Reverse-Charge VAT: The Invoice From Abroad That Makes You a VAT Debtor

Most articles about Georgian VAT reassure you that reverse charge is neutral. You declare 18% and deduct 18% in the same month, so nothing leaves your account.

That is true for registered VAT payers. If you are not registered, it is the opposite of your situation. You owe the 18%, you cannot deduct it, and you owe it monthly regardless of how small your business is. There is no threshold below which reverse charge stops applying. The Georgian tax adviser Gela Barshovi states it plainly in Forbes Georgia: reverse VAT is payable when a Georgian resident taxpayer receives services from non-residents, and no threshold applies.

This article is written for the non-registered reader, because that is where reverse charge is an actual cost rather than a bookkeeping entry.

The rule

When a Georgian taxable person receives services from a non-resident who has no fixed establishment in Georgia, and the place of supply is Georgia, the obligation to account for VAT shifts from the seller to the buyer. You self-assess 18% on the value of the service, declare it, and pay it by the 15th of the month following the reporting month.

The seller is not doing anything wrong by not charging you VAT. Under the place-of-supply rules Georgia adopted in 2021, aligning with the EU VAT Directive, a B2B service is supplied where the customer is established. Your foreign supplier correctly issues an invoice with no VAT on it. The tax did not disappear. It moved to you.

Two things follow from this that surprise people.

It is a B2B mechanism only. Where a non-resident supplies digital services to a Georgian individual who is not a taxable person, reverse charge does not apply. Since April 2021 the non-resident registers under a simplified scheme and accounts for the VAT themselves, quarterly. So the same Netflix-style subscription is treated one way when bought by a person and another when bought by a business.

It is not limited to non-residents. The same self-assessment logic applies to goods acquired from Free Industrial Zone enterprises or from a customs warehouse, where those goods then enter free circulation. This case is missing from essentially every consumer-facing guide to Georgian VAT, and it catches trading businesses that assume a domestic Georgian supplier means a domestic Georgian VAT invoice.

The asymmetry

Here is the whole article in one comparison.

You are VAT-registered. You buy GEL 10,000 of foreign services. You declare GEL 1,800 of reverse-charge VAT and deduct GEL 1,800 of input VAT in the same period. Net cash effect: zero. The obligation is a filing exercise.

You are not VAT-registered. You buy the same GEL 10,000 of foreign services. You declare GEL 1,800 of reverse-charge VAT. You have no deduction available. Net cash effect: GEL 1,800, every time.

Over a year, a small Georgian business spending GEL 3,000 a month on foreign software, hosting, agencies and contractors owes roughly GEL 6,480 in reverse-charge VAT it cannot recover. For a business whose income tax bill under Small Business Status might be GEL 3,000 on GEL 300,000 of turnover, the unrecoverable VAT is more than double the income tax.

That arithmetic is the reason to read further rather than filing this under things to deal with later.

Who this catches, specifically

Individual entrepreneurs with Small Business Status. This is the largest group and the most surprised. The 1% regime is an income tax regime. It replaces income tax, not VAT. You can declare every lari of turnover correctly at 1% every month for three years and still be non-compliant on VAT the entire time, because the two systems ask different questions. The 1% asks how your income is taxed. Reverse charge asks what you bought and where the supplier sits.

Companies serving only foreign clients. This is the structural trap. B2B services supplied to non-resident customers are treated as supplied outside Georgia, so they do not count toward the GEL 100,000 registration threshold. A Georgian company billing GEL 400,000 a year entirely to foreign clients may have a Georgian taxable turnover of zero and no obligation to register. It therefore never registers, never gains the right to deduct, and pays 18% on every foreign invoice for the life of the business.

Anyone who thinks the small amounts do not count. There is no de minimis. A GEL 60 monthly subscription generates a reverse-charge obligation the same way a GEL 60,000 agency retainer does.

What actually triggers it

The list is longer than most people assume. In practice, for a typical Georgian company or IE:

• Cloud hosting and infrastructure
• SaaS subscriptions of every kind, including project tools, design software, email platforms and AI services
• Advertising bought from foreign platforms
• Foreign marketing, design or development agencies
• Individual contractors abroad, invoicing you as freelancers or through their own foreign entities
• Foreign legal, accounting and consulting fees
• Online courses and training bought by the business
• Commission and platform fees charged by foreign marketplaces

Note the last two in particular. Course purchases get expensed without anyone thinking of them as a service import, and platform fees are frequently netted off inside a payout rather than appearing as an invoice at all, which means they never reach the accountant as a purchase.

Advances count

VAT in Georgia becomes chargeable at the moment of supply, and it also applies to advances received for goods or services to be supplied later.

For reverse charge this means an annual subscription paid in January creates the obligation in January on the full amount, not spread across the twelve months of service you are buying. People who reconcile their VAT position against monthly service consumption rather than against payment dates end up understating the early months of the year.

The deduction is not automatic, even when you are registered

This is where the reassuring version of the story gets thin, and it matters for anyone considering voluntary registration as the fix.

The service must be used for taxable supplies. Deduction is available where the acquired service is used, in the current or a future period, for the supply of goods or services. Where no associated income follows the purchase, the deduction should not be claimed. A subscription bought and abandoned, or a consultancy engagement for a project that never launched, sits awkwardly against that test.

There is a qualified VAT payer concept. Georgian practitioners describe conditions in Article 175 under which reverse-charge VAT is credited rather than paid, and one of those conditions is that the company holds qualified VAT payer status, applied for separately through rs.ge rather than granted automatically on registration. The Revenue Service treats it as a discretionary decision rather than an entitlement.

I flag this rather than explain it, because the scope of that requirement is not something I would state confidently from published secondary sources, and the sources that mention it are describing specific scenarios rather than the general rule. If your plan is to register voluntarily specifically to neutralise reverse charge, confirm the qualified status question before you file the application, not after.

Mixed activity reduces the deduction. Where a business has both taxable supplies and supplies that are exempt without the right to deduction, input VAT on general costs is apportioned by the share of taxable turnover in total revenue.

Should you register voluntarily?

For a business with significant foreign service spend and no obligation to register, this is straightforward arithmetic rather than a strategic question.

The case for. Registration converts an 18% unrecoverable cost into a neutral entry. On GEL 36,000 of annual foreign spend, that is roughly GEL 6,480 recovered per year, assuming the deduction conditions are met.

The case against. Registration is not free. It brings monthly VAT declarations whether or not there is anything to declare, a nil return still being a return. It requires proper input and output VAT records. And it changes how you invoice Georgian customers: your domestic supplies become subject to 18%, which matters if your customers are individuals or non-registered businesses who cannot recover it. For a business selling only to foreign B2B clients, that last objection largely disappears, since those supplies are outside the scope or zero-rated with the right to deduct.

The rough rule: if your annual foreign service spend, times 18%, exceeds the cost of the additional compliance, registration pays for itself. For most businesses spending more than a few thousand lari a year abroad, it does.

If you have not been declaring it

Assume this is discoverable. Reverse-charge exposure is one of the most reliable findings in any review of a foreign-owned Georgian company, because the evidence is in your bank statements and your foreign card transactions, and neither of those is going anywhere.

Quantify before you decide anything. Pull twelve to thirty-six months of bank and card statements and identify every payment to a foreign supplier of services. Multiply by 18%. That number determines whether this is a housekeeping matter or a real liability.

Do not start declaring correctly this month while leaving the history untouched. A clean current period sitting on top of an unaddressed history is the pattern that draws attention, because the change of behaviour is itself visible in your filings.

Register first if you are going to. Registration does not fix the past, but every month you delay adds to a balance that will never be recoverable.

Check what else travels with it. The same foreign invoice can carry a second obligation: withholding tax on payments to non-residents, at rates that vary by payment type and by whether a treaty applies. Companies routinely handle one of the two and miss the other. And if you hold Small Business Status, a VAT review and a status review tend to arrive together.

The short version

Reverse charge is neutral if you are registered and costly if you are not, and the businesses least likely to be registered (small, foreign-client-facing, service-based) are exactly the ones buying the most foreign services. Georgia's VAT system does not have a small-business exemption from this. It has a small-business exemption from the benefit of it.

EFS Group handles VAT registration, monthly VAT and reverse-charge declarations, and historical exposure reviews for companies and individual entrepreneurs in Georgia.

This article is general information and not legal or tax advice. Rates, thresholds and procedures change, and the rules on crediting reverse-charge VAT are more conditional than a summary can convey. Verify the current position against the Tax Code of Georgia and the guidance issued by the Revenue Service before acting.