Georgia operates a relatively streamlined tax system, which includes obligations for employers related to payroll taxes and income tax withholding, as well as specific considerations for employees regarding their tax liabilities. Understanding these requirements is crucial for businesses operating within the country to ensure compliance and manage their workforce effectively. The framework for employment taxation involves contributions to social security-like schemes and the mandatory withholding of income tax from employee salaries, with specific rules governing reporting and payment deadlines.
Navigating these tax responsibilities requires attention to detail, particularly concerning calculation methods, applicable rates, and the specific status of employees, including foreign nationals. The information provided here outlines the key aspects of employer and employee taxation in Georgia as they are expected to apply in 2025, offering a guide to the primary obligations and considerations.
Employer Social Security and Payroll Tax Obligations
Employers in Georgia have specific obligations regarding contributions related to their employees' earnings. The primary mandatory contribution is to the funded pension scheme.
- Funded Pension Scheme: This scheme requires contributions from both the employer and eligible employees, as well as a state contribution.
- Eligibility: Generally applies to Georgian citizens and residents employed in Georgia.
- Contribution Rates (expected for 2025):
- Employer: 2% of the employee's gross salary
- Employee: 2% of their gross salary
- State: 2% of the employee's gross salary (for employees earning below a certain annual threshold; the state contribution may differ or not apply above a high threshold)
- Calculation: Contributions are calculated based on the employee's gross monthly salary.
- Other Payroll Taxes: Georgia does not impose separate employer-side payroll taxes akin to unemployment insurance or health insurance contributions based on salary, beyond the mandatory pension scheme.
Income Tax Withholding Requirements
Employers are legally required to withhold income tax from the gross salaries paid to their employees and remit it to the tax authorities.
- Income Tax Rate: Georgia applies a flat income tax rate of 20% on employment income.
- Withholding Obligation: The employer acts as a tax agent, responsible for calculating, withholding, and paying the 20% income tax from the employee's gross salary before the net salary is paid.
- Calculation: The amount to be withheld is simply 20% of the employee's gross monthly salary. There are generally very limited deductions or allowances applied at the withholding stage for standard employees.
Employee Tax Deductions and Allowances
While Georgia has a flat income tax system, there are limited provisions for employee deductions and allowances that can impact their final tax liability, although many are not applied at the source withholding stage by the employer.
- Standard Allowances: Georgia's tax system does not feature a standard personal allowance or tax-free threshold applied universally to all employees' income before calculating income tax. The 20% rate applies from the first GEL earned.
- Pension Contributions: The mandatory 2% employee contribution to the funded pension scheme is generally deductible for income tax purposes. This means the 20% income tax is calculated on the gross salary minus the 2% pension contribution.
- Other Deductions: Specific, limited deductions may be available for certain categories of income or expenses, but these are typically claimed by the individual employee through an annual tax declaration, not automatically applied by the employer during monthly payroll processing. Examples might include certain charitable donations or specific types of income, but these are not standard payroll deductions.
Tax Compliance and Reporting Deadlines
Employers must adhere to strict deadlines for filing tax declarations and remitting withheld taxes and contributions.
- Monthly Declaration (Form N1): Employers are required to file a monthly tax declaration (Form N1) detailing employee income, withheld income tax, and pension contributions.
- Filing Deadline: The monthly declaration must be filed by the 15th day of the month following the reporting month.
- Payment Deadline: The withheld income tax and pension contributions must also be paid to the tax authorities by the 15th day of the month following the reporting month.
- Annual Reporting: Employers are also required to submit annual information to the tax authorities summarizing the income paid and taxes withheld for each employee during the calendar year. The deadline for this annual report is typically March 31st of the following year.
Special Tax Considerations for Foreign Workers and Companies
Employing foreign workers or operating as a foreign company in Georgia introduces specific tax considerations.
- Residency Status: The tax treatment of foreign workers depends significantly on their tax residency status in Georgia.
- Tax Residents: Individuals who spend more than 183 days in Georgia in any continuous 12-calendar-month period are generally considered tax residents. Residents are taxed on their worldwide income at the standard 20% flat rate. Employers of resident foreign workers apply the same withholding rules as for Georgian citizens, including mandatory pension contributions if eligible.
- Non-Residents: Individuals who do not meet the residency criteria are generally taxed only on their Georgian-source income. Employment income derived from working in Georgia is considered Georgian-source income and is subject to the 20% income tax withheld at source by the employer. Non-residents are typically not required to contribute to the mandatory funded pension scheme.
- Double Taxation Treaties (DTTs): Georgia has DTTs with numerous countries. These treaties can provide relief from double taxation and may affect the tax obligations of foreign workers, potentially reducing or eliminating Georgian tax liability under specific circumstances (e.g., short-term assignments). Employers should consider the provisions of relevant DTTs when employing nationals from treaty countries.
- Foreign Companies: Foreign companies employing individuals in Georgia may trigger a permanent establishment (PE) which has significant corporate tax implications. Regardless of PE status, if a foreign company is the legal employer of individuals working in Georgia, it is generally required to register as an employer for payroll tax purposes and comply with the withholding and reporting obligations outlined above. Utilizing an Employer of Record service can help foreign companies manage these complex payroll and employment compliance requirements without establishing a local entity or PE.
