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Guide to 1% Tax Rate for Individual Entrepreneur & Small Business Status in Georgia


Guide to 1% Tax Rate for Individual Entrepreneur & Small Business Status in Georgia


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Introduction


Georgia isn't only attracting big investors anymore. In the past decade, it's become a launchpad for startups, freelancers...anyone with ambition and a good idea. International rankings consistently put Georgia near the top for how easy it is to start a business. 


This commitment to streamlining processes is reflected in the 7th place ranking for ease of doing business by the World Bank.


Georgia's tax system could be a game-changer for your business. With the right strategy, you might pay significantly less in taxes. Imagine the impact that reinvesting those funds could have on your growth!


Whether you're a local business looking to take the next step or an investor from abroad eyeing Georgia's potential, this guide will help you make the smartest tax moves.


You'll understand how to qualify for the 1% rate, what "small business status" means for your bottom line, and how to leverage Georgia's tax system for maximum advantage.



Eligibility for the 1% Tax Rate



Eligibility for the 1% Tax Rate


Georgia's got a soft spot for small businesses and go-getter entrepreneurs. They've built the tax system with incentives to help you thrive. The 1% tax rate is a major one!


Georgia's Tax Code Holds a Surprise for Entrepreneurs: Slash your tax bill – potentially down to just 1% – by becoming an Individual Entrepreneur with Small Business Status. But navigating the eligibility rules is key.


  • Your annual business turnover is under 500,000 GEL (approximately USD 184,000).

  • You are a solopreneur. (You don’t have employees)

  • You must not be VAT registered.

  • Ensure your business activity isn't on Georgia's prohibited list.

  • Residency or citizenship in Georgia isn't required to take advantage of this.


Individual Entrepreneur & Small Business Status Registration


In Georgia, becoming an Individual Entrepreneur (IE) isn't about creating a separate company, it's about YOU becoming the business. This simplifies things but also means you shoulder all the risks.


To qualify, you need a second step: applying for Small Business Status with the Revenue Service. This is where they'll check your income and other factors.  (Note: You can hire employees as an IE, but prepare for additional payroll taxes.)


If your business is tiny (under 30,000 GEL annual turnover), the Micro Business Status option has a 0% tax rate.  But the catch is you have to go it alone – no employees allowed.



Small Business Status benefits in georgia


This status is a great fit for those earning income from abroad, or anyone running their show in Georgia – as long as your business type isn't on the restricted list (think consulting, medical services, etc.).  Check the full list to be sure!


About those Limits:  Exceed 500,000 GEL turnover in a year and your tax rate jumps mid-year. Two years in a row exceeding that limit revokes your Small Business Status for good.


However, if you grow significantly, you'll still generally pay a flat 20% on profits, not the higher rates bigger companies face.  But at that stage, it might be wise to explore options like an LLC for even more benefits.



Feature

Micro Business Status

Small Business Status

Notes/Additional Considerations

Structure

Natural Person or IE

Individual Entrepreneur

IE status not needed for Micro

Turnover Limit

<30,000 GEL annually

<500,000 GEL annually


Employees Allowed

No

Yes

Payroll taxes apply, with exceptions for very low-paid staff

Tax Rate

0%

1% (or 3% if limit exceeded)

Growth may necessitate a structural change

VAT Registration

Not eligible

Mandatory above 100,000 GEL

Exemptions and reverse VAT exist

Tax Declarations

Simplified annual

Monthly

VAT payers have additional filings

Cash Register

Not required

Required for cash payments

Mobile payment options exist

Accounting

None (except annual Dec.)

Special Journal required

Template often provided by gov't

Revocation Triggers

VAT payer, income limit, employees, inventory value

Income limit (2 years), repeated cash register violations

Exceeding limits may mean switching to Small Business, not losing benefits entirely



What do you need to start and run a small business as an individual entrepreneur in Georgia?



individual entrepreneur in Georgia


Step 1: Preparation


  • Choose Your Method: Register in person at the House of Justice or appoint a representative with a Power of Attorney.

  • Power of Attorney Essentials: If using this method, the document can initially be in any language BUT will eventually need a certified Georgian translation.

  • Address Situation: Own property in Georgia? Great! If not, you'll need written permission from a property owner to use their address for your business.

  • Paperwork Preview: The exact forms may vary slightly, but generally expect to provide:

  • Your full name (and passport info if not a Georgian citizen)

  • Georgian identification number (assigned to non-residents)

  • Contact details (phone, email)

  • Georgian business address


Step 2: At the House of Justice (Or Sending Your Representative)


  • In-Person: Bring your completed forms and identification documents. The process is typically quick and free.

  • Using a Representative: Ensure they have your Power of Attorney, forms, and any necessary ID copies (yours and theirs).

  • Key Point: Even with a representative, you'll likely need to be involved at some stage for signatures, verifications, etc.


Step 3: After Registration


  • Tax Account Setup: This is crucial for future filings. Create an account on the Revenue Service of Georgia's website.

  • Translation Time: If any of your documents were in a non-Georgian language, arrange for certified translations. The government may request these.


Potential Roadblocks & Solutions


  • Language Barriers: While some staff may speak English, don't rely on it. Consider hiring a translator or using a native-speaker representative.

  • Incomplete Forms: Double-check everything! An error might not derail the process entirely, but it causes delays.

  • Address Issues: Securing permission early avoids last-minute scrambling. Consider virtual office services if you have no personal contacts in Georgia.


Step 4:  Applying for Small Business Status (Optional)


  • Remember the Income Limit: 500,000 GEL annually is the key cut-off to stay in this tax bracket.

  • Contact the Revenue Service: After you're an IE, they'll have a separate process to assess your eligibility.

  • Check for Restrictions: Make sure the specific nature of your business isn't on the prohibited activities list.


Registration Timing


  • Same-Day IE Registration: Great news for those eager to get started!

  • Small Business Status: Just remember, the 1% tax rate applies from the 1st of the following month, not the day you register.


Tax Rates – It's All About Your Income


  • The 500,000 GEL Threshold: Stay under this annually, and you enjoy the 1% tax rate with Small Business Status.

  • Exceeding the Limit: Your tax rate jumps to 3%, and you lose Small Business Status.

  • Bonus Point: Remember, that 3% rate is still a huge improvement over the old 5% tax!


Responsibility of an Individual Entrepreneur


As an Individual Entrepreneur (IE) in Georgia, it's important to know that not all your income is calculated towards those Small Business and Micro Business tax rates.  Here's a breakdown:


Income That's Excluded:


  • Property Rentals: Earnings from leasing out a house or apartment.

  • Loan Returns: Interest you earn from lending money.

  • Gifts & Inheritance: Money or assets received this way are generally tax-free

  • Specific Investments: Selling certain things like real estate, vehicles, or stocks usually has its own tax rules.

  • Business Structure Income: Dividends or profits from a separate company wouldn't be counted.


Important Note: While the above income might not count towards your IE turnover, it could still be taxable in Georgia or elsewhere.  Always consult a tax advisor for your specific situation.


Example: Let's say you earned 30,000 GEL from freelance writing and 8,000 GEL in royalties. Even though your total income was 38,000 GEL, only the freelance income matters for the IE tax thresholds.


The "Georgian Sourced" Factor: Be aware that even if you earn money from clients abroad, if you're physically working in Georgia, that income often counts as Georgian-sourced. This applies even if you temporarily travel outside the country for part of the year.


Tax and Reporting Obligations for Georgian Individual Entrepreneurs and Small Businesses


Georgia offers a refreshingly streamlined tax experience for Individual Entrepreneurs (IEs). Unlike the complex systems in some countries, you'll only need to file a single income declaration per reporting period.  This saves you time and hassle. 


To make things even easier, Georgia provides a free electronic service for tax filings, available in both Georgian and English (note: the Russian translation is imperfect but may still help understand the system).  Remember, as an IE, you'll be expected to pay your taxes and file your income declaration monthly, with a deadline of the 15th of the following month.





Registration Process for Individual Entrepreneurs


Those accustomed to complex bureaucratic procedures elsewhere may find registering as an Individual Entrepreneur in Georgia refreshingly uncomplicated. The Revenue Service provides both online and in-person pathways for your convenience.


This process incurs no fees and generally takes just a matter of days to complete.  You will need to furnish the requisite personal and business details.


After completion, you will receive a Tax Identification Number (TIN). This serves as a vital identifier for all subsequent tax-related interactions.


Steps to Begin Registration:


  1. Complete the Application Form: Provide accurate details about yourself and your business. This initiates the process.

  2. Submit Your Application: Select either the online portal on the Revenue Service website or visit a service center in person. Bring your identification documents if submitting in person.

  3. Receive Confirmation and TIN: This indicates successful registration. You'll also receive guidance on fulfilling your tax obligations as an Individual Entrepreneur.


Maintaining Your Status and Compliance


Enjoying the benefits of Individual Entrepreneur status in Georgia comes with responsibilities.  Let's discuss the key ones:

  • Timely Tax Filings: Georgia operates on a quarterly system.  You'll need to calculate your gross income, apply the 1% rate, and submit those figures to the Revenue Service on the correct schedule.

  • Meticulous Record-Keeping:  Every invoice, receipt, and bank statement – document your business activity.



Bank in country Georgia


Discover the largest banks and the best banks in Georgia. Georgia's banking sector offers a compelling mix of convenience, security, and services tailored for international clients. This guide from Gegidze provides a thorough overview of the top banks for expats, empowering you to make informed decisions about managing your finances in Georgia.


In Georgia, banking services are accessible to both national and international clients. Certain countries under international sanctions, such as Syria, Iran, Afghanistan, North Korea, and others, are automatically excluded from opening bank accounts. While individuals from Russia and Belarus may occasionally face denial, it is not common. Applicants from most other countries are usually successful in opening an account, provided they submit all required documentation properly. Learn more about bank account opening services in Georgia.


The Path to Liquidation: Closing Your Business in Georgia



Closing Your Business in Georgia


If you need to close your Individual Entrepreneur (IE) status, the process is designed to be straightforward:


  1. Official Notice: File the required paperwork with the House of Justice to initiate the closure.

  2. Debt Review: If you have no debts, this step should be quick and uncomplicated.

  3. Final Tax Review: The Revenue Service will audit your records to ensure everything is in order.

  4. Timeframe: In typical cases, your IE registration will be formally canceled within one business day after the audit is complete.


Key Takeaway: While closing a business is never ideal, Georgia's system minimizes bureaucratic hurdles, allowing you to wrap things up efficiently.


When Should I Register For The 1%?


  • The Starting Line Matters: The day you officially get Small Business Status marks the beginning of the 1% (or 0% for Micro) tax benefit. Anything earned before that is taxed at the standard rate.

  • Residency Rules: Staying in Georgia long-term often creates tax obligations here. Those 183+ days can override treaties meant to prevent paying tax twice. This isn't unique to Georgia, it's how most countries operate!

  • The Cost of Delay: Each month without registering potentially means paying 20% of income instead of just 1%. Worse yet, you might end up owing taxes in multiple countries, with messy refund processes.

  • Proactive is Profitable: The key takeaway is simple: If Georgia is your new base, register your business immediately. It's the only way to maximize those tax savings and avoid complications.


The Georgian Tax System Overview


Forget the tax systems designed to squeeze every last penny from businesses. Georgia takes a different approach: low rates, clear rules, and a genuine desire to see entrepreneurs succeed, whether you're a local innovator or venturing from abroad.


Your guide through this system is the Revenue Service of Georgia.  They're not just about collecting taxes –  think of them as your partner in ensuring you understand the rules and take advantage of every benefit.


While there are various types of taxes to be aware of – income, corporate, VAT, and more  – for individual entrepreneurs and smaller businesses, income tax is where the real savings potential lies (check our tax optimization services here).



Monthly Taxes in Georgia: What You Need to Report and Pay



Description

Details

Due Date

Income Tax

File income declaration and pay 1% of your monthly turnover.

15th of each month

VAT

Registered for VAT: Submit monthly VAT declaration including items taxed at 18% and 0%. Gain the potential to reclaim VAT on eligible purchases. 


Not VAT Registered: File for reverse VAT (18%) on internationally purchased services. If you become VAT registered later, you can reclaim this 18%.

15th of each month

Salary Tax & Pension

If you have Georgian employees, withhold 20% salary tax and make pension contributions (rates may vary based on employee location).

Payroll Schedule (typically monthly)

General Journal

Maintain a detailed record of your business expenses (essentially a spreadsheet). This is not a tax payment but is crucial for potential audits.

N/A (Ongoing record keeping)



Benefits of Small Business Status in Georgia


Small Business Status in Georgia comes with several benefits. The most notable is the 1% tax rate. This low rate can significantly reduce your tax burden and increase your business's profitability.


Another benefit is the simplified tax filing process. As a small business, you're only required to file taxes quarterly. This can save you time and reduce the complexity of managing your taxes.


There are also several non-tax benefits. These include access to government support programs and incentives designed to help small businesses grow and succeed.


Tax Advantages for Small Businesses


The 1% tax rate is a major advantage for small businesses in Georgia. It's significantly lower than the standard tax rates, which can be as high as 20%. This can result in substantial savings over a year.


In addition to the low tax rate, small businesses also benefit from simplified tax filing. They're only required to file taxes four times a year, compared to monthly filings for larger businesses. This can save time and reduce administrative burdens.


Finally, small businesses can also take advantage of various tax deductions and credits. These can further reduce your tax liability and increase your bottom line.


Additional Support and Incentives



Tax Advantages for Small Businesses


In addition to tax benefits, small businesses in Georgia also have access to various support programs and incentives. These are designed to help small businesses grow and succeed.


For example, the government offers several financing programs for small businesses. These include low-interest loans and grants. These can provide much-needed capital for business expansion or improvement projects.


There are also training and development programs available. These can help small business owners improve their skills and knowledge. This can lead to better business management and increased profitability.



Tax Rates Comparison: Standard vs. 1% Rate


Understanding the difference between the standard tax rates and the 1% rate for small businesses is crucial. It helps entrepreneurs make informed decisions about their business structure. Let's delve into the specifics of these rates.


The standard tax rates in Georgia vary depending on the type of income. However, for small businesses, the 1% rate is a game-changer. It significantly reduces the tax burden, making it an attractive option for entrepreneurs.


Standard Individual Tax Rates in Georgia


In Georgia, the standard individual tax rate is a flat 20%. This applies to income from employment, self-employment, and most other sources. It's a significant amount, especially for small businesses trying to grow.


However, it's important to note that deductions and credits are available. These can reduce the effective tax rate. But even with these deductions, the standard rate can still be quite high.



Tax Compliance and Record-Keeping



Tax Compliance and Record-Keeping


Tax compliance is a critical aspect of running a small business in Georgia. It involves understanding your tax obligations and meeting them on time. This includes filing tax returns and making payments as required.


To ensure compliance, it's important to keep accurate records. These records serve as proof of your income and expenses. They are also essential for calculating your tax liability.


  • Keep track of all business transactions

  • Maintain records of all invoices and receipts

  • Document all business expenses

  • Record all income, including cash payments


Essential Documentation for Tax Purposes


The Revenue Service of Georgia requires certain documents for tax purposes. These include invoices, receipts, and financial statements. These documents provide evidence of your business transactions.


Invoices and receipts are crucial for verifying your income. They show the amount of money you've received from customers. Financial statements, on the other hand, provide an overview of your business's financial health.


Best Practices in Tax Record-Keeping


Good record-keeping practices can make tax compliance easier. One best practice is to keep business and personal finances separate. This makes it easier to track business income and expenses.


Another best practice is to keep records for at least five years. This is the period during which the Revenue Service can audit your business. Having detailed records can help you verify your tax returns if needed.



Navigating Tax Obligations and Avoiding Penalties


Understanding your tax obligations is key to avoiding penalties. As a small business owner or individual entrepreneur in Georgia, you are required to declare your income and pay taxes accordingly. This involves submitting a tax declaration to the Revenue Service of Georgia.


The tax declaration should accurately reflect your income and expenses. It should also include any tax deductions or credits you are eligible for. It's important to submit your tax declaration and make your tax payments on time to avoid penalties.


Understanding Tax Declarations and Payments


A tax declaration is a document that you submit to the Revenue Service. It provides details about your income, expenses, and tax liability. You are required to submit a tax declaration annually.


Tax payments, on the other hand, are made based on your tax liability. The amount you pay depends on your income and the tax rate applicable to your business. It's important to make your tax payments on time to avoid interest and penalties.


Consequences of Non-Compliance


Non-compliance with tax obligations can lead to penalties. These can include fines, interest charges, and even legal action. It's therefore crucial to understand your tax obligations and meet them promptly.



Leveraging Professional Tax Advice


Navigating the tax landscape can be complex. This is where professional tax advisors come in. They can provide valuable guidance and help you make informed decisions about your tax obligations.


A tax advisor can help you understand the tax laws and regulations applicable to your business. They can also assist you in planning your taxes and identifying tax-saving opportunities.



register small business in georgia


FAQs


Which business activities are prohibited from obtaining Small Business Status in Georgia?

  • Highly Regulated Industries: Medical, legal, architectural, financial consulting, and similar fields that require specific licenses generally won't qualify.

  • Gambling: Casinos, online betting, etc., are excluded.

  • Staffing & HR: The rules around this are a bit unclear, but recruitment agencies might be considered ineligible.

  • Major Investments or Excise Goods: Businesses in these sectors often face additional regulations and may not qualify for Small Business Status.


Important: This isn't exhaustive. Always consult official Georgian government sources for the latest details.

How does spending less than 183 days in Georgia affect my tax residency?

What happens if my business income exceeds the GEL 500,000 threshold for Small Business Status?

How and when should I submit tax declarations as a Small Business or Individual Entrepreneur?

What business expenses should be tracked, and can they be deducted from my tax bill?

Should I register my Small Business for VAT, and what is reverse VAT?

As an owner of a Small Business or Individual Entrepreneur, do I need to pay personal income tax as well?


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