EY Georgia Tax & Law Brief for October – December 2022

On 28 December 2022, the new Resolution of the Government of Georgia on Approving the List of Areas with a Specific Working Regime entered into force.

• Compared to the previous version of the resolution, the list of industries, within the framework of which the implementation of activities requires a continuous working mode lasting more than 8 hours, has been expanded and specified.

Source and date of Publication: Legislative Herald of Georgia. 28/12/2022.

On 27 December 2022, amendments to the Labour Code were published.

• The amount of allowance for pregnancy and childbirth leave, childcare leave, and newborn adoption leave has changed.
• The total amount of monetary allowance paid during the period of paid leave must be determined by the ordinance of the Government of Georgia.
• The amendment is effective from 1 January 2023.

Source and date of publication: Legislative Herald of Georgia. 27/12/2022.

On 27 December 2022, the Parliament of Georgia adopted amendments to the Law on Copyright and Related Rights.

• The rules and amount of compensation in case of violation of the rights of copyright, related rights, and the database producer rights have changed.
• Before applying to the court, the right holder should request the payment of one-time monetary compensation, whereas the infringer has the right to satisfy the request within 2 weeks of its receipt.
• According to the amendments, one-time monetary compensation to be paid must be 10% more than the monetary payment that would have been received by the right holder in case of lawful use of the infringed right.
• In case of violation of the specified conditions for payment of compensation, the right holder has the right to apply to a court.
• The law became effective upon its publication.

Source and date of publication: Legislative Herald of Georgia. 27/12/2022.

On 16 December 2022, the Law on Mortgage Covered Bonds was published.

• The law regulates legal relations related to the issue of mortgage-covered bonds (the “mortgage bonds”), the supervision of issuers, and their activities.
• With the adoption of the law, a legal framework regulating mortgage bonds has been created in Georgia, resulting in making it possible to issue the mentioned type of securities by resident commercial banks.
• According to the law, a commercial bank wanting to issue mortgage bonds, is obliged to receive authorization from the National Bank.
• The law must take full effect from the 90th day after its publication.

Source and date of Publication: Legislative Herald of Georgia.16/12/2022.

On 6 December 2022, the draft law amending the Law of Georgia on Insurance was published.

• The draft law regulates matters related to the independent member of the supervisory board, the creation of the audit committee, and the management body.
• To ensure solvency and financial strength, the draft law obliges the insurer to have an actuary, whose activities include analyzing the prescribed obligations and evaluating the effectiveness of risk management.
• The obligations of the Insurance State Supervision Service of Georgia (the “Service") in terms of compulsory insurance will expand.
• Furthermore, the Service will have the power to establish additional requirements regarding the information security systems of insurers and insurance brokers and the sale/service provision of insurance products via the internet.
• Licensed insurers must comply with the new regulatory obligations in two stages - before 1 January 2024, and 1 January 2025.

Source and date of Publication: Legislative Herald of Georgia. 06/12/2022.

Within the framework of the amendments to the Law of Georgia on Insurance, on 6 December 2022, the draft law amending the Civil Code was submitted to the Parliament of Georgia.

• The draft law aims to regulate the sale of insurance products by the insurer via the internet and increase the quality of the insurance certification protection.
• According to the draft law, an insurance policy issued by an insurance company by electronic means must be signed with a qualified electronic signature/seal.
• In case of adoption, the law will come into effect immediately upon its publication.

Source and date of Publication: Legislative Herald of Georgia. 06/12/2022.

On 16 November 2022, with the initiative of the Government of Georgia, the amendments to the Law on Legal Entities under Public Law were presented to the Parliament of Georgia.

• The draft law regulates the issues of accountability of legal entities under public law and their state control.
• The state, municipality, political parties, Apostolic Autocephalous Orthodox Church of Georgia, and registered religious unions are excluded from the scope of the statute.
• The draft law divides the legal entities under public law into six categories: corporation of public law, independent, interdisciplinary, sectorial, service provider, and legal entity under public law.
• The draft law regulates the issues related to the activities of each category of the legal entities under public law and status of employees.
• In case of approval of the Draft Law, 67 laws will be amended.

Source and date of publication: Website of the Parliament of Georgia. 16/11/2022.

On 8 November 2022, the National Bank published the draft Order on Joining Open Banking.

• Purpose of the draft order is to regulate the process of joining open banking for brokerage companies, micro-finance organizations, payment service providers, loan issuing, and other entities.
• Information may be immediately exchanged between different subjects via open banking using online technologies. 
• The draft order prescribes criteria for joining open banking and the obligations of the involved entities.
• Decision on joining or canceling approval for joining open banking is made by the National Bank.
• In case of adoption of the draft order, the National Bank will maintain an open banking registry and publish it on its official website.

Source and date of publication: Website of the National Bank of Georgia. 08/11/2022.

On 8 November 2022, amendments were made to the work time recording form and the rule of its maintenance.

• Work time recording form was updated and technically amended.
• If the appearance of each employee on the job is individually, and electronically registered, the employer is authorized to keep records of the work time in a form different from that approved with the order. In such cases, the form must include the full information prescribed with the order.

Source and date of publication: Legislative Herald of Georgia. 08/11/2022.

On 2 November 2022, the Parliament of Georgia adopted amendments to the Civil Code.

• Circumstances, in the presence of which a person can entrust the signing of an agreement to someone else, have been established differently. These are illiteracy, and permanent or irreversible physical, mental, intellectual, or sensory impairment.
• A literate blind person will have the option to sign the contract himself/herself or delegate the signing authority to someone else.
• The signature may be made via mechanical signature, facsimile, or other corresponding technical means prescribed by law. When signing using Braille font, an agreement in Braille font must be attached to the agreement in flat font.
• Amendments will become effective from 1 May 2023.

Source and date of publication: Legislative Herald of Georgia. 11/11/2022.

On 31 October 2022, the National Bank adopted new Order on Licensing Commercial Banks.

• A banking license seeker engaged in commercial activities by the time of applying to the National Bank, will be required to provide it with, among other things, a business plan, detailed information on past activities, and the company's structural arrangement, to obtain a banking license.
• The National Bank issues conditional license via temporary mitigation of requirements related to the regulatory capital necessary for the licensing.
• When issuing the conditional license, the National Bank is authorized to determine corresponding restrictions, requirements, stages, and terms for their observance.
• The order is effective from 1 November 2022.

Source and date of publication: Legislative Herald of Georgia. 01/11/2022.

On 31 October 2022, the National Bank adopted the updated Statute on the Eligibility Criteria for Commercial Bank Administrators.

• The statute prescribes general obligations of administrators, such as integrity, protecting interests of the bank's stability, legality, care, etc.
• When evaluating the eligibility of the administrators, the commercial bank and the National Bank refer to the proportionality principle, and consider the size, internal organizational structure, risk profile, and complexity of the bank.
• If a commercial bank fails to observe the statute, the National Bank is authorized to apply supervisory measures and/or sanctions in the form of a monetary fine toward the bank and/or its administrators.
• The commercial bank and existing administrators must provide the National Bank with the due information/documents certifying observance of the requirements of the statute before 1 August 2023.
• The statute became effective on 1 November 2022.

Source and date of publication: Legislative Herald of Georgia. 01/11/2022.

On 31 October 2022, the National Bank adopted a new Statute on Purchasing Significant Share of Commercial Banks.

• The statute prescribes eligibility criteria for the holder/purchaser of a significant share of a commercial bank, the information to be submitted to the National Bank, and the evaluation procedure.
• Purchasing significant share means both acquisition of a share of a commercial bank and increasing already owned share by a certain amount. 
• According to the statute, by purchasing a significant share a person obtains significant influence on the bank.
• The statute gives details on the instances of the existence of significant influence.
• The statute prescribes simplified acquisition of a significant share of the bank being in the mode of the resolution. 
• The statute is effective from 1 November 2022.

Source and date of Publication: Legislative Herald of Georgia. 01/11/2022.

On 24 October 2022, the National Bank adopted a new Statute on the Unified and Secure Open Standards for Communication.

• The statute prescribes unified and secure open standards for communication between payment service providers, taxpayers, and recipients.
• The statute aims to ensure efficient and secure communication in payment services, to promote the development of innovative products, and to create a protected environment of privacy and integrity.
• The payment service provider is obliged to carry out the safe identification of consumers in course of the payment transactions and prevent unauthorized access. 
• The statute prescribes requirements for payment access interfaces (e.g., internet bank, PayBox).
• According to the statute, the information about payment transactions must be traceable at each stage.
• The statute is effective from 1 November 2022.

Source and date of publication: Legislative Herald of Georgia. 25/10/2022.

On 24 October 2022, legislative amendments regarding application of judgments of European Court of Human Rights (ECtHR) were published.

• When verifying the regulatory act, Constitutional Court will be able to consider judgments of ECtHR on a legal issue similar to the disputed one at hand.
• When justifying constitutional claim/submission, ECtHR precedents may be referred to.
• The provisions of the Convention for the Protection of Human Rights and Fundamental Freedoms and its additional protocols may be referred to in the judicial documents, as well as ECtHR precedents on similar legal issues.
• From now on, the Ministry of Justice of Georgia keeps the registry of the decisions/judgments made by ECtHR in relation to Georgia.
• The ECtHR decisions/judgments are translated and published on the website of the Legislative Herald of Georgia.
• The legislative amendments fully entered into force on the 30th day of their publishing.

Source and date of publication:   Legislative Herald of Georgia; 24/10/2022.

                                                         Legislative Herald of Georgia;

                                                         Legislative Herald of Georgia;

                                                         Legislative Herald of Georgia.

On 10 October 2022, the Government of Georgia presented draft amendments to the Law on Funded Pension.

• The definition of an employee is expanded, and it includes the persons, whose employer is not obliged to perform the function of a tax agent.
• In such case, the employee is obliged to make a pension contribution in the amount of 4% of the taxable salary himself/herself, and the employer is obliged to compensate the pension contribution in the amount of 2% of the taxable salary when paying the salary.
• The pension contribution must be made within 5 working days of issuing the salary.
• Any employee/self-employed being a member of a funded pension scheme will have the right to transfer pension assets to the asset managing company for management.
• Person imposed with a penalty for violation of the obligation to make a pension contribution is not exempted from the obligation to make a pension contribution.
• In the event of adoption, the amendments must become effective gradually, and enter full force from 1 January 2026.
• The first hearing on the amendments has not yet been held.

Source and date of publication: Website of the Parliament of Georgia. 10/10/2022.

On 10 October 2022, the Government of Georgia presented the draft law on a voluntary private pension.

• The aim of the draft law is the development of voluntary private pension market in Georgia and the performance of the obligations undertaken with the Association Agreement.
• The draft law regulates types of a voluntary private pension schemes, the issues of their organization and implementation and determines the procedures and conditions of participation in the voluntary private pension scheme.
• Legal entities registered in Georgia will not be able to carry out voluntary private pension activities without corresponding permission/registration/license, save for exceptional cases.
• If adopted, the draft law will enter full legal force from 1 January 2024.

Source and date of publication: Website of the Parliament of Georgia. 10/10/2022.

On 10 October 2022, the Government of Georgia submitted the draft law regulating securitization to the Parliament.

• Securitization means an agreement or set of agreements based on which the legal entity providing securitization undertakes credit risk related to the underlying assets by acquiring referred assets or otherwise (including signing derivatives) and issuing securitization instruments. 
• Securitization instruments might include debt security, securitization fund unit (share), the share of the securitization company, or taking a loan.
• The draft law regulates legal and financial matters related to the securitization agreement, parties, and securitization instruments issued as a result of the transaction.
• Securitization agreement and relevant entities are supervised by the National Bank.
• In the event of adoption, the draft law must become effective within 60 days from its publication.
• The first hearing on the draft law has not yet been held.

Source and date of publication: Website of the Parliament of Georgia. 10/10/2022

On 3 October 2022, the rules for responding to the facts of identification of counterfeit currencies on the territory of Georgia became effective.

• The rules are focused on the immediate withdrawal of counterfeit or/and doubtful currencies from circulation and the restriction of the distribution of counterfeit money on the territory of Georgia.
• Identified counterfeit currency is not subject to compensation and refund.
• The rules determine the obligations of the representatives of the financial and non-financial sectors upon identification of counterfeit or/and doubtful currencies.
• The rules set out obligations for carrying out an expert examination, systematization, registration, storage, and disposal in relation to the identified counterfeit currencies.

Source and date of publication: Legislative Herald of Georgia. 03/10/2022.

On 27 December 2022, the Law of Georgia on the Amendments to the Tax Code was published.

• The amendments, inter alia, determined the corporate income tax (the “CIT”) object and rate for certain entities.
• The provision on the transition of banking institutions, credit unions, microfinance organizations, and loan providers to the so-called Estonian CIT model from 2023 was repealed. The object of taxation with CIT for the mentioned entities, therefore, remains the difference between the gross income earned during a calendar year and the deductions determined under the Tax Code. In addition, the CIT rate was set at 20%.
• Furthermore, a dividend distributed out of the profits generated in 2023 and subsequent periods by the abovementioned entities will not be taxed at the source of payment and will not be included in the gross income of a person receiving a dividend.
• As for insurance organizations, their transition to the so-called Estonian CIT model was postponed for 1 year. Until 1 January 2024, the object of taxation with CIT for the mentioned entities is the difference between the gross income earned during the calendar year and the deductions determined under the Tax Code. From 1 January 2024, they will be subject to CIT according to the so-called Estonian model.
• The amendments became effective from 1 January 2023.

Source and date of publication: The Legislative Herald of Georgia. 27/12/2022.

On 15 December 2022, the Law of Georgia on the Amendments to the Tax Code was published.

• As a result of the amendments new articles were added to the Tax Code of Georgia, which define the obligations of the reporting financial institutions for the automatic exchange of information and the tax liability for non-compliance with these obligations.
• The amendments are designed to fulfill the obligations arising from the membership in the Global Forum on Transparency and Exchange of Information for Tax Purposes of the Organization for Economic Co-operation and Development (OECD).
• As a result of the amendments, Georgian financial institutions are required to follow the appropriate procedures established by the Common Reporting Standard (CRS) and to provide information on financial accounts to the Revenue Service.
• The amendments empowered the Revenue Service to transfer information received from financial institutions to the competent authorities of a foreign country and to monitor and control the financial institutions’ compliance with their CRS obligations.
• The amendments are fully effective from 1 January 2023.

Source and date of publication: The Legislative Herald of Georgia. 15/12/2022.

On 13 December 2022, the Law of Georgia on the Amendments to the Tax Code was published.

• The amendments determined the tax responsibility for the following tax offences: transporting a pharmaceutical product subject to the marginal price for entrepreneurial activity without a waybill, failure to issue a waybill at the request of the buyer, or refusing to accept a waybill when purchasing goods.
• The following fines were determined for the mentioned tax offences:
  • First commitment – GEL 1,000.
  • Second commitment – GEL 15,000.
  • Third and each subsequent commitment – GEL 30,000.
• To identify and prevent the mentioned offences, an authorized representative of a tax authority may stop a person and a vehicle and ask the person to present his/her identity document, the documents accompanying the vehicle, and the goods. An authorized representative may visually inspect the vehicle, count the goods to establish conformity with the accompanying documents, and use technical equipment to record the above procedures.
• The amendments will become effective from 15 March 2023.

Source and date of publication: The Legislative Herald of Georgia. 13/12/2022.