The Estonian corporate tax model in Georgia

Georgia moved to the Estonian model of profit taxation in 2017. The idea is simple: tax is due not when profit is earned but when it leaves the company. While the money works inside the business, there is no tax.

How it works

Under a classic system a company computes annual profit and pays tax on it whether the money went into growth or into the owners' pockets. The Estonian model breaks that link.

How the rate is calculated

Tax is charged on a gross-up basis: 15/85 of the amount distributed. Pay out 85,000 GEL in dividends and the taxable base is 100,000 GEL, with 15,000 GEL of tax. Plan for this in advance, or the amount reaching the owners will be smaller than expected.

An example on 100,000 GEL

Say the company earns 100,000 GEL of profit. Keep it in circulation — for stock, equipment, hiring or reserves — and corporate tax is zero, with the full 100,000 GEL available to the business. Distribute all of it and 15% tax applies, leaving noticeably less in hand.

What triggers the tax

Paying dividends is not the only event that creates a taxable base. The model is built so that any extraction of value from the company is caught.

• dividend payments to shareholders;
• expenses unrelated to economic activity;
• free-of-charge transfers of assets or services;
• representation expenses above the statutory limit.

This is exactly why source documents matter so much under the Estonian model. An expense you cannot evidence as business-related risks being reclassified as an untaxed extraction and charged at 15%.

Who it suits

The model favours a business that grows and puts its earnings back in: buying stock, hiring people, building infrastructure. The longer profit stays inside, the longer it works in full, without 15% taken out.

The opposite case is an owner who needs the whole income immediately and every month. Then it is worth comparing an LLC against an individual entrepreneur with small business status, where the rate is 1% of turnover and the money is available straight away.

Common questions

Can profit be distributed years later?

Yes. Retained earnings do not expire and are not taxed by the passage of time. Tax arises in the period when you decide to distribute them.

What about salaries?

Salary is a separate matter and a different tax. It is a company expense and is subject to personal income tax for the employee, not to the 15% on distribution.

Are there monthly obligations?

A declaration is filed monthly even when there were no distributions. Having no tax to pay does not remove the filing duty.

If you are choosing a business form, or want to see how the model lands on your own numbers, start with a consultation: we will run both scenarios on your turnover.