Crypto Regulations in Georgia
Georgia emerges as a beacon of cryptocurrency friendliness. The sight of crypto ATMs dotting the streets and shopping malls, alongside bustling mining data centers, and tangible crypto exchanges, heralds the vibrant evolution of the virtual asset market.
The regulatory framework for cryptocurrencies in Georgia is still under development, creating a paradoxical environment. On one hand, the ambiguous status of cryptocurrencies carves out expansive possibilities for crypto companies. On the other hand, the vagueness of the current laws poses tangible risks, hindering businesses from effectively protecting their interests in cryptocurrency earnings.
Georgia has a territorial PIT taxation system. This means the 20% income tax is only levied on earnings sourced within the country's borders. Consequently, profits from selling cryptocurrencies acquired on international exchanges are treated as non-Georgian source income and are exempt from tax. This suggests that Georgian traders might owe tax obligations to the jurisdiction where the cryptocurrency exchange is based.
Considering the largest data centers are owned by Bidzina Ivanishvili, the chair of Georgia's ruling party Georgian Dream, it's improbable that there will be any legislative amendments. For local companies, offering cloud computing power and equipment to non-residents is more beneficial than engaging in cryptocurrency mining. This strategy enables them to leverage cheap electricity and incur minimal tax liabilities.
Cryptocurrency in Georgia: The Interplay of Freedom and Risks
Cryptocurrencies, while not recognized as legal tender, are treated as digital assets. The Georgian Lari (GEL) stands as the sole legal means of payment. Conducting crypto transactions doesn't require a specific license, provided they don't qualify as commercial activities or fall under agency agreements. Nevertheless, should the National Bank classify certain digital assets as securities, blockchain entities engaged in these transactions must secure a financial license akin to that of banks, credit institutions, and insurance firms.
Licenses are also issued to entities offering cryptocurrency storage services and to agencies that facilitate investment in digital ventures or conduct crypto transactions on behalf of third parties (brokers).
The Georgian market attracts significant international interest. For example, Tether has concluded a cooperation agreement with the Georgian Business and Technology University (BTU) to advance blockchain education initiatives. Ripple is helping the National Bank of Georgia with the development of a digital Lari, CBDC. Meanwhile, the Cardano Foundation and the National Wine Agency of Georgia are jointly developing blockchain apps to enhance the traceability and logistics of Georgian wines.
State agencies maintain their registries on the blockchain, linking major government bodies efficiently. This integration supports an effective "one-stop-shop" system, enabling citizens to quickly handle bureaucratic tasks like marriage registration, birth certification, and property sales transactions in just 10–15 minutes.
What Taxes Do Georgian Crypto Holders Pay?
Georgia, at a glance, presents itself as a tranquil refuge for crypto service providers and their customers. The cryptocurrency sector operates without legislative regulation, allowing transactions to flow freely without tight surveillance. The cornerstone of virtual asset taxation in Georgia is anchored by the Georgian Finance Minister’s Decree No. 201 of June 28, 2019. This directive outlines the tax treatment for the cryptocurrency market as follows:
- Individuals are exempt from paying personal income tax (PIT) on income from the supply of crypto assets.
- The exchange of cryptocurrency for fiat currency (national or foreign) is exempt from VAT.
However, there's a significant stipulation: this exemption is exclusively for residents. Foreign nationals must remit 20% of such earnings as tax to the Georgian state.
Cryptocurrency Mining in Georgia
The allure of cryptocurrency mining in Georgia is largely fueled by the country's competitively low electricity rates. In particular, residents of the mountainous Svaneti region had access to free electricity until recent developments necessitated a rethink. The advent of miners exploiting this perk led to significant strains on the electrical grid, causing power shortages. This forced the local authorities in Mestia (Svaneti's capital) to ration electricity to its inhabitants, introducing scheduled power distribution. This decision sparked considerable discontent among the locals, compelling miners to moderate their consumption.
The predicament even escalated to bizarre extents. In 2022, miners in Mestia took an unusual step by swearing an oath on a church icon to deactivate their mining farms, a testament to the desperate measures sought to mitigate the miners' impact.
Presently, the majority of mining operations are stationed within Georgia’s Free Industrial Zones, benefiting from a tax regime that waives income tax, dividend tax, and VAT for these activities. This effectively categorizes mining as either a manufacturing or processing operation. Yet, for lawful operation, it is requisite to register as a business entity, whether as a sole proprietorship or a legal entity and to subscribe to a commercial rate for electricity usage.
Cryptocurrency mining in Georgia incurs taxes only when the service recipient is either a Georgian resident or an institution with a permanent management location (official legal address) in the country.
Under these circumstances, the following taxes are applicable:
- Income tax at 20%
- Profit tax at 15%
- Dividend tax at 5%
- VAT at 18% (applied if cryptocurrency is categorized as a good or service)
Final Words
Cryptocurrency in Georgia remains in a "gray zone," with its use not recognized as an official method of settlement. Tax authorities and banks view it as an unregulated financial instrument that could be used for serious abuses, including money laundering. Nonetheless, cryptocurrencies are not illegal in the country, and business owners are increasingly using them as a tool for business development.
This regulatory approach is reminiscent of the situation with cryptocurrency legislation in India. Georgia lacks clear rules for conducting crypto business and resolving disputes in this area. However, the digital market is developing quite successfully, and foreign crypto companies are eager to establish their presence here.
