0% Corporate Tax for IT Companies Exporting Abroad

A Georgian Limited Liability Company that holds Virtual Zone status pays 0% corporate income tax on profit from software products and services sold to non-resident clients abroad. Those services to foreign business clients are often supplied outside Georgia for VAT purposes, depending on the customer and the service. Dividends distributed by the company face the standard 5% withholding tax on payment to shareholders. For an IT founder running a software business with foreign clients, the headline framework is genuinely 0% profit tax on that export profit, with profit kept in the business untaxed while it stays there, and 5% withholding when profits are paid out as dividends.

The headline is real. The qualifications around it are tighter than they were five years ago.

Since 2020, the Revenue Service has materially narrowed both the activity definition and the substance requirements for Virtual Zone applications. The activity must result in the creation of software products, with the development work performed within Georgian territory. General IT consulting, internet marketing, e-commerce operations, and crypto-related work — once accepted under VZ — no longer qualify unless the applicant can demonstrate that software creation is the majority component of the business.

For an IT founder reading the headline, the right question is not whether 0% is real (it is) but whether the specific configuration qualifies. For some, the answer is yes — and Virtual Zone is the optimal structure. For others, the better path is International Company status (5% corporate income tax on distributed profit instead of 0%, but 0% dividend withholding and a 5% tax on salaries — which comes out ahead depends mainly on the Georgian payroll and on eligibility). This article walks through both, in the order that matches reader profile.

What Virtual Zone status actually is#

Virtual Zone status is granted by the Financial-Analytical Service of the Ministry of Finance (Law on Information Technology Zones, Art. 5; Government Ordinance No. 49) to Georgian Limited Liability Companies operating in the IT sector that meet specific eligibility criteria. The status is application-based: an LLC is registered first under the Law on Entrepreneurs, then the LLC submits a Virtual Zone application separately. The status applies prospectively from the date of grant.

Under VZ status, the Tax Code provides:

• 0% corporate income tax on profit from the supply of software products and IT services outside Georgia, including when that profit is distributed. Profit from Georgian-domestic clients is taxed at the standard Georgian corporate rate when distributed (Estonian model).
• VAT: software services to foreign business clients are often supplied outside Georgia for VAT purposes, depending on the customer and the service; 18% VAT applies to VAT-taxable supplies once registration is required (VAT-taxable transactions above GEL 100,000 within 12 consecutive calendar months).
• 5% withholding tax on dividend distributions to individual or non-resident shareholders. This is the standard Georgian dividend rate; VZ does not reduce it.

The combined effect for the typical foreign-client IT operation: 0% on qualifying operating profit, 5% on the dividend payout when the founder takes income out of the company.

The Revenue Service issued a Methodical Instruction on December 29, 2022, that materially clarified the activity definition and the substance requirements. The current framework treats software creation as the qualifying activity, with the Instruction explicitly addressing licensing of software (including software created before VZ status was granted, which remains eligible because ongoing maintenance and updates are recognized as part of the development continuum).

Who genuinely qualifies in 2026#

The substantive qualifying criteria have three layers.

Activity layer. The company's revenue-generating activity must result in the creation of software products. Software development as a service (consulting on software projects), Software-as-a-Service (subscription-based products), web development firms, and product-led IT companies fit cleanly within the activity definition. Pure IT consulting without a product output, internet marketing services, e-commerce operations selling third-party goods, and most crypto-related activities do not qualify under the current Instruction unless software creation is the majority component of revenue.

Substance layer. The company must demonstrate genuine economic activity in Georgia. Happy Georgia helps establish the qualified Georgian development activity and operating substance appropriate to your Virtual Zone application, including suitable local development resources where needed. The Financial-Analytical Service assesses each application against the activity description and the operational reality.

Geography layer. The software creation work must take place within Georgian territory. A Georgian LLC employing developers in India and selling products to US clients does not qualify on this basis alone — the development itself must happen in Georgia. This requirement aligns with the policy intent of Virtual Zone: incentivize software creation activity inside Georgia, not provide a tax wrapper for value-add performed elsewhere.

For a foreign IT founder evaluating VZ, the practical assessment runs: does the activity produce software? Is the development work performed in Georgia by Georgian-based people (founder, employees, contractors)? Is there a real operating footprint? When all three answers are yes, VZ is typically attainable. When any answer is meaningfully no, the structure needs adjusting before applying — we work that out with you.

The application itself is filed electronically with the Financial-Analytical Service. Applicants submit a list of IT projects worked on in the past three years (per the December 2022 Instruction), documentation of the software-creation activity, and evidence of the substance and geographic operating footprint. The law sets a decision period of no later than 10 working days from the application (Law on Information Technology Zones, Art. 5(2)). Approval grants VZ status indefinitely subject to ongoing compliance with the activity, substance, and geography requirements.

When International Company status is the better path#

For some established IT companies, International Company (IC) status under Government Ordinance No. 619 of 8 October 2020 is the better answer than Virtual Zone — mainly because of what it does for payroll.

The framework comparison:

Virtual Zone: 0% corporate income tax on qualifying export revenue. 5% dividend withholding. 20% standard personal income tax on Georgian employees' salaries (with 2%+2% pension contribution for Georgian permanent residents and citizens). Application to the Financial-Analytical Service of the Ministry of Finance. Substance and activity requirements as described above. Best fit for: software product companies in earlier operating years, founders building a Georgian development capacity from scratch.

International Company status: 5% corporate income tax on distributed profits (profit kept in the business is not taxed while it stays there). 0% withholding tax on dividends (VZ withholds 5%; IC instead taxes the distribution at 5% at company level, calculated on the distribution divided by 0.95). 5% personal income tax on salaries paid to qualifying employees (vs 20% standard — material advantage for any IT company with team members). 0% property tax on property used for permitted activities. Application through the Revenue Service, which checks it within 10 days; the status is then granted by Government decree, with no fixed deadline. Eligibility requirements:

• The Georgian enterprise must conduct activities in qualifying IT or Maritime sectors as defined by Ordinance No. 619. The IT sector definition under IC status is specifically named and includes software development, IT services, and adjacent activities — narrower in scope than general IT consulting but broader than VZ's strict software-creation requirement.
• The Georgian enterprise must have at least 2 years of experience in the qualifying activity, OR represent a foreign (non-resident) enterprise with 2+ years of experience in it, OR be more than 50% held by enterprises (Georgian or foreign) that each have 2+ years of experience in the same permitted activity.
• The Georgian enterprise must demonstrate physical substance in Georgia — basic income-generating activities performed in Georgia, with adequate human resources of appropriate qualification and the corresponding operating costs incurred. The substance requirement under IC status is generally interpreted as more demanding than VZ's, given the broader tax advantages.
• The enterprise cannot be established in a Free Industrial Zone.

For a foreign IT founder doing the math at scale: VZ keeps the profit tax on qualifying export profit at 0%, but employee salaries are taxed at 20% and dividends at 5%. IC taxes profit at 5% when it is distributed (and on outflows treated like distributions), but cuts employee salaries to 5% and dividends to 0%. On qualifying profit paid out to an individual, the Georgian tax is 5% under both regimes — withheld from the dividend under VZ, paid by the company under IC status — so dividend policy rarely decides it. For an IT company with several employees on Georgian payroll, the IC framework typically produces a lower overall tax across the company-and-personal stack, because of the salary rate.

The 2-year experience requirement is the main entry condition for IC status, but it does not always mean waiting two years. Beyond the routes above, in our assessment a newly formed Georgian LLC may also qualify through the eligible experience of its shareholder or director, subject to review — we check this in a free consultation. Where no qualifying experience exists yet, the company operates under standard Georgian LLC tax rules (with VZ as an option if it qualifies on activity and substance), then moves to IC once the threshold is met. For foreign IT founders in that position, the typical sequence is: register the LLC, apply for VZ in year one if activity and substance qualify, operate for two years building the business and the team, then evaluate IC status as the operational footprint expands.

How VZ and IC interact with the broader Georgian framework#

Both regimes integrate with Georgia's wider tax architecture in specific ways that matter for the structuring decision.

Estonian model on retained earnings. Both VZ and IC tax company profit when it leaves the company, not while it is earned. Profit retained in the company is not taxed while it stays there, under either regime; tax arises on distributions and on outflows the Tax Code treats like distributions. For founders building toward scale, the corporate-level tax difference (0% under VZ, 5% under IC status) only crystallizes on distribution — where it is mirrored by the withholding difference (5% under VZ, 0% under IC status).

VAT framework. For both regimes, services to foreign business clients are often supplied outside Georgia for VAT purposes (Tax Code Art. 162¹), depending on the customer and the service, and registration is required once VAT-taxable transactions exceed GEL 100,000 within 12 consecutive calendar months (Art. 165(1)). We check how your sales count.

Withholding on services purchased from abroad. Both regimes face the standard 18% reverse-VAT obligation on services purchased from foreign vendors (software licenses from abroad, foreign consulting services, etc.). Voluntary VAT registration enables companies to claim the reverse-VAT back, effectively neutralizing the obligation — typically the right structure for export-led IT businesses with substantial foreign-vendor expense.

Salary tax on employees. Under VZ, salaries to Georgian employees are taxed at the standard 20% personal income tax rate, with 2%+2% pension contributions for Georgian citizens and permanent residents. Under IC, salaries to qualifying employees are taxed at 5% — a 15-percentage-point reduction that compounds materially across an IT team. For an IT company with five employees on Georgian payroll, the IC salary advantage is usually the deciding factor, since the 5% profit tax on IC distributions is matched by VZ's 5% dividend withholding.

Double tax treaties. Georgia has double tax treaties with a range of jurisdictions, which may reduce cross-border withholding on dividends, interest and royalties paid to treaty residents. A treaty can only lower Georgian withholding below the domestic 5% where it sets a lower rate and the shareholder meets its conditions — for example, a corporate shareholder with a substantial holding — so whether any reduction applies depends on the specific treaty.

What it looks like in practice#

For a foreign IT founder evaluating Georgia, the practical structuring sequence runs something like:

Year zero — incorporation. Register the Georgian LLC through the National Agency of Public Registry. Registration takes one working day once the complete application is filed, and we handle it remotely under your Power of Attorney. At this stage, the company operates under standard Georgian LLC tax rules on distributions, with no special status applied yet.

Year zero or one — Virtual Zone application (if applicable). If the company's activity is software creation and the substance and geography requirements are met (Georgian premises, Georgian-based development work, local team or contracted developers), apply for VZ status through the Financial-Analytical Service of the Ministry of Finance. Application packages document the IT project history, the activity description, and the substance footprint. The law sets a decision period of no more than 10 working days from the application. From grant date forward, qualifying export profit bears 0% CIT, with 5% on dividend distributions.

Years one and two — operating under VZ or the default Georgian LLC framework. If VZ was granted, qualifying export profit is at 0%. If VZ was not applied for or not granted, the company operates under standard Georgian LLC tax rules on distributions, with profit kept in the business untaxed while it stays there. The two-year IC experience period runs during this time, unless a shareholder or director already brings that experience.

Year two onward (or earlier) — IC evaluation. Once 2 years of qualifying IT experience are documented — or from the start, where a shareholder or director brings that experience — the company can evaluate IC status. The application runs through the Revenue Service. If granted, the company moves to 5% CIT on distributions, 0% dividend withholding, 5% salary tax on qualifying employees. The shift typically produces a better overall tax position than VZ for IT companies with established Georgian teams, because of the salary rate, though the math depends on the specific revenue mix, payroll and eligibility.

Year two onward — VZ-to-IC transition (where applicable). A company that holds VZ status can apply for IC status once eligibility is established. Operating under both regimes simultaneously is not the structure; the company operates under whichever regime applies to its current activity and approval status. Practical migration from VZ to IC, where IC is the better fit, requires a structural assessment and transition timeline.

Practical considerations#

Three operational realities worth flagging for any foreign IT founder considering either regime.

Substance is enforced. Both VZ and IC require demonstrable Georgian operating footprint. A nominal Georgian address with no actual operations, no local staff, and all development work performed abroad does not meet the requirements, and the status can be cancelled on review. The substance conditions are checked at application and on review. Plan the operational footprint as part of the structuring decision, not as an afterthought.

Activity definitions narrow over time. The Revenue Service has issued clarifying Instructions that have progressively narrowed what qualifies as "software creation" under VZ. Activities that were once accepted (general IT consulting, e-commerce platforms, crypto-related operations) no longer qualify unless the software-creation component is dominant. Foreign IT founders structuring around current Georgian rules should verify activity eligibility against the current Methodical Instructions rather than older sources.

Compliance is ongoing. Both VZ and IC status require continued compliance with the activity, substance, and operational requirements. The Revenue Service can revoke status if the company drifts outside the framework — ceasing to perform software creation in Georgia, losing local staff, or generating substantial non-qualifying revenue. Status maintenance is part of the operating cost; our monthly accounting service keeps the filings and the separation of qualifying income in order.

For a foreign IT founder reading this article and recognizing their structure in either VZ or IC framing, the right next step is a scoped pre-engagement review against the current Instructions and the company's actual operational reality. The headline rates are real. The applicability assessment is specific to the configuration.

Read more about LLC formation on the Company Setup pillar.

See Virtual Zone LLC service details.

See International Company status details.

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