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

Georgia runs a long-standing tax regime for software companies: Virtual Zone Person status. A company that holds it pays no profit tax on the profit it earns from supplying the information technologies it creates to customers outside Georgia, that supply is exempt from VAT, and exporting the IT carries no export duty. The framework is set out in the Law of Georgia on Information Technology Zones (No 4064-RS, in force since 1 January 2011), which works together with the Tax Code of Georgia.

What the status is

A virtual zone is a virtual zone person, or a group of them. A virtual zone person is defined by the Law as a legal person engaged in IT activities and holding the appropriate status. It is a status granted to an existing Georgian legal entity, not a separate company form. Information technologies (IT) are defined as the study, support, development, design, production and introduction of computer information systems, as a result of which software products are obtained. Activity in the virtual zone is the economic activity of legal persons related to the production of ITs in the territory of Georgia.

The tax benefits

Article 3 of the Law lists what is not levied on a virtual zone person:

• Profit tax on the profit earned from supplying, outside Georgia, the information technologies created by the virtual zone person;
• VAT on the supply, outside Georgia, of the ITs created by the virtual zone person;
• Export duty on exporting those ITs from the customs territory of Georgia.

In other words, the core benefit is a 0% effective rate on foreign-supplied software profit, plus no VAT on those exports. The taxation of virtual zone persons is otherwise governed by the Tax Code. IT companies weighing this regime often compare it with International Company Status, which applies a 5% rate but with different substance and activity conditions.

The export condition

Every part of the benefit turns on the IT being created by the company and supplied outside Georgia. The regime does not exempt domestic sales. The Law makes this explicit in its deduction rule: the expenses of earning income from supplying ITs — whether inside or outside Georgia — are deducted from gross income in proportion to the share of income earned from supplying ITs within Georgia. So income from Georgian customers, and the costs attributable to it, are handled under the ordinary rules, while the foreign-supply profit is what benefits from the exemption.

What is not exempt

The regime is narrower than it first looks. It removes profit tax, VAT and export duty on foreign-supplied IT — but it does not change the other taxes a company and its people pay. Employee salaries remain subject to personal income tax and to pension contributions, and dividends distributed to the owners are taxed under the Tax Code’s ordinary dividend rules. Domestic IT sales and any non-IT income fall outside the exemption.

Regulatory benefits

Beyond tax, the Law gives virtual zone persons a light regulatory footprint: they are exempt from special regulations and do not need licences, permits or other regulatory documents to carry out their activities.

How the status is granted

The status is granted by a person designated by the Government of Georgia. In practice this is the LEPL Financial-Analytical Service of the Ministry of Finance, which receives applications through its electronic portal. The Law sets firm timeframes: the status is granted no later than 10 working days after the application is submitted, and an electronic certificate evidencing the status is issued within 2 working days of the grant. The detailed procedure and conditions are set by an ordinance of the Government of Georgia.

Substance matters in practice

Because the exemption attaches to ITs created by the virtual zone person, and the Law defines virtual-zone activity as IT production in the territory of Georgia, the tax authority looks for genuine substance — that the software is actually developed by the company in Georgia rather than merely invoiced through it. Companies relying on the regime are generally expected to have real operations and qualified staff in Georgia. This is an area of administrative practice that has tightened over time, so confirm current expectations with the Revenue Service and the Financial-Analytical Service before relying on the status, and check the current consolidated text of the Law and the Tax Code.

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.