Georgia offers some of the most favorable tax rates and benefits for small businesses. These advantages are available not only to Georgian citizens but also to foreigners who move to Georgia and decide to become entrepreneurs. Let’s analyze the small business status in Georgia and how it works, as it provides a 1% tax rate on income.
Who Can Qualify for Tax Benefits in Georgia?
The special tax regime is available to businesses that meet the following criteria:
✅ The business must be a sole proprietorship (SP) (not an LLC, JSC, etc.).
✅ Annual turnover must not exceed 500,000 GEL in a calendar year.
✅ The business activity must not be on the restricted list (as per Government Decree No. 415).
Restricted Activities
Businesses cannot apply for this special tax regime if they engage in:
- Medical services
- Architecture
- Legal, consulting, or HR services
- Production of excise goods
- Gambling and betting activities
- Rental income from residential property, real estate sales, car sales, securities transactions
📌 However, an SP can engage in both taxable and non-taxable activities simultaneously.
For example, an entrepreneur may provide educational services (which qualify for the 1% tax) while also renting out real estate (which does not). In such cases, only the eligible income is taxed at 1%, while other income is subject to standard taxation.
📌 Small business entrepreneurs must keep a record of income and expenses.
If your annual revenue does not exceed 30,000 GEL, you may qualify for the micro-business tax regime.
- This eliminates any turnover or profit tax.
- The only obligation is to pay 5% tax on rented office space.
This micro-business status is ideal for freelancers, tour guides, taxi drivers, and other self-employed service providers.
How Is Tax Calculated in Georgia?
The tax rate is 1% of the total revenue received in a reporting month.
- Business expenses are not deducted from taxable income.
- Reports must be submitted monthly to the tax authorities, and tax payments are due by the 15th of the following month.
- The annual tax return must be filed by April 15 of the next year.
Example Calculation:
- In April 2023, an SP had a turnover of 50,000 GEL.
- The tax due: 50,000 GEL × 1% = 500 GEL.
- This amount must be paid by May 15, 2023.
- The annual declaration is due by April 15, 2024.
Other Taxes in Georgia
📌 This section is crucial! While small business status reduces income tax, other taxes still apply:
- Value Added Tax (VAT) – 18%
- SPs must register for VAT if their annual turnover exceeds 100,000 GEL or voluntarily register earlier.
- Employee Payroll Taxes – 20%
- If a sole proprietor hires employees, income tax on salaries must be deducted at a flat rate of 20%.
What Happens if You Exceed the 500,000 GEL Limit?
If an SP surpasses the 500,000 GEL annual limit, will they lose their small business tax rate?
The answer depends on how often this happens:
📌 First-time limit breach:
- The portion of income above 500,000 GEL is taxed at 3%.
- Example: If an SP earns 600,000 GEL in a year, the tax calculation will be:
- 500,000 GEL × 1% = 5,000 GEL
- 100,000 GEL × 3% = 3,000 GEL
- Total tax due = 8,000 GEL
📌 Second-time limit breach:
- The same tax rules apply (1% on 500,000 GEL, 3% on the excess).
📌 Third-time limit breach:
- The entrepreneur loses small business status and will be taxed under the standard regime (20%).
How to Register for Taxes and Work with the Tax Authorities?
Step-by-Step Guide to Getting Small Business Status
- Analyze the Local Laws & Business Plan
- Ensure your business qualifies for small business status based on its activity and turnover.
- Register as a Sole Proprietor
- Registration is done at the House of Justice.
- Required documents:
✅ Passport
✅ Email address
✅ Local phone number
✅ Legal address
✅ Application form - Tip: Bring a translator if needed. The process takes a few days.
- Activate Your Taxpayer Account
- After registration, you get access to the taxpayer portal, where you can submit reports and communicate with tax authorities.
- Apply for Small Business Status
- If approved, the 1% tax regime begins on the 1st of the following month.
- Example: If approved on May 18, the status becomes effective from June 1.
📌 Warning: If a sole proprietor does not meet the requirements, they may face penalties (the exact amounts are specified in the Georgian Tax Code).
- The tax office may recalculate the tax at 20% if inconsistencies are found.
- If an SP’s service contract is deemed an employment contract, it may be subject to standard payroll taxation.
How We Can Help You Register an SP in Georgia
For assistance in company registration and transitioning to small business status, contact us!
📌 Cost of Remote Sole Proprietorship Registration and Transition to Small Business Status: $290
What We Offer:
✔ Full business registration, including legal address and bank account opening.
✔ Tax registration and interaction with the Georgian Revenue Service.
✔ Assistance in obtaining small business status.
✔ Accounting and tax reporting services.
Opening a sole proprietorship in Georgia is simple and can be done remotely!
Q&A: Frequently Asked Questions about Small Business in Georgia
Does the small business regime work without VAT? Is the 1% tax not VAT? What about income tax?
✅ The 1% tax is a special tax equivalent to income tax.
✅ VAT is not linked to small business status; it applies to all business activities where the place of service provision is Georgia once the turnover reaches 100,000 GEL within 12 months.
When does the VAT obligation arise if software development for foreign clients is exempt from VAT? Is there an income threshold for VAT liability?
✅ VAT applies when the place of service provision is Georgia.
✅ If services are provided electronically to foreign clients, the place of service provision is the client’s country of registration, so VAT does not apply.
✅ Software development services are not subject to VAT.
✅ If there are services provided within Georgia, the obligation to register for VAT arises once the revenue from such services reaches 100,000 GEL per year. After that, VAT must be reported and paid at 18%.
What happens if the annual turnover exceeds 500,000 GEL?
✅ First time exceeding the limit: The portion of revenue above 500,000 GEL is taxed at 3%.
Example:
- If the annual turnover is 600,000 GEL, the tax will be:
- 500,000 GEL × 1% = 5,000 GEL
- 100,000 GEL × 3% = 3,000 GEL
- Total tax = 8,000 GEL
✅ Second time exceeding the limit: The same tax rates apply.
✅ Third time exceeding the limit: The entrepreneur loses the small business status and will be taxed under the standard 20% tax regime.
Does a small business SP providing IT services to a Georgian company need to pay VAT?
✅ Yes, if the annual revenue exceeds 100,000 GEL within 12 months.
I opened an SP in Georgia but also have an SP in Russia. Some payments are received in my Russian SP. What about taxes?
✅ If payments to the Russian SP are unrelated to business activities in Georgia, there are no tax obligations in Georgia for that SP.
✅ However, if the actual business operations are conducted from Georgia, the income should be declared under the Georgian SP to avoid being classified as illegal entrepreneurship in Georgia.
My contract with a foreign company states that I am an “employee,” and the document is called an “employment contract.” It requires my tax ID. Will this create tax issues in Georgia? Can this case qualify for small business status?
✅ An employment contract is different from an agreement with a sole proprietor.
✅ If you work remotely for a foreign client under an employment contract, you must pay 20% income tax through your annual declaration.
✅ A contract under the small business regime should not include elements of employment.
✅ To avoid classification as employment, you can sign a service contract instead.
How much tax do I pay if I am not assigned small business status?
✅ Before transitioning to small business status, the default tax regime is the standard taxation system (20% tax on profit = income minus expenses).
✅ If small business status is granted, the tax rate is 1% on total revenue, reported monthly.
I opened an SP in October, but small business status was granted in December. How much tax should I pay?
✅ By default, after registering an SP, you are placed under the standard tax system (20%).
✅ If the SP had any income from October to December, the 20% tax must be paid in the following year.
How can a small business SP find its VAT number?
✅ For foreigners, the VAT number consists of 9 digits.
✅ It can be found on the SP registration certificate or in the taxpayer’s online portal.
When does small business status become active?
✅ The status takes effect the following month after approval.
✅ Example: If small business status is granted on November 29, the 1% tax rate starts on December 1.
If I freeze my SP today (May 18), do I still need to file a tax declaration on June 1?
✅ Yes, the last declaration must be submitted for May.
✅ No further declarations are required while the SP is inactive.
✅ An inactive status means no business activity can be conducted.
📌 How long can an SP remain frozen?
✅ There is no legally defined time limit.
Can I open a business account in BoG remotely if I already have a personal account?
✅ If you already have a personal account, you can verify your identity online via the web version of the client banking portal.
✅ If verification is successful, KYC documents will be sent via email.
✅ Alternatively, you can visit the bank in person for a more direct process.
Can I open a small business SP for financial services, accounting, or consulting?
✅ Consulting, including legal services, does not qualify for small business status.
✅ The activity must fit the list of permitted businesses and not appear in the restricted list.
✅ Some regulated industries require special licenses or different tax treatment.
My Georgian SIM card is blocked, and I lost access to my bank and tax account. What should I do?
✅ Late tax declarations result in penalties:
- Up to 2 months delay → 5% of tax due
- Over 2 months delay → 10% penalty
- No income? The fine may not be applied, but can reach 100 GEL max.
✅ Solutions:
- Freeze your tax account if you’re not operating.
- Get a new Georgian SIM card and link it to your account using a security code.
- Change your number via video call verification.
Can a small business SP clear customs for importing a vehicle?
✅ Yes, if the vehicle is justified as necessary for business operations.
Where is the location of business activity for a small business SP? Can I provide services in another country while paying taxes only in Georgia?
✅ Georgian SPs pay taxes under the Georgian tax system.
✅ Income earned abroad is subject to taxation in the country of residence, citizenship, or tax residency.
✅ A Georgian SP can work with any international clients and use foreign bank accounts or payment systems.
I live in Montenegro but have a Georgian small business SP and a bank account in Georgia. I plan to receive payments from the EU to my Georgian SP and either transfer them to my business account in Montenegro or use my Georgian bank card. Could my Georgian account be blocked?
✅ Georgian banks do not support transit transactions where all received funds are immediately transferred abroad.
✅ It is better not to transfer the full amount at once.
✅ Consider making local transactions within Georgia to prevent account suspension.
Can an LLC in Georgia use the simplified tax system?
✅ LLCs follow standard taxation rules (20% profit tax).
✅ The main difference between an SP and an LLC is that an SP is personally liable for business obligations.
Can a small business SP work with foreign companies under a contract?
✅ Yes, a small business SP can sign contracts with both individuals and legal entities, similar to any other business structure.
List of Business Activities Eligible for Small Business Status in Georgia
- Dendrology
- Design and project activities
- Custom purchases or online shopping
- Web services, audio, and video services
- Processing of fish, crustaceans, and mollusks
- Furniture repair
- Childcare services
- Production of cotton candy, ice cream, popcorn
- Printing activities
- Delivery services (within Georgia)
- Education in culture and crafts
- Education in sports and recreation
- Organization of entertainment, sports, and leisure activities
- Funeral services (ritual services)
- Cleaning of premises and territories
- Event organization
- Production and/or sale of non-excise beverages
- Furniture manufacturing
- Manufacturing and processing of linen and other textile products
- Installation of plumbing, heating, and air conditioning systems
- Manufacturing, repair, and maintenance of tools and equipment
- Installation of doors and windows
- Cartridge refilling
- Sewing and knitting
- Catering services
- Food processing and production
- Food production
- Egg production
- Computer and peripheral equipment repair
- Computer and photocopying services
- Computer programming and related activities
- Metal stamping
- Gardening, flower cultivation, and bouquet making
- Trade in second-hand goods
- Poultry farming
- Beekeeping
- Livestock breeding
- Translation services (written and oral)
- Glass manufacturing
- Caregiver/assistant services
- Manufacturing and repair of musical instruments
- Manufacturing of construction materials
- Production of concrete, gypsum, and cement products
- Production of plastic products used in construction
- Sales and client acquisition
- Processing and production of dairy products
- Watch manufacturing
- Bookbinding, finishing, and related services
- Wholesale and retail trade
- Distribution services
- Repair of communication equipment
- Production of confectionery and cakes
- Production of household utensils and inventory
- Construction and repair services
- Family hotel services
- Advertising services
- Repair of household items and appliances
- Manufacturing of household, hygiene, and equipment products
- Maintenance of agricultural and heavy machinery
- Sale of agricultural products
- Production of spices and seasonings
- Fast payment services via terminals
- Manufacturing/repair of various tools, devices, and equipment
- Production of clothing and accessories, including handmade items
- Textile manufacturing
- Transport services
- Tourism activities
- Shoe and leather goods repair, clothing alteration
- Stone processing and cladding
- Welding services
- Mixed agriculture
- Production of tea, coffee, fruits, and juices
- Baking (excluding tone bread)
- Pet care services
- Book publishing
- Production of carpets and carpet coverings
- Manufacturing of mechanized hand tools
- Production of artificial jewelry and related items
- Processing and preservation of fruits and vegetables (dried)
- Manufacturing of various wooden products
- Production of wooden packaging
- Activities in sound recording and music publishing
- Artistic creation
- Teaching and coaching activities
- Rubber product manufacturing
- Repair of watches and jewelry
- Carpentry activities
- Courier services
- Manufacturing of construction products
- Grinding services
- Manufacturing of household, agricultural, and decorative goods, hand tools
- Body art
- Shoe repair
- Photography services
- Trade in mixed goods
- Production of jewelry and brushes
- Brokerage and intermediary services
- Electrical installation, construction, assembly, and repair work
- Laser hair removal services (excluding medical treatments)
