While Georgia’s real estate taxation law has not formally changed, a new public ruling by the Ministry of Finance is significantly reshaping how the rules are applied in practice, according to Davit Papiashvili, Managing Partner of the international network audit firm Kreston Georgia, who spoke to Kedaro News.
Public Ruling No. 143 is dated May 14, 2026 (source). The document, titled “On Issues Related to the Income Taxation of Income Received by a Natural Person from the Supply of an Asset,” clarifies what type of real estate is considered a residential apartment/house.
According to the expert, this clarification increases the risk of 20% taxation in segments such as hotel-type apartments, pre-sale (preliminary purchase) rights, and the so-called “buy-renovate-sell” business.
Davit Papiashvili elaborated on the details of the new public ruling in an interview with Kedaro News.
How the System Worked Before the New Public Ruling
In general, when an individual sells real estate or an asset, taxation is applied to the gain. The gain is the amount calculated as the sale price of the property minus the acquisition price. According to existing legislation, the gain received by an individual from the supply of a residential apartment (house) and the land attached to it, as well as a motor vehicle, is taxed at 5%.
Any other property that does not qualify as a residential apartment/house is subject to 20% taxation.
In order for a residential apartment/house not to be taxed, the property must be sold after two years from acquisition (if it is sold earlier, the gain is taxed at 5%). In this case, it does not matter whether the apartment/house was rented out prior to the sale.
However, for other types of property, such as commercial real estate, under the existing rules, rental activity is relevant. Specifically, in order for such property not to be taxed upon sale, it must not have been used for economic activity during the last two years.
What Changes After the Public Ruling
As Davit Papiashvili explains, the law itself has not changed, but its interpretation has been clarified.
“What has been clarified and what is new is that, for example, if a person sells a house purchased under a preliminary purchase agreement, or resells it under such an agreement (that is, when the property was not registered and the person only had the right acquired under a preliminary agreement and transfers that right), this is no longer considered a residential apartment/house. It is considered a sale of a right and therefore falls under the ‘other’ category. What does this mean? It means that if you sell such a property acquired through a preliminary purchase right within
two years, it will be taxed at 20%, since the ‘other’ category is taxed at 20%. If you sell it after two years, it will not be taxed,” explains Papiashvili.
Another clarification concerns the resale of apartments within hotel-type complexes. Tourist-oriented apartments, where the owner spends only a small portion of time and the property is mainly rented out by the management, also fall under the “other” category.
“If hotel apartments are sold within two years from acquisition, for example after a year and a half, they will be taxed at 20%, and even if these apartments are sold after two years, they may still be taxed at 20%. Why? Because if they fall under the ‘other’ category, it means that even after two years, the property must not have been rented out during the last two years. But these apartments are always rented out. The owner may use the apartment for personal stay for two months and rent it out through a tourism operator for the remaining period. Therefore, even if such an apartment is sold after five or ten years, if it has been rented out during the last two years, since it is classified under ‘other’ property, it remains taxable at 20%,” notes Papiashvili.
As for whether developers will be required to specify from the outset whether they are selling a hotel-type unit or a residential apartment, given that the term “apartment” is often used in marketing, Papiashvili states that “of course, it must be clearly distinguished from the beginning,” otherwise it may become subject to dispute later.
“There may always be a risk that a unit within a hotel-type complex, even if sold after two years from acquisition, could still be challenged if it was rented out during the last two years,” he says.
The development also affects a third category—those who acquire real estate with the intention of renovating and reselling it for profit. According to Papiashvili, such activity may potentially be classified as economic activity in the future and, accordingly, be subject to different taxation.
According to him, “if the Revenue Service classifies such property under the ‘other’ category, it means that if it is sold within two years, it will be taxed at 20% instead of 5%.”
“In my view, this does not derive from the law and contradicts it. For residential property, the rate is 5%, but applying 20% to those who buy property for profit is not stipulated in the law. Therefore, another implication of this ruling is that if a person intends to conduct business and sells a renovated apartment within two years, they may be required to pay 20%,” says Papiashvili.
What the Public Ruling States
1. Real estate is considered a residential apartment/house if it simultaneously meets the following criteria:
a) it constitutes an independent unit;
b) it can be used for residential purposes;
c) it is technically equipped, or can be equipped, with basic engineering infrastructure;
d) it does not represent a functional part of another type of activity.
2. The supply carried out by an individual entrepreneur within the scope of entrepreneurial activity (including development activities, securing mortgage claims, etc.) is not considered the sale of a residential apartment/house for the purposes of Article 81(3) and Article 82(1)(“v.a”) of the Tax Code.
3. A unit/space within hotel infrastructure is not considered a residential apartment/house.
4. The transfer of the right to acquire real estate under a preliminary agreement is considered the supply of a property right.
5. A property under construction may be considered a residential apartment/house if, at the moment of supply, according to its design and intended purpose, it represents a residential unit and the buyer is granted all essential rights necessary for its residential use.
Conclusion
Ultimately, although the tax law itself has not changed, the new interpretation significantly impacts the long-established practices of the real estate market. As a result, for investors, it becomes crucial not only to acquire property but also to ensure its correct legal classification.
Image: AI-generated.
Author: Lika Kadradze
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