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					Georgian Economy Overview
         June 2009

         www.mof.ge
                                                           Economic Growth
                                         GDP
                                                                                                             Real GDP annual percent change
Nominal GDP (US$bn)                                           Real GDP growth, y-o-y (%)
                                                                                                                                          2008       2009
 14     11.1%                                                                      14%
 12                        9.6% 9.4%                 12.4%                         12%        World Economy                                   3.2    -1.3
                                                                12.8      12.6     10%
 10               5.9%                                                             8%
                                              10.2            8.5%                            US                                              1.1    -2.8
  8                                                                                6%
  6                                  7.8                         2.1%              4%
                            6.4                                                    2%
                                                                                              UK                                              0.7    -4.1
  4                                                     6.1              -1.5%
                   5.1                                                             0%
  2      4.0                                                                                  EU Area                                         0.9    -4.2
                                                                                   -2%
  0                                                                                -4%
                                                                                              Japan                                           -0.6   -6.2
        2003 2004 2005 2006 2007                        1H 2008F 2009F
                                                       2008                                   EU                                              1.1    -4.0
Source: Department of Statistics of Georgia, Ministry of Finance of Georgia
                                                                                              Other advanced economies                        1.6    -4.1
             Components of nominal GDP (2008)
                                                                                              Central and Eastern Europe                      2.9    -3.7
                 Agriculture, 8.9%               Manufacturing,
                                                     8.2%                                     CIS                                             5.5    -5.1
                                                                        Construction,
                                                                           5.3%               Developing Asia                                 7.7     4.8
      Other, 29.0%
                                                                  Transportation &                                               China        9.0     6.5
                                                                  Communications,
                                                                       10.0%                                                     India        7.3     4.5
                                                                        Financial
     Public                                                         Intermediation,           Middle East                                     5.9     2.5
  Administration,                                                         2.1%
     14.9%                                                                                    Africa                                          5.2     2.0
                                                      Healthcare &
                                                     Education, 7.6%                          Western Hemisphere                              4.2    -1.5
                              Trade, 13.9%

             Nominal 2008 GDP is US$12,797 mln
                                                                                              Georgia                                         2.1    -1.5
   Source: Department of Statistics of Georgia
                                                                                           Source: International Monetary Fund


                                www.mof.ge                                    Georgian Economy Overview                           June 2009                 1
                                                      Current Account Deficit
                                                                                     Current account deficit
                CAD                Total private capital inflows (TPCI)                    Donor Inflows (DI)*                  CAD as % of GDP                   CAD + TPCI + DI as % of GDP
            5,000                                                                                                                                                                           30%
            4,000
                                                                                                                                                       942.0                                 20%
            3,000
                                                                                                       7.7%                    276.2
            2,000                                     5.6%                                                                                              7.8%                                 10%
                                                                              3.1%                     261.7                                                                 850.0
                                                                                                                               5.4%
 US$ mln




            1,000             1.7%                                                                                                                    2,905.0               1,300.0
                                   98.3               160.3                   176.7                   1,506.8                 2,283.8                                                        0%
                                                      479.6                   734.8                                                                                              0.1%
                   0         351.0
                             -383.3                   -353.6                  -709.5                 -1,174.6
           -1,000                                     -6.9%                                                                  -2,008.7                                      -2,134.0          -10%
                              -9.6%                                                                                                                   -2,850.5
                                                                              -11.1%
           -2,000                                                                                     -15.1%
                                                                                                                                                                            -16.3%           -20%
           -3,000                                                                                                              -19.7%
                                                                                                                                                       -22.3%
           -4,000                                                                                                                                                                            -30%
                              2003                    2004                     2005                    2006                    2007                     2008                2009F
             Note: Updated as of 10 April 2009
             *Donor inflows include both public and private sectors. Donor inflows in 2009 is adjusted according to the banking sector foreign debt outflows
             Source: National Bank of Georgia , Minister of Finance of Georgia

                                                                                   Exports and imports**
                                                        Imports of goods & services                    Exports of goods & services                    Remittances
                                                                CAGR (‘04-‘09F): 16%                        CAGR (‘04-‘09F): 10%
           8,000
                                                                                                                                                           7,497.0
           6,000
                                                                                                                                 5,916.9
US$ mln




                                                                                                                                                                955.2           5,247.9
           4,000                                                                                         4,412.9                     755.4
                                                                              3,318.1                       420.5                                                                    730.0
           2,000                                     2,492.8                     315.4
                           1,865.3                      212.7                                                                  3,182.4                  3,691.3
                              165.8                                         2,187.5                  2,551.6                                                                  2,583.9
                         1,288.5                   1,646.9
               0
                             2003                      2004                     2005                     2006                      2007                        2008              2009F
           **Export & import of goods and services
           Source: National Bank of Georgia

                                  www.georgia.gov.ge                               Georgian Economy Overview                                                      May 2009                          2
                                      Diversified Trade Structure
 WTO member since
2000                                Export structure* by country, 2008                                                   Import structure* by country, 2008

                                                  China, 0.7%           Kazakhstan,                                                                               Others,
 Simplified customs                                                                                                                                Armenia,
                                                                           1.3%                                                     Kazakhstan,                   10.4%
                                    Russia, 1.9%                                           Other, 6.0%                                                1.2%
regime since August                                                                                                                    1.1%
                                                                                                                                                                              EU Countries,
2006, new customs               United Arab
                                                                                                                 Turkmenistan,
                                                                                                                                                                                 28.5%
                                                                                                                     2.8%
code became effective            Emirates,
                                                                                             EU Countries,
in 2007 and was                    0.8%
                                                                                                25.8%               China, 5.0%
upgraded in 2009
                           Canada, 8.7%
                                                                                                                      USA, 4.1%
 No quantitative
restrictions on trade      Ukraine, 7.6%                                                    Turkey, 19.5%             United Arab
                                                                                                                       Emirates,                                                   Turkey,
                                    Armenia,                                                                             4.8%                                                       14.9%
 Zero tariff on the                  7.2%                                                                               Russia, 6.7%      Ukraine,                  Azerbaijan,
majority of goods                                 Azerbaijan,
                                                                               USA, 7.2%                                                                               10.2%
                                                    14.2%                                                                                   10.7%

 One of the two                                                                                                   Source: Department of Statistics of Georgia
                            Source: Department of Statistics of Georgia
beneficiaries of the EU
GSP+ Scheme in the CIS              Export structure* by product, 2008                                                   Import structure* by product, 2008
since 2006, granting
local companies the                                    Equipment &       Oil & Gas,                                                                        Paper, 1.6%
                                                      Rail Cars, 3.9%      3.3%        Pharmaceuticals, 1.3%    Ferrous Metal         Plastic, 2.8%
right to export 7,200              Cement, 5.6%                                                                                                                     Sugar, 1.1%
                                                                                                                  Products,
categories of goods                                                                             Vessels &           2.7%
                               Gems &
duty-free                                                                                     Aircraft, 0.3%       Ferrous
                               Precious
                             Stones, 6.5%                                                                         Metals, 4.1%
 Share of EU in exports                                                                         Sugar, 0.5%
                              Beverages,
up to 26% from 17% in                                                                                          Pharmaceuticals,
                                Spirits &                                                                                                                                          Others, 39.2%
2003                         Vinegar, 7.7%                                            Others, 16.3%                 3.3%

 Georgia Turkey FTA          Vehicles, 7.6%                                                                     Cereals, 3.3%
was signed in 2008                                                                                                                                                             Mechanical
                                   Fertilizers,                                                                         Vehicles,
                                     6.7%                                                                                12.2%                                                Equipment &
                                                                                                 Ferrous                               Oil & Gas,                               Electrical
                                   Coppers &                                                   Metals, 31.2%                            18.3%                                  Machinery,
                                   Gold, 8.8%                                                                                                                                    20.1%
                            Source: Department of Statistics of Georgia
                            * Export & import of goods only                                                         Source: Department of Statistics of Georgia
                        www.georgia.gov.ge                               Georgian Economy Overview                                                       May 2009                             3
                                                           Investment Inflows
   • Georgia has bilateral treaties on investment promotion and protection with 25 countries
                              Net FDI breakdown by origin                                                                                  Net FDI
                                             2004-2008                                                                  Net FDI                        Net FDI as % of GDP
                   Country                        US$ mln                    %                        2,500                                                                         25%
UK                                                              577.0                10.6%                                                          19.8%
Turkey                                                          501.5                 9.2%            2,000                                                                         20%
USA                                                             491.6                 9.0%
                                                                                                                                         15.3%
Netherlands                                                     456.5                 8.4%
Kazakhstan                                                      405.3                 7.4%            1,500                                                                         15%




                                                                                             US$ bn
UAE                                                             395.6                 7.3%                        9.7%
British Virgin Islands                                          313.9                 5.8%                                                                     10.1%
                                                                                                      1,000                   7.0%                  2,014.8              8.4%       10%
Cyprus                                                          252.3                 4.6%
Bahamas                                                         246.4                 4.5%                                              1,190.4               1,293.7
                                                                                                        500                                                             1,100.0     5%
Czech Republic                                                  213.8                 3.9%
Subtotal                                                      3,853.9                70.7%                        499.1       449.8
Other                                                         1,593.9                29.3%                 0                                                                        0%
Total                                                         5,447.8               100.0%
                                                                                                                  2004        2005        2006       2007      2008     2009F
Source: Department of Statistics of Georgia                                                           Source: Department of Statistics of Georgia

                                    Cumulative Net FDI                                                           Net FDI breakdown by sectors (2007 – 2008)
                Cumulative Net FDI, '04-'08                Cumulative Net FDI as % of GDP                                                                Other, 3.2%
                                                                                                                       Agriculture, 0.8%
           6,000                                                                      50%                                                                            Transports &
                                                               41%         43%                                 Banking, 4.5%                                       Communications,
           5,000                                                                      40%                                                                               23.6%
                                                                                                         Construction,
           4,000
                                                   28%                                                      14.6%
 US$ mln




                                                                                     30%
           3,000
                                                                          5,447.8
                                    15%                                              20%
           2,000                                                4,154.1                                                                                               Energy, 18.6%
                       10%                                                                                Manufacturing,
           1,000                                 2,139.3                             10%                     16.8%
                      499.1         948.9
               0                                                                     0%                                                                           Services, 17.8%
                      2004          2005           2006          2007      2008
       Source: National Bank of Georgia, International Monetary Fund
                                                                                                Source: Department of Statistics of Georgia

                                www.georgia.gov.ge                        Georgian Economy Overview                                                   May 2009                           4
                         Fiscal and Monetary Performance
                          Tax revenue performance                                                               Exchange rate evolution
(GEL mln)          Fiscal revenue                 Fiscal revenue as % of GDP                         GEL/US$ (period average)                        GEL/US$ (e-o-p)
                                                                                      1.4
                                                                                                                                                          1.49
          7,000                                            29.9%               35%                                                              1.59
                                                  29.3%
          6,000                           25.6%                     24.4%      30%    1.6                                                                            1.67
                              23.3%                                                                                                   1.71
          5,000    21.8%                                                       25%                                     1.79
                                                                                                            1.83                                1.67      1.66
                                                                                                                                                                     1.67
          4,000                                                                20%    1.8
     GEL mln




          3,000                                                                15%                                                    1.78
                                                           5,791    5,305                                              1.81
                                                  4,973
          2,000                           3,528                                10%    2.0        2.08       1.91
          1,000               2,673                                            5%
                   1,975                                                                                 2.15
               0                                                               0%     2.2
                    2004       2005       2006     2007    2008E 2009F                          2003        2004       2005           2006      2007       2008     Q1 2009
 Source: Ministry of Finance of Georgia                                                Source: National Bank of Georgia

                                                                                                           Consumer price index (y-o-y)
                                                                                                                CPI (e-o-p)                  CPI (period average)
                                                                                     14%
                                                                                     12%                                                         11.0%
                                                                                                                                                                 10.1%
                                                                                     10%                                              9.2%
                                                                                                                        8.2%                                             7.8%
                                                                                     8%                         7.5%                         8.8% 9.2%
                                                                                                  7.0%
                                                                                     6%           4.8%          5.7%           6.2%                              5.5%

                                                                                     4%
                                                                                     2%                                                                                   1.6%

                                                                                     0%
                                                                                                2003        2004       2005           2006       2007       2008     Q1 2009
                                                                                            Source: National Bank of Georgia



                           www.georgia.gov.ge                        Georgian Economy Overview                                           May 2009                               5
                                               Monetary Performance
                                                                    NBG’s Gross FX Reserves
          2,500

          2,000

          1,500
US$ mln




          1,000

           500

             0



                  Source: National Bank of Georgia

                                                                     NBG Interventions
                                            Monthly TICEX trading volume                               NBG's monthly net interventions                     In 4m ‘09 gross FX
           300                                                                                                                                             reserves declined
                                                                                                                                                           by US$ 85 mln only
                                                                                               262
           200                                                                           225               240               219       232
                                                                             191                                                             207
                                                                                                     179                                       178
           100                                   141 124                           139                           145         187       209 178
                                                         116 121 129                                                   114         106         170 116 82 124
                             101 93       99 102
US$ mln




                   55   75                                        99               84                70                                             57 74
             0      2
                                                                                                                                   0
                        -52 -93 -76 -86 -84 -71 -97 -91 -107                  -5                           -54 -84 -47                                    -3
                                                                                         -147 -176
           -100

           -200



                     Source: National Bank of Georgia
                                       www.mof.ge                          Georgian Economy Overview                                          June 2009              6
                              The Donors’ Pledges of US$4.5 billion
   Aid by donors                                              Aid by sectors
               Donor                          US$ million     Sector                                               US$ million
               World Bank                        530
                                                             IDPs support; e.g. IDPs housing                          350
               EBRD                              927
               Asian Development Bank            300         Transport infrastructure                                 682

               IFC                               350         Energy infrastructure                                    381
               European Investment Bank          330
                                                             Urban and municipal infrastructure                       210
               USA                              1,000
                                                             Finance and banking                                     1,105
               EC                                638
               EU members                        174         Non- sectoral support                                    586
               Japan                             200
                                                             Unallocated                                             1,221
               Other states                       88
   Total                                        4,535        Total                                                   4,535
  Source: World Bank, European Commission                     Source: World Bank, European Commission


• As of 1 May 2009, Georgia has already entered into agreements for or received 38.2% (US$1,731.2 million, 13.4% of
  2009 forecast GDP) of the total donors pledge to private and public sectors
• Additional projects have already been indentified and agreements have been reached on the amount of US$1,879.4
  million (41.4% of total pledge, 14.6% of 2009 forecast GDP) to be formally committed in 2009
• Government of Georgia has been working and negotiating the terms and conditions on the remaining amount of
  US$924.4 million, 20.4% of total pledged amount

                         www.georgia.gov.ge     Georgian Economy Overview                               May 2009                 7
                      The Donors’ Pledges of US$4.5 billion, cont’d
Implementation of the pledge made at Committed             Actual                                  Actual    To be formally
                                                                           o/w        o/w                                      To be
the international donors'            amount as of 30 disbursements                             disbursements committed in
                                                                        disbursed disbursed in                              received in
conference for Georgia (Brussels, 22  April ‘09 (US$ as of 30 April ‘09                         /Committed       2009
                                                                         in 2008      2009                                     2009
October 2008)                             mln)           (US$ mln)                              amount (%)     (pipeline)
Pubic sector
Loans                                     349.6            122.6          107.8       14.8         35.1%        1,022.5        340.2
Grants                                    528.4            302.3          295.1        7.2         57.2%         506.8         188.7
Total public sector                       878.0            424.9          402.9       22.0         48.4%        1,529.3        528.9

Private sector                            853.1            343.5         203.8       139.7        40.3%          350.0         350.0

Total public and private                 1,731.2           768.4         606.7       161.7        44.4%         1,879.4        879.0
Source: Ministry of Finance of Georgia




Examples of Infrastructure Projects:
• 500 kv. Power Transmission Line (EBRD, EIB, KfW)         • South Georgia Road (MCG)
• East-West Highway Improvement Project (WB, Japan)        • Secondary and Local Roads (WB)
• Adjara Bypass Road (ADB)                                 • Rehabilitation of Communal Infrastructure Facilities in Batumi (KfW)
• Vaziani-Gombori-Telavi Road (WB)                         • Regional and Municipal Infrastructure Development Projects (ADB, EBRD)




                                                    Georgian Economy Overview                              May 2009                8
                 Economy’s Stimulus Package - GEL 2.2 bn, Social Package - GEL1.6 bn


State Budget, GEL mln (including donors financing through budget)
   • Main roads (road dept.)                      520
   • Other roads (MCG, MDF)                       180
   • Water utilities                              120
   • Regional projects                            150
   • IDP housing                                  140
   • Educational infrastructure                    80
   • Irrigation, river border construction         30
   • Other                                        230
  Subtotal                                    1,450
Tax decrease                                      250
Donor financing, outside of budget                500
Grand total                                   2,200

Current Budget Supplement                                 312


Source: Ministry of Finance of Georgia


                          www.mof.ge     Georgian Economy Overview        June 2009    9
                    Budget Supplement
                         State Budget'09 Supplement
million GEL
Budget Outlays                   312    Resources
                     MDF         115    Tax revenues                     -500
                     MCC          86        Personal Income Tax           -25
                    Tbilisi       69       Corporate Income Tax           -83
          Regional Fund           37                        VAT          -314
       Ministry of Health         39                      Excise          -68
   Ministry of Agriculture        25                Customs tax            -9
         Ministry of IDPs         16
                                        Grants                           111
      Ministry of Defense         -45   Dividends                         60
     Administrative costs         -20   Privatization                    135
              Other costs         -67   Financial assets decline          52
                                        Concessional loans               238
                                        T-Bills                          260


            www.mof.ge                                       June 2009
                         Robust Banking Sector


      1999    2000    2001        2002   2003   2004    2005     2006   2007   2008     2009




                                                                                      Dhabi Group




 Georgia’s banking sector represents only a moderate contingent liability of the sovereign
 Entirely privately owned since 1996
 No restrictions on foreign ownership of banks
 Well capitalised with average BIS capital adequacy ratio of 19%




             www.georgia.gov.ge           Georgian Economy Overview                   May 2009      11
                                                                            Banking Sector Resilient
                                                      NPL to total loans                                                                                                          Capital Adequacy Ratio (CAR)
                  FSA requirements                                         Actual - Based on IMF's methodology                                                25%
          20%
                                                                                                                                         15.2%                20%
          16%                                                                                               13.7% 14.3%
                                                                             12.5% 12.8%
                                                                11.1%                                                                                         15%
          12%                                  9.9%
                                                                                                                                                              10%
          8%
                 3.5%               4.1%                                                                    3.4%              3.5%        3.7%
                                                                                 3.1%        3.1%                                                                5%
          4%                                     2.4% 2.7%
                   0.9% 1.0%                                                                                                                                     0%
          0%




                                                                                                                                                                         Jun-03



                                                                                                                                                                         Jun-04



                                                                                                                                                                         Jun-05



                                                                                                                                                                         Jun-06



                                                                                                                                                                         Jun-07



                                                                                                                                                                         Jun-08
                                                                                                                                                                         Mar-03



                                                                                                                                                                         Mar-04



                                                                                                                                                                         Mar-05



                                                                                                                                                                         Mar-06



                                                                                                                                                                         Mar-07



                                                                                                                                                                         Mar-08



                                                                                                                                                                         Mar-09
                                                                                                                                                                         Sep-03
                                                                                                                                                                         Dec-03


                                                                                                                                                                         Sep-04
                                                                                                                                                                         Dec-04


                                                                                                                                                                         Sep-05
                                                                                                                                                                         Dec-05


                                                                                                                                                                         Sep-06
                                                                                                                                                                         Dec-06


                                                                                                                                                                         Sep-07
                                                                                                                                                                         Dec-07


                                                                                                                                                                         Sep-08
                                                                                                                                                                         Dec-08
                                                                 Oct-08




                                                                                                              Jan-09




                                                                                                                                               Mar-09
                                     Aug-08
                   Jul-08




                                                     Sep-08




                                                                                  Nov-08




                                                                                                                               Feb-09
                                                                                                  Dec-08

           Source: National Bank of Georgia, FSA                                                                                                                   Source: National Bank of Georgia, FSA

                                                 Foreign debt outflow                                                                                                                  Foreign debt refinancing
          350                                                                                                                                                                             Banking Sector Cumulative Outflow
                  296.2




                                                              US$468.5 mln of                                                                                                             Banking Sector Cumulative Inflow
                                                              US$548.5 mln banking                                                                                      800                                     721.4           748.6
                            252.2




          300
                                                              sector debt, due in                                                                                                                661.4
                                                                                                                               226.4




          250                                                 Q1 and Q2 0f ‘09, has                                                                                              579.8                                          712.0
                                                              already been repaid                                                                                       600
                                                                                                                                                                                                                       648.1
US$ mln




          200
                                                                                                                                                              US$ mln                              548.5
          150                                                                                                                                                           400
                            172.2
                                      99.7
                                              63.8




                                                                                           60.6
                                                                58.3




          100
                                                                                  54.0




                                                                                                                                                                                 296.2
                                                                          42.9




                                                                                                                                                                        200
                                                         36.6




                                                                                                            33.8




                                                                                                                                        25.7
                                                                                                                                                 21.7
                                                                                                                       21.4
                                                                                                     15.6




           50
                                                                                                                                                        9.1




            0                                                                                                                                                            0
                 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4                                                                                                               Q 1 2009          Q 2 2009          Q 3 2009    Q 4 2009
                 '09 '09 '09 '09 '10 '10 '10 '10 '11 '11 '11 '11 '12 '12 '12 '12
                                                                                                                                                                               Source: National Bank of Georgia, FSA
                          Source: National Bank of Georgia, FSA
                                              www.georgia.gov.ge                                                              Georgian Economy Overview                                                       May 2009                  12
                     Recent Reforms - Taxation
              ‘04A     ‘05A    ‘06A      ‘07A        ‘08F           ‘09F        ‘10F    ‘11F        ‘12F     ‘13F

Number of
              21         7         7      7           6               6          6       6               6    6
Taxes

VAT           20%       20%       18%    18%         18%            18%         18%     18%         18%      18%

                                                  Social Tax +   Social Tax +
              12-       12%       12%    12%      Income Tax     Income Tax
Income Tax                                                                       20%     18%         15%     15%
              20%       flat      flat   flat
                                                 32%      25%         20%

Social Tax    33%       20%       20%    20%           -              -          -       -               -    -

Corporate
              20%       20%       20%    20%         15%            15%         15%     15%         15%      15%
Profit Tax
Dividend
              10%       10%       10%    10%         10%             5%         5%      3%           0%      0%
income tax


 Out of 21 taxes under the former tax code, only 6 exist today

 Tax rates reduction timetable has been further accelerated in key tax rates in 2008

 This will provide a significant stimulus for the economy in 2009 and beyond

 Georgia, over the last five years, has evolved into one of the most attractive low-tax jurisdictions in Europe



                     www.mof.ge                 Georgian Economy Overview                    June 2009              13
               Special Taxation Regimes Adopted
• Special taxation systems have been adopted for the different regimes aimed at establishing new
  international financial institutions in the country, encourage economic growth, support
  sustainable development and the trade-transit function of Georgia

                                     An international financial
Type of tax                                                         Free industrial zone    Free warehouse company
                                             company
                                                                       (for International     (from re-exporting of
Corporate Income Tax                 (from financial services) 0%
                                                                        Companies) 0%           foreign goods) 0%
Value Added Tax                                  0%                           0%                         0%

Customs Tax                                0%, 5% or 12%                      0%                         0%

Property Tax                                  up to 1%                        0%                       up to 1%

Personal Income Tax                             20%                          20%                         20%




                www.georgia.gov.ge         Georgian Economy Overview                        May 2009              14
     Increasing Integration Into the Global Economy
 The taxation in Georgia provides low, flat tax rates and double taxation
  avoidance treaties with 24 countries – a unique combination in the world
 FTA with the CIS countries
 FTA with Turkey
 GSP+ with the EU
 GSP with the US
 Possible developments in the nearest future:
     FTA with EU
     FTA with USA




             www.mof.ge        Georgian Economy Overview    June 2009        15
         Customs Code Amendments
•   Existing Requirements:
•   The customs value of goods carried into the Georgian customs territory, processed from
    the goods carried out under the customs regime for processing the goods outside the
    customs territory will be diminished by the customs value of Goods declared and carried
    out for proscessing purposes. It is not defined whether the cost of transportation (carrying
    in and out) should be included.

•   Proposal:
    It will be determined, that when carring in the processed good, as customs value shall be
    considered only the value added through the processing, with no regard to transportation
    costs.




               www.mof.ge            Georgian Economy Overview              June 2009           16
                               Tax Code Amendments
VAT Treatment During Exporting Services
Existing Requirements:
Under the existing requirements taxpayer rendering services outside the territory of Georgia is not
  eligible to claim VAT paybacks
Proposal:
Taxpayer acquires the right to claim VAT paybacks for services rendered outside the territory of Georgia




                  www.mof.ge             Georgian Economy Overview                  June 2009              17
                      Tax Code Amendments
    Financial Lease
      Reason:
•     According to the current law leasing is considered as supply of goods, yet for the purposes of
      VAT, it is considered as service and is taxed accordingly.
•     Leased assets in its total value is considered as supply of goods, although essentially it is
      divided in two parts, because the lessor transfers an asset in discounted value to the lessee
      and receives interest from the given asset, which basically means income from certain
      financial service rendered, but not income generated from the supply of goods. Given the
      abovementioned, regulation of leasing is vague and inaccurate.
        Proposal:
•      leasing must be considered as provision of service, taking into account certain conditions;
•     Discounted value of income generated from leasing (10% rate applicable) shall not be less
      than the difference between the present value of a given asset and its expected residual
      value.
•      At the end of the lease term, lessee may acquire the leased-asset at its residual value, which
      may not be higher than 15% of the fair market value of the asset at the beginning of the
      lease term.


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                 Tax Code Amendments
    Partnership and Taxation of Income
    Reason:
     according to the existing tax code a partnership is obliged to allocate taxable income (profit)
    to the shareholders (partners), however, there is no complete mechanism of partnership
    taxation that would regulate total income, deductions, calculations, tax payment, tax
    declaration and other matters related to tax liabilities of the partnership and its members.
    Proposal:
•   Taxable income of partnership will be allocated to its shareholders, in accordance with their
    shares, and will be included in the total income of the shareholders;
•   Shareholder is obliged to tax the abovementioned income, with no regard whether the
    partnership has distributed the profit or not;
•   Obligation of a partnership to submit the declaration is defined, and a partnership becomes
    liable to submit to the tax authority the information on the income received per share and
    the distribution of profit among the shareholders;
•   If a member of a partnership is not a registered taxpayer, a partnership is obliged to withhold
    the tax, whereas the member may claim the credit in the same amount as taxed at source.
•   Losses of a partnership will not be allocated to the shareholders and will be carried forward
    and reimbursed through the profit generated in the following years.
•   Is effective from 1 January 2011
                www.mof.ge             Georgian Economy Overview               June 2009           19
        Economy Remains Resilient
Economy remains resilient due to the following reasons
•Donor support
•Diversified economy
•Reforms – strong economic fundamentals

Georgia is committed to continuing reforms
•Continue building strong democratic institutions
•Rule of Law and judiciary reform
•Further lighting tax burden
•Economic liberalisation




            www.mof.ge       Georgian Economy Overview   June 2009   20
                              Contacts
Kakha Baindurashvili                           Zurab Simonia
Finance Minister of Georgia                    Director of Investment Risk
k.baindurashvili@mof.ge                        Management Agency
                                               z.simonia@mof.ge




             www.mof.ge       Georgian Economy Overview             June 2009   21

				
DOCUMENT INFO
Description: 2008 Georgia 500 State Income Tax From document sample