"The offshore law" has been passed in the third reading by the Parliament of Georgia. What does this mean?
The offshore law in Georgia and Ivanishvili
On April 19, the Georgian Parliament passed a bill in the third reading exempting asset transfers from offshore accounts to Georgia from taxation until 2028. 73 deputies supported the bill, while nine voted against.
The opposition and experts believe that this legislative change serves the interests of Bidzina Ivanishvili, an oligarch who is considered the shadow ruler of Georgia. In 2023, he returned to politics, becoming the honorary chairman of the ruling party “Georgian Dream,” which he founded in 2012.
What is changing:
If assets of a company registered in a low-tax jurisdiction (offshore) are transferred to a company registered in Georgia, these assets receive the following tax benefits:
a) The income derived from the transferred assets, which the offshore-registered foreign company and its owner-individual had been receiving, is exempt from profit tax and personal income tax in Georgia.
b) The corresponding assets and goods arriving in Georgia are exempt from import duties.
c) The Georgian enterprise receiving these assets from offshore accounts is exempt from property tax until January 1, 2030.
The explanatory note lacks arguments as to why the existing rules needed to be reviewed, especially in an expedited manner.
Technically, this bill was proposed as part of a package along with an initiative for writing off tax debts of individuals. It states that tax arrears owed by individuals incurred before January 1, 2021, will be written off. Moreover, the entire debt amount at the time of cancellation, including any accrued penalties, will be annulled.
The document provides only an argument in favor of expediting the consideration of the debt write-off mechanism, but it does not present any arguments as to why the activities of offshore companies should be exempt from taxation.
“Cynical initiative.” What do these changes mean?
Experts deem this legislative initiative “cynical,” partly due to its consideration alongside the controversial “foreign agents law,” amidst ongoing protests in Tbilisi involving tens of thousands of people.
On one hand, the government seeks to weaken civil society and, consequently, public oversight over its actions. Simultaneously, it facilitates the uncontrolled inflow of offshore assets into the country.
Many experts note that both directions serve the interests of the oligarch and shadow ruler of the country, as well as the honorary chairman of the ruling party “Georgian Dream,” Bidzina Ivanishvili.
The opposition believes that the adoption of the bill is linked to the possible imposition of sanctions against Bidzina Ivanishvili.
“Bidzina Ivanishvili is helped to bring his property, shares, and stakes hidden in offshore accounts to Georgia without taxation and bypassing anti-money laundering regulations,” says Roman Gotsiridze, a member of the “Euro-optimists” party, a member of parliament, and an economist.
He believes that the founder and honorary chairman of the “Georgian Dream” felt the need for these legislative changes due to potential sanctions.
Salome Samadashvili, a member of the “Lelo” party, holds a similar view.
“Putin’s, Patrushev’s (Secretary of the Security Council of Russia), Lavrov’s (Russian Minister of Foreign Affairs) fortunes are in offshore zones and have ended up under sanctions. Bidzina Ivanishvili knows that his fortunes await the same fate, that’s why he’s making you pass this law,” Samadashvili addressed the lawmakers of the ruling “Georgian Dream” party.
“Until now, Ivanishvili has kept secret the taxes he paid to the budget for the businesses he created. And now he’s changing the law to avoid paying anything at all for what he wants to bring here. That’s the purpose of this law,” said Samadashvili.
Arguments of the ruling party
The ruling party denies that the changes were made in the interest of Bidzina Ivanishvili.
“The bill, considered in an expedited manner, does not affect the offshore property of Bidzina Ivanishvili,” said Paata Kvirikashvili, Chairman of the Finance and Budget Committee.
“Is it wrong that the assets coming from offshore will be registered in Georgia and will be seen in the registry? How can it be wrong?” – Kvirikashvili stated.
“Only Ivanishvili needs this,” opinion of Transparency International-Georgia
Transparency International-Georgia, which investigates corruption schemes in many countries worldwide, has strongly criticized the adoption of the “offshore law”.
The organization believes that the expedited consideration of the law raises doubts and suggests that its true purpose is merely to facilitate the transfer of assets by Bidzina Ivanishvili from offshore companies to Georgia.
“Russian oligarchs will also be able to take advantage of this benefit,” stated Transparency International-Georgia.
“The practice of offshore companies is often utilized by Russian businessmen and oligarchs. The recent legislative changes provide them with the opportunity to transfer their assets to Georgia with tax benefits,” the statement reads.
The organization sees a connection between the initial adoption of the “foreign agents law” and the expedited adoption of the “offshore law”:
“If the ‘foreign agents law’ is passed, the West may impose sanctions against Bidzina Ivanishvili. Therefore, Ivanishvili is attempting to change the law and rush to protect his assets.”
In 2021, Transparency International-Georgia published a study revealing that Bidzina Ivanishvili owned 20 offshore companies at that time.
“This initiative, hastily adopted by parliament, vividly illustrates the significant influence Bidzina Ivanishvili holds over the executive and legislative branches, and how laws favored by him are rushed through without thorough public debate,” the organization stated in a release.
“It’s important to remember that offshore companies often appeal to individuals with assets of dubious origin. If Georgia implements a regime that facilitates the transfer of assets from offshore, it should also establish high standards of transparency. The identities of those transferring assets from offshore to Georgia should be disclosed,” the statement reads.
