Georgia’s Innovation Tax Overhaul: A Strategic Gateway for Global Startups and Indian IP-Led Businesses

By CA Surekha Ahuja | International Tax and Innovation Structuring Specialist

Executive Summary

In a transformative policy move, Georgia has introduced a structured, innovation-linked tax regime, effective from 27 September 2025. With phased tax incentives for startups, high-R&D SMEs, and research service providers, the country positions itself as a low-cost, high-substance destination for global intellectual property and technology development. This article examines the strategic implications of this development, especially for Indian founders, SMEs, and cross-border investors. For those building real innovation, Georgia offers a tax-aligned pathway to global expansion. For those seeking shortcuts, it may invite scrutiny. The distinction lies in structure and intent.

Introduction: A Small Country Makes a Big Statement

In an era where tax policy is increasingly tied to innovation, Georgia has taken a decisive leap forward. Through two newly enacted laws—Law No. 718-IIMS-XIMP (Innovation) and Law No. 719-IIMS-XIMP (Tax Code)—the country is offering one of the clearest and most accessible innovation tax frameworks globally.

Unlike traditional tax havens or IP boxes with rigid thresholds, Georgia’s model is tailored for early and mid-stage businesses seeking operational clarity, IP monetisation, and low effective tax rates. The message is clear: if you bring real innovation and comply with substance requirements, Georgia will reward you with a globally competitive tax regime.

A Three-Tier Innovation Regime: Eligibility and Tax Benefits

1. Innovative Startups
Eligibility: Georgian companies building innovative products, services, or processes, with at least GEL 100,000 in investment or GEL 150,000 in grant funding within the prior two years.
Phased tax benefits:

• Years 1 to 3: Salary tax exemption within specified limits

• Years 4 to 6: Profit and salary taxed at 5 percent

• Years 7 to 10: Profit and salary taxed at 10 percent

2. Innovative SMEs
Eligibility: Entities with R&D expenditure of at least 5 percent of revenue (minimum GEL 100,000), using patents or R&D partnerships.
Tax benefits:

• Profit tax base reduced by three times the previous year’s R&D spend

• Access to reinvestment support under government rules

3. R&D Service Providers
Eligibility: Companies deriving at least 80 percent of revenue from R&D (economic activity code 72.1), maintaining compliance and solvency.
Benefits:

• Flat 5 percent tax on both salary and profit

• Indefinite duration if conditions persist

Global Positioning: What Makes Georgia Stand Out

Georgia’s new regime is not simply about tax relief. It is a policy blueprint for building an innovation economy. While jurisdictions like Ireland and Singapore focus on mature enterprises and MNCs, Georgia targets lean, growth-ready ventures—startups, VC-backed innovators, and IP-driven SMEs.

Key differentiators include:

• Low-entry threshold for qualification

• Transparent, time-linked tax structure

• Strong alignment between innovation, investment, and tax outcomes

• Treaty access for global structuring

For Eastern Europe, Central Asia, and developing economies with underdeveloped IP infrastructure, Georgia now offers a compliant and cost-effective base for innovation.

Strategic Relevance for Indian Businesses

For Indian founders and businesses looking outward, Georgia presents an opportunity to expand and monetise global IP—without breaching domestic tax laws.

1. Startups with Global IP Ambitions

Indian startups building cross-border digital products or platforms can set up a Georgian subsidiary to:

• Book foreign license revenues in a low-tax jurisdiction

• Route international operations through a treaty-aligned structure

• Reduce effective global tax without affecting Indian compliance

Where substance is maintained, such structures can legitimately lower outbound tax friction.

2. SMEs with Consistent R&D Activity

Indian mid-sized firms in pharmaceuticals, electronics, automation, and agritech can:

• Shift part of their research activity to a Georgian entity

• Claim tax reliefs on three times their qualifying R&D cost

• Reinvest in product development under government-aided schemes

This creates a self-sustaining loop for innovation-led growth with tax optimisation.

3. Cross-Border VC Structures and HoldCos

Indian and international funds with IP-heavy portfolios can leverage Georgia for:

• Efficient IP holding structures

• Royalty monetisation with low leakage

• Capital gain planning on global exits

This model is especially viable where IP value is created across borders and future acquisition or licensing is anticipated.

Tax and Legal Considerations: Proceed with Caution, Not Evasion

While Georgia offers a favourable structure, Indian tax authorities are equipped to detect misuse.

1. GAAR and Transfer Pricing Scrutiny
Structures lacking commercial substance—such as shell companies or artificial intercompany transfers—may be exposed to:

• GAAR (General Anti-Avoidance Rule) disallowing tax benefit

• Transfer pricing adjustments under Indian regulations

• Reattribution of profits to Indian operations

Substance must include staff, decision-making, infrastructure, and actual control in Georgia.

2. Treaty Misuse under BEPS Principles
The India–Georgia Double Tax Avoidance Agreement (DTAA) offers benefits on withholding taxes. However, if arrangements violate BEPS Action 6 (treaty abuse), such benefits may be denied.
Key compliance points:

• Demonstrate beneficial ownership

• Establish genuine purpose beyond tax advantage

• Avoid circular or back-to-back routing of funds

Georgia Compared: A Jurisdictional Perspective

Jurisdiction	Tax on IP Income	Substance Requirement	India DTAA	Ideal Use Case
Georgia	0 to 10 percent (phased)	Moderate, real operations required	Yes	Startup IP, SME R&D
Singapore	17 percent (with incentives)	High	Yes	Global tech platforms
UAE (Free Zones)	0 percent (with ESR rules)	Medium	Yes	Digital service hubs
Ireland	12.5 percent (IP Box)	High	Yes	IP-rich multinationals
Estonia	0 percent on retained profits	Medium	Yes	Reinvestment vehicles

Georgia strikes a balance between accessibility and governance—especially relevant for companies in transition from domestic to international markets.

Strategic Conclusion: Georgia Is a Viable IP Gateway for the Right Profile

Georgia’s new regime opens a jurisdictional window that is neither artificial nor overly complex. It is designed for companies creating value, willing to establish operations, and looking to grow internationally.

For Indian businesses, Georgia offers a clean route to build global IP while managing tax exposure. But intent, structure, and execution must align with Indian and OECD standards.

In short, Georgia rewards innovation—not arbitrage.