Transparency of the Regulatory System
The Georgian government has committed to greater transparency and simplicity of regulation. The government publishes laws and regulations in Georgian in the official gazette, the Legislative Messenger, ‘Matsne’ (www.matsne.gov.ge). Another online tool to research Georgian legislation is www.codex.ge.
Draft bills or regulations are available for public comment. NGOs, professional associations and business chambers take active part in public hearings of the laws that concern their respective areas of operations.
Georgia has six types of tax: corporate profit, value added tax (VAT), property, income, excise, and dividend. The tax on corporate profits is 15 percent. However, in January 2017, the government adopted a corporate profit tax scheme that exempts from income taxation undistributed, reinvested, or retained corporate profits. The VAT is 18 percent. The tax on personal income is 20 percent. The dividend income tax rate is 5 percent. There are no dividend and capital gains taxes for publicly traded equities (a free float in excess of 25 percent). There are excise taxes on cigarettes, alcohol, fuel, and mobile telecommunication. Most goods, except for some agricultural products, have no import tariffs. For goods with tariffs, the rates are five or 12 percent unless excluded by an FTA.
The Georgian National Investment and Export Promotion Agency has Business Information Centers in Tbilisi and other cities intended to provide domestic and foreign businesses with a standard package of information about doing business in Georgia. They also provide specific information for individual businesses. Business Information Centers also facilitate a public-private dialogue to improve communication between regulators and businesses. The Government has, additionally, institutionalized engagement with the private sector through an independent Investors Council, which discusses legislative reforms, the government’s economic development plan, and actions that would help grow the economy.
International accounting standards are binding for joint stock companies, banks, insurance companies and other companies operating in the insurance field, limited liability companies, limited partnerships, joint liability companies, and cooperatives. Private companies are required to perform accounting and financial reporting in accordance with international accounting standards. Sole entrepreneurs, small businesses, and non-commercial legal entities perform accounting and financial reporting according to simplified interim standards approved by the Parliamentary Accounting Commission. Shortcomings in the use of international accounting standards persist, and qualified accounting personnel are in short supply.
On March 21, 2014 the Parliament of Georgia adopted the amendments to the Law of Georgia on Free Trade and Competition. These amendments were developed as part of the anti-monopoly reform and aim to promote a free, competitive marketplace. The law provided for the establishment of an independent structure, named the Competition Agency, to exercise effective state supervision over a free, fair, and competitive market environment. Nonetheless, certain companies have dominant positions in pharmaceutical, petroleum, and other sectors.
International Regulatory Considerations
Georgia’s Association Agreement with the European Union includes provisions for the establishment of a Deep and Comprehensive Free Trade Area (DCFTA). The agreement is designed to gradually introduce European standards in all spheres of Georgia's economy and sectoral policy: infrastructure, energy, the environment, agriculture, tourism, technological development, employment and social policy, health protection, education, culture, civil society, regional development, etc. It also provides for the approximation of Georgian laws with nearly 300 items of European legislation.
The DCFTA should promote a gradual approximation with European standards for food safety; the establishment of a transparent and stable business environment; an increase in Georgia's potential to attract investment; the introduction of innovative approaches and new technologies; the stimulation of economic growth; and support for the country's economic development.
Georgia is a World Trade Organization (WTO) member, and since WTO accession, has not introduced any Technical Barriers to Trade.
Legal System and Judicial Independence
Georgia's legal system is based on civil law. The Ministry of Justice's Public Service Halls provide property registration.
Georgia does not have an integrated commercial code. There are, however, a number of different laws and codes (Tax Code, Law on Entrepreneurs, and Law on Insolvency) that constitute the legislative body for regulating commercial activity in Georgia.
According to Freedom House’s 2016 Freedom in the World Report, “executive and legislative interference in the judiciary remains a substantial problem, although judicial transparency and accountability have improved in recent years, in part due to increased media access to courtrooms.” In 2016-17, several commercial disputes raised questions about the ability of the courts to hear commercial cases independently and competently within a reasonable time frame.
Regulations and enforcement actions are appealable, and they are adjudicated in the national court system.
Laws and Regulations on Foreign Direct Investment
The U.S.-Georgia Bilateral Investment Treaty (BIT) guarantees U.S. investors national treatment and most favored nation treatment. Exceptions to national treatment have been carved out for Georgia in certain sectors such as maritime fisheries, air and maritime transport and related activities, ownership of broadcast, common carrier, or aeronautical radio stations, communications satellites, government-supported loans, guarantees, and insurance, and landing of submarine cables.
Georgia's legal system is based on civil law. Legislation governing foreign investment includes the Constitution, the Civil Code, the Tax Code, and the Customs Code. Other relevant legislation includes the Law on Entrepreneurs, the Law on Promotion and Guarantee of Investment Activity, the Bankruptcy Law, the Law on Courts and General Jurisdiction, the Law on Limitation of Monopolistic Activity, the Accounting Law, and the Securities Market Law.
Ownership and privatization of property is governed by the following acts: the Civil Code, the Law on Ownership of Agricultural Land, the Law on Private Ownership of Non-Agricultural Land, the Law on Management of State-Owned Non-Agricultural Land, and the Law on Privatization of State Property. Property rights in extractive industries are governed by the Law on Concessions, the Law on Deposits, and the Law on Oil and Gas. Intellectual property rights are protected under the Civil Code and the Law on Patents and Trademarks. Financial sector legislation includes the Law on Commercial Banks, the Law on National Banks, and the Law on Insurance Activities.
Competition and Anti-Trust Laws
The agency in charge of reviewing transactions for competition-related concerns is the Competition Agency, an independent legal entity of public law, subordinated to the Prime Minister of Georgia. The agency aims to promote market liberalization, free trade, and competition (see www.competition.ge). Georgia has also signed a number of international agreements containing competition provisions including the EU-Georgia Association Agreement, which was ratified by the Georgian Parliament in July 2014. The Deep and Comprehensive Free Trade Area (DCFTA) within the AA goes further than most FTAs, with elimination of non-tariff barriers and regulatory alignment, as well as binding rules on investments and services.
Expropriation and Compensation
The Georgian Constitution protects property ownership rights, including ownership, acquisition, disposal, and inheritance of property. Foreign citizens living in Georgia possess rights and obligations equal to those of the citizens of Georgia. The Constitution allows restriction or revocation of property rights only in cases of extreme public necessity, and then only as allowed by law.
The Law on Procedures for Forfeiture of Property for Public Needs establishes the rules for expropriation in Georgia. The law allows expropriation for certain enumerated public needs and provides a mechanism for valuation and payment of compensation, and for court review of the valuation at the option of any party. The Georgian Law on Investment allows expropriation of foreign investments only with appropriate compensation. Amendments made to the Law on Procedures for Forfeiture of Property for Public Needs allow payment of compensation with property of equal value as well as money. Compensation includes all expenses associated with the valuation and delivery of expropriated property. Compensation must be paid without delay and must include both the value of the expropriated property as well as the loss suffered by the foreign investor as a result of expropriation. The foreign investor has a right to review an expropriation in a Georgian court. In 2007, Parliament passed a law generally prohibiting the government from contesting the privatization of real estate sold by the government before August 2007. The law is not applicable, however, to certain enumerated properties.
The U.S.-Georgia Bilateral Investment Treaty permits expropriation of covered investments only for a public purpose, in a non-discriminatory manner, upon payment of prompt, adequate and effective compensation, and in accordance with due process of law and general principles of fair treatment.
Expropriation disputes are not common in Georgia, although under the previous government (before 2012) reputable NGOs raised cases of illegal revocation of historic ownership rights in Svaneti, Anaklia, Gonio, and Black Sea-adjacent territories. There were also reports that the government improperly used eminent domain to seize property in Tbilisi at unfairly low prices, particularly associated with the Tbilisi Railway Bypass Project and other infrastructure expansion/improvement projects.
ICSID Convention and New York Convention
Since 1992, Georgia has been a member of the International Centre for Settlement of Investment Disputes (ICSID Convention), and a signatory to the convention on the Recognition and Enforcement of Foreign Arbitral Awards (1958 New York Convention).
As a result of these international obligations, Georgia is bound to accept international arbitration and recognize arbitral awards. The Ministry of Justice oversees the government’s interests in arbitrations between the state and private investors.
Investor-State Dispute Settlement
Georgia has signed bilateral investments treaties (BITs) with over 30 countries including the United States. Georgian investment law allows disputes between a foreign investor and a government body to be resolved in Georgian courts or at ICSID, unless a different method of dispute settlement is agreed upon between the parties. If the dispute cannot be heard at ICSID, the foreign investor can also submit the dispute to ad-hoc international arbitration under United Nations Commission for International Trade Law (UNCITRAL model law) rules. The right to use ICSID or UNCITRAL model law is guaranteed under the U.S.–Georgia Bilateral Investment Treaty.
Disputes over property rights have at times undermined confidence in the impartiality of the Georgian judicial system and rule of law, and by extension, Georgia’s investment climate. The government identified judicial reform as one of its top priorities and Parliament has passed reforms aimed at strengthening judicial independence. In May 2013, parliament reorganized the High Council of Justice, the institution charged with overseeing the administration of the judiciary, to make it more independent and free from political considerations.
Over the past 10 years, there have been five investment disputes involving U.S. citizens, and all of them have been resolved through arbitral awards or out-of-court settlements.
Local Courts recognize and enforce foreign arbitral awards issued against the government.
There is no substantial history of extrajudicial action against foreign investors.
International Commercial Arbitration and Foreign Courts
Georgia's arbitration law went into force on January 1, 2010. Georgia has enacted legislation based on the UNCITRAL Model Law. Domestic private arbitration firms, such as the International Arbitration Center (www.giec.ge), operate in dispute resolution between two private parties.
In the ‘Resolving Insolvency’ category of the World Bank 2016 Doing Business report, Georgia slipped from 101 to 106 out of 189 economies, although the report stated that Georgia expedited the process of resolving insolvency by establishing or tightening time limits for all insolvency-related procedures, including auctions. The bankruptcy process remains clumsy.
At the Ministry of Justice’s request, USAID conducted a diagnostic assessment of the Insolvency System of Georgia using interviews from local stakeholders, reports and analyses by international organizations (e.g. EBRD, the World Bank and GIZ) to identify deficiencies. The assessment supported the Ministry’s findings that the insolvency law is not utilized as a tool to resolve financial distress in Georgia. The assessment also found that the lack of use of the law was due to the stigma attached to insolvency and a lack of understanding of the law by debtors and creditors in the current economy. The Law adversely affects the rights of senior secured creditors, and largely ignores the rights of unsecured creditors, by not providing a flexible enough framework for “rehabilitation” to be a useful strategy for either debtors or creditors. The assessment also found that the insolvency system possesses significant legal and economic weaknesses and that stronger policies are needed to create a more effective environment for the resolution of financial failure in Georgia.
In response to the above assessment, the Ministry of Justice has established a government and private working group to develop a revised draft insolvency law and to make the bankruptcy process more efficient.