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Set up a Subsidiary in Georgia

Updated on Wednesday 29th July 2020

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A subsidiary in Georgia is a legal entity that has a foreign company as its main shareholder. Unlike the branch, this type of business form gives the foreign company the possibility to detach itself from the liabilities of its subsidiary. The foreign parent company will thus establish its presence in Georgia by incorporating a new company in the country.
 
Our agents in company incorporation in Georgia can offer more information on the differences between branches and subsidiaries and why it is recommended to choose one business form or the other. One of the advantages of the Georgian subsidiary is that this business structure is seen as an independent legal entity
 

Register a Georgian subsidiary 

 
In order to open a subsidiary in Georgia, a foreign entrepreneur must open a limited liability company. There are a few steps to complete when opening this type of company, starting with choosing the right and available business name (followed by the abbreviation LLC), opening a bank account and registering the limited liability company.
 
This type of company has at least one shareholder and it may be formed by appointing a single director. In the case of a subsidiary, the foreign parent company is the main shareholder. The liability of the shareholders is limited to the amount of their contributions to the share capital, this being one of the main reasons foreign businessmen choose to register a company under an LLC. 
 
The most important documents that need to be provided when opening a subsidiary are the documents belonging to the parent company; our team of consultants in company registration in Georgia can provide in-depth assistance on documents such as the articles of association, identification details of the company, information regarding  the shareholders of the business and others. 
 

Taxation of Georgian subsidiary 

 
Considering that the Georgian subsidiary is incorporated for the purpose of developing commercial activities, it will be liable for taxation. From a taxation point of view, the Georgian subsidiary will be treated following the regulations available for local businesses and the investors will have to register for a set of taxes, to which local companies are liable, as follows:
 
  • the subsidiary is required to register for value added tax (VAT), once the company reached a turnover of GEL 100,000;
  • this business form is also liable to corporate tax, which is imposed at the rate of 15%;
  • the company is also required to pay withholding taxes for the payments transferred to non-residents;
  • the withholding taxes in Georgia are applicable to dividends, royalties and interests. 

 

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Once the company will be registered with the local institutions, the company's representatives can hire employees, who are liable for taxation. The tax legislation available here requires employers to register the company’s employees for social security and other employment taxes and, in this sense, it is important to know that Georgia applies a personal income tax imposed at the rate of 20%. 
 

What are the basic differences between the Georgian subsidiary and the branch office? 

 

Although the branch office and the subsidiary seem to have a set of similar traits, it must be observed that these two entities have substantial differences as well. There are differences with regards to the nature of the legal entity or the taxation system (in most of the cases the same taxes apply, with few exemptions) and these have to be well known prior to opening a company in Georgia, in order to take the best decision that is suitable for the investment plans of the foreign company.
 
Firstly, a subsidiary will be incorporated following the standard procedure for company registration in Georgia, which means that it will take the form of a legal entity which benefits from the status of a Georgian resident company. The branch office does not have a legal entity. Instead, it is considered to be a permanent establishment of the parent company abroad and this is why it is not recognized as a Georgian resident entity.
 
With regards to the taxation of these entities, investors must know that the legislation in Georgia does not require companies to complete a separate tax registration as a taxpayer in Georgia (when we refer to the value added tax registration), but you may find out more details on this subject from our team of consultants in company formation in Georgia. Both the subsidiary and the branch office are liable for the following:
 
  • the obligation to register for VAT once the company reaches a turnover subject to VAT of more than GEL 100,000;
  • the obligation to pay the corporate income tax, applicable at the rate of 15% (but here, the moment of taxation differs for each business form);
  • the obligation to pay withholding taxes at the rate of 5% for the taxation of interest and royalties;
  • the subsidiary and the branch office must pay withholding taxes for the compensation of international telecommunication and transportation services at a rate of 10%;
  • subsidiaries and branch offices acting as employers have to withheld from their employees the personal income tax, payable at the rate of 20%;
  • both are taxed with a rate of 18% for the VAT. 
 
It must be noted that the subsidiary is liable for the payment of withholding taxes on the distribution of dividends, at a rate of 5%. When we refer to the payment of the corporate income tax, investors must know that the tax is collected when the income obtained from dividends is distributed amongst the beneficiaries (in the case of a subsidiary). The same tax is applied for a branch office at the moment when the company’s income is transferred to the mother company.
 

Does the Georgian subsidiary need a business license? 

 

The need of having a business license will generally depend based on the economic sector in which the subsidiary will operate and its specific business activity. Companies dealing with broadcasting, oil transporting, banking, insurance, medical services will require the issuance of a business license, these being only few of the licenses prescribed by the Georgian law. You can request more information on how to apply for a business license from our team of specialists in company registration in Georgia.

 

Are trademarks protected in Georgia?  

 

Yes, companies operating in Georgia benefit from a legislative framework for the protection of a trademark or  a patent. Thus, subsidiaries and branch offices registered here can register with the National Intellectual Property Centre. Businessmen who want to open a company in Georgia should know that the country is a signatory state of international agreements such as the Paris Convention, Madrid Protocol or the TRIPS Agreement.
 
In order to protect a trademark on the Georgian territory, a company must complete an application form with the above mentioned institution, which can be sent in an electronic format or by mail. Please be aware that the application must be completed in the Georgian language, so the assistance of persons native in Georgian might be needed. Also, the subject of an application should be a single trademark and not more.  
 
The institution handles the registration of patents, trademarks, designs, copyright and other signs related to intellectual property. Our team of consultants in company registration in Georgia can offer in-depth information on how to register with this institution and can also provide legal advice on how to register with other authorities involved in the process of registering a Georgian subsidiary
  

The advantages of a subsidiary in Georgia

 
The subsidiary provides certain advantages, but the decision of opening either a subsidiary, either a branch office should be based on a set of factors and more importantly, on the business plans the mother company has when expanding in this country. Although the branch is easier to set up and it becomes operational in a shorter amount of time, the subsidiary can be seen as a more risk-free business structure because the assets owned by the parent company will not be at risk if bankruptcy occurs. 
 
The subsidiary is also a preferred business structure when dealing with customer perception. Some customers and/or partners will show more confidence when working with a subsidiary company because the business is a Georgian legal entity, committed to the Georgian market and the Georgian Company Law.
 
If you have already decided what business form you want to open in this country, please contact our company formation agents in Georgia for more information regarding the necessary procedures. Our specialists can offer advice on the main advantages of operating here through a branch office or a Georgian subsidiary. If you need to open a company in other countries, such as Romania, you may contact our local partners. 
 

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Call us now at +995 595 11 88 22 to set up an appointment with Valeri Bendianishvili, one of our specialists in company formation in Tbilisi, Georgia. Alternatively you can incorporate your company without traveling to Georgia.

As a Business Setup Georgia LLC  client, you will benefit from the joint expertize of local lawyers and international consultants. Together we will be able to offer you the specialized help you require for your business start-up in Georgia.

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