A mix of free-market elements in Georgia has produced a favorable atmosphere for bitcoin mining. When a little country in the Caucasus Mountains unexpectedly becomes a global leader in bitcoin mining? Notwithstanding its tiny area and population, Georgia is becoming a popular bitcoin mining destination due to its low electricity costs, lack of legal restrictions, and favorable tax incentives. This confluence of events has piqued the interest of Georgians and foreigners interested in experimenting with cryptocurrency mining.
Georgia’s economy is growing, although it is still lagging behind other wealthy nations. Tbilisi, Georgia’s capital, was designated a FEZ in 2015 to entice international investors and bolster the economy. This action proved to be beneficial to the bitcoin industry. By 2018, Georgia had risen to second place in BTC mining revenue.
A commercial miner and global leader in its field, the Dutch business Bitfury, was drawn to the country by its low electricity costs. An entire network with a power of 20 MW was inaugurated in Gori in June of this year. Bitfury opened a new data center in Tbilisi’s Gldani area in December of the same year, with a capacity of 40 MW. As a result, the corporation’s output in Georgia has risen to 60 MW.
An area of 18 hectares in Tbilisi, Georgia, was given to the mining business for the paltry sum of $1, and it was given administrative control. Along with low-cost electricity, Bitfury formed the business in the area to take advantage of tax breaks, circumvent currency laws, and gain access to lower-cost energy and other products.
Bitfury also mentioned its work with state registries and blockchain technologies. Georgia was the first nation to use blockchain in its official land cadastre in 2017. The administration planned to employ a blockchain network to distribute education diplomas at the start of 2019.
Bitfury’s success influenced many Georgians, and most started to buy strong GPU cards and set up their modest mining farms. In 2018, around 200K individuals in Georgia were involved in cryptos mining, per a World Bank research.
Legislation Governing Cryptocurrency
When Georgian state officials didn’t have any say in how e-money moved, they didn’t do anything to stop it. Representatives from Georgia’s central bank have said that cryptos must be treated with caution because they aren’t legal money.
By 2019, Georgia’s Ministry of Finance had clarified the taxation of cryptos due to the structure’s significant impact on Georgia’s economic rate. If you make money from selling cryptos in Georgia, you don’t have to pay income tax on that money. You also don’t have to pay VAT, which is 18%, if you sell them or exchange them for another exchange rate. It is also not taxed if computational power is sold outside of Georgia, but it is taxed if it is sold inside the country.
In contrast to people, corporations are taxed on their worldwide profits; assuming a Georgian firm obtains revenue from cryptocurrency transactions; it will be subject to a 15% tax. However, if a business does not fix gains, does not pay dividends, and invests 100% of its earnings in growth, it’s exempted from corporate taxes.
Besides value-added tax, if you buy or sell hash to a non-Georgian, you’ll have to pay 10% income tax on the money you make. Apart from taxes, there’s currently no reliable regulatory structure for cryptos in Georgia.
There are also bitcoin licenses available for businesses in the FEZ. There are no residency restrictions on the founders of this license, which can be acquired in just five to ten days in the guise of an LLC or JSC. Additionally, the license allows for money to be created digitally and the ability to send and receive cash using that virtual cash.
Nonetheless, the bitcoin market has attracted the interest of some Georgian officials. Natalia Ivanidze, head of the National Bank’s monetary innovations unit, informed Cointelegraph that the watchdog would step up its efforts in this area:
The NBG does not have jurisdiction over virtual currency trade based on the OLG on the NBG. Nevertheless, we want to let you know that this industry will be regulated hereafter. Last year, the NBG said that it was contemplating a CBDC termed the digital Lari, with a pilot program set to begin this year. Bank-issued virtual currencies, including the bank-issued Lari, are not cryptocurrencies but rather a kind of cash development. The National Bank of Georgia is the exclusive issuer of this currency.
At the start, the digital Lari is supposed to be used to sell things at the store. Bankers at the National Bank think that having a national cryptocurrency will make the payment service more efficient and make it easier for businesses to work together.