INITIATIVES AND LEGISLATIVE AMENDMENTS FOR PROMOTING BUSINESS ACTIVITIES IN GEORGIA

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1 MGALOBLISHVILI KIPIANI DZIDZIGURI (MKD) Newsletter I, December January 2017 INITIATIVES AND LEGISLATIVE AMENDMENTS FOR PROMOTING BUSINESS ACTIVITIES IN GEORGIA

2 LEGAL NEWS AMENDMENTS TO THE ORGANIC LAW OF GEORGIA ON THE NATIONAL BANK OF GEORGIA On December 29, 2016, the Parliament of Georgia enacted important changes to the Organic Law of Georgia on the National Bank of Georgia. The changes enable the National Bank of Georgia to operate more effectively to protect the interests/rights of consumers. Provisions 21 and 22 have been added to Article 34, which will enter into force on July 1, 2017, stipulating that: if property or/and service is offered or/and advertised for sale by the entrepreneur on the territory of Georgia the price of the property/service shall be expressed solely in GEL. 2

3 LEGAL NEWS BILL ON E-DOCUMENTS AND E-SERVICES The Parliament of Georgia is currently considering a bill on E-documents and E- services. According to the changes, e-signatures will have legal force. E-documents and e-signatures will be used in Georgia and other countries. A special archive for electronic documents will be created and legal entities will be granted the right to use electronic stamps. The laws, which might be affected by the draft law, are: The Tax Code of Georgia; The Civil Procedures Code of Georgia; The Law on Accounting, Reporting and Audit; The Organic Law of Georgia on the National Bank of Georgia. 3

4 LEGAL NEWS DECISION OF THE CONSTITUTIONAL COURT OF GEORGIA On December 29, 2016, the Constitutional Court of Georgia made an important decision (case No. 2/6/623). The disputed constitutional issue was Civil Procedure provisions regulating the amount of state fees for legal entities. The law set forth much higher state fees for legal entities than for individuals in case of the applications for provisional measures, for using, recognizing or executing provisional measures related to arbitration proceedings and for reopening proceedings on the grounds of newly discovered circumstances. The Constitutional Court considered disputed provisions unconstitutional and explained that the individual and legal entities are equal, which means that they should not be treated differently. 4

5 LEGAL NEWS AMENDMENTS TO THE COUNTRY'S TAX SYSTEM Amendments have been made to align the country s tax system with the Corporate Income Tax (CIT) the Estonian Taxation Model. Under the Estonian Taxation Model all businesses, except profit-sharing businesses, should be exempt from income tax. More specifically, if companies reinvest their profits, they will no longer be obliged to pay income tax. In other words if a private entities receive no dividend from their company, they will not pay income tax for the reinvested money. 5

6 LEGAL NEWS AMENDMENTS TO THE LAW OF GEORGIA ON PROMISSORY NOTE On 29 December 2016 Parliament of Georgia adopted amendment to the Law of Georgia on Promissory Note. According to the amendment, an entity, except for a commercial bank and non-bank depository institution credit union licensed under Georgian law, shall not issue a promissory note worth up to GEL (one hundred thousand) (or its equivalent amount in foreign currency) to an individual. This limit does not apply if an entity issues a promissory note to fewer than 20 individuals. The bill became effective on 15 January

7 LEGAL NEWS AMENDMENTS TO THE TAX CODE By the Law of Georgia (N97-I, ) an article 244 has been added to the Tax Code of Georgia (TCG) to set the terms of assigning the status of an Authorized Economic Operator (AEO) to entities. Such entities will be granted certain advantages, such as eligibility for simplified customs procedures, less rigorous physical inspection of its goods and documents, ability to undergo customs control in a preferred place and others; Amendments made to the tax code include monthly income tax return form and rules of completing the form according to the new income taxation model (the Estonian model). If a taxpayer does not submit a tax return, according to the law, it will mean that the taxpayer filed a nil income tax return and will not be fined for not filing the tax return. Distributed Income Tax Return will have electronic filing option; 7

8 LEGAL NEWS The amendment has been introduced regarding VAT taxable transactions; advances received by supplier of goods/ services within the limits of such supply operations shall also qualify as transaction subject to VAT. This will not be applicable to the cases when goods are supplied regularly or continuously (firm capacity, electric or heat energy, gas or water), also when services are delivered regularly or continuously; The Amendment has been made to Article 192 of the TCG in regard to affixing goods with excise stamps, according to which in the case of selling alcoholic beverages transferred to state property, affixing of goods with excise stamps shall be conducted by a purchaser of such goods and/or a receiver, at the end of transportation of such goods from the appropriate authority to the storage area. These Amendments came into force from 1 January

9 LEGAL NEWS AMENDMENTS TO THE CIVIL CODE OF GEORGIA On 29 December 2016, the Parliament of Georgia adopted important changes regarding the loans to the Civil Code of Georgia. The amendments came into force as of 15 January 2017 On 29 December 2016, the Parliament of Georgia adopted important changes regarding the loans to the Civil Code of Georgia. The amendments came into force as of 15 January 2017; The maximum threshold for loan interest rates is set and the annual effective interest rate shall not exceed 100 percent; Penalties regarding loan agreements have been limited. The amendments are also related to the currency in which a loan can be issued: A loan issued in a foreign currency to an individual is allowed if the amount of the loan exceeds GEL 100,000 according to the official exchange rate of the National Bank of Georgia as of the date of loan issuance. The bank loan shall be issued to an individual in GEL if the amount of the loan does not exceed GEL 100,000. 9

10 LEGAL NEWS Article 6281 has also been added to the Civil Code of Georgia, stipulating that if an entrepreneur or related entrepreneurs obtains financial resources from more than 20 individuals, the loan amount from each individual shall be no less than 100,000 GEL. This limitation does not apply to commercial banks, credit unions, brokerage firms or public offerings of securities. 10

11 BUSINESS NEWS EUROPEAN INVESTMENT BANK ALLOCATES 450 MILLION FOR EUROS GEORGIA Georgia will get 450 million from the European Investment Bank (EIB) in order to implement three major projects, regarding development of agriculture, infrastructure and municipal infrastructure. Georgia will get 250 million for Transport Communication Project which will be spent on rehabilitation of roads, including arrangement of East-West transit highway sections: Ubisa-shorapani and Grigoleti-Poti routes; 100 million will be allocated for Municipal Infrastructure Rehabilitation Project, which will be spent of small infrastructural projects (roads, streets, water, sewer systems, etc.) in various regions of Georgia; Another 100 million will be spent on Georgia s agricultural production / processing / realization chain project, which will finance small and medium enterprises (SMEs) operating in agriculture and food production. 11

12 BUSINESS NEWS $90 MILLION INVESTMENT IN HYDROPOWER INDUSTRY Turkish company Anadolu Tasıt Ticaret A.S. is investing $90 million to build the Megawatt Kheledula 3 Hydro Power Plant (HPP) in Georgia s Kvemo Svaneti region, Lentekhi municipality, over the River Kheledula next year. The construction will be carried out on the basis of a memorandum of understanding signed between the Georgian government and Anadolu Group in May, The company is obliged to sell a part of generated electricity on domestic market in energy deficiency period. 12

13 BUSINESS NEWS GEORGIA AND US SIGN AGREEMENTS TO SUPPORT ECONOMIC DEVELOPMENT Georgia has signed three grant agreements with the United States Agency for International Development (USAID) to boost developments of various sectors. From this, amendments were made in earlier signed agreements to increase the total grant amount offered by USAID by $22.5 million. The agreements cover a number of high-priority areas: Inclusive and sustainable economic growth; Democratic controls and accountable governance; Stable, integrated and healthy society. The activities planned within the agreements will be aimed at managing natural resources, creating market-oriented jobs, increasing the societal integration of persons with disabilities and of IDPs.

14 BUSINESS NEWS NEW BUSINESS ASSOCIATION CENTRE OPENS IN TBILISI A new business association center was opened in Tbilisi. The center is of European standards and it is equipped with modern infrastructure. The Business Association of Georgia was established in 2009 to put together almost 70 leading Georgian companies. The new modern business center occupies 9,105 square meters and includes office and commercial spaces. 14

15 BUSINESS NEWS A NORWEGIAN ENERGY COMPANY IS INVESTING EIGHT BILLION IN GEORGIA The renewable energy company, Clean Energy, is making investments from Norway for the building of a hydroelectric power plant in Georgia, in the Caucasus region of Eurasia. The development may be the biggest Norwegian plant abroad. The company won the bid last week. In partnership with Enka, a listed, Turkish industrial company, Clean Energy are to build a power plant with a projected annual production of terawatt hours, and 436 megawatts of installed capacity. The project has an investment budget of seveneight billion kroner, and is planned for completion in five years. 15

16 BUSINESS NEWS TURKMEN OIL TRANSIT TO BE CONDUTED VIA GEORGIA'S RAILWAY HUB Under the agreement signed by Georgia and Turkmenistan, 1, 5 million tons of Turkmenistan s oil will be transited via Georgia s railway hub. The agreement will be in force for three years. It means 4.5-million loads will be transited via Georgia and at least GEL 60 million will be added to the Georgian budget. 16

17 BUSINESS NEWS GOVERNMENT TO LAUNCH ANALYSIS FOR SOLAR POWER PLANT CONSTRUCTION The Georgian Government is set to launch a technical and economic study for the construction of solar power plants. Memorandum of Understanding on Conducting Techno-Economic Research for the construction of solar power plants in Georgia will be concluded between the Government of Georgia and JSC Caucasus Solar Company. JSC Caucasus Solar Company will be given 18 months in order to analyze eight locations for suitability to construct the plants and represent the analysis to the Government, which will make the final decision. Each station will be of 50 MW. According to the Prime Minister, construction of the new solar power plants will be a step forward towards the energy independence of the country. 17

18 BUSINESS NEWS CORRUPTION PERCEPTION INDEX 2016: GEORGIA HAS LOWEST CORRUPTION RATE IN REGION The global anti-corruption organization, Transparency International (TI), released its annual Corruption Perceptions Index (CPI) 2016 on January 25, claiming that Georgia has the lowest corruption rate in the region. The Corruption Perceptions Index aggregates data from a number of different sources that provide perceptions of business people and country experts of the level of corruption in the public sector. CPI showed that Georgia s score is 57 and is ranked 44th among 176 countries, which is the best indicator in Eastern Europe and the Central Asian region, except for European Union member states. In the Corruption Perception Index 2012, Georgia had 52 points (51th place), in points (55th place), in points (50th place), in points (48th place) TI says that over two-thirds of the 176 countries and territories in this year's index fall below the midpoint of their scale of 0 (highly corrupt) to 100 (very clean). The global average score is a paltry 43, indicating endemic corruption in the country's public sector. 18

19 Newsletter I, December 2016 January 2017 This Newsletter contained herein is of general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advise after a thorough examination of the particular situation. FOR FURTHER INFORMATION PLEASE CONTACT: Victor Kipiani Partner vkipiani@mkd.ge Tel.: David Archvadze Lawyer darchvadze@mkd.ge Tel.: