Foreign founders arrive in Tbilisi having heard one number: 1%. Then they set up a company, invoice a client, and find the rate does not apply to them at all. Georgia's 1% small business status is real and it is generous, but it attaches to one legal form, stops covering several kinds of income, and gets revoked for reasons most people never read about. Here is how it actually works.
What the 1% small business status actually is
Small business status is a special tax treatment set out in the Tax Code of Georgia. Article 88 says it may be granted to an "entrepreneur natural person". In practice that means a registered Individual Entrepreneur, a sole trader on the entrepreneurial register, not a limited liability company.
Article 90 sets the rate: 1% of taxable income, rising to 3% once gross income from economic activity passes GEL 500,000 in a calendar year.
The word "income" is doing something unusual here. For a small business the tax base is gross Georgian-source turnover, not profit after costs. You do not deduct rent, subcontractors, software or stock. You pay 1% of what comes in.
Small business status belongs to an Individual Entrepreneur. A Georgian LLC can never hold it, no matter how small the LLC is. Founders who want a company structure plus a low effective rate are looking at a different regime entirely.
Turnover, not profit, changes the maths
At a 30% net margin the 1% rate is close to free. At a 3% net margin it is worse than ordinary personal income tax on profit. We run that arithmetic further down, because it decides the choice between an LLC versus individual entrepreneur setup more often than anything else.
Who can hold the status and who cannot
The Tax Code lets the Government publish a list of activities that block the status. That list lives in Government Decree N415 on special taxation regimes, and its annexes are the part most guides skip.
Activities that keep you out include:
- anything requiring a licence or a permit
- currency exchange operations
- medical, architectural, legal, notarial, audit and consulting services
- gambling and games of chance
- provision of personnel to third parties
- production of excisable goods
The consulting exclusion is the one that stings. Plenty of foreign freelancers call themselves consultants out of habit, then find the label matters when the Revenue Service reviews their declared activity codes.
Income the 1% rate does not touch
Decree N415 also lists income types that sit outside the special regime. They are not taxed at 1%, and they do not count toward your turnover ceiling either:
- rental income from property
- dividends, interest and royalties
- capital gains on real estate, vehicles and securities
- gifts, inherited property and forgiven debt
- gambling winnings
Article 90 adds one more: salary income. A wage from a Georgian employer alongside your Individual Entrepreneur activity is taxed under the normal rules.
Those excluded streams fall back to the rates in Article 81: 20% generally, 5% on residential rent where no deductions are claimed, and 5% on gains from selling a residential property or a vehicle. Our guide to personal income tax for expats covers how they interact.
The two ceilings that matter, and they are not the same number
People fixate on GEL 500,000 and get ambushed by GEL 100,000.
Article 165 requires VAT registration once taxable supplies pass GEL 100,000 across any 12 consecutive calendar months, with an application due within two business days. VAT is 18%. Small business status does nothing to shield you from it, and Article 92 states the obligation explicitly.
The GEL 500,000 line is different. Cross it and the rate moves to 3% from the start of the month in which the excess is recorded, running to the end of that calendar year. Exceed GEL 500,000 in two consecutive calendar years and Article 89 revokes the status from the beginning of the following year.
The VAT threshold is five times lower than the 1% ceiling and it counts a rolling 12 months, not a calendar year. Miss it and you owe 18% on supplies you already invoiced without VAT, plus penalties, on top of your 1%. Track the rolling total monthly.
Because the count rolls, a strong autumn can push you over even when your calendar-year total looks safe. The mechanics are set out in our breakdown of VAT registration thresholds in Georgia.
How the regimes compare
| Regime | Who it is for | Headline rate | Tax base | Ceiling |
|---|---|---|---|---|
| Micro business status | Natural person with no employees | 0% income tax | Gross Georgian-source income | GEL 30,000 per year |
| Small business status | Individual Entrepreneur | 1%, then 3% | Gross Georgian-source turnover | 3% rate above GEL 500,000 |
| Individual Entrepreneur, no status | Any registered sole trader | 20% | Net profit after deductible costs | None |
| LLC on the standard regime | Companies | 15% on distributed profit | Distributed profit | None |
The LLC row is why the comparison is rarely apples to apples. A Georgian company pays nothing until it distributes, then 15% profit tax plus 5% dividend withholding, which we set out in corporate and dividend tax.
Getting the status: the actual sequence
Registering the entity and getting the status are two separate steps on two separate days. People conflate them, then wonder why month one was taxed at 20%.
- Register as an Individual Entrepreneur through the National Agency of Public Registry or any Public Service Hall. The published fee schedule lists GEL 26 for next business day and GEL 75 for same day, against GEL 200 and GEL 400 for an LLC.
- Apply to the Revenue Service for small business status. The application is filed online as a declaration of your activity types and a confirmation that you will not carry out restricted activities.
- Check the effective date printed on the certificate. Income earned before it is taxed under ordinary rules, so timing your first invoice matters.
- Track the VAT count separately from day one.
Step three is where the money leaks. If you are arriving mid-year with invoices already queued, talk to one of the tax advisors in Tbilisi before you register.
We research the tax advisors working in Tbilisi and rank the ones worth paying. Independently researched, re-checked quarterly, free to read.
See the ranked list
What compliance actually looks like
The 1% is cheap. The admin is not zero.
Returns are monthly. Article 93 requires the small business return filed and the tax paid by the 15th day of the month following the accounting month. Twelve filings a year, not one. Article 91 requires a special book of records in a format set by order of the Minister of Finance, and blocks loss carry-forward, so a bad year cannot offset a good one while you hold the status.
Cash businesses carry extra exposure. Article 89 revokes the status after three or more fines in a calendar year for cash register violations, and Article 95 lets the Revenue Service run test purchases, visual inspections, time studies and stocktakes without opening a full audit.
If you hire, payroll sits outside the 1%. Article 94 carves out a narrow relief: salary of up to GEL 6,000 in total across a calendar year escapes tax at source where the Individual Entrepreneur registered and received the status in the same year, or where prior-year gross income was under GEL 50,000. Beyond that, normal withholding applies, which is where an English-speaking accountant in Tbilisi earns the fee.
When 1% is the wrong choice
Nobody writes this section, and it decides real money. Compare 1% of turnover against 20% of profit at different margins, per GEL 100,000 of revenue.
| Net profit margin | Tax at 1% of turnover | Tax at 20% of profit | Cheaper option |
|---|---|---|---|
| 50% | GEL 1,000 | GEL 10,000 | Small business status |
| 25% | GEL 1,000 | GEL 5,000 | Small business status |
| 10% | GEL 1,000 | GEL 2,000 | Small business status |
| 5% | GEL 1,000 | GEL 1,000 | Break-even |
| 3% | GEL 1,000 | GEL 600 | Ordinary Individual Entrepreneur |
The crossover sits around a 5% net margin. Above it the status wins comfortably. Below it, a resale business, a hardware-heavy e-commerce operation or an agency paying most of its revenue to subcontractors does better deducting real costs and paying 20% on the remainder.
Two caveats. The table ignores VAT, which changes cash flow rather than the comparison. And 20% is the current statutory rate: rates move, so confirm both sides with a professional before committing to a structure. Residency sits underneath all of it, since the status only reaches Georgian-source income. Our guide to Georgian tax residency rules covers the 183-day test and the high-net-worth route.
Key takeaways
- Small business status is held by an Individual Entrepreneur, never by an LLC.
- The rate is 1% of gross Georgian-source turnover, not profit, with no cost deductions and no loss carry-forward.
- Pass GEL 500,000 and the rate becomes 3% for the rest of that calendar year. Two consecutive years above the line ends the status.
- VAT registration triggers at GEL 100,000 over any rolling 12 months and is entirely separate from the status.
- Consulting, medical, legal, audit, notarial, architectural, licensed and gambling activities are excluded.
- Rent, dividends, interest, royalties, capital gains and salary are taxed under ordinary rules.
- Filing is monthly, due by the 15th.
- Below roughly a 5% net margin, the ordinary 20% regime is cheaper.
FAQ
What is Georgia's 1% small business status?
It is a special tax treatment under the Tax Code that taxes an Individual Entrepreneur's gross Georgian-source turnover at 1% instead of taxing profit at 20%. The Revenue Service grants it on application. Above GEL 500,000 of annual gross income a 3% rate applies instead.
Who can get small business status in Georgia?
An entrepreneur natural person, meaning someone registered as an Individual Entrepreneur in Georgia. Nationality and residence permits are not part of the test, so foreigners routinely hold it. The applicant must not carry out any activity listed as restricted in Government Decree N415.
Can a Georgian LLC get the 1% rate?
No. Small business status is available only to a natural person on the entrepreneurial register. An LLC pays profit tax on distributed profit under the standard corporate regime instead. Choosing the wrong wrapper at registration is the most expensive early mistake we see.
Is the 1% charged on profit or on turnover?
On turnover. The base is gross income from Georgian-source economic activity, with no deduction for rent, salaries, stock, subcontractors or equipment. That is why the status suits high-margin service work and punishes low-margin trading. Losses cannot be carried into the next year.
What happens if I earn more than GEL 500,000?
The rate moves from 1% to 3% from the first day of the month in which the excess is recorded, and stays there until the end of that calendar year. The status itself survives a single year over the line. Exceed GEL 500,000 in two consecutive calendar years and it is revoked from the start of the next year.
Do I still have to register for VAT?
Yes, once taxable supplies exceed GEL 100,000 across any 12 consecutive calendar months. The Tax Code gives you two business days to apply, and VAT is 18%. Small business status and VAT registration are independent, so holding the first does not exempt you from the second.
Does the 1% cover payments from foreign clients?
Usually yes, where the work is actually performed in Georgia. The Tax Code treats services as Georgian-source when they are physically rendered here, regardless of where the client sits. Source rules are fact-specific, so if you work partly abroad, get the position confirmed in writing before you file.
How often do I file with the Revenue Service?
Monthly. The small business return and the tax payment are due by the 15th day of the month following the accounting month. That is twelve filings a year, plus any VAT obligations picked up separately. Most holders outsource it because the deadline is unforgiving and the penalty is automatic.
Can I lose small business status once I have it?
Yes. It is revoked if you conduct a restricted activity, if you are fined three or more times in one calendar year over cash register rules, if you exceed GEL 500,000 in two consecutive years, or if you request revocation yourself. The effective date differs by ground, and some grounds backdate to the start of the calendar year.
Is rental income from my Tbilisi apartment taxed at 1%?
No. Rental income is excluded from the special regime, so it is taxed under ordinary personal income tax rules. Residential rent where the owner claims no deductions is taxed at 5% under Article 81. If property is a meaningful share of your income, have the split reviewed rather than assuming the status covers it.
Thresholds in Georgian tax law change more often than the headline rate suggests. Every figure here comes from the current consolidated Tax Code and the governing decree, but check your own position with the Revenue Service or an adviser before you register, and again before you cross a threshold. If the entity comes first, the company registration specialists we track handle both steps in one visit.