G E O R G I A Ministry Of Economic Development Of Georgia 2005

GEORGIA

Georgian Trade ( ml USD ) turnoverexportimportbalance

FOREIGN TRADE ($USD millions)

TOP TEN TRADING PARTNERS 2004 ($US millions)

Trade turnover in 2004

FOREIGN DIRECT INVESTMENT Peaks in and are connected to construction of pipelines

INCENTIVES WTO membership – MFN trade regimes with 146 countries; CIS Free Trade Zone – Free access of CIS market; GSP – European Union, Switzerland, Turkey, Canada, USA and Japan Liberal tax regime - Lowest rates in the region Fiscal Support for Exporters – Quick VAT refund scheme for exporters. Duty and tax callback regime for goods imported for re-export Favorable transport location – Access to Europe, CIS and Asia markets. Rail, Road, Sea, Air connections Rapid reform process – Governments commitment to reforms Improving business and service environment, Governments support for FDI attraction

Guiding Principles of Economic Reforms Liberalization Deregulation Private sector as a driving force of economic development Broad based economic growth as a major instrument for fight against poverty

Reform of Licensing system Reform of Licensing system Reduced number of activities subject to licenses and permitsReduced number of activities subject to licenses and permits Simplified licensing proceduresSimplified licensing procedures Reduction number of required licenses and permits from 909 to 159Reduction number of required licenses and permits from 909 to 159 Reduction number of controlling agenciesReduction number of controlling agencies Possibility to transfer ownership of use licensesPossibility to transfer ownership of use licenses

Tax Reform New Tax Code from January 2005 –7 taxes instead of previous 21 ( income, profit, social, property, excise taxes, VAT, tax on gambling business) –Reduced tax rates: VAT 18% instead of 20% (from July 1 st 2005) Income tax 12% flat instead of 12-20% proportional Social tax 20% instead of 33% –the possibility of 100% amortization in the year if investment –a quick mechanism of VAT refund for exporters within a month.

Trade Duties From January import tax rates instead of 22 before; Import tax rates fall in 0%-30% range There are no quantitative restrictions on imports A limited number of licenses and permits on exports and imports (now only 8) Export and re-export is free from custom duties Export is free from VAT

New GSP + Scheme of EU New GSP+ scheme works from July 1 st 2005 until 2008 New Scheme envisages additional preferences for sustainable development and good governance 7200 products will enter EU market with Duty free access Georgia is only a beneficiary country among CIS countries

Liberalization of Transportation -reduction in number of licenses and permits in transportation sector from 15 to 5 -Air transport - liberalization of tariffs, flight frequency and capacity, number of carriers and destinations -Road transport – elimination of transport duties, different transportation barriers -Sea transport – e xtension of main Trans-European Transport Axis to Georgia -