Issue I, 2009
Ruling N.1 of Georgian Financial Supervision Agency
On January 13, 2009, Georgian Financial Supervision Agency (hereinafter the FSA) has adopted the Ruling N.1, establishing the by-laws, regulating the status, functions and management of FSA-the legal entity of public law at the Bank of Georgia, overseeing the financial sector.
The main functions of FSA are:
− Supervision of banking and non-banking institutions, micro-finance institutions, persons, carrying out money transfer and currency exchange institutions;
− Regulation of the securities' market;
− Supervision of insurance;
− Prevention of illicit income.
The Ruling has been adopted in accordance with the Organic Law of Georgia on the National Bank of Georgia and is effective upon publication.
Order No.11 of the Head of Financial Supervisory Agency of Georgia, dated 24 December 2008 on Approval of Procedure for Creation of Insurance Reserves.
Order No.11 of the Head of Financial Supervisory Agency of Georgia, dated 24 December 2008 on Approval of Procedure for Creation of Insurance Reserves (hereinafter Order N.11 or the Order) introduces a new procedure for creation of insurance reserves for non-life, life and non-governmental retirement insurance by insurer. As per the Order, insurer shall comply with the requirements provided thereby at any stage of its activity and even after revocation of the license until all liabilities undertaken by insurance agreements are fully discharged.
Founder of non-governmental pension scheme shall create reserve only for non-governmental retirement insurance in accordance with the above order. Insurance reserves shall be as well created by insurers carrying out reinsurance and coinsurance activity and creation of such reserves shall be subjected to the same provisions as provided for direct insurance activity. Methodology for counting insurance reserves shall be worked up by an insurer/founder of non-governmental pension scheme itself. The same persons are liable for controlling of count accuracy.
In addition it should be noted that branches established in accordance with the laws of Georgia by those insurance as well as reinsurance organizations which (i) are registered in the member states of the OECD and (ii) licensed by the respective bodies (the “Branches”) are not obligated to create insurance reserves.
Insurer and founder of non-governmental retirement scheme shall submit to the FSA at the request of the latter:
(a) list of established insurance reserves including the balances for the date as specified by the FSA. The above information shall be signed by a
person liable for counting reserves, including the full name and position of such person;
(b) methodology for counting each insurance reserve (including data base, correction coefficients, mortality tables and other statistical data applied
(c) full name, position as well as signature of a person liable for counting reserves.
Insurance reserves data of insurer shall be reflected in its financial statements as well as in the respective forms of statistical report and those of founder of non-governmental retirement scheme shall be included in the respective forms of statistical report and filed to the FSA in terms set for submission of forms of financial statements.
As regards the Branches, they shall submit to the FSA:
(a) a letter evidencing creation of insurance reserves correspondent to undertaken insurance liabilities in accordance with the requirements of the laws
of the country wher a founder insurance organization is registered, provided by such insurance organization within 25 days after completion of
each quarter of an accounting year; and
(b) financial statements of a founder insurance/reinsurance organization to be submitted in terms set for drawing up of such financial statements
pursuant to the legislation where this organization is registered.
Order No. 362 of the President of the National Bank of Georgia, dated 29 December 2008 on Approval of Forms of International Transactions Reporting System and Instruction for their Completion designed for Commercial Banks of Georgia (the “Order No. 362”)
Pursuant to the Order No.11 of the Head of Financial Supervisory Agency of Georgia, dated 24 December 2008 on Approval of Procedure for Creation of Insurance Reserves (hereinafter Order N. 11”) all commercial banks carrying out operations with nonresidents shall prepare a reporting on such operations and submit it per email to the Sub-department of Balance of Payment1 at the Department of Statistics of the National Bank of Georgia (hereinafter the NBG) no later than the 20th day of the month following the reporting period.
Reporting shall be submitted in case:
(a) a bank has a direct correspondent relationships with nonresident banks; or
(b) nonresident clients hold current accounts with the bank.
In case there is no movement of funds on the correspondent accounts or there were not carried out any operations on the current accounts of nonresident clients during the reporting period, the reporting shall include a balance for the beginning and the end of the reporting period.
For all operations carried out on the correspondent accounts which amounts to or exceeds USD 1,000,000, the bank shall describe such operation in the notes column in a manner to determine the character of the operation. The sum of an operation shall be calculated in US dollars with the official exchange rate established by the NBG for the date of operation entry.
Reporting shall be submitted in a form approved by the Order No. 362 (hereinafter Form N.1). Form N.1 shall be prepared after each nostro account held at the foreign bank or loro account of a nonresident bank held at the resident bank.
Furthermore banks of Georgia shall submit per email reporting regarding balances (i) in the correspondent accounts held with nonresident banks by banks of Georgia and (ii) in the current accounts of nonresidents in a form approved by the Order No. 362 (the “Form 2”) within 20 days period from the end of the reporting period.
It should be further noted that the NBG shall secure reporting data confidentiality and use them only for the purposes of statistics.
Double Tax Treaty with Ireland
On November 20, 2008 the Double Tax Treaty was signed between Georgia and Ireland. The Treaty aims to prevent the double taxation of income, profit, capital gain and other items and remove the fiscal impediments to capital movement between two countries. The Treaty shall enter into force upon the completion of the respective procedure required by domestic law of the each country.
New Rate for Income Tax
As of January 1, 2009 the income tax rate shall decrease from 25% to 20%. Same time Parliament of Georgia has committed to further decrease of the income tax, specifically, from January 20011 to January 1 2012 it will decrease to 18%, and in 2013 down to 15%.
New Rates for Property Tax
Pursuant to amendments passed on December 26, 2008 and effective from January 1, 2009 (the “Amendments”), additional exemptions have been introduced in respect of property taxation. In particular, natural persons, with income of up to 40.000 GEL shall be fully exempted from property tax. Simultaneously, preferential treatment in respect of property tax obligations are introduced, specifically families with annual income between 40 000 GEL and 100 000 GEL shall be subject to property tax in rate between 0.05% and 0.2% of the value of the property. In case of family with annual income over 100 000 GEL, the property tax in rate 0.8% and 1% of the value of the property shall be applicable.
Deferral of Tax Obligation
Pursuant to the Amendments, the system of the deferral of tax obligation has been introduced. Pursuant to these provisions, under the war and special circumstances by virtue of the decision of Minister of Finance the period for the submitting of the tax declaration or the payment of the taxes may be deferred up to 90 days (in certain cases this period may be prolonged).
Civil Procedural Code of Georgia
Amendments to the Civil Procedural Code of Georgia introduced new Chapter XLIV2. The latter refers to the occupied Georgian territories and deals with hearing of cases related to prohibited economic activities via civil litigation.
As per the definition, persons committing prohibited economic activities on the occupied Georgian territories are the ones who commit offences as per article 3222 of the Criminal Code of Georgia. Whereby persons related thereby are those falling under article 6 of the Law on Occupied Territories.
According to the amendments to the procedural legislation, the prosecutor is granted right to file a suit for deeming a party as a person related to the one accused of carrying economic activities in the occupied Georgian territory.
Based upon the court decision, it will be possible to require payment of the fine incurred by the property of the related person. The same will go with the arrest of property.
Law of Georgia on Tobacco Control
On December 30, 2008 the Parliament of Georgia adopted the law introducing significant amendments to the Law on Tobacco Control. As per the amendments the aim and purpose of the law as well as new definitions were offered. Among others, changes refer to the design of the tobacco product requiring that both front and back sides have medical notification, taking up at least 30% of the space of the given side. Additionally, the notification may include a pictogram, samples of which are pre-approved by the Ministry of Health and Social Protection of Georgia. The amendment will enter into force as of January 1, 2010.
Further amendments to the Law on Tobacco Control provide that ingredients of the tobacco product need to be measured. Measurement is to be carried out by the producer or importer at its own expenses (entering into force as of March1, 2009).
Law of Georgia on Advertisement
On December 30, 2008 the Parliament of Georgia adopted the law introduced amendments to the Law on Advertisement. As per the amendment, advertisement of the tobacco product needs to be accompanied with indication of the harm caused by smoking. Text, font and size of the notice is elaborated by the Ministry of Health and Social Protection of Georgia. The notice has to take up at least 20% of the total space. The Ministry will elaborate the text of the notice within 2 months from publishing the law, namely until February 28, 2009.
Law of Georgia on Licenses and Permits
On December 5, 2008 the Parliament of Georgia introduced changes to the Law of Georgia on Licenses and Permits thereby establishing new type of the license for placement of outdoor advertisement. As per the amended law, decision on introducing new license is within the discretionary power of the local self-governing organ, while the license itself is issued by the executive organ of the self-governing body. The law indicated that until January 1, 2011 license for placing outdoor advertising can become applicable only on the territory of Tbilisi.