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Is it Really so Easy to Start and Run Business in Georgia Today?!

According to the World Bank’s Doing Business report for 2018, Georgia has moved from 16th to 9th place among the countries where doing business is most attractive. There are several components which Georgia have improved since the last year including insolvency and contract enforcement process, tax administration, real estate registration and starting of business operations.

As the Ministry of Economy and Sustainable Development of Georgia says, Georgia is still distinguished in the European and Central Asian region as a country that has taken significant steps towards better and more effective regulation.

Prime Minister of Georgia, Mamuka Bakhtadze stated that the strategy of the government political team is to make Georgia an economic and financial hub for the entire region. According to him, the government is doing everything to improve the business and investment environment.

Even while Mr. Bakhtadze was Minister of finance, he noted that, in Georgia registration of companies and opening of bank accounts will be available online for non-resident persons. This will be an unique opportunity to become Georgia the region’s financial center, – Prime Minister says, but the reality is different. Commercial Expert, Chairman of the Tax Committee of the International Chamber of Commerce of Georgia and Managing Partner of GLCC Law Firm Mr. Irakli Gaprindashvili speaks about the hindering factor of foreign investments in Georgia:

Is it really so easy to start and run business in Georgia today?

As we are all aware, starting of business is not only connected with registering a company in one day and for this purpose you also need at least to open a bank account for your company which gives you possibility to start financial operations with your business partners, including cross border financial operations which till mid of 2018 was very common and easy to do from Georgia. Nowadays foreign investors face significant problems with relationship with the commercial banks not only in case of cross-border transactions but even within opening of a bank account, not only for non-resident companies which is almost impossible today, but also for the local companies. Banks became a hindrance especially for the companies that are registered in Free Industrial Zones which are located in Georgia and which are operation according to the Governmental decrees and law of Georgia on Free Industrial Zones (FIZ).

What role does Georgian Government have in this process?

Till now, Georgian Government has been promoting this sector in almost every international business forum and tries to attract more foreign investors in Georgian FIZs.

But how the foreign investor will start business if every 2nd request for opening of a bank account is rejected by almost all Georgian commercial banks without any justification for FIZ companies? Of course none of foreign and even local investors will try to enter FIZ if this issue will not be solved or regulated in such form that it will be known in advance what kind of requirements are for bank transactions and what kind of limitations business may face.

What is the reason behind it and why Government has no reaction on this problem?

Well, the reason banks declare is a risk of money laundering, but I think this issue was and will always be on the agenda and it is not reasonable to justify limited opening and operating of FIZ companies accounts for this purposes. Till now Government has no reaction over this issue and as I’m aware there is no instruction from National Bank of Georgia to commercial banks for this purposes, so the banks are just avoiding additional headache and control obligations of cross-border transactions with simple rejection on opening of bank accounts.

But why does this limitation apply only to the FIZ companies or it also covers other companies?

This is a question that I also have in mind because FIZ company is an ordinary Georgia based Company and the difference is only in taxation part. FIZ Companies have tax preferences according to the Tax Code of Georgia and that’s why it was attractive for international investors to register FIZ Company.  Otherwise, this is an ordinary Georgian Company that should follow all local laws and regulations. Therefore, I do not see any common sense in this situation.

What is the solution from your perspective and what will be outcome if this problem is not solved?

I attended Ukrainian Business Forum held in Kiev last week and there was a big interest towards Georgia and especially to FIZ institution form participants but almost all of them were aware of the problems that their colleagues are facing with the banks right now. I see  huge perspective for developing Georgia as a business and financial hub of the region today but the problem should be solved before it becomes more painful in frames of attracting new investments in the country. Government should be more involved in such issues and as a banking system is a regulated system, there should be a clear rule and standards for the banks as well as for the business how to act in a proper way to proceed business operations with good faith, otherwise we will lose millions of foreign investments which could be accumulated in or transferred through the Georgian financial institutions.

By Diana Inanashvili