What are the key legal and regulatory considerations for multinational companies expanding their operations into Georgia within the EMEA region?
For sound understanding of the legal and regulatory landscape from a perspective of a multinational company seeking to expand its operations in Georgia, the level of political and economic integration between the EU and Georgia should be considered. The EU is Georgia’s largest trading partner and provides over €100m to Georgia annually in technical and financial assistance. Georgia is currently seeking the candidate status of the EU membership. Under the EU-Georgia Association Agreement and the Deep and Comprehensive Free Trade Area (DCFTA), which entered into force in 2016, Georgia committed to gradually approximate its legislation to the EU law. Good examples of such approximation with the EU law, amongst others, is the New Law on Entrepreneurs of Georgia (2022), amendments to the Labour Code of Georgia (2020) and regulatory reform of VAT under the Tax Code of Georgia (2021). Approximation process also encompasses the content, principles, political objectives of the EU treaties, legislation adopted pursuant to the EU treaties and judgments of the CJEU, declarations and resolutions adopted by the EU, CFSP and AFSJ measures as well as international agreements concluded by the EU, and conventions. Although the process is still ongoing, a multinational company seeking to expand its operations in Georgia should consider that going forward, Georgian regulatory landscape will highly likely continue to be shaped by the EU acquis, as described briefly above.
While Georgia had been enjoying high rankings internationally in the ease of doing business rating, particularly through easy and quick process of incorporation of the company, simplified tax regime complemented with DTAs entered into with considerable number of countries, reduced number of types of taxes, reduced number of activity licenses, and other regulatory areas, it remains important that a multinational seeking to expand its business in Georgia makes a choice on the most appropriate legal structure for its business model and related taxation impact. Other legal considerations include determining whether the business activity is subject to a license or a permit, despite the low number activities subject to license/permit under the law. Laws regulating employment, intellectual property, contracts, data protection and real estate are advised to be carefully analysed in the context of the anticipated business model. With regards to disputes and choice of law, due to high workload of Georgian courts frequently causing delays in the judicial process, local or international arbitration should be considered together with the appropriate choice of law.
How can our law firm assist in navigating the complexities of cross-border transactions and compliance requirements when doing business in Georgia and other EMEA countries?
Our firm provides legal assistance to both local and international clients since 2005. When assisting clients seeking to expand their business in Georgia, as a first step, determination is made and advice is given on the most suitable legal and tax structure appropriate for the client’s business model, accompanied by relevant legal advice on the legal form and taxation regime, licenses/permits, regulatory analysis of the business activity – products/service, employment matters, intellectual property etc. If the intention is to acquire or merge with an existing business, we provide a full range assistance starting from drafting and negotiating the MoU, legal and tax due diligence, identification and further handing of target’s risks within the negotiation process, negotiating and drafting the main agreement, and ultimately assistance to the closing with required registrations.
What are the legal considerations for companies operating in highly regulated industries, such as energy, telecommunications, or pharmaceuticals, in Georgia and throughout the EMEA region?
In Georgia there is no single regulatory body overseeing activity within regulated markets. Under the law, several regulatory bodies have exclusive competence in their respective spheres, however, in some cases authorities have shared competence. Therefore, it is highly important, as a first step, to determine the legal framework applicable to the company’s business model and further devise all the necessary measures in order to adhere to such requirements set by relevant regulators.
However, the scope of application of respective regulations, as well as sanctions set for non-compliance, continues to evolve mainly within the EU approximation process, prompting companies to maintain external counsel support for keeping up with new requirements, as set by new regulations enacted from time to time. Often, newly adopted regulation is not supported by relevant practice, and therefore, identification of the point of reference, such as the EU legislation, is important for legal counsels while interpreting practical implementation of such regulations. For instance, Georgian Competition Agency, a competition authority in Georgia, while interpreting the law of Georgia on competition, often relies upon judgments of the European Court of Justice, including newly adopted legislation. In this regard, our law firm has extensive experience, navigating in uncharted waters and determining the relevant point of reference for application and advising clients on how to comply with requirements.
How can our law firm assist in developing effective dispute resolution strategies for businesses operating in Georgia and facing cross-border disputes within the EMEA region?
In cross-border disputes, it is vital to first identify the relevant forum where the dispute shall be heard and second, determine the laws governing the dispute, including any applicable mandatory overriding rules. For instance, the law of Georgia on private international law (hereinafter the ‘PIL’) is of relevance, regulating both party’s autonomy to agree on the governing law of the dispute as well as on jurisdiction of foreign courts. However, PIL also provides exclusive jurisdiction of Georgian courts in certain cases, which is advised to be carefully observed while drafting dispute resolution clauses.
Furthermore, for the effective handling of the case, it is also important to be able to swiftly assemble the experienced and qualified international team and determine relevant matters that may require the immediate attention, including any matters regulated by foreign laws, filing applications for provisional measures etc. In this regard, our law firm has an experienced dispute resolution team, which has been cooperating with various law firms from across the globe, including Europe, CIS countries and many other jurisdictions.
In addition to the above, our law firm has been representing various clients at all types of dispute resolution forums, such as negotiations, litigation, international commercial arbitration and others, and has assisted clients in all stages of a dispute resolution, including representation in negotiations, filing applications for provisional measures, reaching a settlement and lastly, leading cross-border cases in coordination with other law firms.
What employment law challenges and best practices should multinational companies be aware of when establishing a workforce in Georgia, and how can our firm assist in addressing them?
To ensure compliance with the legislation of Georgia regulating employment, multinational companies shall remain acquainted with changes in the legal framework governing employment relations, as it is under the process of approximation with relevant EU regulations that keep evolving. One of the examples of evolving regulation are amendments to the Labour Code of Georgia related to antidiscrimination, which must be complied with by employers at every level of employment, from pre-contractual relations to daily work process and ensure integration of respective provisions in labour contracts and internal manuals. Another example is the newly enacted regulation, which requires local employers to register labour immigrants at the Ministry of Labour, Health and Social Protection of Georgia. Furthermore, the employment contracts with immigrants can only be executed for a limited period, and employers are obliged to inform the above Ministry on the prolongation or termination of such contracts.
In general, it is important to have a written employment agreement stipulating all the essential terms and conditions of employment, such as position, duties, workplace, work hours, termination procedures, keeping in mind that change of these conditions is subject to consent of employee. Furthermore, the employment relation can only be terminated under grounds stipulated in the Labour Code.
Our firm has a vast experience in supporting local and multinational companies and can assist in preparation of employment-related documents, provide legal advice, and represent companies at courts and arbitration.