CRYPTO REGULATION IN GEORGIA

In the present context, Georgia has put in place laws that require companies dealing with any type of cryptocurrency business to take prior licenses from the Central Bank. The regulatory requirements have been officially adopted starting from January 1, 2023. Later, on July 1 of the same year, exhaustive guidelines were also agreed upon regarding the registration procedure for companies falling under the ambit of cryptocurrency.

It therefore shows that there is a regulatory framework for the operation of cryptocurrencies in the country. This includes licensing from the Central Bank of the country, indicating commitment to compliance, security, and accountability of cryptocurrency players. The fact that certain measures exist for the company’s registration process goes as far as to underscore and point out the intent of the government to ease such a process and make it less cumbersome by providing some sense of clarity and direction for those companies working their way through such a license.

Advantages

VASP (Virtual Asset Service Provider) can engage in one or more of the following activities:

• Transfer and/or storage/administration of virtual assets.
• Administration of a trading platform.
• Exchange (including through self-service terminals) in national or foreign currency, other virtual assets, financial instruments, primary placements, services related to primary offerings, portfolio management (except collective portfolio management), and lending of virtual assets.

The new law does not regulate activities with virtual assets that are not subject to transfer or are not used for payment and/or investment purposes, such as loyalty programs, gaming points, or other types of virtual assets used only in a closed virtual space. The law also excludes the regulation of non-fungible tokens (NFTs).

Georgia

Capital	Population	Currency	GDP
Tbilisi	3,728,282	GEL	5,023

THE REQUIREMENTS FOR OBTAINING THE VASP LICENSE IN GEORGIA

To obtain a license for companies in Georgia, the registration with the National Bank and compliance with certain requirements are necessary, involving the following categories:

COMPANY DIRECTOR

• Number of Directors: A company can have only one director if the founder and director are different individuals. If the company has only one founder, who is also the director, it must find a second director.
• Director’s Qualifications: The director must have a higher education in fields such as economics, finance, banking, business administration, audit, accounting, law, information technology, information analytics, or a related field. Work experience may substitute educational requirements, with experience in financial services or virtual assets being considered.
• Legal Cleanliness: No criminal convictions, especially for serious crimes such as terrorism financing or money laundering, are allowed. No violations of entrepreneurial, banking, or financial legislation that threaten the normal functioning of the organization or financial sector are permitted. There should be no breaches of fiduciary duties in a financial institution with a court decision.
• Financial Obligations: No outstanding financial obligations, declarations of insolvency, or involvement in operations causing significant harm to the virtual asset service provider or financial institution are allowed.
• Conflict of Interest: The director should not simultaneously administer two VASPs unless they are members of the same group.
• Presence in Georgia: At least one person authorized to represent the virtual asset service provider must be present in Georgia for a minimum of 14 calendar days per month.

COMPANY BENEFICIARIES

• Adherence to the law: Clean legal record, with no criminal convictions. Serious offenses such as terrorism financing, money laundering, or any other economic crime will be problematic.
• Compliance with entrepreneurial, banking, and financial legislation. Practices that pose a threat to the normal functioning of a specific organization and/or the financial sector will be prohibited.
• No outstanding financial obligations.
• Should not be declared insolvent.

COMPANY OFFICE SPACE

• The main office of the virtual asset service provider, from where its director(s) will effectively manage the operations, must be located in Georgia.
• The main office must be physically separated from premises used for any other purpose by any other entity (i.e., it cannot be a shared office space).
• Real estate and equipment of the main office should be sufficient for managing and controlling the virtual asset service provider’s activities. National Bank representatives will conduct checks to ensure legality.
• The virtual asset service provider must systematically record operations, maintaining easily traceable records.
• If services are provided on-site, especially involving the exchange of virtual assets through cash transactions, a surveillance system must be installed in the office.

ELECTRONIC SYSTEM

• Before commencing operations, a software (electronic) system must be installed, proportionate to business volumes and risks associated with money laundering and terrorism financing. It should automatically detect noteworthy/unusual transactions by processing information based on distributed ledger technology (DLT).
• A company seeking a virtual asset service provider license must provide a detailed plan to the National Bank outlining the service provision process, from start to finish.
• The National Bank may request a demonstration of the electronic system used for virtual asset services.
• To obtain a license, the following information about the electronic system used for virtual asset service provider activities must be provided:

AML/TF PROTECTION

• License applicants must have an internal instruction (compliance policy-procedure) designed to implement a compliance control system to prevent money laundering and terrorism financing.
• The National Bank will carefully review the document, so transparency in your business is crucial.
• In addition to the mentioned document, the company must implement compliance control systems for virtual asset service providers, contributing to the prevention of money laundering and terrorism financing according to a 12-point plan.

Crypto regulation in Georgia overview

LICENSE ACQUISITION TIMELINE

The timeline for obtaining a VASP license in Georgia consists of various milestones, which are specified within the regulatory framework in a sequenced manner, guaranteeing there would be a smooth application and approval process. To this end, the timeline in terms of licensing should be as quick as possible at the time when businesses go through the application process and allow clarity and regulatory oversight but avoid superfluous delays. The clearly defined licensing procedure that the Georgian government has set for the VASPs reflects its proactive way of fostering a secure and regulated environment in the sphere of virtual currency. Business entities wishing to operate as VASPs in Georgia are invited to act in compliance with the set timeline, observing the regulatory framework in force.

The National Bank is obligated to make a decision regarding license acquisition within 2 months from the date of application submission; however, under specific conditions, namely when the National Bank needs additional documents, this is subject to variation. In this instance, the time it would take would depend on the company and its responsiveness to further requests on the part of the National Bank.

Advantages of starting business in Georgia

• Fast company registration and licensing process
• Low Business Costs and Taxes
• No minimum capital requirement.

Starting a crypto business in Georgia presents several advantages that contribute to a favourable environment for entrepreneurs in the blockchain and cryptocurrency industry.

Georgia’s Progressive Regulatory Environment:

The country has established a progressive and friendly regulatory framework for cryptocurrencies. The government has shown a willingness to embrace and regulate digital currencies, providing clarity and legal support for businesses operating in the crypto space.

Low Business Costs and Taxes:

Georgia offers a cost-effective business environment with relatively low operational costs and taxes compared to many other jurisdictions. Entrepreneurs in the crypto sector can benefit from these favourable economic conditions, allowing them to allocate resources efficiently and enhance profitability.

Strategic Geographic Location:

Situated at the crossroads of Europe and Asia, Georgia’s strategic geographic location provides businesses with easy access to international markets. This advantageous position facilitates global partnerships and trade, fostering the growth and expansion of crypto ventures beyond national borders.

Technologically Advanced Infrastructure:

Georgia has invested significantly in developing a modern and technologically advanced infrastructure. This includes robust internet connectivity and digital infrastructure, which is crucial for the success of blockchain and crypto businesses reliant on high-speed communication networks.

Innovative Ecosystem and Talent Pool:

The country has a growing and innovative ecosystem that supports emerging technologies, including blockchain and cryptocurrencies. Entrepreneurs can tap into a skilled talent pool that is well-versed in cutting-edge technologies, providing a solid foundation for the development and implementation of blockchain solutions.

Business-Friendly Policies:

Georgia’s commitment to fostering entrepreneurship is reflected in its business-friendly policies. The government actively encourages innovation and foreign investment, creating an atmosphere conducive to the establishment and growth of crypto startups. Simplified administrative procedures and a supportive regulatory environment contribute to a hassle-free business experience.

Access to Financial Services:

Georgia has a well-established financial sector with access to banking services, making it easier for crypto businesses to manage their finances and engage in traditional banking activities. This access to financial services enhances the overall stability and credibility of crypto ventures operating in the country.

Starting a crypto business in Georgia offers a combination of regulatory support, cost advantages, strategic location, advanced infrastructure, and a supportive ecosystem. These factors collectively create a favourable environment for entrepreneurs looking to capitalize on the opportunities presented by the burgeoning blockchain and cryptocurrency industry.

TAX FRAMEWORK IN GEORGIA

Business taxation is easy and transparent in Georgia: the country employs a simple system with a flat rate of tax uniformly applied to both individuals and businesses. It stands at 15% for corporate income tax, one of the lowest rates in the region, as of my last update in January 2022.

The system of taxation in Georgia is business-friendly because the country is open for foreign investments and attracts economic development. Because of the simplicity of the tax code, businesses can easily go through the necessary procedures to meet their tax obligations. Usually, companies are obliged to file an annual tax return; the tax year usually coincides with the calendar year.

Another pivotal component of Georgia’s tax system is the value-added tax. The unified VAT rate in this country is 18%, although the majority of goods and services are based on it. A reduced VAT rate could be considered for some essential goods and services, for instance, 5%. It is envisaged that VAT will be collected and paid by businesses to the government.

Besides the income and VAT, other taxes and duties a business may be subjected to are property tax, excise tax on certain goods, and social security for employees. Still, the burden generally remains relatively low compared with most countries.

With the view to encouraging entrepreneurship and supporting small business, Georgia has brought about various tax incentives and exemptions. Depending on the type of industry or startups, they may receive a reduced tax for a certain period of time or even be totally exempted, thus creating a favorable environment for any kind of business.

Businesses operating in Georgia will most likely have to keep pace with the variations in tax laws and regulations. Periodically, policies like this are subject to adjustment, making the need for update and compliance to the latest requirements important in sustaining smooth operations in the country’s business landscape.