Economic presence (substance) in Georgia

Gamarjoba, friends!

It is just happen that Georgia is one of our favorite jurisdictions to do business in 2020. It is becoming more and more difficult to work with banks, including Georgian ones, without a real presence in the country of registration.

The forecasts are that in 2021, the requirements of various banks will only become tougher in this regard.

In this article, we will share with you useful information on how to organize a substance in Georgia in order to calmly work with Georgian banks and enjoy all the advantages that this beautiful country offers us.

If you are not yet familiar with the benefits of doing business in Georgia, we recommend you to read our article.

WHAT IS SUBSTANCE IN GEORGIA

Economic presence (or "Substance" in English) is a set of measures required to prove a bank or other institution that a company was registered to conduct real (not imaginary) economic activity, including in Georgia.

In other words, Georgian banks are alarmed that Georgian companies registered by foreign citizens can be actively used for money laundering or other pranks. Note that such anxiety has very real ground underfoot and is not unfounded.

By the way, in 2018, Georgian banks began to curtail services for foreign companies registered outside Georgia. The reason for this was the story with the collapse of the Latvian bank ABLV, when a mass of clients of the bank being liquidated poured into the banks of Turkey, Belarus, Kazakhstan, Montenegro, Serbia, and especially into Georgian banks.

Obviously, the Georgian banking system did not want to repeat the sad experience of Latvia and fall the next "victim" of the American financial crime agency FinCEN. As a reminder, the publication of the FinCEN investigation was the direct reason for the liquidation of ABLV Bank in Latvia.

Thus, Georgian banks began to require Georgian companies to prove their connection with Georgia. This is especially true for companies whose directors / shareholders are non-residents. In this regard, Georgian banks began to inherit the generally accepted experience of European banks.

If a company fails to confirm its economic connection to Georgia, then a Georgian bank will not open a bank account or close an existing bank account after the company responds unsatisfactorily to a compliance officer's request.

By the way, recently we were faced with the fact that the Swiss CIM Banque asked its clients to provide proof of substance in the country of registration. This also applies to Georgian companies.

ECONOMIC PRESENCE IN GEORGIA - SPECIFIC MEASURES AND COST

As practice shows, it is not enough just to take and rent some office or coworking space somewhere in Tbilisi. This is just one step on the way of proving the company's real activity.

To create a full-fledged picture of the economic presence in Georgia, a set of measures is needed.

Fortunately, our experience, as well as the experience of our clients, has proved that it is possible and necessary to register companies in Georgia, as well as open accounts for such companies in Georgian banks. At the same time, it is only necessary to take a thoughtful approach to the issue of organization of substance in Georgia.

In particular, measures for organizing substance in Georgia can be as follows (and this is not an exhaustive list):

• VOIP (Voice over IP) phone number connected to mobileThe bank will see that the company has a Georgian phone number with the prefix +995. The cost of such a telephone number is approximately 7 Euros per month.
• Nominee director - resident of GeorgiaIn our opinion, this is one of the most important factors confirming the company's connection with Georgia in the eyes of the bank. The reason is simple: if the director of a company lives in Georgia, it means that the company is managed on the territory of Georgia. At the same time, the Georgian legal system is not familiar with the institution of "nominee service", which is characteristic of countries with the Anglo-Saxon legal system (for example, Cyprus, Great Britain, Hong Kong, many offshore companies). From the point of view of the law, the Georgian “nominal” director is quite real. The cost of director's services can range from 120 Euro per month. At the same time, it is advisable that the director will be officially employed in the company staff and have a salary, on which an income tax of 20% is paid, as well as a pension tax of 4%. Naturally, such a meager salary for a bank may look strange. Ideally, pay the director a salary of at least 200 Euro per month.
• Accountant in GeorgiaThere are two ways to get an accounting service in Georgia. The first is to conclude a contract with an accounting company, according to which, transfer all responsibilities for maintaining and submitting reports to outsourcing. The second is to hire an accountant and pay him a salary. The second method is considered to be better in terms of the compliance of the Georgian bank. The cost of an accountant's services in Georgia can be about 120 Euros per month.
• Office manager in the company staff with salaryBy itself, this is a rather useless position, in our opinion. However, if the company has three people on the staff on a salary: a director, an accountant and, for example, an office manager, then this will open any doors of Georgian banks for us. The company will have the opportunity to apply for a salary project in a Georgian bank, which practically guarantees that the company will be perceived by the bank as “local” and that the bank will serve with pleasure. The cost of office manager services starts from 50 Euro per month.
• Company website with Georgian translationThe simplest solution is to create a one-page landing page in several languages. If you do not speak Georgian, we can arrange a high-quality translation of your site into Georgian. The cost of such a service can range from 150 Euros, depending on the number of symbols on the site.
• The company's website must be located in the Georgian domain zone GEThe cost of renting a domain zone is about 1 Euro per month;

  

• Office rent in GeorgiaIt will cost you 200-300 Euros per month. For a bank, this is an ideal option, but you should also take into consideration that the landlord very often asks for an advance payment. Upon the conclusion of a lease agreement, make a scanned copy of such an agreement and submit it to the bank. Also, it is advisable to make payments for office rent in non-cash form through the bank account of your company. Thus, the bank's compliance officer will see that the lease agreement is not fictitious and that payments are actually being processed through it. If you decide to rent a space in a coworking space, then you do not need to rent an office in Georgia.
• Rent of a workplace in a Georgian coworking spaceA more budgetary option compared to renting an office space will cost you 100 - 120 Euro per month per employee. In some cases, you can try and get by with renting a space in a coworking space, although a more reliable option, of course, would be to rent an office;
• Georgian counterpartiesThis is one of the most difficult aspects of subsistence in Georgia, if the company conducts an international business that has nothing to do with Georgian counterparties. In this case, we will help you select several Georgian counterparties with whom it will be possible to conclude contracts and, if necessary, show such contracts to the bank. As an example: you can agree with a Georgian web studio to conclude a contract for the development of a website and its monthly maintenance. On the other hand, if all the above measures are taken to organize substance in Georgia, the bank can turn a blind eye to the absence of Georgian counterparties.

To summarize, the price of substance in Georgia is as follows:

* The above prices for the organization of substance in Georgia are given only as an example. Each situation is different and actual costs will depend on many factors.

WHAT TO DO IF THE ACCOUNT OF GEORGIAN COMPANY IS CLOSED, BUT YOU DECIDED TO RESTORE IT

Let's imagine a situation that your Georgian company has existed for many years and it had an account opened with the conditional Bank of Georgia, TBC or another Georgian bank. You did not even suspect that there were some changes in the banking sector of Georgia, but then you receive a request from the bank's compliance, in which the bank asks for a detailed explanation of your company's connection with Georgia.

A request from a compliance bank may look like this (a real case with a TBC bank):

You try to do everything to respond honestly and as informatively as possible to such a bank request. But the trouble is that in reality your company has nothing to do with Georgia, you do not have an office in Georgia, you are not a resident of Georgia and haven't got a residence permit in Georgia.

The next step of the bank is easy to predict, it will simply warn you about closing the account and ask you to transfer the balance of funds to an account with another bank or payment institution within one month, for example.

Your company's account has been closed, but you can always “retreat” and “regroup” to “go on the offensive” against the bank with renewed vigor.

Before going to the bank again, you need to do everything necessary to prove to the bank that your company has an economic connection with Georgia, rents office space, and is managed from the territory of Georgia. If you do everything wisely, the bank will reopen an account for your company and will already be satisfied that the company meets all the requirements of banking compliance.

WHAT TO DO IF YOU NEED AN ACCOUNT, BUT THERE IS NO POSSIBILITY TO PAY FOR SUBSTANCE?

And such situations happen very often.

In this case, you should be content with opening an account in a payment system.

Paysera, for example, can serve as a very real alternative to a bank account.

WHY YOU SHOULD CONTACT TAXTERS TO ORGANIZE SUBSTANCE IN GEORGIA?

It's very simple: we are fans of what we do and we bring each case to its logical conclusion. If your goal was to open an account in a Georgian bank, then we will do our best to open such an account, and you will not waste time and money on organizing a substance.

The measures that we propose have been verified by the experience of interaction with Georgian banks, and they have already managed to prove their effectiveness in various cases of our clients.

We also understand that each client and his business is individual. Accordingly, we are never guided by template solutions. Each of our clients has an individual approach to solving his headache.

Click on the button below, leave a request, and we will advise you!