Starting from September 2025, amendments to the Law of Georgia "On Innovations" will come into effect, introducing tax benefits and new terms for startups and those planning to establish one.

The Law of Georgia "On Innovations," adopted in 2016, aims to foster a knowledge- and innovation-based economy, encourage and support startups, and promote the development of the technology sector. In 2025, the law underwent modifications.

The amendments provide tax benefits for innovative startups, innovative small and medium enterprises (SMEs), and companies providing research and development (R&D) services. Additionally, new terms have been introduced, including Technology Park, Acceleration, Innovative Startup, Angel Investor Network, Innovative Small and Medium Enterprise, and R&D Service Company, each with its own legal definition.

Legal firm LTA explains the tax benefits for innovative startups in detail:

Tax Benefits for Innovative Startups

• For the first 3 years after receiving innovative startup status, salaries paid by the startup are exempt from income tax within an amount determined by a Georgian Government resolution, in agreement with the Parliament’s Finance and Budget Committee (the specific amount is not yet known).
• From the 4th to the 6th year, salaries are taxed at a 5% income tax rate, and the startup’s profit is taxed at a 5% rate.
• From the 7th to the 10th year, salaries are taxed at a 10% income tax rate, and the profit tax rate is also 10%.

Additionally, an entity cannot simultaneously hold the status of an Innovative Startup and an International Company or Virtual Zone Person. If granted innovative startup status, any prior International Company or Virtual Zone Person status will be voided.

Tax Benefits for Innovative Small and Medium Enterprises (SMEs)

• If an SME distributes dividends from the previous year’s net profit, it can reduce its profit tax by three times the amount spent on R&D in the previous financial year.
• SMEs with innovative status can benefit from government-defined support mechanisms when reinvesting profits.

Tax Benefits for R&D Service Providers

• During the validity of their status, salaries paid by R&D service providers are taxed at a 5% income tax rate, and their profit tax rate is also 5%.

Notably, entities are considered to hold their respective status under the Law "On Innovations" from the first day of the month following the decision to grant the status.

For detailed information on the status assignment process and term definitions, visit the website of the legal firm LTA. For legal consultations or related services, contact LTA at: +995-568-88-77-87 or email: info@lta.ge.

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