A Comprehensive Guide to Georgia Taxes for US Expats
- Living in Georgia as a US Expat
- Georgia at a Glance
- US vs. Georgian Taxes for US Expats
- What Is the Income Tax Rate in Georgia?
- Determining Tax Residency in Georgia
- Essential Tax Forms for US Expats in Georgia
- Is There a Georgia-US Tax Treaty?
- What About a Georgia-US Totalization Agreement?
- What Income Can Be Taxed in Georgia?
- Credits & Deductions Available to Expats Living in Georgia
- Navigating Tax Compliance for US Expats in Georgia
Living in Georgia as a US Expat
Georgia is known as an intercontinental nation because it’s located at the border of two continents, Asia and Europe.
The country is well known for its Black Sea beaches, Caucasus Mountains, and centuries-old culture. Georgia also has straightforward tax laws, making it a popular destination for expats looking for scenic views and simple, stress-free life.
Regardless of whether you’re a resident or just a long-term employee working in Georgia, you’ll be required to file taxes in your host nation each year. You’ll also need to file taxes in the United States to avoid incurring any penalties with the IRS.
While nobody likes filing taxes once, much less twice, the good news is you can simplify the process of completing your expat taxes by familiarizing yourself with various applicable laws and programs. Here is a breakdown of Georgia’s Taxes for Expats.
Georgia at a Glance
- Primary Tax Form for Residents: Georgian Tax Return (Form ITO)
- Tax Year: January 1st to December 31st.
- Tax Deadline: March 31st
- Currency: Georgian Lari
- Population: Approximately 3.7 million (as of 2021).
- Number of US Expats in Georgia: Approximately 10,000 or less
- Capital City: Tbilisi
- Primary Language: Georgian
- Tax Treaty: Yes
- Totalization Agreement: No
As an expat, you’ll receive an automatic filing extension on your US tax returns that push your deadline to June 15th. If you need even more time, you can request to have your deadline moved to October 16th in 2023
US vs. Georgian Taxes for US Expats
Georgia follows a residency-based taxation system, where residents and non-residents are subject to different income tax rates, as is common in most countries.
As a resident of Georgia, you’ll be subject to various types of taxes, which may differ for non-residents. Georgia’s residency-based taxation model differs from the United States citizenship-based model, where citizens must pay taxes regardless of residency. Non-citizens are only required to pay taxes while in the US. US citizens living abroad must pay income and Social Security taxes.
What Is the Income Tax Rate in Georgia?
Let’s take a closer look at the income tax rate for foreigners in Georgia vs. the tax rate for expats that have established residency.
Tax Rate for Expats in Georgia
Many nations have a scalable income tax system. These systems are designed to tax top earners at a higher rate than those with a more modest income. Scalable income tax rates generally increase in 5% increments.
Typically, nations that use scalable systems will tax residents based on their gross income. They often tax all foreigners at the highest rate, regardless of income. This is one of the factors that makes Georgia unique.
Instead of using a variable income tax scale, Georgia taxes all income at a flat rate of 20%, regardless of whether you’re a foreigner or resident. Non-residents are taxed only on income they generate in Georgia.
Tax Rate for Expats that Have Established Residency
If you’re an expat that’s established residency, you’ll also be subject to a flat 20% income tax, just like non-residents. However, your worldwide income will be subject to the 20% income tax as opposed to just the earnings that originate from activities in Georgia.
Additionally, you’ll pay taxes on:
- Interest rate earnings
- Rental income
- Capital gains
Dividends, interest, and rental income are subject to a 5% tax. Capital gains are subject to the same tax rate as general income.
- Non-residents pay a 20% income tax on all revenue generated from in-country activities.
- Residents pay a 20% income tax on worldwide income
- Residents also pay a 5% tax on interest-rate revenue, rental income, and dividends
Determining Tax Residency in Georgia
Georgia’s tax law is very straightforward in defining residency.
To be classified as a resident of Georgia for tax purposes, you must be “actually present” in Georgia for at least 183 days in the previous 12-month period. That period can span multiple tax years, but you can only claim residency for the tax year in which the 12 months ended.
For example, let’s say you relocated to Georgia on October 1, 2021, and remained there for at least 183 days over the next 12 months. In this scenario, the 12-month period would end on September 30, 2022. In our example, you could claim Georgia residency status for tax purposes in 2022 but not 2021.
When establishing residency for tax purposes, it’s important to keep records of transactions like rent or mortgage payments and flights that document the date you arrive or depart from the nation. These documents will help you prove that you meet residency requirements and can come in handy if you’re audited by Georgian or US tax officials.
Essential Tax Forms for US Expats in Georgia
If you’re an expat living in Georgia, there are some crucial US tax forms that you must know about to fulfill the tax obligations in both countries. Below are some essential tax forms you need to be aware of:
- Form 1040: This is the primary US tax form for individuals. As a US citizen or green card holder, you must file this form every year, regardless of your location in the world. You must report your worldwide income, including income earned in Georgia.
- Form 2555 is used to claim the Foreign Earned Income Exclusion (FEIE). As a US expat in Georgia, you may be eligible for this exclusion if you meet certain criteria. It allows you to exclude a certain amount of your foreign-earned income from US taxes.
- FinCEN Form 114: If you hold financial accounts in Georgia with a total value of $10,000 or more, you must file this form with the US Treasury Department. It is commonly known as the Foreign Bank Account Report (FBAR).
- Form 8938: This form is used to report foreign financial assets if their value exceeds specific thresholds. If you have foreign assets worth more than $200,000, you must file this form with your US tax return.
Filing these tax forms can be challenging and time-consuming, particularly if you’re not familiar with the US tax system.
Is There a Georgia-US Tax Treaty?
Yes, there is a tax treaty between Georgia and the United States. The treaty aims to prevent double taxation of income and to promote economic relations between the two countries. It covers various types of taxes, including income tax, estate and gift tax, and corporation tax.
Under the treaty, certain income types are exempt from tax in one country if they are already taxed in the other. For example, US citizens living in Georgia can claim a foreign tax credit on their US tax return for income taxes paid in Georgia. Additionally, the treaty establishes procedures for resolving tax disputes between the two countries.
What About a Georgia-US Totalization Agreement?
Currently, there is no totalization agreement between Georgia and the United States. Such an agreement aims to prevent double taxation by addressing tax law overlaps, with tax treaties focusing on income tax overlap, and totalization agreements on social program double taxation.
For US citizens, the Social Security tax rate is 6.2% and is calculated based on their gross annual income, just like general income tax. However, if you’re self-employed, your Social Security tax rate doubles to 12.4% since US employers are required to match their employees’ contributions to the Social Security program. Self-employed individuals don’t have anyone matching their contributions, leading to the doubling of their tax liability.
Not having a totalization agreement in place means that you’ll be obligated to contribute to both Social Security and any comparable social program in your host nation. Fortunately, Georgia doesn’t have a comparable social program to Social Security. Hence, you won’t need to pay additional taxes to the Georgian government, but you’ll still have to fulfill your obligations to the US Social Security program.
What Income Can Be Taxed in Georgia?
You’ll be subject to different tax regulations depending on whether you’re classified as a foreigner working in Georgia or a resident.
As a foreigner working in Georgia, you’ll only have to pay a 20% income tax on earnings from in-country activities. Put simply, if you’re employed in Georgia, all these earnings will be taxed at the 20% rate.
On the other hand, if you’re a resident of Georgia, the following income will also be taxed:
- Worldwide income
- Interest rate-related earnings
- Rental income
When claiming income on your Georgian and US tax returns, it’s essential that both sets of documents accurately reflect your total earnings. Discrepancies can cause you to be audited and may lead to fines as well.
As such, you should make it a point to document all applicable income during the year, especially if you’re generating income from diverse sources, such as wages, pension payments, dividends, and rental revenue.
Credits & Deductions Available to Expats Living in Georgia
Once you establish residency in Georgia, you’ll be able to take advantage of several programs and credits to lower your tax liability. The most well-known such program is known as Foreign Earned Income Exclusion (FEIE).
Under FEIE, you can designate income earned in foreign nations as “exempt,” which means it won’t raise your tax liability. The FEIE limit is adjusted each year based on inflation. In 2022, the FEIE limit was $112,000.
What does this mean exactly? Simple: if you’ve established residency in Georgia and earned $112,000 or less in foreign wages or other foreign income, your US income tax liability is $0. However, you would likely still be required to pay Social Security taxes at a rate of 6.2%.
Expats can also claim the Foreign Tax Credit (FTC), which allows taxpayers to reduce their US tax liability by the amount of income tax paid to a foreign country. Additionally, expats may qualify for other credits and deductions, such as the Child Tax Credit and the Earned Income Tax Credit.
Navigating Tax Compliance for US Expats in Georgia
With the information provided in this guide, you can stop frantically searching for terms like “income tax rate Georgia” and focus on gathering the necessary documents and preparing to file your income tax returns. As you begin this process, be sure to carefully complete all necessary forms and take advantage of any available tax credits or programs, as outlined in this guide. By doing so, you can significantly reduce your tax liability and potentially save a substantial amount of money.
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