Not every entrepreneur wants to emigrate, or can. Family, children in school, a partner with their own career, relatives needing care — the reasons for staying are rarely fiscal. The Georgian structure still makes sense in that case, but it operates under different rules: anyone remaining resident in Germany while controlling a Georgian LLC is not assessing a tax rate but three gates in a fixed order. This article sets them out, identifies the point at which the much-quoted “substance test” simply does not exist for Georgia, and shows which business models pass the active-income test.
Three gates, in this order
The order of examination is not a formality. Anyone who fails at gate one need not consider gates two and three — there is then no foreign company whose income could be argued about, but a domestic one.
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Gate 1 — Where is the company managed?
A corporation is subject to unlimited German corporate income tax where its place of management under § 10 AO is in Germany — the centre of senior commercial management, meaning the place where day-to-day decisions are in fact taken. The registered seat in Tbilisi does not help. Austria examines the same question under § 27 BAO.
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Gate 2 — Do you control it, and is it low-taxed?
Under § 7 AStG it is enough that you, alone or with related persons, are attributed more than half of the voting rights, nominal capital or profit entitlement. Low taxation exists under § 8 para. 5 AStG at an income tax burden of less than 15 per cent. Both are the normal case for Georgian structures.
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Gate 3 — Is the income active?
Only passive income is attributed. What counts as active is set out exhaustively in the catalogue of § 8 para. 1 AStG. For companies outside the EU and EEA that catalogue is the only way out — the substance defence in § 8 para. 2 AStG is not available to them under § 8 para. 3 AStG.
Gate 1: the place of management
This gate decides more cases than CFC attribution does — and it is discussed far less, because it is not a tax-saving topic but a question of how the business is organised.
If the shareholder living in Germany runs the Georgian LLC’s day-to-day business from the kitchen table, the centre of senior commercial management is in Germany. The consequence is not the attribution of individual items of income but unlimited corporate income tax liability of the company in Germany: 15 per cent corporate income tax plus solidarity surcharge plus trade tax at the rate of the municipality where management actually takes place. The Georgian structure has then not been optimised, merely made more expensive — additional administration without any benefit.
How this gate is passed in practice — employed management on the ground, documented decision paths, shareholder resolutions taken in the right place — is described in Holding and director structure. Which further German regimes reach a Georgian company independently of tax law — media supervision, unfair competition law, GDPR — is set out in Georgian company, German authorities.
Gate 2: controlled and low-taxed
Control is rarely in doubt in typical client structures. § 7 AStG applies as soon as you, alone or together with related persons, are attributed more than half of the voting rights, the nominal capital, or the entitlement to profits or liquidation proceeds — directly or indirectly. A one-person LLC is controlled. So is an LLC in which you hold 40 per cent and your spouse 30 per cent.
Low taxation is the more interesting part, because the Georgian system has a peculiarity here. Since 2024 § 8 para. 5 AStG sets the line at an income tax burden of less than 15 per cent — reduced from 25 per cent by the act implementing the minimum taxation directive. Georgia taxes the LLC on the Estonian model: 0 per cent on retained profits, 15 per cent only on distribution.
Two of three gates are therefore usually passed — and everything turns on the third.
Gate 3: the active-income catalogue, and the door beside it that is locked
Here is the sentence most often missing from advice in this field.
§ 8 para. 2 AStG provides a defence: anyone who demonstrates that the company pursues a substantial economic activity in its state of residence — with its own physical and personnel resources, with sufficiently qualified staff performing the core function independently and on their own responsibility — escapes attribution even for passive income. That is the well-known substance or motive test.
For Georgia that route does not exist. § 8 para. 3 AStG expressly limits the defence to companies whose seat or place of management is in a Member State of the European Union or a contracting state of the EEA. Georgia is neither. For a Georgian company the only remaining question is therefore: is the income in the active catalogue of § 8 para. 1 AStG — yes or no?
That is not a detail but the decisive switch for the entire project. Anyone sold a Georgian structure on the argument that “with real staff on the ground, CFC taxation is taken care of” is being sold a structure whose legal basis does not apply to third countries.
What this means for your business model
The catalogue is exhaustive, and it does not distinguish according to your own assessment but according to the type of activity and the question whether the domestic shareholder participates.
| Classification under § 8 para. 1 AStG | Where it tips over | |
|---|---|---|
| Manufacturing, production, assembly also covers energy generation and the exploration and extraction of mineral resources | active under no. 2 — no participation proviso | in practice only via gate 1, where production is steered from Germany |
| Trade in goods the classic case: the German GmbH supplies the Georgian LLC, or buys from it | active under no. 4 | where you, or a related person taxable in Germany, procure the goods for the company — or receive them from it |
| Digital services, agency work, development what matters is who actually performs the service, not who invoices it | active under no. 5 | where the company avails itself of you or a related person for the service — or renders the service to you |
| Letting, leasing, licensing | active under no. 6 only in part | regularly passive where rights, plans and know-how are made available |
| Group financing, interest, investment income | passive | no way out via the catalogue — attribution applies |
| Pure holding function | dividends under no. 7 with restrictions | intermediate holdings without their own function are the standard attribution case |
The system is thus clearer than it first appears. Manufacturing is the safe case — no. 2 carries no participation proviso. Trade and services are active as long as you personally stay out of them. That is precisely why own staff in Tbilisi is decisive for this model: not as a substance defence under § 8 para. 2 — which is barred — but because the service must in fact be performed by someone other than you.
When attribution does apply
Where passive income cannot be avoided, it is worth knowing the consequence precisely — it is less pleasant than most expect.
Under § 10 para. 2 AStG the attributed amount is income within the meaning of § 20 para. 1 no. 1 EStG and is deemed to accrue in the assessment period in which the company’s relevant financial year ends — no distribution is required. Expressly not applicable are the partial-income method and the flat-rate withholding tax under § 32d EStG. Your personal income tax rate of up to 45 per cent plus solidarity surcharge therefore applies, not the hoped-for 25 per cent.
Relief exists in two places: Georgian tax is creditable under § 12 AStG, and an actual later distribution is relieved through the reduction amount in § 11 AStG so that the same profit is not taxed twice. And § 9 AStG disregards intermediate income where it does not exceed one third of the company’s total income and the amounts disregarded do not together exceed EUR 100,000. For an operating company with small incidental income that is genuine relief; for a predominantly passive company it does not carry.
Austria calculates differently — in two respects
The Austrian regime is not a copy of the German one, and the differences run in both directions.
| Germany | Austria | |
|---|---|---|
| Who is caught an Austrian private individual with a direct holding is not subject to attribution | persons subject to unlimited tax liability, including individuals | only controlling corporations under § 10a KStG |
| Low-tax threshold | less than 15% (§ 8 para. 5 AStG, since 2024) | 15% (unified by Federal Law Gazette I No. 99/2025 from 1.1.2026) |
| Control threshold | more than 50% | more than 50% |
| Substance exception for third countries Germany bars it via § 8 para. 3 AStG to the EU/EEA; § 10a KStG has no such restriction | ||
| Threshold for passive income | one-third test plus EUR 100,000 (§ 9 AStG) | passive income exceeding one third of total income |
| Place of management | § 10 AO | § 27 BAO — substantively the same test |
The second point is the notable one: because § 10a KStG is expressly addressed to a controlling corporation, an individual resident in Austria holding a Georgian LLC directly is not subject to attribution. Their burden arises only on distribution — as investment income at the special rate of 27.5 per cent. That is a structural advantage over Germany, and it is rarely used, because the discussion usually transplants the German position onto Austria.
It changes nothing about gate 1, however. If the Georgian company is in fact run from Vienna, it is subject to unlimited Austrian corporate income tax under § 27 BAO — and the attribution saved was never the problem.
What staff and substance actually achieve
If the substance defence is barred for Georgia — what are offices, staff and local management for? The answer: for four other things, each of which decides more cases than § 8 para. 2 AStG ever could.
- Place of management: management actually exercised on the ground is the only robust evidence that gate 1 has been passed — for Germany as for Austria
- Active-income test: trade and services stay active only where the service is not performed by the domestic shareholder — which requires staff who perform it
- Transfer pricing: § 1 AStG requires arm’s length dealings between associated enterprises; Georgia has implemented the OECD rules and, since 2026, requires annual reporting above GEL 500,000 of controlled cross-border transactions
- Georgian special status: the Virtual Zone and International Company Status each presuppose demonstrable substance — without it the tax authority can withdraw the status retrospectively
- Substance as a defence against German CFC taxation — that route is closed for third countries under § 8 para. 3 AStG
What that substance looks like in practice — from a registered address through local directors with a genuinely exercised function to your own office floor — is set out on Registered address and substance.
What follows from this
The Georgian structure also carries for entrepreneurs who remain resident in Germany or Austria — but only for certain business models, and only with a real operation on the ground. The order of decisions is not negotiable: first the management question, then the classification of the income, then the structure. Doing it the other way round means incorporating first and learning later that the model fails on a provision that would have cost ten minutes to check beforehand.
For trade and manufacturing with own staff in Tbilisi the arithmetic is usually positive. For the one-person consultancy still delivered from Germany it is not — there the only viable route is actual relocation. What that costs and in what order it should be planned is in Staying is not getting cheaper; the comparative figures are in Location comparison 2026.
Frequently asked questions
Is a Georgian LLC low-taxed for AStG purposes?
As a rule, yes. Since 2024 § 8 para. 5 AStG sets the line at an income tax burden of less than 15 per cent. Georgia taxes the LLC on the Estonian model, at 15 per cent only on distribution — retained profits carry zero per cent in the year they arise and therefore fall clearly below the line. With International Company Status at 5 per cent and the Virtual Zone at 0 per cent on foreign IT revenue the position is clearer still. Only immediate full distribution within the same financial year leaves the classification arguable — planning should rest on the safe assumption.
Does genuine substance in Georgia protect me from CFC attribution?
Not for Germany. The substance defence in § 8 para. 2 AStG — own staff, own facilities, core function performed independently — is expressly restricted by § 8 para. 3 AStG to companies whose seat or place of management is in an EU Member State or an EEA contracting state. Georgia is neither. For a Georgian company the only remaining route is the active-income catalogue in § 8 para. 1 AStG. This is the point at which most advisory promises turn vague. Substance nevertheless remains indispensable — it simply operates elsewhere: at the place of management, in transfer pricing, and for the Georgian special statuses.
Which business models count as active income?
Under § 8 para. 1 AStG, among others: the manufacture, processing, treatment and assembly of goods (no. 2) — that category is active without qualification. Trade (no. 4) and services (no. 5) are active as long as the German shareholder, or a related person taxable in Germany, does not participate: in trade, by procuring the goods for the company or receiving them from it; in services, by the company availing itself of that person, or rendering the service to them. Interest, intra-group financing and most licensing models are passive.
What happens if attribution applies?
The passive income is attributed to you irrespective of any distribution. Under § 10 para. 2 AStG the attributed amount is income within the meaning of § 20 para. 1 no. 1 EStG, deemed to accrue in the assessment period in which the company’s financial year ends — and neither the partial-income method nor the flat-rate withholding tax under § 32d EStG applies. Your personal income tax rate of up to 45 per cent plus solidarity surcharge therefore applies. Georgian tax is creditable under § 12 AStG, and a later distribution is relieved through the reduction amount in § 11 AStG.
Is there a de minimis threshold?
Yes, but a narrow one. § 9 AStG disregards intermediate income where it does not exceed one third of the company’s total income and the amounts disregarded do not together exceed EUR 100,000. Both conditions must be met at the same time. For an operating company with minor incidental income that is real relief; for a predominantly passive company it does not carry.
Does the same apply in Austria?
No, in two material respects. First, § 10a KStG is addressed expressly to a controlling corporation — an individual resident in Austria holding a Georgian company directly is not subject to attribution. Second, the substance exception in § 10a KStG carries no geographic restriction to the EU and EEA, so substantial economic activity can be demonstrated for a Georgian company too. The low-tax threshold was unified at 15 per cent with effect from 1 January 2026 by Federal Law Gazette I No. 99/2025. What remains in Austria — and is the greater exposure for private individuals — is the place of management under § 27 BAO.
This article is general information and does not constitute legal or tax advice. The German statements refer to § 10 AO, § 1 AStG and §§ 7 to 12 AStG as in force at the time of writing, the Austrian ones to § 27 BAO and § 10a KStG including the amendment by Federal Law Gazette I No. 99/2025, and the Georgian ones to the Tax Code and the rules on the Virtual Zone and International Company Status. Classifying a specific business model within the active-income catalogue is a question of individual circumstances and, in case of doubt, should be secured by a binding ruling. Anyone who is or remains taxable in Germany, Austria or Switzerland must fully declare foreign entities, accounts and income there — always involve a tax adviser in your home country before incorporating. As of August 2026, subject to changes in law.