In 1996, Georgia repealed a law granting tax incentives to foreign investors in favor of a regime granting national treatment in all but a few cases, and which reduced top corporate rates of 30% and 35% to a top rate of 20%. By the Tax Code of 1997, all companies, foreign and domestic , are subject to both central and local taxes, as well as being liable for payments to social funds. Principal corporate taxes include a profits tax of 20% on companies, both foreign and domestic, permanently established in Georgia. Taxes on dividends, interest, and management fees are withheld at the source at a rate of 10%. Foreign entities not permanently established pay withholding of 10% on dividends, interest, and royalty payments, and withholding of 4% on insurance premiums and payments for international telecommunications and transportation services. A 1% tax on property of enterprises (TPE) is charged foreign companies that have permanent establishments in Georgia. There is also a personal income tax, paid by resident and non-resident individuals, which has four brackets, the first one being a negative income tax of 12% up to an income of 200 lari (about $93). For 201 to 350 lari (about $165), the tax is 24 lari ($11) plus 15%. For 351 to 600 lari ($286), the tax is 46.5 lari ($22) plus 17%. Above 600 lari, the tax is 98 lari ($42) plus 20%. Social charges are deducted from employees salaries, 15% for the health protection fund, and 1% for the social security fund. Employers' contributions are 3% for the health protection fund, 27% for social security, and 1% for unemployment. There is also a value-added tax (VAT) of 20% (reduced from 28%), in addition to various excise taxes, ranging from 10% to 90%
Georgia has one of the worst rates of tax compliance in the world. Chronic shortfalls in revenue collection means that the state must turn to external financing and loans from the National Bank of Georgia to make up for budget deficits. External borrowing to cover budget shortfalls have been the primary reason Georgia has had to turn to the IMF and the Paris Club for stand-by credit agreements and rescheduling of sovereign debt. The high rate of tax evasion puts legitimate business at a competitive disadvantage with a large "shadow economy," estimated officially to constitute 40% to 60% of the economy, but generally believed, according to the US State Department, to be much higher. Estimates of underpaying of taxes by enterprises have been close to 80%.