Free zones: Georgia’s experience

6 June 2019
By the Customs Department of the Revenue Service, Georgia

In terms of the WCO International Convention on the Simplification and Harmonization of Customs Procedures (Revised Kyoto Convention), “free zone” means a part of the territory of a Contracting Party [to the Convention] where any goods introduced are generally regarded, insofar as import duties and taxes are concerned, as being outside the Customs territory.

The rationale behind the establishment of “free industrial zones” in Georgia was that by offering fiscal incentives and operational or support services, the country would be able to better integrate itself into the global supply chain, while stimulating economic development, promoting international trade, attracting foreign direct investment, and increasing employment. Georgia currently has four free zones located in the cities of Tbilisi, Kutaisi and Poti.

National legislative framework

Although Georgia has ratified the Revised Kyoto Convention, it has not accepted any of its specific annexes, including Specific Annex D, Chapter 2 of which lists 21 standards covering a wide range of Customs procedures related to free zone operations. However, in establishing its free industrial zones, Georgia did largely align its legislation with the provisions of Chapter 2, with one main exception as stated below.

Article 9 of Chapter 2 states that “no goods declaration should be required by Customs in respect of goods introduced into a free zone directly from abroad if the information is already available on the documents accompanying the goods.” In the case of Georgia, all transactions must be registered in the Customs automated system, including imports into its free industrial zones.


At present, the national legislative framework governing Georgia’s free industrial zones includes:

  • a law covering free industrial zones;
  • regulations on the “assignment of instructions concerning the guarantee amount and terms for the establishment of free industrial zones and the rules of storage of goods,” and the “establishment, arrangement and operation of free industrial zones”;
  • various articles from the Tax Code on the “establishment of instructions concerning the movement and clearance of goods on the Customs territory of Georgia”;
  • a decree by the Head of the Revenue Service on the “enforcement of procedures regarding the entry/exit and clearance of goods to and from the Customs territory of Georgia”.

Read together, this legislation defines how a free industrial zone can be created, as well as the profile, obligations, roles and responsibilities of all parties involved, which includes the Customs Service, free zone administrators, and companies registered to operate in such zones.

For example, in terms of the legislation, an administrator is responsible for the general management and operation of a zone, and has to set up Customs crossing point infrastructure as well as provide all technical means, equipment and hardware necessary for the operation of Customs procedures and the running of Customs electronic systems. Moreover, a barrier fence (in some cases different types of barriers) must be erected around the perimeter of a zone, and Customs crossing points have to be set up at the entry/exit area of a zone.

© Poti Free Industrial Zone
© Poti Free Industrial Zone

Operational practices

Shipments entering the free industrial zone are regarded as exports, while shipments leaving the zone are regarded as exports if the destination is a foreign country or as imports if the destination is the Customs territory of Georgia. To operate in the zone, companies must acquire a licence from the zone administrator. The scope of activities allowed in such zones includes logistics, production, processing, warehousing, hardware and information technology (IT) solutions, and intangible assets (provision of services).

The Customs Service is present at the zones 24/7, and has the right to perform scheduled or random checks of the premises and inventory of companies located therein. Goods entering the zones must belong to a registered company. Imports and exports as well as transit operations between the zones are managed through the Customs automated system as well as through the Tax Administration Information System. Specific risk indicators designed to target risks most common to the free industrial zones have been fed into the Customs risk engine.

Incoming and outgoing transport operations and Customs clearances are processed according to the “one-stop shop” principle, and services such as the electronic submission of Customs documents, the remote acceptance of electronic signatures, and the payment of duties, taxes and service fees via online banking services are provided to importers or exporters. As a result, they do not need to be physically present during the Customs clearance process or other Customs procedure.

The Customs Service hardly encounters any obstacles during its various interventions, and, along with its law enforcement activities, strives to provide quality service to its free zone clients in order to reduce their costs and ensure the fluidity of their operations, thereby providing effective solutions with minimum time requirements.

Managing risks

Indeed, while most types of fraud and crime encountered elsewhere by Customs can also be encountered in these free industrial zones, some are very specific to the zone environment, thus requiring specific vigilance. In general, three types of fraud have been identified in the field:

  • Smuggling risks (evasion of duties and taxes);
  • Clearance fraud (misevaluation, misclassification, origin fraud, etc.);
  • Entry of prohibited goods (narcotics, psychotropic substances, weapons, goods infringing intellectual property rights, etc.).

Smuggling risks for imports are especially high, due to the fact that goods placed in free industrial zones are exempt from Customs duties. For example, goods may enter the Customs territory illicitly to avoid payment of duties and taxes and vice versa, or when some inventory or production process is in place, certain types of goods might be smuggled into the zones without being declared to Customs.

Risks at export are also high. Given Georgia’s geographic location between west and east, the free industrial zones in the country are at risk of being used by international drug trafficking networks, providing them with the opportunity to disguise the initial departure country of their illicit goods, thus decreasing the risk of inspection at subsequent locations en route to the actual destination countries.

Consequently, inspectors focus on misevaluation, violation of rules of origin and misclassification, especially during the import process, feeding the Customs automated system with specific risk criteria related to the type of goods, vehicles and individuals. Should suspicions arise, physical checks of inventories in the premises will be undertaken, in order to identify the nature, quantity and quality of the goods.

In addition, operations can be monitored 24/7 via video surveillance, and a variety of tools such as weight control scales, metal detectors, and narcotics identification and test kits are at the disposal of Customs officers. While these tools are a great enabler in efforts to fight fraud and crime, the analytical skills and profiling capabilities of officers are critical to achieving success.

Examples of seizures made at Georgia’s free industrial zones include declared medicines found to contain illicit psychotropic and narcotic substances that were denied entry and later returned to the country of departure, and commercial goods (e.g., electronic hardware) as a result of attempts to smuggle them into the Customs territory to avoid payment of duties and taxes, the perpetrators of which were handed over for prosecution. Other seizures that have been made were the result of Customs declaration violations and administrative violations (e.g., weight control or seal integrity).

Working together

As one of the key players in the free industrial zones, Customs is fully aware that not much can be done without building a strong partnership with zone stakeholders. Therefore, industry outreach is one of the key components of its work, the objective being to enable Customs and business entities to share information and work together towards solving any problems and challenges.

Whenever companies registered in the zone wish to make a transaction, but are unsure of the regulation applying to the operation or need further information, they know that they can approach Customs for guidance. Within the scope of competence, Customs is able to provide solutions and guide companies on how they should proceed. This is considered Customs’ “preventive analysis” approach, where problems are solved before they occur. Such an approach has become an integral part of the Customs and business working environment.

By developing a professional relationship with companies operating in the zones as well as with the administrators, Customs has been able to prevent violations of the law and increase compliance. In practice, this endeavor has enabled smooth and effective workflows within the zones to be created, and reduced the number of irregularities and violations.

Instead of a polarized free industrial zone environment, with each actor only perceiving its own goals and disregarding the interests of others, Georgia has found the ideal solution: all actors working closely together to ensure the success of the zones, which contribute to the country’s economic objectives and ensure Georgia’s full integration into the global supply chain.


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