on the VZP exemption should be able to demonstrate that the qualifying software was genuinely developed by it and that the relevant IT production took place in Georgia. Simply holding VZP status or invoicing foreign customers through a Georgian company is not, by itself, sufficient to establish entitlement to the tax exemption.

The Law does not prescribe a fixed minimum number of employees, a specific payroll or a particular office requirement. The appropriate level of Georgian substance therefore depends on the company’s actual development model and circumstances.

Companies should maintain appropriate documentation supporting where and by whom the software was developed and should confirm the current tax treatment and administrative practice before relying on the exemption.

Frequently asked questions

What is a Virtual Zone Person in Georgia?

Under the Law on Information Technology Zones, a virtual zone person is a legal person engaged in IT activities that holds the corresponding status. "Information technologies" means the study, support, development, design, production and introduction of computer information systems that result in software products. The status is the gateway to the regime's tax benefits.

What taxes are exempt?

Three things are not levied: profit tax on profit earned from supplying — outside Georgia — the information technologies the company created; VAT on that supply outside Georgia; and export duty on exporting the IT from Georgia's customs territory. The exemptions apply specifically to IT created by the virtual zone person and supplied to customers abroad.

Is income from Georgian customers also exempt?

No. The exemption is for IT supplied outside Georgia. Income from supplying IT inside Georgia is taxed under the normal rules. The Law also requires expenses to be split: costs of earning IT income are deducted from gross income in proportion to the share of income earned from supplying IT within Georgia, so domestic and foreign income are treated differently.

How do I get the status?

An interested person applies to the body designated by the Government of Georgia — in practice the Ministry of Finance's LEPL Financial-Analytical Service, through its electronic portal. The status is granted no later than 10 working days after the application, and an electronic certificate evidencing it is issued within 2 working days of the grant. No licence or permit is needed to operate.

Does the company still pay other taxes?

Yes. The regime exempts only the foreign-supplied-IT profit, the related VAT and export duty. Employee salaries are still subject to personal income tax and pension contributions, and dividends distributed to owners are taxed under the ordinary dividend rules of the Tax Code. Domestic IT sales and any non-IT income are taxed normally.

Do I need real operations in Georgia?

The benefit attaches to IT created by the virtual zone person, and activity in the virtual zone is defined as economic activity related to producing IT in the territory of Georgia. In practice the tax authority looks for genuine substance — that the software is actually developed by the company in Georgia — when recognising the exemption. Confirm current expectations with the Revenue Service and the Financial-Analytical Service before relying on the status.