Pay 1% or 5%? How to Choose the Right Tax Regime in Georgia
- Giorgi Gamsakhurdashvili
- Jul 24
- 8 min read
Table of contents
Georgia isn’t guessing. It’s winning.
Most countries make it painful to start a business. Georgia went the other way. It cut the red tape, simplified tax, and made it easy for international founders to build without roadblocks.
Whether you're a freelancer, a startup, or a growing dev team, Georgia gives you multiple ways to legally reduce your taxes. And not just by a little. By a lot.
Here’s what you can access:
1% tax on revenue if you're a solo business with Small Business Status
5% tax on distributed profits if you qualify as an International Company
0% corporate tax if you hold Virtual Zone Status and serve foreign clients
Each has a purpose. Each comes with rules. And none of them work well if you try to DIY it with Google Translate and guesswork. If you want the benefits, you need the right setup from day one.
Gegidze works with founders every week who thought they could figure it out on their own. Then came the penalties, compliance notices, and bank rejections. Legal structures in Georgia are business-friendly, but they’re also strict.
Let’s start with the 1% tax setup
This one’s built for Individual Entrepreneurs, also known as I.E. in Georgia. It’s the fastest, simplest way to start working legally and lower your tax to 1% on turnover.
How it works:
You register as an Individual Entrepreneur
You apply for Small Business Status through the Revenue Service
You pay 1% tax on gross income up to 500,000 GEL annually
That’s it. You don’t need to declare expenses. You don’t pay corporate tax. You don’t pay dividend tax. If you made 180,000 GEL last year, you owe 1,800 GEL. Simple.
It’s why digital nomads, solo developers, content writers, and remote marketers are moving their taxes to Georgia. The 1% regime lets them bill international clients, stay compliant, and keep more of what they earn.
Who qualifies?
You do, if:
You work alone
You don’t employ full-time staff
Your revenue is under 500,000 GEL
You export services (no local sales)
Your business activity is allowed under Small Business Status rules
You don’t have to live in Georgia full-time. But if you spend more than 183 days here, you can also become a tax resident of Georgia, which means you're protected by Georgia’s double tax treaties. That helps you avoid paying tax twice on the same income in two different countries.
Gegidze often helps people clarify this. For example, someone moves to Tbilisi, sets up their I.E., but forgets they triggered tax residency halfway through the year. That mistake can create issues with their home country’s tax authority. Knowing when residency starts and how to plan for it isn’t optional. It’s essential.
How to register as an I.E.
Here’s what the registration process looks like:
Reserve your business name (optional but recommended)
Register at the Public Registry as an Individual Entrepreneur
Apply for Small Business Status through the Revenue Service portal
Get your Tax Identification Number (TIN)
Open a bank account in Georgia (a business account, not personal)
You don’t need to be in Georgia to do this. Many of Gegidze’s clients register remotely using a power of attorney. But you do need someone who understands how to navigate Georgia’s public systems, which are not always in English. Documents often require Georgian-language submissions. And registering incorrectly can cost you weeks, or worse, your Small Business Status.
Having a professional help you open a business bank account in Georgia also matters. Some banks require in-person meetings. Some reject foreigners without warning. Others ask for additional documents that weren’t listed on their site. Professional support makes the difference between a same-day account and a three-week delay.
What about taxes after registration?
If you're on the 1% regime, your reporting is simple:
File your income once a month
Pay 1% of your declared turnover
Submit annual declarations by March 31st
If you cross 100,000 GEL in revenue, register for VAT
And if you cross 500,000 GEL? Your tax rate jumps to 3%, and you might lose Small Business Status entirely. At that point, most people transition to an LLC. That’s where the 5% profit tax comes in.
When 1% Isn’t Enough
Let’s say you’ve got consistent revenue. You want to scale. You’re thinking about hiring. You’re talking to investors. That’s when it’s time to step out of the I.E. structure and move into an LLC.
This isn’t just a formality. It’s a signal to your clients, your team, and your bank that you’re operating at the next level.
That’s where International Company Status comes in.
5% Tax on Distributed Profits: The Startup Structure
Georgia allows LLCs that operate in specific industries, mainly IT and maritime, to register as International Companies. If approved, your business benefits from a special tax regime:
5% corporate income tax, only on distributed profits
0% dividend tax for foreign shareholders
5% flat personal income tax for employees
No property tax on assets used for business activities
Here’s what that means in practice.
If you make 400,000 GEL in profit but keep it inside the company to reinvest in product development, you pay zero tax.
If you distribute that profit to shareholders, you pay 5% corporate income tax. That’s it. And if those shareholders are non-residents, they don’t pay dividend tax on it. Compared to other countries where dividends can be taxed at 15% or more, this is a serious advantage.
Now imagine you’re hiring developers or designers inside Georgia. Normally, you’d have to withhold 20% in personal income tax and contribute to pension and social funds. But under International Company Status, salaries are taxed at just 5%. This isn’t a loophole. It’s written into Georgia’s tax code to attract skilled businesses.
How to Qualify
International Company Status isn’t automatic. You need to meet four key criteria:
You must be registered as a Georgian LLC
You must operate in a qualifying sector (IT services, software, cybersecurity, etc.)
Your company must show 2 years of activity in the field (either in Georgia or abroad)
You need real operations in Georgia, an office, a local director, payroll, or business activity
Without that local substance, your application won’t be accepted. Georgia is generous with taxes, but serious about compliance. This is why most founders don’t apply alone.
You’ll need to prepare documents, prove your business activity, translate supporting evidence into Georgian, and submit it correctly. Gegidze handles this for clients, but even if you work with another provider, do not assume the system is plug-and-play. It isn’t.
What About Virtual Zone?
This is where things get confusing for many founders.
Virtual Zone Status is a completely separate incentive, also offered by the Georgian government. It’s available to companies that export IT services (like software development) and earn revenue from foreign clients.
If approved, the company pays 0% corporate tax on all foreign-sourced income.
Sounds amazing, right? It is. But here’s the catch: Virtual Zone only affects corporate income tax. It doesn’t lower your salary tax. It doesn’t give you 0% dividend tax. And it doesn’t give you investor-ready structure.
That’s why many companies hold both statuses.
Virtual Zone eliminates corporate tax on revenue
International Company reduces tax on salaries and dividends
If you're running a real team in Georgia and serving foreign clients, combining both is the smartest move. But it requires precision. You’ll need to structure your revenue properly, set up local payroll systems, and apply for both statuses through different government bodies.
Most people can’t do this alone. Misfiled paperwork leads to rejection or delays. And once rejected, reapplying isn’t always easy.
Side-by-Side: Which Regime Does What?
Feature | I.E. (1%) | Intl Company (5%) | Virtual Zone (0%) |
Legal Form | Individual Entrepreneur | LLC | LLC or JSC |
Tax on Income | 1% on revenue | 5% on distributed profit | 0% on foreign revenue |
Tax on Dividends | n/a | 0% for foreign owners | 5% (or 0% with treaty) |
Salary Tax | n/a | 5% | 20% unless combined |
Can Hire Employees? | No | Yes | Yes |
Max Annual Revenue | 500,000 GEL cap | No cap | No cap |
Setup Complexity | Low | Moderate | Moderate |
Banking & Accounting | Minimal | Full compliance required | Full compliance required |
What Real Founders Actually Do
Most start with I.E. and grow into LLC. Here’s how it looks in real life.
Case 1: A freelance UX designer bills €4,000/month from clients in Germany and the UK. She lives in Batumi. Registers as an I.E., pays 1%, and keeps everything simple.
Case 2: A 3-person development agency outgrows the 500,000 GEL cap and wants to hire support staff in Tbilisi. They close the I.E., set up an LLC, and apply for International Company Status. Payroll tax drops to 5%. They reinvest most profits and pay minimal tax.
Case 3: A SaaS founder is raising funds and wants to issue equity. I.E. is no longer viable. They form an LLC, apply for both International Company and Virtual Zone Status, and set up a local presence with Gegidze’s help. Taxes drop significantly, and they’re fully structured for scale.
The pattern is always the same: structure follows growth. Georgia rewards founders who take it seriously.
Why You Need Professional Support
Registering an I.E. sounds easy. It is. Until you make the wrong declaration or skip the VAT registration when you hit the threshold.
Applying for Virtual Zone sounds exciting. It is. Until you realize you filed the wrong business activity code and got rejected.
Setting up an LLC sounds straightforward. It is. Until your bank asks for a document in Georgian, and you don’t know where to get it.
You can’t automate this process. You need people who know what each authority expects. Professionals who understand how Georgia’s tax code actually works and how to legally position your company to get the benefits you're here for.
That’s what Gegidze does. And that’s why so many international founders work with them.
Final Word
Georgia gives you options: 1%, 5%, 0%. But the real win isn’t choosing the lowest number. It’s choosing the setup that matches your current business and sets you up for the next chapter.
If you want to register your business in Georgia, qualify for Small Business or International Company Status, or reduce your tax on foreign income with Virtual Zone, start with a proper structure. Let professionals guide you through the banking, registration, compliance, and filings.
Book your free consultation with Gegidze today and learn more about your options. With professional help you’ll spend less and you’ll earn more.
Frequently asked questions (FAQ)
How do I register a business in Georgia as a foreigner?
You can register an Individual Entrepreneur or LLC in Georgia online or remotely using a legal representative. The process includes name selection, tax ID issuance, business bank account setup, and optional applications for Small Business or International Company Status.
What are the benefits of opening a business in Georgia?
Georgia offers a 1% tax regime for small businesses, 0% corporate tax for Virtual Zone companies, and 5% tax for International Companies. There’s no minimum capital, foreign ownership is allowed, and the tax residency process is clear and favorable for digital entrepreneurs.
Can I combine Virtual Zone and International Company Status in Georgia?
Yes. Companies operating in the IT sector can hold both statuses. This combination allows you to pay 0% on foreign-sourced income while also reducing payroll and dividend taxes if you meet the substance and eligibility requirements.
What taxes do freelancers in Georgia pay under the 1% regime?
Freelancers registered as Individual Entrepreneurs with Small Business Status pay only 1% of their gross annual turnover, up to 500,000 GEL. There is no additional corporate tax, dividend tax, or VAT unless they exceed certain thresholds.
What is the difference between an I.E. and LLC in Georgia?
An I.E. is ideal for solo freelancers with simple operations. LLCs are better for businesses that need legal separation, want to hire staff, or plan to grow. Only LLCs are eligible for International Company and Virtual Zone tax statuses in Georgia.
