Guest Contributor: Jon Erikson is a writer based in Tbilisi, Georgia. His experience consists of consulting for clients in the public and private sectors.
Dateline: Tbilisi, Georgia
If you visit this site regularly, you know that we can’t find enough good things to say about Georgia. Some find this a little surprising. What can this tiny, quirky country located on Europe’s fringe have to offer as a home, tax residence, or place to set up an offshore company?
Actually, a lot.
The Georgian people are endlessly welcoming. The ski slopes are top notch. So are the Black Sea beaches. But for someone in our line of work, we’re obviously impressed, above all, with the business model.
Georgia is a small, but emerging market with a truly forward-looking approach to economic growth. But don’t take my word for it. Just look at the following numbers:
Reason #1: 24
This is the ranking that Georgia received on the 2016 edition of the World Bank’s Doing Business survey. No wonder it’s a popular place to set up an offshore company.
It scored higher than Switzerland, Poland, and The Netherlands, and its absolute score of 77.45 out of 100 was an improvement over the previous year.
Georgia has received its highest marks for starting a business (#6), registering property (#3), and access to credit (#7).
Reason #2: 20 Percent
That’s Georgia’s personal income tax rate. Flat. However much money you earn, the government won’t withhold more than 20 percent of your salary. To put that in perspective, only one OECD member (Hungary) had a top marginal tax rate lower than Georgia’s 20 percent flat rate.
And the country’s other tax rates (there are only six taxes in total) are even lower. Corporate earnings are taxed a 15 percent, dividends and interest at five percent, and property at one percent. Plus, the government is currently drafting reforms that would exempt retained and reinvested profits from corporate tax altogether.
Georgia has no wealth, gift, or inheritance taxes, and excise taxes are few and far between. And did we mention that the government does not tax any income earned from activities outside of Georgia’s borders? Establishing tax residence in Georgia is something to strongly consider.
Reason #3: 1.5 Percent
Most people in the business community understand that free trade maximizes wealth by eliminating barriers between producers and consumers. This reduces market distortions, leading to lower costs and higher quantities of goods and services. It is especially important for developing countries where the primary economic problem is a lack of abundance.
The Georgian authorities also understand that free trade brings tremendous benefits.
That’s why the country’s average most-favored nation tariff rate (the average rate it applies to imports from other WTO countries) is 1.5 percent, giving it the illustrious award of having the lowest average tariff rate of any WTO member.
Georgia has only three tariff rates (0 percent, five percent, and 12 percent) and the vast majority of product categories are not subject to tariff at all. Georgia has one of the world’s freest trading regimes, something which is good for the economy in aggregate, and especially good for consumers and importers.
Reason #4: 2
This is the number of procedures required to start a business in Georgia. They are, as follows:
- Submit the application form with necessary documents
- Open a bank account
The simplicity of starting a company in this country, including for foreign nationals who want to establish an offshore business in Georgia, has figured prominently on the Doing Business survey where, in 2016, Georgia received a near perfect score of 97.76 on starting a business, its highest score ever.
Reason #5: 5.93 percent
This is Georgia’s average annual GDP growth since 2003. Being a developing country, you should expect it to have high growth rates. Still, nearing six percent annually over a 12-year period (especially considering 2008, the year Russia invaded, and 2009, the year Georgia’s economy shrank as the country suffered the aftermath of the invasion) shouldn’t be discounted.
Only a few countries have done better than that over the same time period, and most of those (eg. Rwanda, Mongolia) are coming up from a level much lower than the one from which Georgia started.
Reason #6: 4.5 percent
The past few years have been tough globally for economic growth. GDP expansion worldwide was only 2.4 percent in 2015, a disappointing follow-up to the meager growth of 2014 (2.6 percent) and 2013 (2.4 percent).
Recent stagnation has been especially acute in the post-Soviet world, where many countries have been hit peripherally by sanctions against Russia and the resultant decline of the ruble.
Georgia hasn’t been entirely spared. Its annual growth rate fell to 2.8 percent in 2015, the lowest figure since 2009 (to put this in perspective, one should remember that Russia’s GDP contracted over the same period while Azerbaijan and Kazakhstan’s economies grew by just over one percent, respectively).
Brighter skies look to be on the horizon for Georgia, however. The World Bank projects that its economy will grow by 4.5 percent in 2017, bringing its expansion closer to the 5.93 clip it has enjoyed over the past 12 years.
Reason #7: 5,515,599
This is the number of foreign citizens who visited Georgia for business or pleasure in 2014, a staggering number for a country with an official population of only 3.7 million.
The high number of foreign arrivals means two things:
1. Georgia is a popular place to do business, including starting an offshore company
2. Georgia is growing in popularity as a tourist destination, especially for visitors from Turkey, Iran, and Russia.
The country’s breathtaking mountain locations and Black Sea resort areas (especially Batumi, which has become something of a regional tourism hub) are big draws for tourists. That should only continue as more people begin coming from Europe. Only about four percent of tourism arrivals in 2015 came from the European Union, a figure that is bound to rise as Georgia’s reputation grows.