Sale of shares of a foreign company in Georgia: what about taxes?
This year we have received several similar requests concerning the taxation of Georgian residents on the sale of shares in a foreign company. In this article we will consider the solution to this issue on a particular case.
Case circumstances
A natural person, a tax resident of Georgia, intends to sell shares owned in a company registered in a foreign jurisdiction (hereinafter - the Company). The alienated shares give the right to manage the Company, are not a reward / bonus due to the existence of an employment relationship between the natural person and the Company. The Company does not own stakes / shares of any Georgian legal entity, there are no other assets of the Company in the territory of Georgia.
Question
Is income received by a natural person from the sale of shares taxable in Georgia?
Answer
Under Georgian legislation, income of natural persons not related to income received from sources in Georgia shall be waived from income taxation.
Income received from a source in Georgia in connection with transactions with shares shall be recognised as follows:
- income from the sale of shares in resident legal entities or (and) partners' interests in legal entities;
- income from the sale of shares or interests of a partner in an entity, more than 50% of the value of the assets of which is directly or indirectly derived from the value of immovable property in Georgia.
It should be noted that the income of a tax resident employee of Georgia received by the employee as a result of the sale of shares of a foreign company received under an option programme as a result of employment (including remotely) on the territory of Georgia may be subject to taxation.
The place of receipt of the amount of income is not taken into account in determining the sources of income.
Conclusions
In case of sale of the Company's shares by a natural person, the income received from such sale will not be recognised as Georgian source income, provided that the following criteria are met:
- the alienated shares are not shares that natural person received as a reward / bonus in connection with the employment relationship;
- Company has no connection with Georgia, in particular, more than 50% of the Company's assets are not concentrated in Georgia.
The income under consideration is not subject to taxation on the territory of Georgia. There is also no requirement to declare this income. Please note that nevertheless, this income will be counted as income for the purposes of determining the rate of property tax of a natural person.
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