“Small business” (1% tax) registration in Georgia

What is a small business?

“Small business” is a special regime of taxation applicable for a certain type of individual taxpayers (Entrepreneurs/freelancers ) if they satisfy criteria provided by the law, register as a taxpayer in Georgia, apply and obtain the status (certificate) of “small business” at the Georgian tax administration.
“Small business” is not a legal form of the taxpayer as such. “Registration as a small business” is a frequently used term but it is not legally correct. You register as an individual entrepreneur or just a taxpayer individual (depending on your business activities) and later obtain a certificate/status of “small business” if you satisfy all given preconditions. However, enjoying “small business” status and 1% tax in Georgia is not as simple as it looks at the first sight. First, you need to make sure that you really satisfy all criteria for “small business” status and that no risk remains of retrospectively revoking such a status later.

We offer a full package of services associated with “small business” individuals:

• Initial tax analyses;
• Business registration;
• Opening a bank account;
• Providing a legal address;
• Registration at a tax office;
• Obtaining the status of “small business”;
• Bookkeeping/reporting services for small businesses.

What tax benefits apply to “small business”?

Individuals with a status of small business are subject to 1% personal income tax instead of 20% ordinary rate. Notably, “small business” status does not provide an exemption from VAT, VAT will be applicable to “small business” similarly to other taxpayers, after exceeding 100 000 Gel threshold of turnover in 12 months, however, if an individual provides services to foreign customers, most likely, VAT will not apply (to be analyses individual bases).

How to register a small business in Georgia?

First, you need to satisfy the following preconditions for small businesses:

• Your annual income (taxable under 1% rate) does not exceed 500 000 Georgian Lari threshold in 2 consecutive years;
• Your business activities are among the “allowed activities for small business”;
• Your contractual relation to your client(s) is not the employment by its nature (regardless of the title of the agreement);
• Georgian tax administration does not have a legal base to requalify your transaction for tax purposes which might result in revoking the 1% tax regime.

1% tax rate in Georgia does not apply to employment income and the title of your contract with your client(s) is not decisive. Georgian tax administration uses a specially designed questionnaire to determine whether your contract is employment or service.

You can find here and read our article about the risk that the Georgian tax administration can requalify your contract from “service agreement” to “employment”.

More details about taxation, risks, and tax benefits for small business in Georgia you can read in our article which you can find here.