International Taxation - One Income, Two Countries and a Treaty That Decides Who Taxes It
When income is earned in one country and the person receiving it lives in another, both states have a claim on it. The Georgian Tax Code, the double tax treaties Georgia has signed and the law of the other country together decide who taxes, how much and under which rules. A mistake anywhere in that triangle produces double taxation, undeclared income or a permanent establishment in Georgia that nobody noticed until the audit - and each of those ends in penalties.
This page walks through the questions clients with a foreign element actually bring to a lawyer: how residency is determined and what happens when both countries claim you; how a treaty works on dividends, interest, royalties and wages; when a foreign company creates a taxable presence in Georgia; what transfer pricing demands of intra-group deals; and how remote work for a foreign employer is taxed. Audit and dispute procedure, as well as domestic structuring, have their own pages.
Updated · Practice area: Tax lawyer
Five Situations Where International Tax Rules Decide the Actual Amount
Each scenario has one central question and one central document that the Revenue Service and the foreign authority argue about.
Applying a Double Tax Treaty to a Specific Payment - the Stages
Identify the income and the treaty
What is being paid (dividend, interest, royalty, service fee, salary, sale of property) and to whom - a resident of which country. Georgia has treaties with more than fifty states, each with its own rates and carve-outs; the lawyer locates the specific treaty and the specific article for the income type rather than relying on a general rule.
Domestic rate against treaty rate
A treaty never increases tax - it only caps it. The lawyer compares the Tax Code withholding rate (dividends, interest, royalties) with the treaty ceiling and chooses the lower; in some cases the Code itself is lower or exempts the payment entirely, and the treaty is not even needed.
Confirm residency and beneficial ownership
Relief requires a residency certificate from the recipient's country (often apostilled and translated) and proof that the recipient is the beneficial owner rather than an intermediary conduit. The lawyer gathers the certificate in the right form and validity period plus evidence of beneficial ownership (decision-making power, risk, substance) before the payment is made.
Apply relief at source or by refund
In Georgia the treaty rate is applied at the time of payment through forms filed with the tax authority; if the payer withheld at the full rate, the excess is refundable on application with supporting documents. The lawyer sets up both routes and tracks the refund deadlines.
Credit in the other country
Tax withheld in Georgia is credited in the recipient's country under the treaty and that country's law; this requires a withholding certificate from the Georgian authority and proof of payment. The lawyer prepares these documents on the Georgian side and coordinates with the foreign adviser or accountant.
Keep the file for the audit
Treaty relief is always tested during an audit: certificate, beneficial ownership, contract, payment. Unsupported relief leads to an assessment at the full rate with penalty and interest against the payer, not the recipient. The lawyer leaves a file on every payment that answers the auditor years later.
183 Days, Dual Residency and the "Centre of Vital Interests"
An individual is a Georgian tax resident if they were physically present in the country for 183 days or more during the tax year or in any continuous 12-month period. Days are counted by border crossings, short trips abroad do not break the count, and separate rules apply to diplomats, military personnel and people present for treatment or study. Residency defines the scope of taxation: a non-resident is taxed only on Georgian-source income, and a resident is also taxed on a territorial basis - but the notion of "Georgian source" is broad and is frequently the real subject of the dispute.
Dual residency arises when the other country also treats the person as resident under its own rules - through a home, family or citizenship, for example. A treaty resolves the conflict with a sequence of tests: permanent home, centre of vital interests (family, business, property, social ties), habitual abode, nationality, and finally agreement between the two states. The lawyer's job is to gather evidence pointing in one direction: a lease or title, where the family lives, banking and medical history, where the business is actually managed.
A residency certificate from the Revenue Service is the document a foreign authority demands before applying the treaty; it is obtained on application with data proving presence. The reverse case is just as common: a person who exceeds 183 days in Georgia wants to shed residency abroad and end the obligations there - and here too the Georgian certificate and a documented day count are decisive.
The Concepts International Tax Disputes Turn On
- Permanent establishment
- A foreign company's fixed place in Georgia (office, branch, construction site beyond a set period) or a dependent agent who concludes contracts in its name. The profit of a permanent establishment is taxed in Georgia, and creating one without noticing is a classic basis for an assessment.
- Beneficial owner
- The person who actually controls the income and bears the risk, rather than merely receiving and passing it on. Treaty relief belongs only to the beneficial owner; a holding company without substance often fails this test.
- Transfer pricing
- Prices between related parties (group companies, a common owner) must match the arm's length standard; where they deviate, the Revenue Service adjusts the price and assesses additional profit. Documentation (functional analysis, method, comparables) must be produced on request.
- Withholding at source
- Tax the payer deducts when paying a non-resident and remits to the budget - on dividends, interest, royalties, services. Responsibility for the correct rate (Code or treaty) and timely reporting sits with the Georgian payer.
- Foreign tax credit
- A resident may deduct tax paid abroad on the same income from the Georgian tax due - up to the amount computed at the Georgian rate and on the strength of a foreign authority's document. The credit is not automatic; it has to be claimed in the return.
- Exchange of information
- Georgia takes part in international systems for exchanging tax information; foreign accounts and income that "nobody knows about" increasingly become the trigger for an audit. Voluntary disclosure before the audit materially reduces the penalty.
What to Bring to an International Tax Consultation
- Passport and border crossing history for the last 2 years (a Ministry of Internal Affairs certificate or your own day log) - the basis for the residency count.
- The contract with the foreign company or employer: employment or services, where the work is performed, who pays, in which currency and to which account.
- Documents proving tax paid abroad (withholding certificate, return, proof of payment) - for the credit.
- The group structure: who owns whom, where each entity is registered, what transactions run between the companies (loan, services, licence, goods) and at what price.
- On dividend, interest or royalty payments: the recipient's residency certificate, the contract, payment records and the rate already applied.
- On a foreign company's activity in Georgia: who works here, with what authority, where, for how long and which contracts they sign.
Three International Tax Cases
Remote developer for a European company
A Georgian developer worked from Tbilisi under an "employee" contract with a European company; the employer withheld income tax there and nothing was declared in Georgia. An audit taxed three years of salary in Georgia with penalties. The lawyer: the income is Georgian-source (the work is performed here), but under the treaty the European state had no right to tax it - a refund was claimed there, a partial credit applied in Georgia, and the penalty was cut through the voluntary amendment regime. The final burden was a third of the original assessment.
A representative who turned into a permanent establishment
A foreign manufacturer kept a "marketing manager" in Georgia who negotiated prices with customers and signed contracts. The Revenue Service found a permanent establishment and taxed the profit on Georgian sales. The lawyer: proof of the agent's real limits of authority and the approval procedure (contracts were approved by head office), a challenge to the profit attribution method - the attributed profit fell fivefold, and the future structure was resolved through a subsidiary.
Dividends to a holding with no substance
A Georgian company paid dividends to a foreign holding at the reduced treaty rate; the audit treated the holding as a conduit (one director, no office, dividends passed immediately to an individual) and assessed the full rate. The lawyer: partial proof of beneficial ownership (the holding managed other assets and decisions were taken there), and direct application of the treaty with the ultimate owner's country. The assessment was more than halved and the holding was given real substance going forward.
Questions About International Taxation
I moved to Georgia from abroad and have not yet reached 183 days. What are my obligations?
While you are a non-resident, only Georgian-source income is taxed here - work performed in Georgia or rent from property located here, for example. From the 183rd day within any rolling 12-month window you become resident, and the status covers the whole tax year. The lawyer counts the days precisely and determines which income is taxable in which country under the treaty - before and after the residency date.
I work remotely for a foreign company and they withhold tax there. Do I also pay in Georgia?
If you physically perform the work from Georgia, the income is Georgian-source and taxable here, while under most treaties the employer's country has no right to tax it - what was withheld there should be refunded rather than credited. Where no treaty exists or the source is disputed, the credit mechanism applies. In both cases filing in Georgia is mandatory and a late filing carries a penalty.
Our foreign company is running a project in Georgia for several months. Do we have a permanent establishment?
It depends on duration and type of activity: a construction or installation site beyond the treaty threshold (often 6 or 12 months), a fixed office, or a representative with authority to conclude contracts creates a permanent establishment; preparatory and auxiliary activity does not. The lawyer checks the period, the substance of the activity and the specific treaty article, and if an establishment is unavoidable, arranges registration and the profit attribution method in advance.
In our group the Georgian company provides services to the foreign parent. Is transfer pricing documentation mandatory?
A cross-border transaction between related parties is subject to the arm's length standard, and the Revenue Service may demand documentation; its absence itself becomes grounds for a price adjustment. The documentation describes functions, risks, the chosen method and comparables, and its volume depends on the size of the transaction. The lawyer prepares it together with an economist and reflects the pricing policy in the group's contracts.
I have a bank account and rental income from a flat abroad. Do I need to declare it in Georgia?
For an individual, foreign-source income (rent from a flat located abroad, interest from a foreign bank) is generally not taxed in Georgia, but particular cases (dividends from a foreign company, sale of assets) and the source classification are examined individually. Through automatic exchange of information these accounts are visible to the Revenue Service, so the position should be documented in advance.
Lawyers for International Taxation
A cross-border tax question means reading two laws and one treaty at the same time, and an error surfaces in two countries at once. Within 15 minutes the coordinator connects you with a lawyer who handles residency, treaty and permanent establishment matters.
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Taxed in Two Countries, Assessed for a Permanent Establishment, or Left a Foreign Salary Undeclared?
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