In August, the government passed new regulations on registering foreign staff on the government website. For those who have only a handful of foreign staff, this is not really a big issue. However, there are a lot of subsidiaries, especially of IT companies, that have hundreds and in some cases a few thousand foreign IT staff in Georgia. One of the requirements which has made this somewhat challenging is that the labor agreement needs to be filled in online. The labor agreement can be in two languages, but at least one of the languages has to be in Georgian. Lots of companies have been using English only or other non-Georgian languages. This could be daunting for larger employers, leading to mistrust from employees when they are asked to re-sign their employment agreement now in two languages. We have received reports from larger employers of employees pushing back against signing their employment agreement a second time. There have even been a few cases where employees have hired their own lawyers, suspicious of their employer’s motives, assuming that perhaps having to re-sign a labor agreement is part of a trick. The filing has to be done at the latest by November 1, or 30 days from the hiring date and twice a year.
According to Klein & Pantsulaia, ‘there is a big last-minute rush, or, for technical reasons, the site is sometimes crashing according to some companies. Further, there has not been enough publicity about this, and lots of companies will miss the deadline, and who knows when they will find out about the new regulations.’ This is compounded by the fact that the regulation was announced during the main holiday month: August.
Those who file late can potentially be fined and/or face labor inspection investigations. Other information that now has to be uploaded includes foreign worker visa numbers, bank accounts, and dwelling information. These regulations do not apply to local staff.
The $20K Rule
For every 50K Lari (about 20K USD) of income that a company has, it is allowed to apply for a foreign workers work permit (which is more or less the same as a residency permit). So, if a company has, say, $200K of income, it is permitted to apply for up to 10 work permits for foreign employees. Companies also benefit from dramatic tax reduction if they become certified in accordance with a program specifically designed for IT companies.
The 6-month accreditation process requires IT companies to show that they are employing bonafide IT staff. If the company decides to sell its services in Georgia, the amount of Georgian revenues cannot exceed 2% of the gross receipts (including funds received to pay staff and expenses) of the whole company in the group. In the event that local revenues exceed 2%, the status could be cancelled. Again, when companies compare Georgia with its southern neighbor Armenia, the tax incentives there are geared towards smaller companies of fewer than 30 staff. In Georgia, the incentives are available for foreign IT companies who do not receive significant revenues in Georgia.