Below are all three sanctions: the late filing fine, penalty interest on late payment and the fine for understating tax, plus the ways to reduce them.
The fine for filing a return late
The late filing fine is calculated on the amount of tax assessed for payment under that return. The size depends on how late the return is.
| Delay | Fine |
|---|---|
| up to 2 months | 5% of the tax under the return for each month |
| more than 2 months | 10% of the tax under the return |
| tax under the return is zero | no fine |
An incomplete month counts as a full one. If a return is filed 10 days late, the fine is 5%. If it is 40 days late, that is already two months, and the fine is 10%.
Example: a return shows GEL 2,000 of tax due and is filed 20 days late. The fine is 5%, or GEL 100. With a delay of more than two months the fine is 10%, GEL 200.
A nil return carries no late filing fine
If the tax due under a return is zero, the late filing fine does not apply. The Tax Code says so directly. But the return still has to be filed: the delay remains a violation, it just carries no monetary fine under this article.
The filing deadline for each return, from monthly to annual, is listed in our guide to reporting deadlines for IEs and LLCs.
Penalty interest on late payment
Penalty interest is charged not for the return but for the money: when tax is not paid on time. It is 0.05% of the unpaid amount for each day of delay, starting from the day after the payment deadline. The day the tax is paid also counts as a day of delay.
Over a year that comes to about 18% of the debt. Example: GEL 10,000 of tax paid 30 days late. The penalty interest is 10,000 × 0.05% × 30 = GEL 150.
The fine and the interest are charged independently
They are separate sanctions. If a return is filed late and the tax under it is paid late, you get both the late filing fine and penalty interest on the late payment. Paying the fine does not release you from paying the tax itself. Penalty interest is not charged on the fine.
The wider picture of taxes, rates and which returns an IE and an LLC file is in our guide to taxes in Georgia.
The fine for understating tax in a return
If a return shows less tax than it should, the fine is calculated on the understated amount. The size depends on how large the understatement is compared with the tax shown in the return.
| Understatement | Fine on the understated amount |
|---|---|
| up to 5% of the tax in the return | 10% |
| from 5% to 20% | 25% |
| more than 20% | 50% |
Overstating an amount for deduction or refund is treated as understating tax. Understating tax in a return by more than GEL 100,000 is treated as large-scale tax evasion and carries criminal liability.
If the understatement arose because the tax authority moved the moment the liability arose to a different period, the fine is 10% of the understated amount.
An amended return before an audit removes the understatement fine
If you find the mistake yourself, correcting it costs less than an audit. The fine for a misstatement in a return is not imposed if the amended return is filed before you are served with the decision on a tax audit or a tax offence report is drawn up. If the amended return is filed before the filing deadline, it counts as the original return.
Once the audit decision has been served, you can no longer file an amended return for the period under audit. How to fill in a return correctly the first time is covered in our guide to the tax declaration for an individual entrepreneur.
Source note
> Article 274(3) of the Tax Code: if the sum of tax to be assessed for payment under a tax return equals zero, the fine for violating the filing deadline is not imposed.
Source: Tax Code of Georgia
Other fines that get overlooked
Besides the return-related fines, the Tax Code sets fixed fines for specific violations. For IEs and small LLCs these are the ones that matter most often:
| Violation | Fine |
|---|---|
| Operating without VAT registration | 5% of taxable transactions during the unregistered period |
| Failure to provide documents or information requested by the tax authority | GEL 400, GEL 1,000 for each repeat |
| Violating the taxpayer registration procedure | GEL 500 |
| Accepting cash without a cash register | GEL 200 |
| Failure to report hired employees to the register | GEL 200 per employee |
VAT registration is required once taxable transactions over any 12 consecutive months exceed GEL 100,000. The application is due no later than 2 business days after the threshold is crossed. Once the fine for operating without registration is applied, the late filing and understatement fines are not charged on VAT returns for the same period.
How to reduce or avoid sanctions
The Tax Code provides several grounds on which a fine is reduced or not applied at all.
Half of the audit fines. If, within 30 days after the tax notice issued after an audit is served, you pay an amount equal to 50% of the assessed taxes and fines and accept the amount in the notice, 50% of the fines is cancelled.
A good-faith taxpayer's mistake. The tax authority, the dispute resolution body or the court may release a good-faith taxpayer from a sanction if the violation was caused by their mistake or lack of knowledge.
Force majeure. There is no liability if the violation was caused by circumstances beyond the taxpayer's control: a natural disaster, a state of emergency or martial law, civil unrest.
Limitation period. The tax authority can assess tax or impose a sanction, other than penalty interest, within 3 years. The period runs from the end of the calendar year in which the liability arose or the violation was committed.
Frequently asked questions
Is there a fine for filing a nil return late?
There is no late filing fine if the tax due under the return is zero: Article 274 of the Tax Code says so directly. But the return still has to be filed, and the delay remains a violation. If the return shows tax due, the fine is 5% for each month up to two months and 10% after that.
How much is penalty interest on late tax payment?
0.05% of the unpaid amount for each day of delay, starting from the day after the payment deadline. The day of payment also counts as a day of delay. That is about 1.5% of the debt per month and about 18% per year. Penalty interest is not charged on fines.
Are the fine and the interest charged at the same time?
Yes, if both deadlines are missed. The late filing fine is for filing late, and penalty interest is for paying the tax late. They are separate sanctions, and one does not absorb the other. Paying the fine does not release you from paying the tax itself.
Can I correct a mistake in a return without a fine?
Yes, if you file an amended return before you are served with the decision on a tax audit or a tax offence report is drawn up. In that case the understatement fine does not apply. Penalty interest on the underpaid tax still runs from the day after the payment deadline.
How many years back can the tax authority assess tax?
Three years, unless the Tax Code provides otherwise. The period runs from the end of the calendar year in which the tax liability arose. The same three-year period applies to sanctions other than penalty interest and to tax audits.
How Legalese handles this
Most fines arise not from complex tax questions but from missed deadlines. We keep the books for IEs and LLCs and prepare monthly and annual tax returns, as well as annual financial statements.
If you find a mistake in a return you have already filed, we advise on how to correct it before the tax authority gets to it.
Package details: accounting services.
Key points
- A return up to two months late: 5% of the tax under it for each month, and an incomplete month counts as a full one
- More than two months late: 10% of the tax, and no fine if the tax under the return is zero
- Penalty interest on late payment is 0.05% of the debt per day and is not charged on fines
- Understating tax: a fine of 10%, 25% or 50% of the understated amount, and an amended return before an audit removes the fine
- The limitation period for assessing tax and sanctions, other than penalty interest, is 3 years from the end of the calendar year
To go through your deadlines and penalty risks, book a free consultation.