Economic substance in Georgia: what an office, director and bank account do—and do not prove

Banks use it in KYC, tax authorities use related concepts for residence, permanent establishments, source and transfer pricing, and foreign authorities use it when testing controlled companies or treaty claims. These are overlapping questions, not one Georgian “substance test.” A structure may satisfy the Public Registry yet fail a bank’s risk review or another country’s corporate-residence test.

The useful question is therefore not “How much substance is enough?” but “Which legal conclusion are we trying to support?” Treaty residence, Georgian tax status, Virtual Zone activity, International Company status, VAT establishment and bank onboarding each require their own analysis.

Every Georgian company needs a registered address. A virtual office can provide lawful registration, correspondence handling and a stable local contact. It should never be sold as automatic proof that senior management and revenue-generating work occur there.

If the business claims a Tbilisi operating centre, show what happens in Tbilisi: who attends, what equipment and systems they use, where records are maintained, which suppliers support the work and how customers interact with the team. A small consultancy may need less infrastructure than a software employer or trading company, but both need a coherent story.

Article 28 of the Georgian Tax Code defines place of management by reference to effective management and where managerial functions are exercised. Foreign law may use its own central-management, control or incorporation tests. A Georgian director signing documents prepared and dictated abroad may not settle either country’s analysis.

Keep contemporaneous board minutes that show the question considered, information reviewed, alternatives and decision. Record physical or video attendance honestly. Give Georgian management actual authority consistent with corporate documents and bank mandates. Substance is weakened when every commercial approval, password and customer negotiation remains with an overseas parent or owner.

Map who develops the product, negotiates contracts, accepts risk, controls budgets, manages staff and owns or licenses intellectual property. Then compare that map with intercompany agreements and invoices. A Georgian company earning most of a group’s margin while performing only routine administration invites questions; so does a Georgian development team paid a small fee while it creates and controls valuable software.

Headcount alone is not decisive. Relevant competence, decision rights and actual work are more persuasive than nominal employment. Preserve employment files, payroll, role descriptions, project systems and work product without manufacturing artificial records.

Georgia’s Tax Code contains transfer-pricing rules for controlled cross-border transactions. Related companies should use arm’s-length conditions supported by functional analysis: functions performed, assets used and risks assumed. Management fees, software licences, shareholder loans and service exports deserve particular care.

An invoice stating “consulting” is not evidence of a service. Keep the agreement, deliverables, time or project records, benefit analysis, pricing method and payment trail. Check VAT and withholding separately; arm’s-length pricing does not resolve place of supply or source.

A Georgian bank may ask why the company needs Georgia, where customers and suppliers are located, who operates the account, expected turnover, source of initial capital and evidence behind large transactions. The review continues after onboarding. Activity that contradicts the declared model can trigger renewed questions.

Answer with a concise operating narrative and indexed evidence. Do not promise local staff if none exist or disguise pass-through flows. A smaller truthful model is safer than an elaborate fictional one.

Start with a one-page functions-and-risks map. Align contracts, director authority, premises, payroll, accounting, tax filings and bank profile. Review it whenever the company launches a product, hires abroad, opens a new market, moves a founder or changes group pricing.

Substance should improve execution: people with authority, records where decisions are made and systems that support delivery. If every feature exists only for a tax conclusion, the structure is fragile by design.