Ministry of Economic Development of Georgia > Economic Reforms

During the last years, Government of Georgia (GoG) implemented significant economic reforms, which were addressed to stipulate attractive business environment in order to enhance foreign direct investment inflow, create new jobs, stimulate entrepreneurial activities in various fields of economy and increase the welfare of citizens.

Implemented institutional reforms created the effective, professional and transparent public sector, which is motivated to protect the principles of democracy.

Due to the economic deregulation policy, number of state regulated spheres sharply decreased, as well as regulation procedures were simplified.

Accelerated and transparent privatization policy facilitated as increase of foreign direct investment inflow, as well as local investments in economy and consequently, which support to increase of private sector role in country’s economy.

Promoting the development of private sector is one of the main goals of country economic policy. Economic reforms are addressed to liberalization and provision of sustainable economic growth based on the private sector development. In this direction, (GoG) made several important steps:

Liberal Tax Policy – due to implemented reforms in tax policy, Georgian tax jurisdiction is one of the most liberal in Europe. Number of taxes and rates as well were significantly redused from 21 to 6 (2004-2008) - according to the Georgian Tax Code, currently, the number of taxes is only 6, including 5 state taxes and 1 local tax:

• State Taxes: Personal Income tax, Profit tax, Customs tax, VAT and Exsice tax;
• Local Tax: Property tax.

In 2007, important changes made in the Tax Code promoted the changes of tax system, namely, social tax was replaced by unified income tax (25% in 2008; 20% since 2009), also profit tax rate was reduced from 20% to 15%. Tx rates on dividends and interest are 5 percent, instead of 10 percent in 2005. In addition, significant procedural and institutional reforms were made - simplified system of tax disputes discussion was established, which will make the country more attractive for entrepreneurs and foreign investors. It is foreseen further liberalization of tax system.

Customs Reform – new Georgian Customs Code established simplified customs procedures. Customs Tariffs Reform significantly simplified and sharply reduced the costs connected to the foreign trade.

Number of import tariffs were abolished on approximetaly 90% of products and only 3 tariff rates (0%, 5%, 12%) exist instead of previous 16. Georgia sets custom taxes on several kinds of agricultural goods and constructing materials only. In addition, there are no quantitative restrictions (quotas) on imports and exports.

Modernized system of Licenses and Permits – due to the reform of the system of licenses and permits, the number licenses and permits was reduced by 84%. Currently, licenses and permits are only required in the production of highly risky goods and services, usage of natural resources and specific activities. The procedures of issuing licenses and permits were significantly simplified, the “One-Stop-Shop” and “Silence is Consent” principles were introduced. “One-Stop-Shop” which simplified relations between state and customers of state services and “Silence is Consent” implies that if person is not notified about argumentated rejection about issuance of license in limited framework, the license is considered as issued from the relevant body.

Creation of Free Industrial Zones – decision on establishnent of free industrial zones (FIZ) was edopted for creation the more favourable environment for FDI, which drives new technologies, employment generation and export growth. According to the law on ”Free Industrial Zones” FIZ can be created on more than 10 hector territory on the basis of the government’s decision or by the initiative of physical person/legal entity. The GoG takes final decision on FIZ creation.

More liberal – special taxation rejime applied to companies, acting within the zone. They are free from profit, property and value added taxes. Besides, the import of goods, produced in the free industrial zone to the other territory of Georgia (outside the free industrial zone ), as well as the export of foreign goods to the free industrial zone is free from customs tax.

Establishment and operation of FIZ-s will facilitate as regional as well as country’s economic development.

The reform of Technical Regulation System – the removal of technical barriers for Georgian goods and services on international market is inevitable precondition for further economic development of Georgia. In order to reach this goal, the reform of technical regulation system was implemented which will ensure:

• Removal of technical barriers in international trade;
• Improvement of investment environment;
• To increase of access of Georgian goods to the foreign markets;
• Approximation to international end European norms;
•  Implementation of obligations under the requirements of WTO, which basically includes the transformation of national mandatory standards into the voluntary standards;
• Service transparency in the field of technical regulation;

As a result of the reform, national mandatory standards system was replaced by the voluntary standards and the state regulating role in this system was declined. This process will significantly facilitate the expansion of entrepreneurial activity. The introduction of voluntary standardization in Georgia gives entrepreneurs the possibility:

• To select the standard for his activities registered in the country;
• To use the standard of any country or any regional or international standard, for entrepreneurial activities;
• To elaborate own standard for new goods, register it in the national agency and use it in entrepreneurial activity.
• Get consultations for standards’ selection and elaboration.

Privatization of State Property – Starting from 2004, provision of accelerated and transparent privatization policy was one of the important reforms of Georgian Government, that was addressed to denationalization of the remained state property in order to attract foreign investments, increase and develop the private sector, effective use of country resources and stimulation of economic development.

Liberal Labour Code – new Georgian Labour Code made significant reforms in the sphere of labour relations, simplifying the relations between employers and employees. As a result of the reform, ”Heritage Foundation” and other analitical centers named Georgian Labour Code as one of the most liberal in the world, because it significantly reduced hiring and firing expenses.

Competitive Trade Regimes – starting from 2003, Georgian foreign trade turnover has been characterized with upward tendency that is supported by the liberal trade policy provided in the country.

Competitive trade regimes in Georgia:

• Free Trade Regime – with CIS countries and Turkey (since November 1, 2008);
• Most Favored Nation Regime (MFN) – with World Trade Organization (WTO) member countries;
• Preferential Regime (GSP) – with USA, Canada, Japan, Switzerland, Norway;
• Preferential Regime (GSP+) – with EU (7200 items) since 2005.

Georgia has concluded double taxation treaties with 33 countries and has bilateral treaties on investment promotion and protection with 32 countries.

There is possibility of Free Trade Regime with European Union in the nearest future.