You’ve registered as an Individual Entrepreneur (IE) in Georgia. You enjoy the 1% Small Business tax regime, file your monthly declarations, and maybe even hold a Georgian tax residency certificate. It feels like the perfect setup, low taxes, easy compliance, and global freedom.

But here’s the part most people overlook: where you physically work still matters.

If you spend most of your time outside Georgia while running your business, the country you stay in might decide that you are running your business there. This creates what is known as a Permanent Establishment (PE) and it can change everything about how you’re taxed.

You might still think of yourself as “based in Georgia,” but foreign tax authorities may see things differently. And if that happens, you could end up paying local taxes abroad on top of your Georgian taxes, or worse, losing your Georgian Small Business Status entirely.

That’s why understanding PE risk is essential for anyone who lives a global lifestyle but enjoys the Georgian tax advantages.

What Is Permanent Establishment (PE)?

In simple terms, Permanent Establishment is a tax concept that determines where a business is “really” based.

If you regularly carry out business activities from another country, that country can claim you have created a taxable presence there, even if your company is legally registered in Georgia.

According to the OECD Model Tax Convention, a Permanent Establishment is a “fixed place of business through which the business of an enterprise is wholly or partly carried on.”

In practice, this means that if you:

Work from one country for most of the year,
Have a stable office, desk, or apartment you use for work,
Employ or manage people there, or
Sign contracts while physically present there,

you may be considered as having created a PE in that country.

Once a PE is triggered, the local tax authority can tax your profits just like a local business. You might even be required to register for local VAT or income tax.

This applies even if your invoices, clients, and tax registration are all in Georgia.

How Georgian Tax Residency Works

Before we look at how other countries might tax you, it’s important to understand what makes you a Georgian tax resident in the first place.

There are two main ways to qualify:

1. 183-Day RuleIf you spend at least 183 days in Georgia during a calendar year, you become a Georgian tax resident automatically. You’ll pay taxes under Georgian rules and can access benefits such as:

1% turnover tax under Small Business Status (if eligible).
0% capital gains tax on crypto and foreign investments.
5% dividend tax for individuals.

2. High Net Worth Individual (HNWI) ProgramIf you do not meet the 183-day rule but earn a high global income or hold significant assets, you can apply for residency through the HNWI program. This grants tax residency based on financial criteria rather than physical presence.

Maintaining Georgian tax residency keeps your income under Georgian taxation, which is why many digital entrepreneurs choose to base themselves in Tbilisi or Batumi.

But if you spend too much time in another country, you might accidentally give that country the right to tax you instead.

When Working from a Third Country Creates PE Risk

Here’s where the problem begins.

The Revenue Service Georgia taxes you based on your Georgian residency and declared income. But other countries tax based on physical presence or business activity. If you spend too long abroad or have operations there, both countries may try to tax the same income.

Let’s look at the most common scenarios.

Scenario 1: Long-Term Stay in a Foreign Country

If you stay more than 183 days in another country, you may automatically become a tax resident there. Even if you don’t register a company or rent an office, local authorities might still treat you as running your business on their territory.

For example, if a Georgian IE stays in Germany for eight months while invoicing clients in the EU, the German tax office may determine that the business operates from Germany. That means the freelancer could be required to register for German tax and pay local income tax rates, often much higher than Georgia’s 1%.

Scenario 2: Having a Fixed Place of Business Abroad

Permanent Establishment doesn’t require you to own an office. Even a rented apartment, a long-term co-working desk, or a client’s office can qualify as a “fixed place of business.”

If you work consistently from one physical location outside Georgia, that location can be interpreted as your business base. Once that happens, you risk double taxation: 1% in Georgia and 20–40% abroad.

Scenario 3: Hiring or Managing Staff Abroad

If you employ or manage people from another country, that can also create PE risk. For instance, if you hire a remote assistant in Poland but work from Poland yourself most of the year, local tax authorities could classify your business as operating there.

This issue becomes even more serious for entrepreneurs who pay staff locally without following local payroll laws.

Scenario 4: Dual Residency and Double Taxation

It’s possible to be considered a resident of two countries at the same time. Georgia may see you as a resident based on registration and tax filing, while another country sees you as a resident based on where you live.

To prevent this, Georgia has signed Double Tax Treaties (DTTs) with over 50 countries. These treaties decide which country has the primary right to tax your income.

The tie-breaker rules under most DTTs are:

Where your permanent home is located.
Where your “centre of vital interests” (family, property, business) is based.
Where you habitually reside.
Your nationality.

If you can show stronger ties to Georgia, you can often avoid double taxation. But this requires documentation and planning.

Double Tax Treaties: Georgia’s Global Tax Shield

Georgia’s extensive network of Double Tax Treaties is your best protection against paying tax twice.

Here’s how it works:

If two countries claim tax rights over the same income, the treaty determines which one gets priority. Usually, the country of residence (in this case, Georgia) has the first right to tax your income. The other country must then grant a tax credit or exemption.

Georgia currently has DTTs with countries including Germany, France, Italy, Poland, the United Kingdom, UAE, and more. Each treaty follows similar rules but may differ slightly in definitions and relief methods.

To take advantage of a treaty, you must provide a Certificate of Tax Residency issued by the Revenue Service Georgia. This proves that you are a Georgian tax resident and prevents foreign authorities from taxing the same income again.

Without this certificate, other countries may assume your Georgian registration is just “paper-based” and tax you as a local freelancer.

Practical Steps to Avoid Permanent Establishment Risk

Protecting your Georgian IE tax status while working internationally is possible with careful planning. Here are concrete steps to keep your setup safe.

1. Maintain Your Georgian Residency

Spend enough time in Georgia to qualify under the 183-day rule or HNWI program. Keep documents such as rental contracts, utility bills, and bank statements that show genuine presence.

2. Avoid Long Stays in One Foreign Country

If you work remotely, rotate your stays across different countries. Spending too long in one place increases your risk of triggering local tax residency.

3. Do Not Register an Office or Business Address Abroad

Having a permanent address, business registration, or even a co-working membership under your name abroad can be seen as a “fixed place of business.” Avoid it unless absolutely necessary.

4. Keep Contracts and Clients Tied to Georgia

All your contracts should list your Georgian address, Georgian bank account, and your Georgian Tax Identification Number (TIN). This reinforces that your business is truly based in Georgia.

5. File All Taxes in Georgia

Continue to submit monthly declarations and pay taxes on time to show active compliance. This strengthens your claim of being taxed in Georgia, not abroad.

6. Obtain a Georgian Tax Residency Certificate

If you travel frequently, get this certificate annually. It serves as official proof of your Georgian tax residency and helps resolve disputes with foreign tax authorities.

7. Consult a Tax Advisor Before Long Trips

Every country has different thresholds and interpretations of PE. If you plan to stay in one country for more than 90 days, seek local tax advice before you travel.

Example Case Study: The Freelancer in Trouble

Anna, a Georgian-registered marketing consultant, spent nine months in France working remotely for clients across Europe. She filed all her taxes in Georgia and believed that was enough.

However, during a visa renewal process, the French tax office noticed her bank deposits and local apartment lease. They concluded she had established a Permanent Establishment in France.

The result?

France demanded back taxes on her entire annual income.
She lost her Georgian Small Business Status because she could not prove that her business was managed from Georgia.
It took her six months, multiple document translations, and a formal appeal under the France-Georgia Double Tax Treaty to resolve the issue.

This example shows how easily remote work can turn into a compliance nightmare if you’re not careful.

What Happens If You Accidentally Create a Permanent Establishment

Even careful entrepreneurs can make mistakes. Maybe you stayed abroad longer than planned. Maybe a co-working lease or contract put your name on a foreign address. The good news is that creating a PE by accident doesn’t automatically mean disaster, but it does mean you’ll need to act quickly and transparently.

When a country believes you’ve created a PE, they can ask you to register locally, file tax declarations, and pay corporate or personal income tax on profits earned during your stay. This can overlap with your Georgian filings, causing double taxation.

The first step is to document your Georgian base of operations. Keep evidence showing that your business was directed and managed from Georgia, not the foreign country. This can include:

Copies of Georgian tax declarations filed through your Revenue Service e-cabinet.
Georgian bank statements showing income deposits.
Contracts listing your Georgian address and tax identification number (TIN).
Local rental contracts or residency permits proving physical presence in Georgia during the tax year.

The second step is to obtain a Certificate of Georgian Tax Residency. This document is issued by the Revenue Service Georgia and proves that you are subject to taxation in Georgia, which is key to applying double taxation relief.

Finally, contact a tax professional to review whether your situation qualifies for relief under the Double Tax Treaty between Georgia and the country in question. Acting early prevents penalties and helps resolve the issue before it escalates.

How to Claim Tax Relief Through Double Tax Treaties

Georgia’s Double Tax Treaties (DTTs) are designed precisely for situations like this. They ensure that income is not taxed twice by two countries.

Each treaty outlines how different types of income, business profits, dividends, royalties, employment income, are treated when tax residency overlaps. The general rule is that the country of residence (in this case, Georgia) has the primary right to tax your income, while the other country must offer tax credit or exemption.

Here’s how to use this mechanism effectively:

Step 1: Get Your Georgian Tax Residency Certificate

Apply through the Revenue Service Georgia with proof of tax filings, residency documentation, and ID. It usually takes a few days to issue.

Step 2: Provide the Certificate to the Foreign Tax Authority

Submit it with your declaration abroad or through your local accountant. This tells the foreign authority that your income has already been taxed in Georgia.

Step 3: File for Tax Credit or Exemption

If taxes have been withheld abroad, you can claim them as a credit against your Georgian taxes, ensuring you don’t pay twice.

Step 4: Keep Documentation for 5 Years

Always keep digital and printed records. DTT applications often require evidence years later during audits.

Understanding these steps and applying them proactively can save thousands in taxes and penalties.

Comparing Popular Regions: Where Georgian IEs Face the Most Risk

Not all countries treat PE risk the same way. Some are aggressive about taxing remote workers, while others ignore small, temporary activities. Here’s how it typically breaks down.

European Union (Germany, France, Spain, Italy)

These countries have strict rules. Spending more than 183 days, renting property, or working for clients within the country can easily create PE. Even digital freelancers who never meet clients face scrutiny if income flows through local banks or property leases.

Risk level: High.Mitigation: Limit stays, use Georgian contracts and accounts, apply DTT relief.

United Kingdom

The UK focuses on the “habitual presence” test. If your business is effectively managed or directed from the UK, they may treat it as UK-based.

Risk level: Moderate to high.Mitigation: Avoid UK postal addresses or local company formations.

United Arab Emirates (UAE)

The UAE does not impose personal income tax, which makes it low-risk. Many Georgian IEs and Virtual Zone companies operate temporarily from Dubai or Abu Dhabi without issue.

Risk level: Very low.Mitigation: Maintain Georgian filings and residency documentation.

Eastern Europe (Poland, Romania, Czech Republic)

PE rules exist but enforcement is moderate. However, local tax authorities still monitor long-term foreign workers.

Risk level: Moderate.Mitigation: Use Georgian residency certificate and file on time in Georgia.

Southeast Asia (Thailand, Indonesia, Vietnam)

These countries have unclear PE rules but strict residency enforcement. Staying more than 6 months can create tax obligations even if you earn abroad.

Risk level: Variable.Mitigation: Rotate stays, use Georgian documentation, avoid long leases.

The Role of Georgian Residency in Protecting Your Structure

Maintaining Georgian tax residency is your first line of defense against foreign taxation.

Once you are classified as a Georgian tax resident, your income is taxed under Georgia’s territorial rules. This means foreign-sourced income is not double-taxed, and your small business turnover is taxed at 1%.

To strengthen your residency claim:

Keep a long-term address in Georgia (apartment lease or property ownership).
Maintain a Georgian bank account with regular local transactions.
Keep your company or IE registered at a Georgian address.
File taxes monthly through the Revenue Service Georgia.
Keep travel records showing entry and exit dates.

These actions show that your “centre of vital interests” is in Georgia, a key factor under double taxation treaties.

What If You Lose Georgian Residency

Losing Georgian residency means losing access to the 1% Small Business Status and low dividend tax. Once you become a tax resident elsewhere, that country can claim full rights to tax your income at their standard rates.

If you move abroad permanently or spend more than 183 days in another country, you may need to restructure. In that case, consider:

Registering a Georgian LLC instead of continuing as an IE.
Applying for Virtual Zone or International Company status, which provide clear tax rules for foreign-sourced income.
Consulting with Gegidze on maintaining compliance even while managing operations from abroad.

By planning early, you can protect your business structure while still enjoying Georgia’s flexibility and low taxes.

Example: Managing PE Risk Correctly

David is a Georgian software developer registered as an IE with 1% Small Business Status. He decides to spend eight months in Italy while working remotely for clients in the US and UK.

To stay compliant, he:

Keeps his Georgian apartment lease active.
Files taxes monthly with the Revenue Service Georgia.
Uses Georgian contracts and bank accounts for all payments.
Obtains a Georgian Tax Residency Certificate.
Keeps flight and rental records showing short-term stays abroad.

When the Italian tax authorities review his visa application, he presents his Georgian tax certificate and supporting documents. The authorities accept that his business is based in Georgia, and no further taxes are required.

This case shows how proper documentation and compliance prevent costly issues.

How Gegidze Helps Georgian IEs Stay Safe Abroad

Running a business across borders can be complicated, but it doesn’t have to be risky. Gegidze provides full support for freelancers, consultants, and entrepreneurs who want to maintain their Georgian IE benefits while working internationally.

Our services include:

Reviewing your travel and residency status to assess PE risk.
Obtaining Certificates of Tax Residency from the Revenue Service Georgia.
Preparing certified English to Georgian translations for contracts, residency applications, and tax documents.
Structuring your contracts and invoices to stay compliant with Georgian tax law.
Advising on transitions from IE to LLC or Virtual Zone company when necessary.
Coordinating with Georgian accountants for ongoing monthly filings.

We make sure that your setup stays legal, efficient, and defensible, no matter where in the world you work from.

The Big Picture: Global Freedom with Legal Stability

Georgia offers a rare combination of flexibility and clarity. You can register your business quickly, pay 1% tax, and operate internationally, but the benefits only hold if you protect your tax residency and manage your Permanent Establishment risk carefully.

Working abroad for months without understanding PE rules can undo years of smart tax planning. But with the right documentation, double tax treaty protection, and support from experts like Gegidze, you can keep your Georgian structure secure and continue working globally without stress.

Global business freedom starts with compliance. And compliance begins with knowledge.

If you’re working remotely from outside Georgia, make sure your tax structure is protected. Book a free consultation with Gegidze today.

We’ll assess your Permanent Establishment risk, review your residency status, and ensure your Georgian IE remains compliant, no matter where your next flight takes you.

Frequently Asked Questions (FAQs)

What is Permanent Establishment (PE) and why does it matter for Georgian IEs?

Permanent Establishment (PE) occurs when a business operates regularly from another country. For Georgian Individual Entrepreneurs (IEs), this means that if you work abroad for long periods or rent an office, foreign tax authorities may classify your business as local and tax your profits there.

Can I still pay only 1% tax in Georgia if I work abroad most of the year?

You can keep your 1% Small Business Status as long as you maintain Georgian tax residency and manage your business from Georgia. If you spend over 183 days in another country, you may trigger PE risk and lose the right to be taxed exclusively in Georgia.

How do Double Tax Treaties protect Georgian IEs from paying tax twice?

Georgia has Double Tax Treaties (DTTs) with more than 50 countries. If both Georgia and another country claim tax rights over your income, the treaty ensures that only one country can tax it. You can prove your Georgian residency with a Certificate of Tax Residency from the Revenue Service Georgia.

What happens if I create a Permanent Establishment by accident?

If you accidentally create PE, you may need to register for taxes in that country. However, you can use Georgia’s DTTs to avoid double taxation. Keep Georgian tax filings, bank statements, and contracts to prove your business is managed from Georgia.

How can Gegidze help me manage PE risk while working abroad?

Gegidze helps you stay compliant by reviewing your residency status, securing Georgian tax residency certificates, preparing English to Georgian translations for tax documents, and structuring contracts correctly. We make sure you maintain your Georgian IE benefits and stay legally protected worldwide.