According to Georgian Tax Law, distribution of goods is one of the taxable transactions for VAT purposes. However, there are some industries that are exempt. Below are examples of two such exemptions.
With right of crediting – operation is exempt from VAT and crediting is allowed. E.g.: nut distribution is exempt from VAT with right of crediting. Therefore a nut distributor does not charge VAT, but credits it on expenditure on received services.
Without right of crediting – operation is exempt from VAT and crediting is not allowed. E.g.: distribution of diabetic bread is exempt from VAT without right of crediting. Therefore, a diabetic bread distributor does not charge VAT and does not credit it on expenditure on received services.
It is very easy to administrate creditable VAT if a company specialises in only one of these industries, however what happens if a company handles both kinds of transactions?
In this case, the expenditure incurred should be divided into two groups:
- Separated expenditure - directly related to any activity. For example, we can credit VAT from the service of nut shipping, but we can’t credit it from the service of the diabetic bread flour shipping.
- Combined expenditure – for example the cost of electricity of the warehouse where the products are stored.
In this case, creditable VAT must be split as a proportion of the monthly revenues, but at the end of year it must be corrected by the annual proportion of revenues.
For example, here are the given revenues and proportionally creditable VAT data, in euros:
November:
Nuts: 1000
Bread: 300
VAT: Payable 60, Creditable 46 (77%)
December:
Nuts: 600
Bread: 500
VAT: Payable 90, Creditable 50 (55%)
Credited VAT during the year will be EUR 96. However, creditable VAT needs a correction at the end of year, because the proportion for the year will be different:
Annual:
Nuts: 1600
Bread: 800
VAT Payable 150 - Creditable 100 (67%)
This means that creditable VAT must be increased by EUR 4 at the end of the year.