Pension Reform

As you may have heard from 2019 it is mandatory to pay pension when you pay salary or other kind of remuneration to employees. 2% is to be paid by employer, 2% withheld from employee’s salary and up to 2% added by government (based on the amount of annual salary).

Please find below some details about the new pension regulations:

General

> It is mandatory for employer to pay pension on salary of Georgian tax residents (for tax purposes) who have permanent residence permit.

> Georgian tax resident for a calendar year is a physical person who spent more than 182 days in any consecutive 12 month that end within the given calendar year. 

> Pension is applicable only on salaries earned from Jan 2019. They are not applicable for 2018 salaries paid out in 2019.

> Employees older than 40 years may choose not to be part of pension scheme.

> 2% is to be deducted from employee’s gross salary and 2% is to be added by employer (and another 2% is added by Government).

> Pension payment is not required on dividends. Also for rent. Though it is to be paid on provision of services which are subject to withholding tax. 

> Pension payments are not required for self employed (sole proprietor etc.) on their own income though they can choose to participate. But they have to pay pension if they pay salary to their resident employees.  

Calculation: 

– I.E. Gross salary of employee is 1000 (from here 800 net and 200 personal income tax). 

– First we need to calculate 2% pension from gross salary of employee  2% x 1000 = 20 GEL 

– Then we deduct 20 from 1000 and get 980 which is to be taxed by personal income tax: 980 x 80% = 784 GEL

– So 784 is new net salary of employee and 196 is new personal income tax amount

– Employee has to pay 2 times 2% which is 40 GEL (on behalf of employee and add 2% from employee) so 40 GEL is total pension that is to be paid by employee when paying salary. 

> Application

Employee has to pay pension simultaneously with (yet so, maybe later they allow paying once a month) the payment of salary and income tax to the bank accounts indicated on the official pension scheme agency pensions.ge:

> Company has to register on the website of pensions.ge and submit declarations from there (To be done by accountant). 

> Also all employees will be registered there and they users and passwords will be provided to them (To be done by accountant). 

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