November 12, 2024

Why Requesting Tax Residency Certificates from International Contractors is Important

In today’s globalised business world, it’s common to work with contractors from various countries. One essential document for both legal and tax compliance is the tax residency certificate. Here, we’ll explain why it’s beneficial to request these certificates from contractors for all countries in which they hold tax residency, and how it helps meet tax and legal obligations.

What is a Tax Residency Certificate?

A tax residency certificate confirms where a contractor pays their taxes. This document is especially helpful in applying double taxation treaties that Georgia has with several countries, such as the UAE and Cyprus. With a certificate, the contractor may avoid double taxation and streamline their tax burden.

Why Do Georgian Tax Authorities Request Tax Residency Information?

The Georgian tax authorities may sometimes request tax residency information from companies working with international contractors, especially when these contractors claim non-resident status in Georgia. This helps ensure the accuracy of tax residency claims in another country, ensuring income is fairly distributed across borders. For the company, this minimises the risk of sanctions or disputes with tax authorities.

Monitoring for Transparency and Fair Tax Practices

To prevent companies from using offshore or low-tax zones like UAE free zones or Cyprus to hide income, tax authorities actively track income and transactions. As part of its international responsibilities, Georgia requires companies to verify contractors’ tax residency to promote financial transparency.

According to the government’s 2010 decree, Georgia has an official list of tax-friendly and offshore jurisdictions. This list is used to help regulate transactions between related companies, forming the legal foundation for increased tax control and transparency.

Why Request Certificates from All Relevant Countries?

Having up-to-date tax residency certificates from every country where your contractors hold tax residency is an essential part of meeting international tax and legal requirements. This approach reduces the risk of double taxation, avoids legal issues, and shows your company values transparency and trust with partners. To stay efficient and compliant, it’s a good idea to request these certificates ahead of time and keep them updated.