When entrepreneurs choose a jurisdiction for business registration, the country’s tax policy becomes a crucial criterion. Georgia and Cyprus are popular destinations for company registration due to their favorable tax regimes. In this article, we will compare the key aspects of taxation in these countries.

Corporate Income Tax

  • Georgia:
    • Georgia applies a so-called “Estonian-type” taxation system, where corporate income tax (15%) is payable only when dividends are distributed. If profits are reinvested in business development, no tax is charged.
  • Cyprus:
    • In Cyprus, the corporate tax rate is 12.5%, one of the lowest in the European Union. Profits are taxed regardless of whether they are distributed or reinvested.

Taxation of Dividends

  • Georgia:
    • Dividends are taxed at a 5% rate. For foreign shareholders, the rate may be reduced depending on double taxation treaties.
  • Cyprus:
    • Dividends paid to foreign shareholders are generally exempt from withholding tax, making Cyprus attractive for international investors.

VAT (Value-Added Tax)

  • Georgia:
    • The VAT rate is 18%. However, exports of goods and certain services provided outside Georgia are taxed at a 0% rate.
  • Cyprus:
    • The standard VAT rate in Cyprus is 19%, with reduced rates of 5% and 9% for certain categories of goods and services. Exports are also taxed at a 0% rate.

Personal Income Tax

  • Georgia:
    • A flat personal income tax rate of 20% applies. Employees working in international companies registered in free industrial zones may benefit from preferential rates.
  • Cyprus:
    • Personal income tax in Cyprus follows a progressive scale: 0% on income up to €19,500 and up to 35% on income exceeding €60,000. Additionally, new residents can access exemptions, such as tax-free income sourced from abroad.

Social and Pension Taxes

  • Georgia:
    • Georgia does not impose mandatory social taxes on employers. However, 2% of employees’ salaries are withheld under the pension accumulation system. Employers and the state each contribute an additional 2%.
  • Cyprus:
    • Employers are required to pay 8.3% of salaries into the Social Insurance Fund, while employees contribute 8.3%. Additional contributions to pension and other funds may be required depending on the employment contract.

Double Taxation Treaties

  • Georgia:
    • Georgia has double taxation treaties with over 50 countries, facilitating international tax planning.
  • Cyprus:
    • Cyprus has an extensive network of tax treaties with over 60 countries, including EU member states, making it a preferred location for holding companies.

Administrative Requirements and Reporting

  • Georgia:
    • Accounting and tax reporting are relatively simple. The electronic reporting system is user-friendly.
  • Cyprus:
    • Cyprus requires more complex reporting, including an annual audit, which can increase the administrative costs of a company.

Advantages and Limitations

  • Georgia:
    • Advantages:
      • Simplified taxation system.
      • No tax on reinvested profits.
    • Limitations:
      • Georgia is not an EU member, which may limit access to European markets.
  • Cyprus:
    • Advantages:
      • EU membership and access to its markets.
      • Attractive dividend taxation regime.
    • Limitations:
      • Higher administrative burden.

Conclusion

The choice between Georgia and Cyprus depends on business priorities. If the goal is to minimize corporate taxes and simplify reporting, Georgia may be the better option. However, for companies focused on operating within the EU and leveraging holding structures, Cyprus would be a more suitable jurisdiction.

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Taxes are declared online through the personal account on the tax authority’s website.