In Georgia, many business transactions, such as loans, advance payments, or capital contributions, are carried out in foreign currency. While this practice is common in international commerce, it carries specific tax implications that depend on how such operations are reflected and valued for Georgian tax purposes.
Under the Tax Code of Georgia, any taxable transaction conducted in a foreign currency must be converted into GEL using the official exchange rate of the National Bank of Georgia on the date of the transaction.
However, beyond this general principle, there are several important tax considerations that companies and individuals must take into account when dealing with foreign currency operations.
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Loans Issued in Foreign Currency to Non-Residents or Individuals
When a Georgian company issues a loan to a non-resident or individual, the company is required to pay corporate income tax (CIT) to the state budget at the time of the loan issuance. Later, once the principal amount of the loan is repaid, the company becomes entitled to claim back (set off) the CIT previously paid in proportion to the amount repaid.
Now, let’s consider a situation where a company issues a loan in foreign currency (for example, USD) to a non-resident. At the time of issuing the loan, the foreign currency amount must be converted into Georgian Lari (GEL) using the official exchange rate established by the National Bank of Georgia (NBG) on the date of the transaction. The taxable amount must therefore be reflected in GEL.
If the borrower repays part of the loan one year later, when the exchange rate has changed, the lender is entitled to claim back the portion of the CIT proportionate to the principal repaid, calculated based on the same exchange rate applicable on the loan issuance date.
Thus, even though the repayment occurs at a different time, the company has the right to claim the tax credit using the exchange rate applicable on the date the loan was originally issued, not the repayment date.
Accordingly, the company will be able to fully claim the corporate income tax paid upon full repayment of the principal amount. However, it cannot claim more than the amount of tax actually paid.
Advance Payments Made to Entities Registered in Low-Tax Jurisdictions
Under Georgian tax legislation, advance payments made to entities registered in preferential (low-tax) jurisdictions are treated as CIT-taxable transactions at the time of payment.
However, when the goods or services are subsequently received, the taxpayer becomes entitled to offset the previously paid CIT.
Just like in the case of foreign currency loans, the amount of tax eligible for offset must be calculated using the exchange rate applicable on the date of the taxable event, that is, the date the advance payment was made.
Exchange Rate Differences on Capital Contributions and Reductions
Capital contributions themselves are not taxable. However, when funds are later withdrawn from the company, certain factors may trigger taxation. One such factor is the foreign exchange difference between the contribution and subsequent capital reduction.
If a shareholder makes a contribution to the capital in foreign currency in accordance with the company’s charter, the contribution must be reflected in GEL at the official exchange rate of the National Bank of Georgia on the contribution date.
Later, if the shareholder decides to reduce capital and withdraw the equivalent amount in the same foreign currency, the withdrawal must again be translated into GEL at the rate applicable on that later date.
If the GEL value of the withdrawal exceeds the GEL value of the original contribution due to exchange rate appreciation, the difference will be treated as distributed profit and taxed accordingly. In such cases, the company must pay Corporate Income Tax at 15%, and a 5% withholding tax on dividends will also apply.
Foreign currency transactions are an integral part of modern business operations, particularly in Georgia’s open and internationally connected economy. Yet, as these examples show, exchange rate fluctuations can create significant tax consequences if not properly managed.
Whether issuing loans to non-residents, making advance payments to entities in low-tax jurisdictions, or adjusting capital contributions, taxpayers must carefully apply the conversion and timing rules set by the Georgian Tax Code.
Accurate currency conversion and compliance with timing principles are essential to avoid unexpected tax exposure and ensure smooth financial reporting.
About Andersen in Georgia
At Andersen Georgia, we assist businesses in managing the tax implications of foreign currency transactions, from loans and advances to capital movements and profit distributions. Our team provides tailored advice on exchange rate conversion, CIT recovery mechanisms, and structuring cross-border operations in line with Georgian legislation.
Disclaimer: This article is based on Georgian legislation and publicly available information as of October 2025. It is intended for informational purposes only and does not constitute legal or tax advice. Readers should seek professional guidance tailored to their specific situation before making any decisions based on the information provided.