Georgia is located at the crossroads of Western Asia and Eastern Europe. Georgia has made sweeping economic reforms since 1991 that have produced a relatively well-functioning market economy. Through dramatic police and institutional reforms, the government has mostly eradicated low-level corruption. Georgia ranks 6th in the 2019 World Bank’s Ease of Doing Business index, 16th in the Heritage Foundations’ 2019 Economic Freedom Index, and 66th in the World Economic Forum’s Global Competitiveness Report. Fiscal and monetary policy are focused on low deficits, low inflation, and a floating real exchange rate, although the latter has been affected by regional developments, including sanctions on Russia and other external factors such as a stronger dollar and weaker regional economies. Public debt and budget deficits remain under control.
The Georgian government’s “Georgia 2020” economic strategy, initially published in 2014, outlines economic policy priorities. It stresses the government’s commitment to business-friendly policies such as low taxes, but also pledges to invest in human capital and to strive for inclusive growth across the country, not just in Tbilisi. The strategy also emphasizes Georgia’s geographic potential as a trade and logistics hub along the New Silk Road linking Asia and Europe via the Caucasus.
Overall, business and investment conditions are sound. However, some companies have expressed an increasing lack of confidence in the judicial sector’s ability to adjudicate commercial cases independently or in a timely, competent manner, with business dispute cases languishing in the court system for years. Other companies complain of inefficient decision-making processes at the municipal level, occasional shortcomings in the enforcement of intellectual property rights, lack of effective anti-trust policies, selective enforcement of economic laws, and difficulties resolving disputes over property rights. Georgia’s government continues to work to address these issues and, despite these remaining challenges, Georgia stands far ahead of its post-Soviet peers as a good place to do business.
The United States and Georgia work to increase bilateral trade and investment through a High-Level Dialogue on Trade and Investment and through the Strategic Partnership Commission’s Economic Working Group. Both countries signed a Bilateral Investment Treaty in 1994, and Georgia is eligible to export many products duty-free to the United States under the Generalized System of Preferences (GSP) program.
Georgia suffered considerable instability in the immediate post-Soviet period. After independence in 1991, civil war and separatist conflicts flared up along the Russian border in the areas of Abkhazia and South Ossetia. The status of each region remains contested, and the central government in Tbilisi does not have control over these areas. The United States supports the territorial integrity of Georgia within its internationally-recognized borders. In August 2008, tensions in the region of South Ossetia culminated in a brief war between Georgia and Russia. Russia invaded undisputed Georgian territory and continues to occupy South Ossetia and Abkhazia. Tensions still exist both inside the occupied regions and near the administrative boundary lines, but other parts of Georgia, including Tbilisi, are not directly affected.
Transit and logistics are a priority sector as Georgia seeks to benefit from increased East/West trade through the country. Georgia’s transit prospects have been boosted by the Baku-Tbilisi-Kars railroad. The Anaklia Deep Sea Port project, involving two U.S. companies, the Conti Group and SSA Marine, faced multiple delays and extensions, but the lead investor is still working towards meeting the 2020 completion date. The port would add additional shipping and berthing options for larger vessels, such as Panamax sized vessels. Agriculture and tourism are also attractive areas for investment to respond to the increased inflow of international visitors and demands of local food processing industry.
Table 1: Key Metrics and Rankings
|TI Corruption Perceptions Index||2018||41of 180||http://www.transparency.org/research/cpi/overview|
|World Bank’s Doing Business Report||2019||6 of 190||http://www.doingbusiness.org/en/rankings|
|Global Innovation Index||2018||59 of 126||https://www.globalinnovationindex.org/analysis-indicator|
|U.S. FDI in partner country ($M USD, stock positions)||2018||$22||http://www.bea.gov/international/factsheet/|
|World Bank GNI per capita||2017||$3,780||http://data.worldbank.org/indicator/NY.GNP.PCAP.CD|
1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
Georgia is open to foreign investment. Legislation establishes favorable conditions for foreign investment, but not preferential treatment for foreign investors. The Law on Promotion and Guarantee of Investment Activity protects foreign investors from subsequent legislation that alters the condition of their investments for a period of ten years. Investment promotion authority is vested in the Investment Division of Enterprise Georgia, a legal entity of public law under the Ministry of Economic and Sustainable Development. The Investment Division’s primary role is to attract, promote, and develop direct foreign investment in Georgia. For this purpose, it acts as the moderator between foreign investors and the Georgian government, ensures access to updated information, provides a means of communication with government bodies, and serves as a “one-stop-shop” to support investors throughout the investment process. (http://www.enterprisegeorgia.gov.ge/en/about ).
To enhance relations with investors, Georgia’s then-Prime Minister created the Investors Council in 2015, an independent advisory body, with the objective of promoting dialogue among the private business community, international organizations, donors and the Georgian government for the development of a favorable, non-discriminatory, transparent, and fair business and investment climate in Georgia. (http://ics.ge ). The Business Ombudsman, who is a member of the Investors Council, is another tool for protecting investors’ rights in Georgia. (http://businessombudsman.ge )
Limits on Foreign Control and Right to Private Ownership and Establishment
Georgia does not screen foreign investment in the country, other than imposing a registration requirement and certain licensing requirements as outlined below. Foreign investors have participated in most major privatizations of state-owned property. Transparency of privatization has been an issue at times. No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation, or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict foreign partners’ investment activity or limit foreign partners’ ability to gain control over domestic enterprises.
There are no specific licensing requirements for foreign investment other than those that apply to all companies. By law, the government has 30 days to make a decision on licenses, and if the licensing authority does not state a reasonable ground for rejection within that period, the government will approve the license or permit for issuance. The government only requires licenses for activities that affect public health, national security, and the financial sector. The government currently requires licenses in the following areas: weapons and explosives production, narcotics, poisonous and pharmaceutical substances, exploration and exploitation of renewable or non-renewable substances, exploitation of natural resource deposits, establishment of casinos and gambling houses and the organization of games and lotteries, banking, insurance, securities trading, wireless communication services, and the establishment of radio and television channels. The law requires the state to retain a controlling interest in air traffic control, shipping traffic control, railroad control systems, defense and weapons industries, and nuclear energy. Only the state may issue currency, banknotes, and certificates for goods made from precious metals, import narcotics for medical purposes, and produce control systems for the energy sector.
Other Investment Policy Reviews
In January 2016, the World Trade Organization (WTO) concluded its second Trade Policy Review of Georgia. In this review, WTO members reiterated their approval of Georgia’s broadly open, transparent, and predictable trade and investment regimes. During the review period, Members noted that Georgia had undertaken an impressive range of reform initiatives aimed at streamlining, liberalizing, and simplifying trade regulations and their implementation. The review lauded Georgia’s trade openness and its commitment to the multilateral system through its responsible contribution to the work of the WTO.
WTO members commended Georgia for the ratification of the Trade Facilitation Agreement, which would benefit Georgia’s role as a trade transit corridor in the region, and the related notification to the WTO of Category A, B and C commitments. Members also noted that Georgia was an observer to the Government Procurement Agreement and was currently assessing the prospects for joining the Agreement. Members welcomed the announcement that Georgia was considering joining the expanded Information Technology Agreement, which would constitute a significant step forward for attracting further investment. See more at https://www.wto.org/english/tratop_e/tpr_e/tp428_crc_e.htm
Registering a business in Georgia is relatively quick and streamlined, and Georgia ranks fourth in registering property among countries assessed in the World Bank’s 2019 Doing Business Report. Registration takes one day to complete and Georgia has a single window registration process. Registration of companies is carried out by the National Agency of Public Registry (NAPR) (www.napr.gov.ge – webpage is in Georgian only), located in the Public Service Halls (PSH) under the Ministry of Justice of Georgia. The web page of the PSH (http://www.psh.gov.ge/main/page/2/85 ) outlines procedures and requirements for business registration in English. For registration purposes, the law does not require a document verifying the amount or existence of charter capital. A company is not required to complete a separate tax registration. The initial registration includes both the state and tax registration.
The following information is required to register a business in Georgia: personal information of the founder and principal officers, articles of incorporation, and the company’s area of business activity. Other required documents depend on the type of entity to be established.
To register a business, the potential owner must first pay the registration fee, register the company with the Entrepreneurial Register and obtain an identification number and certificate of state and tax registration. Registration fees are: GEL100 (around USD35) for regular registration, GEL200 (USD70) for expedited registration, plus GEL1 (bank fees). Second, the owner must open a bank account (free).
Georgia’s business facilitation mechanism provides equitable treatment of women and men. There are a variety of state-run and donor-supported projects that aim to promote women entrepreneurs through specific training or other programs, including access to financing and business training.
The Georgian government does not have any specific policy on promoting or restricting domestic investors from investing abroad and Georgia’s outward investment is insignificant.
2. Bilateral Investment Agreements and Taxation Treaties
Bilateral Investment Treaties
Georgia has bilateral agreements on investment promotion and mutual protection enforced with 31 countries, including: the United States, Armenia, Austria, Azerbaijan, Belgium-Luxembourg Economic Union, Bulgaria, China, the Czech Republic, Estonia, Finland, France, Germany, Greece, Iran, Israel, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lithuania, Moldova, the Netherlands, Romania, Spain, Sweden, Switzerland, Turkmenistan, Ukraine, the United Kingdom, and Uzbekistan. Concluded agreements awaiting signing are with Egypt, Turkey, and the United Arab Emirates (UAE). Negotiations are underway with the governments of Canada, Hungary, Iceland, Italy, Japan, Qatar, and Slovenia. Additionally, in 2007, Georgia signed a Trade and Investment Framework Agreement (TIFA) with the United States.
On June 27, 2014, Georgia signed an Association Agreement (AA) and a Deep and Comprehensive Free Trade Area (DCFTA) with the European Union. In 2016, the government signed a free trade agreement with the European Free Trade Association (EFTA) countries of Iceland, Liechtenstein, Norway, and Switzerland. Georgia’s free trade agreement with China entered into force in January 2018. A free trade agreement is in force with the Commonwealth of Independent States and others exist bilaterally with Ukraine, Russia (though trade is restricted by the Russian government), Kazakhstan, Azerbaijan, Armenia, Moldova, Uzbekistan, Turkmenistan, and Turkey. Georgia has ongoing free trade agreement consultations with Belarus, Kyrgyzstan, the Cooperation Council of Gulf Arab States, India, and Tajikistan. Georgia and Hong Kong signed an agreement in 2018, which is awaiting ratification by Parliament.
The United States and Georgia established a High-Level Dialogue on Trade and Investment in 2012, a bilateral dialogue aimed toward identifying measures to increase bilateral trade and investment. The United States and Georgia have shared a Bilateral Investment Treaty (BIT) since 1997, and Georgia can export many of its products duty-free to the United States under the Generalized System of Preferences (GSP) program.
Bilateral Taxation Treaties
The United States and Georgia are beneficiaries of the U.S.-Georgia Bilateral Taxation Treaty as Georgia is one of the former Soviet Republics, which is covered under the U.S. treaty with the former Union of Soviet Socialist Republics (USSR). Double taxation issues are covered under the Convention with the Union of Soviet Socialist Republics on Matters of Taxation of 1973 (http://www.irs.gov/pub/irs-trty/ussr.pdf ).
Georgia has concluded agreements for avoidance of double taxation with 55 countries: Armenia, Austria, Azerbaijan, Bahrain, Belarus, Belgium, Bulgaria, China, Cyprus, the Czech Republic, Croatia, Denmark, Estonia, Egypt, Finland, France, Germany, Greece, Hungary, Iceland, India, Iran, Ireland, Italy, Israel, Japan, Kazakhstan, Kuwait, Latvia, Liechtenstein, Lithuania, Luxembourg, Malta, Moldova, the Netherlands, Norway, Poland, Portugal, Qatar, Romania, San Marino, Serbia, Singapore, Slovakia, Slovenia, South Korea, Spain, Sweden, Switzerland, Turkey, Turkmenistan, UAE, Ukraine, the United Kingdom (UK), and Uzbekistan. Treaties have been negotiated but are waiting to be ratified with Lebanon and Oman, and treaty negotiations have started with Jordan, Montenegro, Saudi Arabia, Vietnam, Iraq, Argentina, Indonesia, Malaysia, Mexico, Albania, Colombia, Mongolia, Morocco, New Zealand, Peru, the Philippines, Tajikistan, Uruguay, Brazil, Cuba, Ecuador, Canada, and South Africa. Georgia and Russia signed a double taxation avoidance treaty in 1999, which the Georgian Parliament ratified in 2000; although the Russian Duma has not ratified it, Russia regards it as an active agreement.
3. Legal Regime
The Georgian government has committed to greater transparency and simplicity of regulation. The government publishes laws and regulations in Georgian in the official online legislative herald gazette, the Legislative Messenger, ‘Matsne’ (www.matsne.gov.ge ). Another online tool to research Georgian legislation is www.codex.ge , or webpage of the Parliament of Georgia www.parliament.ge .
Draft bills or regulations are available for public comment. NGOs, professional associations, and business chambers actively participate in public hearings on legislation.
Georgia has six types of taxes: 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 undistributed, reinvested, or retained corporate profits from income taxation. The VAT is 18 percent. The tax on personal income is 20 percent. The dividend income tax rate is five percent. There are no dividend or 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.
In 2019, the Georgian government introduced new regulations to simplify the tax regime and provide a more streamlined business environment for small businesses. The new legislation decreased turnover tax from five percent to one percent for small businesses; defined small business as a business with below GEL 0.5 million annual turnover (USD 185 thousand), a five fold increase from the previous GEL 0.1 million threshold. In addition, the new regulations allow small businesses to pay taxes by the end of month, instead of by advance payments. Regarding medium and large businesses, the reform introduces an automatic system of value-added tax (VAT) returns, and activated a special system wherein entrepreneurs are able to pay VAT returns in five to seven business days by filling out an electronic application without any additional bureaucracy-related challenges. The government also announced it planned to implement new tax policies to encourage multinational companies to establish regional offices in Georgia. Respective legislation, which, inter alia, provides for reduced corporate income tax and property tax, has been submitted to Parliament and is expected to be adopted in 2019.
Enterprise Georgia, the state agency under the Ministry of Economic and Sustainable Development, operates the Business Service Center in Tbilisi intended to provide domestic and foreign businesses with a standard package of information about doing business in Georgia. It also provides specific information for individual businesses. The Business Service Center also facilitates an on-line chat tool for interested individuals (http://www.enterprisegeorgia.gov.ge/en/SERVICE-CENTER ). Additionally, the government has 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 spur economic growth. Different commercial chambers, such as the American Chamber of Commerce (www.amcham.ge ), International Chamber of Commerce (www.icc.ge ), Business Association of Georgia (www.bag.ge ), Georgian Chamber of Commerce and Industry (www.gcci.ge ), and EU-Georgia Business Council (http://eugbc.net ) remain important tools for facilitating ongoing dialogue between domestic and foreign business communities and the government.
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.
The Law of Georgia on Free Trade and Competition provides for the establishment of an independent structure, 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.
Public finances and debt obligations are transparent, and Georgia’s budget and information on debt obligations were widely and easily accessible to the public through the governmental websites, for example through the Ministry of Finance’s site www.mof.gov.ge . Georgia’s State Audit Office (www.sao.ge ) reviews the government’s accounts and makes its reports publicly available.
International Regulatory Considerations
Georgia’s Association Agreement of 2014 with the European Union introduced a preferential trade regime – the Deep and Comprehensive Free Trade Area (DCFTA), which increased market access between the EU and Georgia based on having better-aligned regulations. 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, and regional development. It also provides for the approximation of Georgian laws with nearly 300 separate European legislative acts.
The DCFTA should promote a gradual approximation with European standards for food safety; establish a transparent and stable business environment in Georgia; increase Georgia’s potential to attract investment; introduce innovative approaches and new technologies; stimulate economic growth; and support the country’s economic development.
Georgia has been a member of the World Trade Organization (WTO) since 2000 and consistently meets the Agreement on Trade Related Investment Measures’ (TRIMs) requirements and obligations. Since WTO accession, Georgia has not introduced any Technical Barriers to Trade. In January 2016, Georgia ratified the WTO Trade Facilitation Agreement (TFA).
Legal System and Judicial Independence
Georgia’s legal system is based on civil law and the country has a three-tier court system. The first tier consists of twenty-five trial courts throughout the country that hear criminal, civil, and administrative cases at the lowest level. Two appellate courts, Tbilisi Appeal Court (East Georgia) and Kutaisi Appeal Court (West Georgia), represent the second tier. The Supreme Court of Georgia occupies the third, or the highest, instance and acts as the highest appellate court. In addition, there is a separate Constitutional Court for arbitrating constitutional disputes between branches of government and ruling on individual claims concerning human rights violations stemming from the Constitution.
Georgia does not have an integrated commercial code. There are 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. There are no specialized courts, such as a commercial court, to handle commercial disputes. The Ministry of Justice’s Public Service Halls provide property registration.
According to Freedom House’s 2018 Freedom in the World Report, “despite ongoing judicial reforms, executive and legislative interference in the courts remains a substantial problem, as does corruption and a lack of transparency and professionalism surrounding judicial proceedings.” The law guarantees due process, but this protection is not always respected in practice.
Regulations and enforcement actions are appealable and are adjudicated in the national court system.
Laws and Regulations on Foreign Direct Investment
The U.S.-Georgia 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.
There is no one-stop-shop website for investment that provides relevant laws in English.
Competition and Anti-Trust Laws
The Georgian Law “On Free Trade and Competition” of 2005 that governs competition is in line with the Georgian Constitution and international agreements.
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. The 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, 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 BIT 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 cases of transfer of property under the previous government, which lacked transparency and allegedly were implemented under coercion. One U.S. company recently alleged their assets were expropriated through government actions, but the government settled the issue by providing compensation to the company.
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 arbitration is reflected in the U.S.-Georgia BIT.
There were reports of lack of due process and respect for rule of law in a number of property rights cases. NGOs also reported several cases in which groups claimed the government improperly used taxes on property to pressure organizations.
Although the constitution and law provide for an independent judiciary, there remains indications of interference in judicial independence and impartiality. Judges are vulnerable to political pressure from within and outside of the judiciary.
Disputes over property rights at times have 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 a series of reforms aimed at strengthening judicial independence. While reforms have improved the independence of the judiciary, politically sensitive cases are still vulnerable to political pressure. The High Council of Justice is currently dominated by a group of anti-reform judges. Civil society asserts this group applies pressure on judges in politically sensitive cases. The government is currently in the process of passing additional judicial reforms that focus on judicial discipline and regulating the operations of the High School of Justice and High Council of Justice.
Over the past ten 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.
The Law of Georgia on Insolvency Proceedings regulates rehabilitation and bankruptcy. The law defines two types of creditors: secured and non-secured. Creditors can file a court claim for opening an insolvency proceeding, given certain conditions are satisfied (conditions vary, depending on the outstanding debt amount and the delayed days of repayment).
Creditor meetings are held in court and chaired by a judge. The creditor meeting can decide several issues, including the appointment of a supervisor of the bankruptcy or rehabilitation proceedings, and the appointment of a member of the facilitation council.
Secured creditors: Secured creditors must make unanimous decisions on approving a debtor’s new debts, the encumbrance of the debtor’s property, and suretyship. If there are no secured creditors, the creditor’s meeting is authorized to make the same decisions. The secured creditors may suspend enforcement of the following resolutions made in the creditor’s meeting on the material conditions of the agreement with the bankruptcy or rehabilitation supervisor or on the definition of the terms of the rehabilitation. After the debtor’s property is sold on auction, secured creditors have first priority for being repaid. All secured creditors must approve the rehabilitation plan and plan amendments. New equity investment in the debtor’s company is only possible if there are prior consents from all secured creditors and the rehabilitation supervisor.
Non-secured creditors: Non-secured creditors are satisfied only after all secured creditors are satisfied (unless otherwise agreed by all creditors unanimously). Non-secured creditors do not have voting rights for the rehabilitation plan approval.
The priority system shall not apply to creditors whose claim is secured by financial collateral.
Foreign creditors: The law provides additional time for foreign creditors to file claims. Creditors may file claims to the court and request to declare the agreements made by the insolvent debtor voidable and/or request reimbursement of damages, if such agreements inflicted damages to the creditor.
The Law of Georgia on Insolvency Proceedings only incurs criminal liabilities in case the debtor does not provide, or provides but with intentional delay, or provides falsified information about its obligations, assets, financial situation and activities, or ongoing disputes in which the debtor is involved.
The Debt Registry of the National Agency of the Public Register is Georgia’s credit monitoring authority.
According to the “Resolving Insolvency” section of the World Bank’s 2018 Doing Business Report, the Law of Georgia on Insolvency Proceedings made insolvency proceedings more accessible for debtors and creditors, improved provisions on treatment of contracts during insolvency, and granted creditors greater participation in important decisions during the proceedings. The report assigned Georgia a higher insolvency score, increasing from 55.59 in 2018 to 56.03 in 2019.
4. Industrial Policies
The Georgian government has created several tools to support investment in the country’s economy. JSC Partnership Fund (PF) is a state owned investment fund, established in 2011. The fund owns the largest Georgian state owned enterprises operating in transportation, energy and infrastructure sectors. PF’s main objective is to promote domestic and foreign investment in Georgia by providing co-financing (equity, mezzanine, etc.) in projects at their initial stage of development, with a focus on tourism, manufacturing, energy, and agriculture. (www.fund.ge )
In 2013, the Georgian Co-Investment Fund (GCF) was launched to promote foreign and domestic investments. GCF was announced as a reported six billion USD private investment fund, with the mandate of providing investors with unique access, through a private equity structure, to opportunities in Georgia’s fastest growing industries and sectors. (www.gcfund.ge )
The government’s ‘Produce in Georgia’ program is another tool for jointly financing foreign investment, given that the investor sets up a limited liability company in Georgia. The program aims to develop and support entrepreneurship, encourage creation of new enterprises, and increase export potential and investment in the country. Coordinated by the Ministry of Economy and Sustainable Development through its Entrepreneurship Development Agency, National Agency of State Property, and Technology and Innovation Agency of Georgia, the project provides the following support:
- Access to finance
- Access to real property
- Technical assistance
For more information please visit: http://enterprisegeorgia.gov.ge/en/home
The National Agency of State Property is in charge of the Physical Infrastructure Transfer Component, i.e., free-of-charge transfer of government-owned real property to an entrepreneur under certain investment obligations.
Low labor costs contribute to the attractiveness of Georgia as a foreign investment destination. It is also increasingly recognized as a regional transportation hub that provides access to the New Silk Road trade corridor linking Asia and Europe.
Georgia’s free trade regimes provide easy access for goods produced in Georgia to foreign markets. In some cases, foreign investors can benefit from these agreements by producing goods targeting these markets.
In October 2018, Georgia’s Prime Minister introduced the concept of electronic residency, allowing citizens of 34 countries to register their companies electronically and open bank accounts in Georgia while not having a physical presence in the country. Furthermore, the Prime Minister announced that as part of the government’s efforts to establish Georgia as a regional financial hub, the government will grant international companies significant tax benefits to open regional offices in Georgia. The government plans to launch the initiative in 2019.
Foreign Trade Zones/Free Ports/Trade Facilitation
In June 2007, the Parliament of Georgia adopted the Law on Free Industrial Zones, which defined the form and function of free industrial/economic zones. Financial operations in such zones may be performed in any currency. Foreign companies operating in free industrial zones are exempt from taxes on profit, property, and VAT. Currently, there are four free industrial zones (FIZ) in Georgia:
Poti Free Industrial Zone (FIZ): This is the first free industrial zone in the Caucasus Region, established in 2008. UAE-based RAK Investment Authority (Rakia) initially developed it, but in 2017, CEFC China Energy Company Limited purchased 75 percent of shares, and the Georgian government holds the remaining 25 percent. Poti FIZ, a 300-hectare area, benefits from its close proximity to the Poti Sea Port. www.potifreezone.ge.
A 27-hectare plot in Kutaisi is home to the Egyptian company Fresh Electric, which constructed a kitchen appliances factory in 2009. The company has committed to building about one dozen textile, ceramics, and home appliances factories in the zone, and announced its intention to invest over USD 2billion.
Chinese private corporation “Hualing Group,” based in Urumqi, China, developed another FIZ in Kutaisi in 2015. This FIZ is a 36-hectare area that houses businesses focused on sales of wood, furniture, stone, building materials, pharmaceuticals, auto spare parts, and beverages: www.hualingfiz.ge.
The Tbilisi Free Zone (TFZ) in Tbilisi and occupies 17 hectares divided into 28 plots. TFZ has access to the main cargo transportation highway, Tbilisi International Airport (30 km), and the Tbilisi city center (17 km). For more information, visit: https://www.tfz.ge/en/510/ .
Performance and Data Localization Requirements
Performance requirements are not a condition of establishing, maintaining, or expanding an investment, but have been imposed on a case-by-case basis in some privatizations, such as commitments to maintain employment levels or to make additional investments within a specified period of time. Performance requirements such as the scope and time limit on licenses to extract natural resources or production sharing agreements have triggered complaints from some companies that transactions lacked transparency. Most types of performance requirements are prohibited by the U.S.-Georgia BIT.
The government does not follow a forced localization policy; foreign investors have no obligation to use domestic content in goods or technology. In addition, there are no requirements for foreign IT providers to turn over source codes and/or provide access to surveillance.
The Data Exchange Agency (DEA), under the Ministry of Justice, coordinates e-governance development, data exchange infrastructure, unified governmental networks, informational and communication standards, and cybersecurity policy. The DEA requires any company managing critical data to implement a number of security protocols to protect that information (see www.dea.gov.ge ).
5. Protection of Property Rights
Georgia ranks high in World Bank’s Doing Business 2019 report in general, but especially in the category of “registering property.” Processes are streamlined and transparent, and takes minimal time. It takes one day and is conducted at Public Service Halls.
In June 2017, the Parliament adopted a legislative amendment that placed a moratorium on the sale of agricultural land to foreign citizens and stateless persons. Under the amendment, foreigners, legal entities registered abroad, and legal entities registered by foreigners in Georgia were not able to purchase agricultural land in Georgia. Furthermore, the new Constitution that came into force in December 2018, imposed restrictions on the sale of agricultural land. Currently the parliament is considering a draft law that would allow foreigners to purchase land under a relevant investment plan and other preconditions.
Mortgages and liens are registered through the public registry and information can be obtained from the webpage www.napr.gov.ge .
The government has taken multiple steps to regulate land titling, including facilitating simplified procedures, free registration campaigns, and mediation services. The National Public Registration Agency reported that from August 2016 through February 2019, 300 thousand hectares of land were registered under the land reform project, increasing the share of titled land to 45 percent. Unclear or unregistered titling bears the potential to hamper investment projects.
Property ownership cannot revert to other owners when legally purchased property stays unoccupied.
Intellectual Property Rights
Georgia acceded to the World Trade Organization (WTO) Agreement on Trade-Related Aspects of Intellectual Property Rights (TRIPS) in 2000. The Ministry of Economy and Sustainable Development is responsible for WTO compliance.
The legal framework for protection of intellectual property rights (IPR) in Georgia is approximated to international standards. Six laws regulate IPR in Georgia: the Law on Patents, the Law on Trademarks, the Law on Copyrights and Neighboring Rights, the Law on Appellation of Origin and Geographic Indication of Goods, the Law on Topographies of Integrated Circuits, and the Law on IP-Related Border Measures. Georgian law now provides protection for works of literature, art, science, and sound recordings for 50 years.
The National Intellectual Property Center of Georgia (Sakpatenti) provides legal protection for IPR in Georgia: it issues protective documents on invention, utility model, trademark, design, geographical indication and appellation of origin, new animal breeds and plant varieties, and ensures the deposit of copyrighted work. The Revenue Service, which is part of the Ministry of Finance, is responsible for enforcing IPR listed in the Register of Intellectual Property Subject-Matter. The Revenue Service is responsible for border control and can halt import or export of items based on the register data. After the registration procedure is complete, the Revenue Service is able to suspend the movement of counterfeit goods for up to 10 working days, which may be extended by the Revenue Service for an additional 10 working days. The Law of Georgia on Border Measures Related to Intellectual Property provides for the possibility of destruction of counterfeit goods on the basis of a court decision.
IPR infringement of industrial property rights, copyrights, performers’ rights, rights of makers of databases, trademarks or other illegal use of commercial indications can incur civil, criminal, and administrative penalties. Depending on the type and extent of the violation, penalties include fines, corrective labor, social work, or imprisonment.
Sakpatenti is an active and engaged partner of the United States in training to educate the public on IPR issues. Sakpatenti coordinates the government’s approach to IPR enforcement under the Interagency Coordination Council (Council) for IPR Enforcement. The Council is an efficient platform for government institutions to exchange their views on IPR enforcement issues. Georgia is improving IPR enforcement, but some problems persist, especially software licensing and pirated content available online. Many judges and lawyers lack sufficient knowledge of IPR laws and issues; pirated video and audio recordings, electronic games, and computer software are sometimes available; and unlicensed content free for users to download or stream is available on some websites. The U.S. government Commercial Law Development Program continues to provide assistance to Sakpatenti and other governmental entities to build capacity to effectively deal with IPR-related issues.
In line with Georgia’s commitments under the Deep and Comprehensive Free Trade Area (DCFTA) agreement with the EU, to prevent and suppress IPR infringement and to ensure the implementation of appropriate sanctions, Sakpatenti drafted a package of amendments to the IP legislation, which the Parliament adopted on December 23, 2017, and entered into force on January 11, 2018. The amendments apply to the following legislative acts regulating intellectual property: the Patent Law of Georgia, the Law of Georgia on Copyright and Related Rights, the Law of Georgia on Design, the Trademark Law of Georgia, the Code of Civil Procedure of Georgia, the Law of Georgia on Pesticides and Agrochemicals, and the Law of Georgia on Drugs and Pharmaceutical Activity.
According to the new amendments, in the case of IPR infringement, the rights holder is endowed with authority to demand that infringing objects be removed from circulation or destroyed, any images related to the objects are destroyed and any related material published online that infringes on exclusive rights be deleted, and any technical devices used to make the infringing objects also be destroyed. According to the amendments, the rights holder is entitled to define, at their discretion, the caused damage and received benefit, and can demand a lump sum compensation payment. The amendments also stipulate provisional measures to preserve relevant evidence related to protection of IPR subject-matter, which is especially important in terms of effective enforcement of rights.
Georgia also approximated laws on “border measures related to IPR” with the EU regulation N608/2013. Amendments were introduced in 2017 and identify intellectual property objects to be protected at the border, including: design, patent, utility model, topographies of integrated circuits, new breeds of animals, and varieties of plants. Under these new amendments, customs authorities are entitled to take ex-officio actions at the border and detain suspected IPR infringing goods. Parliament approved the amendments on December 13, 2017, and they entered into force on February 7, 2018.
Development of an effective system of Internet Service Providers (ISP) Liability is also an obligation under the DCFTA. In order to implement an ISP Liability in Georgian legislation, in 2017, Sakpatenti drafted amendments to the Law of Georgia “On Copyright and Related Rights” that include ISP-related provisions. The amendments were drafted on the basis of the draft Law of Georgia “On Electronic Commerce,” prepared by the Ministry of Economy and Sustainable Development of Georgia.
In 2018, the Ministry of Finance’s Investigation Service initiated 16 cases under Article 196 of the Criminal Code of Georgia (unlawful use of trademark, service marks, or other commercial designations). Out of 16 cases, 12 were initiated ex-officio. As a result, 40,268 counterfeit goods were seized, with the total value of USD 45,000.
In 2018, the Revenue Service’s Customs Department issued 119 orders to suspend products. In 82 of these cases the rights holder and the owner of the products agreed to destroy the products, with a total value of USD 30,500. In 16 cases, the rights holder filed a lawsuit, and in 21 cases the goods were released, either because it was not proven that the goods were counterfeit or the rights holder did not file a lawsuit.
Georgia is not listed in USTR’s Special 301 Report. Similarly, Georgia is not included in the Notorious Markets List.
For additional information about treaty obligations and points of contact at local IP offices, please see WIPO’s country profiles at: http://www.wipo.int/directory/en/ .
For a list of lawyers in Georgia, please visit: https://ge.usembassy.gov/u-s-citizen-services/attorneys/.
6. Financial Sector
Capital Markets and Portfolio Investment
The National Bank of Georgia regulates the securities market. All market participants submit their reports in line with international standards. All listed companies must make public filings, which are then uploaded to the National Bank’s website, allowing users to evaluate a company’s financial standing. The Georgian securities market includes the following licensed participants: a Stock Exchange, a Central Securities Depository, nine brokerage companies, and six registrars.
The Georgian Stock Exchange (GSE) is the only organized securities market in Georgia. Designed and established with the help of USAID and operating under a legal framework drafted with the assistance of American experts, the GSE complies with global best practices in securities trading and offers an efficient investment facility to both local and foreign investors. The GSE’s automated trading system can accommodate thousands of securities that can be traded by brokers from workstations on the GSE floor or remotely from their offices: https://gse.ge/en/
No law or regulation authorizes private firms to adopt articles of incorporation or association that limit or prohibit foreign investment, participation or control. Cross-shareholder or stable-shareholder arrangements are not used by private firms in Georgia. Georgian legislation does not protect private firms from takeovers. There are no regulations authorizing private firms to restrict the investment activity of foreign partners or to limit the ability of foreign partners to gain control over domestic enterprises.
The government and Central Bank (National Bank of Georgia) respect IMF Article VIII and impose no restrictions on payments and transfers in current international transactions.
Credit from commercial banks is available to foreign investors as well as domestic clients, although interest rates are high. Banks continue offering business, consumer, and mortgage loans.
The government adopted a new law in 2018, that introduced an accumulative pension scheme, which became effective on January 1, 2019. The government expects that that the new system will boost domestic capital market, as the pension funds will be invested within Georgia.
Money and Banking System
Banking is one of the fastest growing sectors in the Georgian economy. The banking sector is well-regulated and capitalized despite regional and global challenges faced in many neighboring countries. As of January 1, 2019, 15 commercial banks, including 14 foreign-controlled banks, made up the banking sector in Georgia, with 135 commercial bank branches and 794 service centers throughout the country. In January 2019, the total assets of Georgian commercial banks were GEL38.8 billion (around USD14.4 billion). As of early 2019, there were 17 insurance companies and 65 microfinance (MFI) organizations operating in Georgia. The total assets of MFIs stood at USD 0.5 billion as of January 1, 2019. Two Georgian banks are listed on the London Stock Exchange: TBC Bank (listed in 2014) and the Bank of Georgia (2006).
The National Bank of Georgia (NBG) is the central bank of Georgia, as defined by the Constitution. The rights and obligations of the NBG as the central bank, the principles of its activity, and the guarantee of its independence are defined in the Organic Law of Georgia on the National Bank of Georgia. The National Bank supervises the financial sector in order to facilitate the financial stability and transparency of the financial system, as well as to protect the rights of the sector’s consumers and investors. Through the Financial Monitoring Service of Georgia, a separate legal entity, the NBG undertakes measures against illicit income legalization and the financing of terrorism. In addition, the NBG is the banker and fiscal agent of the government. (www.nbg.gov.ge ).
The International Finance Corporation (IFC), the European Bank for Reconstruction and Development (EBRD), the U.S. Overseas Private Investment Corporation (OPIC), the Millennium Challenge Corporation (MCC), the Asian Development Bank (ABD), and other international development agencies have a variety of lending programs that make credit available to large and small businesses in Georgia. Georgia’s two largest banks – TBC and Bank of Georgia – have correspondent banking relationships with the United States through Citibank, N.A.
Foreign Exchange and Remittances
Georgian law guarantees the right of an investor to convert and repatriate income after payment of all required taxes. The investor is also entitled to convert and repatriate any compensation received for expropriated property. Georgia has accepted the obligations of Article VIII, Sections 2, 3, and 4 of the IMF Articles of Agreement, effective as of December 20, 1996, undertaking to refrain from imposing restrictions on payments and transfers for current international transactions and from engaging in discriminatory currency arrangements or multiple currency practices without IMF approval. Parliament’s 2011 adoption of the Act of Economic Freedom further reinforced this provision.
Under the U.S.-Georgia BIT, the Georgian government guarantees that all money transfers relating to a covered investment by a U.S. investor can be made freely and without delay into and out of Georgia.
Foreign investors have the right to hold foreign currency accounts with authorized local banks. The sole legal tender in Georgia is the lari (GEL), which is traded on the Tbilisi Interbank Currency Exchange and in the foreign exchange bureau market.
The official exchange rate of the GEL is calculated based on transactions secured on the Interbank Foreign Exchange Market. Interbank trading with foreign currencies is organized in an international trading system (Bloomberg). Taking into consideration secured transactions, the weighted average exchange rate of the GEL against the USD is calculated and announced as the official exchange rate for the next day. The official exchange rate of the GEL against other foreign currencies is determined according to the rate on international markets or the issuer country’s domestic interbank currency market on the basis of cross-currency exchange rates. The cross-currency rates are acquired from the Reuters and Bloomberg information systems, and the corresponding webpages of central banks. The information is automatically received, calculated, and disseminated from these systems.
Georgia has a floating exchange rate. The National Bank of Georgia has said it does not intend to fix the exchange rate regime and does not generally intervene in the foreign exchange market, except under certain circumstances when the fluctuation has a high magnitude.
There is no difficulty in obtaining foreign currency, nor are there significant delays in remitting funds overseas through normal channels. Several Georgian banks participate in the SWIFT and Western Union interbank communication networks. Businesses report that it takes a maximum of three days for money transferred abroad from Georgia to reach a beneficiary’s account, unless otherwise provided by a customer’s order. There are no known plans to change remittance policies. Travelers must declare at the border currency and securities in their possession valued at more than GEL30,000 (around USD15,000).
Sovereign Wealth Funds
Georgia does not have a Sovereign Wealth Fund.
7. State-Owned Enterprises
After the fall of the Soviet Union, the new Georgian government privatized most state-owned enterprises (SOEs). At the end of 2013, the major remaining SOEs were Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem (GSE), Electricity System Commercial Operator (ESCO), and Enguri Hydropower plant. Of these companies, only Georgian Railways is a major market player. The energy-related companies largely implement the government’s energy policies and help manage the electricity market. There are also a number of Legal Entities of Public Law (LEPLs), independent bodies that carry out government functions, such as the Public Service Halls.
During 2012, Georgian Railways, Georgian Oil and Gas Corporation (GOGC), Georgian State Electrosystem, and Electricity System Commercial Operator LLC assets were placed under the Partnership Fund, a state-run fund to facilitate foreign investment into new projects. In addition, the fund controls 25 percent of shares in TELASI Electricity Distribution Company, but has stated its intention to sell those shares. The fund has not yet sold its shares, but still plans to do so: www.fund.ge .
Despite state ownership, SOEs act under the general terms of the Entrepreneurial Law. Georgian Railway and GOGC have supervisory boards, while GSE and ESCO do not. Major procedures and policies are described in the charters of respective SOEs. Georgia particularly encourages its SOEs to adhere to the OECD’s Guidelines on Corporate Governance for SOEs.
The senior management of SOEs report to Supervisory Boards where they exist (GRW, GOGC); in other cases they report to the line ministries. Governmental officials can be on the supervisory board of the SOEs and the Partnership Fund has five key governmental officials on its board. SOEs explicitly are not obligated to consult with government officials before making business decisions, but informal consultations take place depending on the scale and importance of the issue.
To ensure the transparency and accountability of state business decisions and operations, regular outside audits are conducted and annual reports are published. SOEs with more than 50 percent state ownership are obliged to follow the State Procurement Law and make procurements via public tenders. The Partnership Fund, GRW and GOGC are subject to valuation by international rating agencies. There is no legal requirement for SOEs to publish an annual report or to submit their books for independent audit, but this is still practiced. In addition, GRW and GOGC are Eurobonds issuer companies and therefore are required to publish reports.
SOEs are subject to the same domestic accounting standards and rules and these standards are comparable to international financial reporting standards. There are no SOEs that exercise delegated governmental powers.
Georgia’s government has privatized most large SOEs. Successful privatization projects include major deals in energy generation and distribution, telecommunications, water utilities, port facilities, and real estate assets. A list of entities available to be privatized can be found on the following website: www.privatization.ge . Foreign investors are welcome to participate in privatization programs. Further information is also available at a website maintained by the American Chamber of Commerce in Georgia at: www.amcham.ge .
8. Responsible Business Conduct
While the concept of Corporate Social Responsibility (CSR) is not highly developed in Georgia, it is growing. Most large companies engage in charity projects and public outreach as part of their marketing strategy. The American Chamber of Commerce in Georgia has a Corporate CSR committee that works with member companies on CSR issues. The Global Compact, a worldwide group of UN agencies, private businesses, and civil society groups promoting responsible corporate citizenship, is active in Georgia. The Eurasia Partnership Foundation launched a program on corporate social investment, promoting greater engagement of private companies in addressing Georgia’s development needs.
The Georgian government undertook an OECD CSR policy review in 2016, based on the OECD Policy Framework for Investment: (http://www.oecd.org/countries/georgia/ ). The report states that Georgia engages regularly with the OECD. It participates in the OECD Eurasia Competitiveness Program, which works with countries in the region to help unleash their economic and employment potential through boosting country and regional competitiveness, capturing more and better investment, and developing SMEs. It participates in the OECD Anti-Corruption Network for Eastern Europe and Central Asia, which provides a regional forum for promotion of anti-corruption activities, exchange of information, elaboration of best practices and donor coordination. It is a member of the Task Force for the Implementation of the Environmental Action Program (EAP Task Force), which aims to address the heavy environmental legacy of the Soviet model of development. Additionally, the Support for Improvement in Governance and Management (SIGMA) program, a joint initiative of the EU and the OECD, has provided assistance to Georgia since 2008, to strengthen public governance systems and public administration capacities. Georgia participates in the OECD Committee on Fiscal Affairs’ Base Erosion and Profit Sharing (BEPS) Project.
Georgia has extractive industries as it operates manganese, gold, and copper ores, but it is not a party to the Extractive Industries Transparency Initiative (EITI) and/or Voluntary Principles on Security and Human Rights. Among the local tools that promote CSR principles and policies in such industries are commercial chambers, the Public Defender’s office, and trade unions.
Articles 332-342 of the Criminal Code criminalize bribery. Senior public officials must file financial disclosure forms which are posted online, and Georgian legislation provides for civil forfeiture of the undocumented assets of public officials who are charged with corruption offenses. Penalties for accepting a bribe start at six years in prison and can extend up to 15 years depending on the case’s circumstances. Penalties for giving a bribe can include a fine, a minimum prison sentence of two years, or both. In aggravated circumstances, when a bribe is given to commit an illegal act, the penalty can be from four to seven years. Abuse of authority and exceeding authority by public servants are criminal acts under Articles 332 and 333 of the criminal code and carry a maximum penalty of eight years imprisonment. The definition of a public official includes foreign public officials and employees of international organizations and courts. White collar crimes such as bribery fall under the investigative jurisdiction of the Prosecutor’s Office.
Georgia is not a signatory to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions. Georgia has, however, ratified the UN Convention against Corruption. Georgia cooperates with the Group of States against Corruption (GRECO) and the OECD’s Anti-Corruption Network for Transition Economies (ACN).
Following its assessment of Georgia in June 2016, the OECD released a report in September 2016, that concluded Georgia had achieved remarkable progress in eliminating petty corruption in public administration and should now focus on combating high-level and complex corruption. The report commends Georgia’s mechanism for monitoring and evaluating the implementation of its Anti-Corruption Strategy and Action Plan as well as the important role given to civil society in this process. It also welcomes the adoption of a new Law on Civil Service and recommends that the remaining legislation necessary for the implementation of civil service reforms is adopted without delay. The Civil Service Bureau and Human Resources units in state bodies should be strengthened in order to ensure the implementation of the required reforms. The report highlights Georgia’s good track record in prosecuting corruption crimes and in using modern methods to confiscate criminal proceeds. It recommends that Georgia step up enforcement of corporate liability and the prosecution of foreign bribery in order to address the perception of alleged corruption among local government officials as well as at the political level. The full report is available at: http://www.oecd.org/corruption/anti-bribery/Georgia-Round-4-Monitoring-Report-ENG.pdf .
Since 2003, Georgia has significantly improved its ranking in Transparency International’s (TI) Corruption Perceptions Index (CPI) report. In 2018, Georgia’s CPI score was 58, improving two points over its 2017 score, and it ranked 41st out of 180 countries surveyed in the Corruption Perception Index. Georgia is ahead of its regional and Eastern European peers in this regard, as it outscores the Czech Republic, Malta, Croatia, Slovakia, Greece, Romania, Italy, Turkey, Russia, Armenia, and Azerbaijan.
While Georgia has been successful in fighting visible, low-level corruption, Georgia remains vulnerable to what Transparency International calls “elite” corruption: high-level officials exploiting legal loopholes for personal enrichment, status, or retribution. Although evidence is mostly anecdotal, this form of corruption, or the perception of its existence, has the potential to erode public and investor confidence in Georgia’s institutions and the investment environment. Institutions most vulnerable to corruption in Georgia include government at the federal and local level, parliament, the judiciary, political parties, law enforcement, media, and private business. Corruption remains a potential problem in public procurement processes, public administration practices, and the judicial system due to unclear laws and ethical standards.
Resources to Report Corruption
Government agency responsible for combating corruption:
Mr. Zurab Sanikidze
Head of Analytical Department
Ministry of Justice of Georgia
24 A Gorgasali Street, Tbilisi, Georgia
Ms. Eka Gigauri
Director, Transparency International
26, Rustaveli Ave, 0108, Tbilisi, Georgia
10. Political and Security Environment
The United States established diplomatic relations with Georgia in 1992, following Georgia’s 1991 independence from the Soviet Union. Since 1991, Georgia has made impressive progress fighting corruption, developing modern state institutions, and enhancing global security. The United States is committed to helping Georgia deepen Euro-Atlantic ties and strengthen its democratic institutions. The United States supports Georgia’s sovereignty and territorial integrity within its internationally recognized borders, and does not recognize the Abkhazia and South Ossetia regions of Georgia, currently occupied by Russia, as independent. The status of each region remains contested, and the Georgian central government does not have effective control over these areas. In August 2008, tensions in the region of South Ossetia culminated in a brief war between Georgia and Russia. Russia invaded and occupied areas of undisputed Georgian territory.
While the separatist regions of South Ossetia and Abkhazia –which Russian troops and border guards have long occupied without Georgia’s consent – have declared independence, only Russia, Venezuela, Nicaragua, Syria, and Nauru recognize them as independent states. Tensions still exist both inside the breakaway regions and near the administrative boundary lines (ABL), but other parts of Georgia, including Tbilisi, are not directly affected. A number of attacks, criminal incidents, and kidnappings have occurred in and around the ABL. While none of the activity has been anti-American in nature, there is a high risk of travelers finding themselves in a wrong place/wrong time situation. In addition, unexploded ordnance from previous conflicts poses a danger near the ABL of South Ossetia.
Violent street protests in Georgia are rare, though some smaller political skirmishes have occurred. In recent years, police have fulfilled their duty to maintain order even in cases of unannounced protests.
11. Labor Policies and Practices
Georgia offers skilled and unskilled labor at attractive costs compared not only to Western European and American standards, but also to Eastern European standards. Skilled labor availability in the engineering fields remains underdeveloped. The official unemployment rate was 12.7 percent in 2018, according to State Department of Statistics, but actual unemployment is considerably higher given significant underemployment in the working population, especially in rural regions where subsistence farmers are considered employed for statistical purposes and job creation has remained a particular challenge. Some investment agreements between the Georgian government and private parties have included mandates for the contracting of local labor for positions below the management or executive level.
Georgia’s Labor Code defines the minimum age for employment (16), standard work hours (40 per week), and annual leave (24 calendar days). Other wage and hour issues are to be agreed between the employer and employee. Amendments to the Labor Code in July 2013, defined grounds for termination; the code defines severance pay for an employee at the time of termination of a labor relation, including the payment term. An employer is obliged to give compensation of not less than a month’s salary to an employee within thirty (30) days. An employer is obliged to give the dismissed employee a written description of the grounds for termination within seven days after an employee’s request. The labor code also prescribes rules for paying overtime labor (over 40 hours), which must be paid at an increased hourly rate.
The amended Labor Code specified essential terms for labor contracts, including: the starting date and the duration of labor relations, working hours and holiday time, location of workplace, position and type of work, amount of salary and its payment, overtime work and its payment, the duration of paid and unpaid vacation and leave, and rules for granting leave. The code states that the duration of a business day for an underage person (ages 16 to 18) should not exceed 36 hours per week. Regulations prohibit interference in union activities and discrimination of an employee due to union membership. The amendments also mandated that the government reestablish a labor inspectorate to ensure adherence to labor safety standards. The labor inspection program under the Ministry of Labor, Health, and Social Affairs, employs 40 labor inspectors. On March 7, 2018, Parliament passed the Occupational Safety, and Health (OSH) Law that gives the government power to make unannounced inspections in some circumstances in companies operating among “hard, harmful, hazardous, and increased danger” occupations.
Employees are entitled to up to 183 days (six months) of paid maternity leave, which can be up to 24 months when combined with unpaid leave. Leave taken for pregnancy, childbirth, childcare, and adoption of a newborn is subsidized by the state. An employer and employee may agree on additional compensation. Under the Labor Code, non-competition clauses are permitted and sometimes used in contracts. This provision may remain in force even after the termination of labor relations.
The government adopted a new law in 2018, an accumulative pension scheme, which came into effect as of January 1, 2019. The pension scheme is mandatory for legally employed people under 40; while for the self-employed and those above the age of 40 enrollment in the program is voluntary. Each employee, employer, and the government must make a contribution of two percent of the employee’s gross income to an individual retirement account. As for the self-employed, they will make a deposit of four percent of their income, and the state will match another two per cent. Employees pay a flat 20 percent income tax. The state social security system provides modest pension and maternity benefits. The minimum monthly pension is GEL200 (USD75). The average monthly salary across the economy in Georgia in 2018 was GEL1,468 (around USD 545). The minimum wage requirement for state sector employees is GEL115 (USD43) per month. Legislation on the official minimum wage in the private sector has not changed since the early 1990s and stands at GEL20 (USD8) per month, but is not applied in practice and is not being used for reference.
The law generally provides for the right of most workers, including government employees, to form and join independent unions, to legally strike, and to bargain collectively. Employers are not obliged, however, to engage in collective bargaining, even if a trade union or a group of employees wishes to do so. The law permits strikes only in cases of disputes where a collective agreement is already in place. While strikes are not limited in length, the law limits lockouts to 90 days. A court may determine the legality of a strike, and violators of strike rules can face up to two years in prison. Although the law prohibits employers from discriminating against union members or union-organizing activities in general terms, it does not explicitly require reinstatement of workers dismissed for union activity. Certain categories of workers related to “human life and health,” as defined by the government, were not allowed to strike. The International Labor Organization noted the government’s list of such services included some it did not believe constituted essential services directed related to human life and health. Workers generally exercised their right to strike in accordance with the law.
Georgia has ratified some ILO conventions, including the Forced Labor Convention of 1930; the Paid Holiday Convention of 1936; the Anti-Discrimination (Employment and Occupation) Convention of 1951; the Human Resources Development Convention of 1975; the Right to Organize and Collective Bargaining Convention of 1949; the Equal Remuneration Convention of 1951; the Abolition of Forced Labor Convention of 1957; the Employment Policy Convention of 1964; and the Minimum Age Convention of 1973.
Information on labor related issues is also available in the State Department’s annual reports:
- Human Right Report: https://ge.usembassy.gov/our-relationship/official-reports/human-rights-report/.
- Child Labor Report: http://www.dol.gov/ilab/reports/child-labor/georgia.htm .
12. OPIC and Other Investment Insurance Programs
The Overseas Private Investment Corporation (OPIC) is the U.S. Government’s development finance institution. OPIC finance and political risk insurance programs assist U.S. companies with investing overseas. Since 1993, OPIC has committed over USD600 million in financing and political risk insurance for more than 60 projects in Georgia. OPIC investment in Georgia has focused on the following sectors: credit for small and medium-sized enterprises, and projects in the infrastructure, franchising, education, manufacturing, tourism, agriculture, and health care sectors. Some recent examples of OPIC projects include a USD50 million loan commitment to finance the development, construction, and operation of a multifunctional general cargo, dry bulk, and container port terminal at the Port of Poti–Pace Terminal, a USD18 million loan commitment to finance a new Marriott hotel in Tbilisi, and a USD21 million loan commitment to an investment fund for investments in small and medium high-growth businesses in Georgia.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
|Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|Host Country Gross Domestic Product (GDP) ($M USD)||2018||$16,200||2018||$15.5 bln||www.worldbank.org/en/country|
|Foreign Direct Investment||Host Country Statistical Source*||USG or International Statistical Source||USG or International Source of Data:
BEA; IMF; Eurostat; UNCTAD, Other
|U.S. FDI in partner country ($M USD, stock positions)||2018||$103.7||2018||N/A||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Host country’s FDI in the United States ($M USD, stock positions)||N/A||N/A||N/A||N/A||BEA data available at https://www.bea.gov/international/direct-investment-and-multinational-enterprises-comprehensive-data|
|Total inbound stock of FDI as % host GDP||N/A||N/A||2018||108%||UNCTAD data available at https://unctad.org/en/Pages/DIAE/World%20Investment%20Report/Country-Fact-Sheets.aspx|
* Source for Host Country Data: GeoStat (Georgia National Statistics Office)
Table 3: Sources and Destination of FDI
|Direct Investment From/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment N/A|
|Total Inward||17,266||100%||Total Outward||N/A||100%|
|“0” reflects amounts rounded to +/- USD 500,000.|
Source: IMF Coordinated Direct Investment Survey
Table 4: Sources of Portfolio Investment
IMF Coordinated Portfolio Investment Survey data is not available for Georgia.
14. Contact for More Information
Economic Unit Chief
U.S. Embassy Tbilisi, Georgia