Eight Virtual Zone Scenarios: What Georgia’s Revenue Service Guidance Actually Explains

RIGHTSIDE INSIGHTS · VIRTUAL ZONE · OFFICIAL GUIDANCE · 2026

The Revenue Service’s methodical instruction turns an abstract tax exemption into practical cases. Here is what each case tells a software company—and where an individual ruling is still needed.

Start with the four legal questions

A Virtual Zone Person (VZP) is a Georgian legal entity with the relevant status. The relief concerns profit from supplying information technologies created by that entity outside Georgia. The Tax Code, Law on Information Technology Zones and Government Ordinance No. 49 provide the framework. Revenue Service Order No. 33544 of 29 December 2022 explains how the authority reads it. The instruction is guidance on existing law, not a new statute and not a blanket pre-clearance of every taxpayer.

An applicant applies electronically through the Financial-Analytical Service. The guidance describes a project list for prior years if there are projects to report, a decision period and an electronic certificate. Status may continue indefinitely, but tax relief must still be tested for each stream of profit.

People and product: cases one to four

1. Employees and contractors can both matter

The first scenario involves development by a programmer employed by the VZP and a programmer engaged under a service contract. The authority accepts that an actual software product was substantially created by the entity, with payroll or payment-related tax duties fulfilled, and sold abroad. The lesson is not “any subcontractor is enough”. It is that contractor participation does not automatically disqualify real company-led development.

2. A founder can be the developer

Another scenario considers a resident founder who personally creates the software in Georgia and initially receives only dividends. The guidance treats the company as satisfying the creation condition on those stated facts. This is worth reading alongside earlier commentary about wage levels: commentary and individual administrative practice should not be turned into a universal statutory “40% salary” rule. A one-person company should document the founder’s actual work, residence, intellectual-property chain and distribution.

3. Not every line of code must survive

Software development is iterative. Architecture, design, databases and application components may change before release. In the third scenario, the authority looks at the purpose and substance of a multi-stage software project rather than requiring every intermediate task or line of code to appear in the final product. Project briefs, version history and work records can make that story clear.

4. A digital service is not necessarily software creation

The fourth scenario draws a hard line: using hardware and software to deliver an electronic service is different from developing a software product. A company that provides a digital service through tools built by someone else cannot claim the VZP profit exemption merely because customers receive the service online. Describe what the company creates, not just the digital channel it uses.

Sales and distributions: cases five to eight

5. A supported licence may qualify

In the instruction’s licensing scenario, the company developed software before obtaining the status and later granted foreign customers the right to use it. The later agreement required meaningful ongoing maintenance, fixes and improvements. The authority treated the post-status activity as qualifying provision of information technologies. A passive right to use an acquired product without substantial development or support is not the same fact pattern. Keep the licence, support scope, update history and cost records.

6. Mixed domestic and export sales require allocation

If the same product is sold inside and outside Georgia, the exemption applies only to the qualifying foreign-supply profit. Direct costs should be attributed where possible. Shared costs may need a reasonable and supportable allocation; the instruction illustrates one based on relative revenue where no more accurate method is available. Its numerical example has GEL 1 million net profit and GEL 2 million of GEL 2.5 million sales abroad, yielding GEL 800,000 exempt profit on that simplifying method and GEL 200,000 outside the exemption. The correct method for a real company must fit its actual accounts.

7. A subsidiary dividend is not software-export profit

A VZP may own another Georgian company. If it receives a dividend from that subsidiary and later pays its own shareholders, the second payment is not automatically exempt VZP profit. The instruction distinguishes the intercompany distribution under the general profit-tax rules from the later distribution of income that did not arise from the VZP’s qualifying software export. Keep investment income separate from product revenue.

8. Payroll and shareholder withholding remain

Even where a VZP distribution is exempt from company profit tax, a dividend paid to a natural-person shareholder can still trigger ordinary dividend withholding. Employee salary is also reported and taxed under the general payroll rules. The instruction’s final scenario illustrates that those obligations do not disappear simply because the software sale qualified for profit-tax relief.

When status can end

The guidance describes cancellation on the company’s request, misuse of the status to avoid tax and the grant of International Company status. In the latter case, VZP status ceases from the beginning of the month in which the IC status is granted. This makes a switch between regimes a dated accounting and tax event, not merely an administrative rename.

The guidance is helpful precisely because it shows both successful and unsuccessful examples. If your own facts sit between them—such as an overseas development team, a licence with limited support or a mixed bundle of software and advice—document the difference and seek an individual analysis or advance ruling before a major distribution.