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Former Soviet Republic of Georgia To Become IT Tax Haven
A few days ago we noted how Ukraine is driving out its software freelancers with the threat of onerous taxation. Now comes news that another former Soviet republic, Georgia, will become a tax-free zone for IT companies. It might be the Google translation, but it seems that officials there are somewhat worried about how to categorize the IT segment: "[T]he main difficulty ... is to determine which organization is the IT company, and what is not: 'While from a formal point of view it is impossible to distinguish between software developers from the oil.'"
Thats basically what happens when countries lower their taxes corporations go there. It seems to be something that the current administration doesn't seem to understand, if we're charging higher taxes, higher labor costs, for essentially the same service why not move elsewhere? Most businesses would want to stay in the US but when the US seems to be raising taxes for successful businesses, is there any reason not to move?
Taxation is legalized theft, no more, no less.
They do control a large percentage of our Peach reserves......oh you mean the other Georgia? Fuck who knows.
if we're charging higher taxes, higher labor costs, for essentially the same service why not move elsewhere?
The key there is 'same service'. All too many companies will decide that something IS the same service without taking into account factors which impact the company and the customers, all for the sake of lower taxes. Outsourcing to another country which may have another language, incompatible customs, and different labor practices and, in the case of IT, different development paradigms, may be far more costly in the long run than a lower tax rate. But that would require an understanding of IT, which most business people simply do not have, and aren't interested in learning about.
Perhaps it would be less confusing if translated into Swedish Chef.
Take warning from this: http://thedailywtf.com/Articles/The-Russian-Plan.aspx
No sig today...
Taxation is merely one small variable in a big formula.
Among others are:
1. Infrastructure
2. Workforce availability
3. Culture of working
4. Political stability
5. Religious stability
6. Social stability
7. Corruption
8. Legal system
etc.
If you really believe that taxation is the biggest issue, I have a zero-taxation location for you in Somalia.
Suffer cyberattack from Russia, and potential real attack! Two for the price of none!
Yeah, you have lower quality work, but in many cases it is easily offset by taxes.
Taxes are a big deal but I've worked pretty closely with a lot of global sourcing and taxes are usually pretty far down the list of why companies outsource. Labor cost is by FAR the biggest reason in most cases. Labor for most companies greatly outweighs any tax burden no matter how profitable the company becomes. Some companies locate their headquarters outside the US for tax reasons (Tyco for example) but this is getting harder.
The main thing about taxes is it punishes you for being successful. The more successful you are the higher you have to pay in taxes.
The "main thing"? Taxes are nothing more than a punishment for success? Seriously? I don't think you've ever tried to start or run a company because the REAL punishment is a company that loses money. Having to pay tax because my company is successful is a problem I welcome with open arms.
The foreign workforce is usually decently educated, cheap and willing to work long hours because the standard of living is lower.
Educated? Generally yes. Cheap? Sometimes if it can be managed efficiently (not always possible) from a long distance. Long hours? Not in the top 20 and apparently not as long as those in the US.
Someone being paid US minimum wage in the US can hardly even afford rent, the same pay gives a person "middle class" status in third-world or developing countries.
Technically true but you need to learn about purchasing price parity. Goods don't cost the same everywhere. Also there are people who are equivalently poor in any country you care to name.
India is hardly a zero-tax country; likewise China and most of the Middle East. Low tax is nice; zero tax is great. Georgia also has an abundance of English speakers, unlike most of Asia. It has a large population of computer scientists and engineers, unlike Africa. And it's geographically close to the EU.
Browsing at +1 - no ACs, I ignore their posts. So refreshing!
The additional cost of code review for outsourced work also doesn't cover the cost of giving away your source code for free. That outsourced company also has a free copy of your code that they can now incorporate in other projects and on sell. Plus tech workers are well informed workers, underpaid third world tech workers, know full well they are dramatically underpaid third world tech workers, this does not put them in the right frame of mind for declaring and cleaning up all possibly exploitable security faults.
Georgia as a country, home of the Russians mafia for generations with statues of Joe Stalin at city centres still celebrated as hero to this day, perhaps not the most tech secure consideration. Sometimes cheap just ain't worth it. Outsourcing coding and data input to countries with a bad track record for corruption is really crazy. Alternative tax cheat, set up software company in Gerogia, it out sources all of it's code back to your local headquarters, pays the cost price, then adds in all the mark up before selling it back to you at your zero profit "heh, heh" retail price, if you really desperate to cheat that is about the only safe way to do it with Georgia (any country that doesn't toss out a tie chewing president http://www.youtube.com/watch?v=syKMsDS2OzE on his butt has got to be too cracked to deal with).
Chaos - everything, everywhere, everywhen
Does anyone know what special benefits Georgia offers beyond this abscence of tax?
Georgia went through a couple of civil wars (and a few presidents) since the USSR dissolved. Georgia initiated another war recently, and successfully lost territory this way. The president of Georgia is believed to be insane; some say that he personally killed one of his political opponents. He is currently the black sheep among presidents in the region. Russian officials won't tell him the time of the day. There are frequent demonstrations for and against the president. The country is poor (but that's pretty easy to conclude by now.) The local language is pretty unique. The country is split into several tribes who aren't particularly in love with each other (that's what caused the loss of territories in the recent war.) Many people live in mountain villages, with minimum communications. Georgia was best known in the USSR for its agricultural goods - wine, peaches and other stuff that requires warm climate. There are probably quite a few programmers in cities, though.
Georgia is #11 in the "Ease of Doing Business Index", and generally has very lax economic regulation across the board. There have been some sweeping social and political reforms since 2004, and the guys at helm are die-hard economic liberals, with all that implies - very little bureaucracy, and tendency of government to keep its nose out of business affairs for as long as all taxes are paid.
I'd say that, if you're looking for a libertarian paradise, it's one of the places closest to that. How long that will last is a good question, though - there have been some claims recently that Georgian economic growth has all signs of an investment bubble, and it's about to burst.
Georgia also has an abundance of English speakers, unlike most of Asia. It has a large population of computer scientists and engineers, unlike Africa.
You are speaking about a country of four million people. The capital has a population of less than 1.5 million, and the regions outside the capital are largely uninteresting for IT investment. The abundance of English speakers and large population of engineers need to be seen in relation to that.
English in Georgia is largely limited to the young generation, people over 35 are more likely to speak Russian than English, even though they probably won't like to. I guess you could find more English speakers in many Asian cities than in Georgia, depending on what constitutes "Asia" for you. India, Bangladesh and Pakistan alone have something like a few hundred times the number of English speakers Georgia does. Knowledge also does not mean good knowledge. People already complain about the English of call centers in Bangalore, but I don't see significantly better English in Georgia on a broad scale.
And it's geographically close to the EU.
This means practically nothing. For IT work the Internet is the medium of choice anyway. For what it's worth, Kosovo is even closer to Europe, yet I don't see European IT outsourcing to Kosovo happening on a large scale. Georgia is also politically unstable. They got into a war with Russia recently where an EU commission later found that it was primarily the Georgians who started it. The Georgians may fly the EU flag outside government buildings on their own initiative and declare it their goal to join the EU and NATO, but both the EU and NATO are growing increasingly skeptical of the country. Politically they're further away from the EU than they ever were.
Political culture can be irrational in Georgia. It's formally a democracy, but changes of government have never resulted from elections. Public culture can be fairly racist; in 1991 the country was founded amindst slogans such as "Georgia for Georgians", which got them into several civil wars and cost them significant territories inhabited by ethnic minorities, which would now rather see themselves annexed by Russia than governed by Georgia (not that those minorities are necessarily much better in terms of interethnic relations). Infrastructure is problematic outside the cities, too. There are entire regions that don't have electricity (or that had them until 1992, when someone dismantled and stole 70km of overland electricity line for the copper).
Personally I actually like the country, make no mistake. I have been there, I have friends there, I can read Georgian if I have to. But it's not a place I'd recommend for major IT investments.
As a state gets corrupt, its laws multiply; the most corrupt states have the most numerous laws. (Tacitus, Annales 3:27)
At first Georgia is fast gworing with economy, out of corruption, ZERO mafia (some in here sad that russian mafia is in georgia, i guess georgian mafia is in russia :) ):
From 2003 to 2010, after rose revolution georgia get:
1. GDP grow from 12%
2. Industry income grow for a 1200%
3. Building industry product grow for a 800%
4. Overall grow of trading 600%
5. Communication sector grow - 400%
6. External turnover grow - 900%
7. Import grow - 900%
8. Export grow - 500%
9. xternal debt rose by only 10%, in 2003 was 600 of common income, now is less
10. Average salary grow - 600%
11. Unempoyment grow - 14% from 12%, even after 2008
12. Corruption ranking - from 133th (near russia) to 58th
Literacy Level - 100% (only one and #1 in ranking)
Ease of doing business Ranking:
2009 rank - 16th
2010 rank - 11th
1. Infrastructure
2. Workforce availability
3. Culture of working
#4. Political stability
5. Religious stability
6. Social stability
7. Corruption
8. Legal system
Georgia is missing only political stability because of attacks of instable neighbours, but according to US military bases establishment - now it should be ok. Regarding others - Georgia is trying to get very close to the EU, so country is changing its legal system and standarts according to EU requests.
Mentality - out of USSR, hating USSR, hating Staling, working, learning, management, clean, literal, educated, traditionally guests are best friends, beer :)
IT/telecom access technology grow (@home result you can feel):
Y2002:
Dial-up, 1 hour = ca. 0,4 USD, 56k
Mobile: 2G, ca. 0,2 USD per minute
Y2010: :)
ADSL/ADSL2+ (one of the first countries implemented, available even in villages) = unlimited, 50 USD per month
Fiber to the home (available almost everywhere in big cities) = unlimited traffic, 100mbps to gbps local connection, 10bmps - 100mbps global, 50 USD per month
4G WiMax Mobile = unlimited traffic & speed, 50 USD per month, closing due other technology evolution
3.75G EV-DO CDMA Mobile = unlimited traffic, up to 3mbps speed, 30 USD per month, ca 70% coverage
3.75G UMTS Mobile = ca 50% coverage, 100% in cities, 0,02-0,3 USD per MB
2.5G GSM EDGE = ca 90% coverage (available everywhere), 0,02-0,3 USD per MB
Dialup - not available
Someone said something for labor cost, ok, if you believe that IT guy cost is big in georgia (actually its both - there is a scaled price range), then you can get additional workers from neighbour countries like armenia and azerbaijan, or even take indian guys in there...
Some ad videos:
http://www.youtube.com/watch?v=ynihqPoG0Wk
Capital:
http://www.tbilisi.gov.ge/index.php?lang_id=ENG&sec_id=1
http://www.youtube.com/watch?v=ax5xPZ5BZOA
Batumi (second growing city), was in communistic ruines, now growing:
http://www.youtube.com/watch?v=3HOa15Inzr0
Banking grow - oh, don't tell me about that, you can even compare to EU, especially in social needs like searching for ATM, absolutely no problem
"It feels like I'm at the Zoo when reading this thread - I'm frightened, but it's interesting" (c)