On the Approval of the Rule for Granting a Person the Status of a Tourist Enterprise, its Functioning and Revocation

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The following is an unofficial translation of the Georgian text; only the Georgian original has legal force.

Ordinance №279 of the
Government of Georgia
23 June 2015, Tbilisi

On the Approval of the Rule for Granting a Person the Status of a Tourist Enterprise, its Functioning and Revocation

Article 1

On the basis of Article 26¹(4) of the Tax Code of Georgia, the attached "Rule for Granting a Person the Status of a Tourist Enterprise, its Functioning and Revocation" shall be approved.

Article 2

In accordance with Article 25(1)(b) of the Law of Georgia on Normative Acts, Ordinance №413 of the Government of Georgia of 3 October 2012 "On the Approval of the Rule for Granting a Person the Status of a Tourist Enterprise, its Functioning and Revocation" shall be declared invalid.

Article 3

This Ordinance shall enter into force upon its publication.

Prime MinisterIrakli Gharibashvili

Rule for Granting a Person the Status of a Tourist Enterprise, its Functioning and Revocation

Article 1. General provisions

1. The Rule for Granting a Person the Status of a Tourist Enterprise, its Functioning and Revocation (hereinafter — the Rule) determines the conditions for granting this status to a person, the rules of its functioning and revocation, as well as the minimum share of the total area of a building to be used as hotel rooms/apartments, by self-governing units.

2. The status of a tourist enterprise may, on its own initiative, be granted to a legal person that builds a hotel, supplies hotel assets/part of the assets (with or without the right to buy back the assets), and on the basis of a commutative contract (including on the basis of a lease, right of use, right of administration, trusteeship, intermediary and/or other similar contract terms) concluded with the buyer of this property ensures that the hotel and the assets/part of the assets are used as hotel rooms/apartments.

3. The unified internal departmental register of persons holding the status of a tourist enterprise is maintained by the legal entity under public law within the governance of the Ministry of Finance of Georgia — the Revenue Service (hereinafter — the Revenue Service).

4. For the purposes of this Rule:

a) a hotel is a building and/or an aggregate of buildings and structures existing as a unified complex, with its infrastructure, which is designated as a hotel by the design of the construction document. A hotel also includes one or several parts of a multi-functional building/complex, together or separately, in which the design of the construction document provides for the placement of hotel rooms/apartments with their infrastructure;

b) a hotel room/apartment is an isolated area situated in a hotel intended for the short-term or long-term reception/accommodation of a person for any purpose (including rest, recuperation, business). Moreover, repair works carried out by the tourist enterprise in a hotel room/apartment before the start of its use as a hotel room/apartment constitute a component/inseparable part of the hotel room/apartment;

c) hotel assets are a renovated hotel room/apartment furnished with furniture/inventory. A part of hotel assets is any component part of these assets (unrenovated area, renovation, inventory, furniture, appliances, linen, accessories, etc.) intended for a hotel room/apartment, where the supply of this property is carried out simultaneously or separately for use together with the area of the hotel room/apartment;

d) hotel infrastructure is the communication infrastructure/network existing in the hotel, the spaces in common ownership (entrance hall, stairwell, corridor, elevator, etc.) and/or spaces of public designation, including sports and wellness, entertainment, catering, retail and other service facilities;

e) for the purposes of Article 168(4)(ღ) of the Tax Code of Georgia, the supply by a tourist enterprise of hotel assets/part of the assets to another person and the conclusion, with respect to that property (hotel assets/part of the assets), of a commutative contract (including on the basis of a lease, right of use, right of administration, trusteeship, intermediary and/or other similar contract terms) for the purpose of its use as hotel rooms/apartments, is deemed to be the receipt of that property back by the tourist enterprise, irrespective of the registration in the Public Registry of the commutative contract provided for by this subparagraph or of the right provided for by the contract;

f) for the purposes of Article 26¹(2)(b) and Article 161(1)(g) of the Tax Code of Georgia, the functioning of a hotel (of the facility/part of the facility) includes:

f.a) the use of hotel assets/part of the assets as hotel rooms/apartments;

f.b) the activity carried out/services rendered through the use of the hotel infrastructure and/or of other areas functioning in a manner not isolated from the hotel infrastructure, located together and/or separately;

f.c) services related to the maintenance and care of the hotel infrastructure;

g) the use of hotel assets/part of the assets as hotel rooms/apartments is the short-term or long-term reception/accommodation of a person, for any purpose (including rest, recuperation, business), in a renovated hotel room/apartment furnished with furniture/inventory;

h) the completion of the construction of a hotel means the issuance by the authorized administrative body of an administrative-legal act on recognizing the building as fit for operation;

i) the acceptance of the building (hotel) for operation is the moment when the tourist enterprise begins using the hotel rooms/apartments situated in the hotel (the moment of rendering the relevant service as a result of the use of the hotel room/apartment), but no later than the expiry of a two-year period from the completion of construction; moreover, for the purposes of this subparagraph, the following is not deemed use of hotel rooms/apartments:

i.a) rendering only the services of maintenance and care of the hotel infrastructure;

i.b) activity carried out through the temporary use of areas of the hotel infrastructure other than in accordance with their designation;

j) the total area of a building is the area designated for the hotel in accordance with the design of the construction document.

Article 2. Granting the status of a tourist enterprise

1. A person is granted the status of a tourist enterprise with respect to a specific facility (hotel) which is designated as a hotel by the design of the construction document.

2. For the purpose of being granted the status of a tourist enterprise, the interested legal person shall apply to the Revenue Service before the completion of the construction of the building (hotel).

3. The status is granted by an individual administrative-legal act of the head of the tax authority.

4. The application must contain:

a) the firm name of the enterprise;

b) the registration data of the person (identification code, name, address);

c) a brief description of the activity.

5. The application must be accompanied by:

a) the construction permit/permit certificate;

b) the document certifying the right of ownership/use of the land and the cadastral map of the territory where the construction is under way;

c) the design of the construction document.

6. The Revenue Service is obliged to consider the application within 10 working days of its receipt and to take a decision on granting the person the status of a tourist enterprise or on refusing to grant it.

7. Together with granting the status of a tourist enterprise, the Revenue Service is entitled to require the person to submit the following means of security:

a) a bank guarantee;

b) an insurance policy;

c) the encumbrance of property (including property owned by a third person) with a pledge/mortgage.

8. Where the Revenue Service requires means of security, the person is entitled to choose one or several of the means of security determined by paragraph 7 of this Article and to submit them no later than the 15th day of the month following the month of the supply of the hotel assets/part of the assets exempted from VAT with the right of deduction as determined by Article 168(4)(ღ) of the Tax Code.

9. Where property is submitted as a means of security to be encumbered with a pledge/mortgage, the valuation of the property is carried out by one of the persons from the lists approved by Ordinance №360 of the Government of Georgia of 5 September 2012 "On the Approval of the Lists of Persons Carrying out Audited Financial Reporting for Enterprises and/or Issuing Expert and Audit Opinions, and of State Enterprises". The obligation to submit the opinion on the valuation of the property to the Revenue Service rests with the tourist enterprise.

10. The registration of the right of pledge/mortgage over property submitted as a means of security is carried out in accordance with the procedure established by the legislation of Georgia for the registration of a tax pledge/mortgage.

11. The period of validity of the submitted means of security must be no less than 2 years, and its value (including the aggregate value where one person has been granted the status of a tourist enterprise with respect to two or more facilities (hotels)) must not be less than 18 percent of the turnover exempted from VAT with the right of deduction as determined by Article 168(4)(ღ) of the Tax Code of Georgia.

12. A submitted means of security is subject to renewal no less than 60 days before the expiry of its period of validity.

13. A tourist enterprise has the right:

a) to reduce the value of the means of security by the amount of VAT declared (including additionally assessed by the tax authority with respect to the said facility in the relevant period) and paid, in aggregate from the specific facility/facilities (hotel(s)), by it and/or by the person/persons invited, on the basis of a relevant contract, for the functioning/operation of the facility/part of the facility as a hotel;

b) to replace the submitted means of security with other means of security, provided that the requirements of paragraph 11 of this Article are observed;

c) where immovable/movable property is submitted as a means of security, to revalue this property during the period of validity of the tax mortgage/pledge over it, through one of the persons from the lists approved by Ordinance №360 of the Government of Georgia of 5 September 2012 "On the Approval of the Lists of Persons Carrying out Audited Financial Reporting for Enterprises and/or Issuing Expert and Audit Opinions, and of State Enterprises", and to submit this opinion to the Revenue Service for the purpose of recording the new value of the property encumbered with the tax pledge/mortgage.

Article 3. Obligations of a person holding the status of a tourist enterprise

After the completion of the construction of the hotel, a person holding the status of a tourist enterprise is obliged to ensure that:

a) no less than 30 percent of the total area of the building is designated for use as hotel rooms/apartments. The designation of area for use as hotel rooms/apartments means that the established amount of area must be provided for as hotel rooms/apartments by the design of the construction document. The condition provided for by this subparagraph applies on the territory of all local self-governing units;

b) during a maximum of 10 calendar years after the acceptance of the building (hotel) for operation, the total (including amounts additionally charged by the tax authority with respect to the given facility in the relevant period) VAT taxable turnover (other than transactions exempt from VAT) from a specific facility (hotel) declared by the tourist enterprise and/or by a person(s) invited under a relevant agreement for the functioning/operation of the facility/part of the facility as a hotel, is not less than the turnover exempt from VAT with the right of deduction defined by Article 168(4)(ღ) of the Tax Code of Georgia as a result of supplying the assets/part of the assets of the same hotel.

Article 4. Revocation of the status of a tourist enterprise

1. The status of a tourist enterprise is revoked:

a) on the initiative of the Revenue Service, in the event of a violation by the tourist enterprise of the conditions of activity provided for by Article 26¹ of the Tax Code of Georgia and by this Ordinance; moreover, if the value of the means of security submitted by the tourist enterprise is less than the amount determined by paragraphs 11 and 13 of Article 2 of this Ordinance, the status of a tourist enterprise is revoked on this ground only if the tourist enterprise does not remedy the said defect within 10 working days of the delivery of the written notification of the tax authority;

b) on the initiative of the tourist enterprise, on the basis of the submission of an application to the tax authority, if:

b.a) it has fully complied with the requirements of subparagraph (b) of Article 3 of this Rule;

b.b) it no longer wishes to enjoy the status of a tourist enterprise;

b.c) the factual circumstance on the basis of which it had been granted the status of a tourist enterprise has changed.

2. The head of the tax authority, in the case provided for by subparagraph (a) of paragraph 1 of this Article, within 10 working days of the confirmation of the relevant information, and in the case provided for by subparagraph (b) of paragraph 1 of this Article, within 10 working days of the submission of the application, issues the relevant individual administrative-legal act on the revocation of the status of a tourist enterprise, on declaring invalid the individual administrative-legal act on granting the status of a tourist enterprise. The revocation of the status of a tourist enterprise means the termination of the effect of the relevant individual administrative-legal act of the head of the tax authority from the day of its being declared invalid, which does not entail the annulment of the legal consequences arisen before the status was declared invalid.

3. The decision on the revocation of the status must be communicated to the tourist enterprise in accordance with the procedure established by the legislation of Georgia.