Georgia's 1% Tax: Small Business Status Rules Explained

Georgia taxes an individual entrepreneur with Small Business Status at 1% of turnover. The costly mistakes come from two rules around the rate: income invoiced before the status applies is taxed at 20%, and work described as consulting is excluded from the regime. This post explains what the 1% tax in Georgia is charged on, who qualifies, how to register, what you file each month, and when another structure costs less.

What the 1% Tax Is and What It Is Charged On

The 1% tax is the rate under Small Business Status, a special tax regime for individual entrepreneurs. It is charged on turnover, which is everything you invoice, up to ₾500,000 a year. It is not charged on profit, and no expenses are deductible.

An entrepreneur who invoices ₾200,000 in a year owes ₾2,000. An entrepreneur who invoices ₾200,000 and spends ₾195,000 to earn it also owes ₾2,000, on ₾5,000 of profit. Because nothing is deducted, the regime suits service work with wide margins.

Turnover includes money you pass on to other people. An agency that bills a client ₾100,000 and pays ₾70,000 of it to subcontractors is taxed on ₾100,000, not on the ₾30,000 it keeps.

Regime	Rate	Charged on	Annual turnover ceiling
Micro Business Status	0%	Turnover	₾30,000
Small Business Status	1%, and 3% once the ceiling is crossed	Turnover	₾500,000
Individual entrepreneur with no status	20%	Profit, after documented expenses	None

The 1% covers the tax on your business turnover only. VAT, reverse VAT on services bought from abroad and any tax your home country charges are separate obligations.

Individual Entrepreneur vs Small Business Status: Two Registrations

Individual entrepreneur (IE) and Small Business Status are separate registrations at separate agencies. The first creates the business and the second sets its tax rate.

	Individual entrepreneur	Small Business Status
What it is	The legal form, a sole proprietorship	The tax regime
Where you get it	Public Service Hall	Revenue Service
What it gives you	A registration certificate and an identification number	The 1% rate on turnover
Tax rate on its own	20%	Not available without an IE

An IE who registers and never applies for the status is an ordinary sole trader paying 20%. Only an IE can hold the status. A limited liability company (LLC) cannot get the 1% rate, whatever its size or ownership.

An IE is not a separate legal person. You are liable for its debts personally, and that liability extends to everything you own. An IE also has no shares to issue and cannot admit a partner.

Who Qualifies for Small Business Status

The personal requirements are low. The conditions that decide most cases are the last four in the table.

Condition	Rule
Citizenship	None required. Foreigners can register.
Residency	No residence permit and no tax residency required.
Time in Georgia	No prior visit and no minimum stay afterwards.
Employees, office, capital	None required. Employees are permitted.
Turnover	Below ₾500,000 a year, or ₾700,000 for agritourism businesses.
Activity	Not on the prohibited list in Government Resolution No. 415.
Income	Georgian-source.
Filing	A declaration every month, including months with no income.

Writers, designers, developers and marketers who run campaigns usually pass the personal requirements easily. Their cases are decided by how the activity is worded and by where the work is performed.

The status is a tax election and it does not make you a Georgian tax resident. Tax residency is decided separately, by spending 183 days in Georgia in a rolling 12-month period or through the High Net Worth Individual route.

How to Register and Get Small Business Status

Documents Required for Registration

• Your passport.
• An address in Georgia to register the business at, proved with a lease or with written consent from the owner of the property.
• A description of your activity that is precise enough to select an economic activity code.

You do not deposit capital, write a business plan or find a local partner. If you do not own or lease Georgian property in your own name, a virtual address costs roughly ₾390 a year. A standard residential lease often says nothing about registering a business at the flat, so confirm that the owner will sign the consent before you rely on a rented flat.

Registration Steps

1. Choose your activity code and check it against the prohibited list. The Revenue Service reads this code when it assesses your application, and you can register more than one code if your work spans categories.
2. Register the IE at a Public Service Hall. Standard registration takes one business day and the expedited service is same-day. You receive a registration certificate and an identification number.
3. Apply to the Revenue Service for Small Business Status on the same day, through a representative or through your rs.ge account once the identification number is active.
4. Wait for the Revenue Service to confirm the status before you invoice. Budget three to five business days in total for both registrations.
5. Open a Georgian bank account. The bank runs its own compliance review, separately from the registration.

IE Registration Certificate and Small Business Status Confirmation

The IE registration certificate records your name, identification number, registered activity and legal address. You show it to banks, to landlords and to clients who check that the business is real.

The Revenue Service’s confirmation of Small Business Status shows only that the tax regime was granted. It does not confirm where your work is performed, whether your activity matches your contracts, or whether you are a Georgian tax resident. Banks and foreign tax authorities check those facts separately.

Small Business Status Is Not Retroactive

Invoiced before the status applies	Tax at 20%, with no expenses deducted	Tax at 1%	Extra tax
₾25,000	₾5,000	₾250	₾4,750
₾40,000	₾8,000	₾400	₾7,600

Apply for the status on the day you register the IE, and hold your first invoice until the Revenue Service confirms it.

Registering Without Travelling to Georgia

Both the registry filing and the status application can be made under a power of attorney, signed in front of a notary in your country and apostilled, with a representative filing in Georgia. The Georgian steps take a few business days either way. The apostille takes from a few days to several weeks, depending on your country.

1% Tax Examples at Different Turnover Levels

The calculation is annual turnover multiplied by 1%. The table compares it with the standard 20% rate for a business with a 60% margin, where profit is 60% of turnover.

Annual turnover	1% tax	20% tax on a 60% margin
₾60,000	₾600	₾7,200
₾100,000	₾1,000	₾12,000
₾150,000	₾1,500	₾18,000
₾200,000	₾2,000	₾24,000
₾400,000	₾4,000	₾48,000
₾500,000	₾5,000	₾60,000

Example: One Month Paid in Foreign Currency

The tax is declared month by month, in lari. Income received in dollars or euros is converted at the official rate of the National Bank of Georgia on the date each payment is received, not at the invoice date and not at a monthly average.

Take an entrepreneur who receives three payments in one month. The rates below are illustrative.

Payment	Date received	Rate that day	Declared in lari
2,000 USD	3rd	2.70	₾5,400
1,500 EUR	14th	2.95	₾4,425
3,000 USD	27th	2.72	₾8,160
Month total			₾17,985

Declared turnover for the month is ₾17,985 and the tax is ₾179.85. Each payment is converted separately, so a log of payment dates is needed to prepare the declaration.

Prohibited Activities Under Small Business Status

The excluded activities are set by Government of Georgia Resolution No. 415 of 29 December 2010, not by the Tax Code. An activity on the list cannot hold the status at any turnover. The excluded categories are:

• medical, architectural, legal and notarial services
• auditing services
• consulting activities of any kind, including tax consulting
• currency exchange, banking, insurance and financial intermediation
• gambling and gaming
• production of excisable goods
• any activity that requires a licence or permit
• any activity that requires significant investment

The same work can qualify or fail depending on how the contract describes it.

Work performed	Described as	Result
Building software and delivering it to the client	Software development services	Qualifies
Identical work invoiced as hours of advice	Technical consulting services	Excluded
Managing a client’s paid advertising	Digital marketing services	Qualifies
Recommending campaigns that someone else then runs	Marketing strategy consulting	Excluded

The result usually depends on what the client receives. If the client receives code, a design, a campaign or a set of books, the work is normally outside the list. If the client receives only advice, the work is normally inside it. This is a general guide and not a legal test.

If you carry out an excluded activity, the status does not apply to that income. Once the Revenue Service identifies it, the status is revoked for the activity, the income is reclassified at 20%, and underpayment penalties and daily interest can be added. Rewording later invoices does not change income already earned. The prohibited activities list also governs Micro Business Status, which has a narrower set of eligible activities.

Income from employment is taxed at 20% whatever status you hold. A contract with one client, fixed hours, the client’s equipment and the client’s manager can be treated as employment even when it is written as a service contract.

Georgian-Source Income and Working From Abroad

The 1% applies only to Georgian-source income. Article 104 of the Tax Code lists eight conditions under which a service counts as delivered in Georgia, and two of them cover most freelancers and contractors:

• The service is actually rendered in Georgia. This is the physical performance test.
• The provider and the client are in different countries and the provider is a Georgian tax resident, unless the work was delivered through a permanent establishment in another country. This is the residency test.

Because the status can be held without living in Georgia, most holders are not Georgian tax residents. Of the two tests, they can rely only on physical performance, which means doing the work in Georgia.

Your situation	Test that applies	Georgian-source
You live and work in Georgia and bill a foreign client	Physical performance	Yes
You are a Georgian tax resident, travel briefly and have no permanent establishment abroad	Residency	Yes
You hold the status, are not a tax resident and work all year from another country	Neither	Very likely no

Article 104(2) states that the place where income is received is not taken into account. The client’s country, the currency and the bank the payment comes from do not change the source. A developer who lives in Tbilisi and invoices a company in Germany has Georgian-source income. The same developer working all year from Portugal does not make the income Georgian-source by invoicing through a Georgian IE.

Income that fails the test is not covered by the 1% at all. Georgia’s claim to tax it becomes questionable, and the country where the work was performed, or where you are resident, likely has the stronger claim.

Keep evidence for the test you rely on. If you rely on physical performance, keep your travel records, a lease or utility bills, and emails or messages that place you in Georgia on the days you worked. If you rely on the residency test, keep your day count and, ideally, a Tax Residency Certificate.

Georgia does not tax a resident’s foreign-source income, but that exemption helps only a person who has become tax resident through the 183-day test or the High Net Worth Individual route.

Monthly Declarations and Bookkeeping Rules

Monthly Declaration Deadline and Filing Rules

Each month’s turnover is declared by the 15th of the next month. For January, that means 15 February. The declaration is filed through rs.ge, the Revenue Service portal. Once you enter the turnover, the system calculates the tax at 1% or 3%.

These rules apply every month:

• A month with no income still requires a zero declaration by the 15th.
• Filing and paying are separate actions. Submitting the declaration does not move money, and the tax is paid from a Georgian bank account by the same deadline.

Penalties for late filing and underpayment are applied automatically. Unpaid tax carries interest for every day between the deadline and the day it is paid. A declaration that understates the tax also attracts a separate penalty, added to the amount still owed.

Missed declarations do not by themselves revoke the status. Outstanding tax debt and an inconsistent filing history do cause problems when you close the business, move to an LLC or open a business bank account.

Bookkeeping Requirements for the 1% Tax

An IE with Small Business Status is not required to keep formal accounts of income and expenses. The requirement is to keep a tax source document for every transaction, which in practice means your invoices and receipts. Under Article 72 of the Tax Code, each document:

• identifies both parties to the transaction
• carries a date
• lists what was supplied and its value
• exists in at least two identical copies, one for each party

The documents are kept for at least three years after the end of the calendar year they relate to. Once a VAT obligation arises, an IE with the status has to keep proper accounts of income and expenses on top of the source documents. The tax rate stays at 1%.

VAT and Reverse VAT Alongside the 1% Tax

The 1% does not replace VAT. Two VAT rules apply to an IE with the status.

Rule	When it applies	What you do
Reverse VAT	You buy a service from a supplier outside Georgia, such as software, hosting or a foreign contractor	Declare and pay 18% of the value of the service by the monthly deadline, with or without a VAT registration
VAT registration	Taxable turnover exceeds ₾100,000 in any continuous 12-month period	Apply to the Revenue Service within 2 working days

Reverse VAT is charged on what you buy from abroad, and the 1% is charged on what you invoice, so both are due in the same month. A ₾2,000 invoice from a foreign contractor carries ₾360 of reverse VAT. A business without a VAT registration pays that amount as a cost. A VAT-registered business declares the same amount and claims it back as an input deduction in the same declaration.

The ₾100,000 threshold for VAT registration is measured over a rolling 12 months, not a calendar year. The 12 months are counted backwards from the current month, so in October the test covers the period since the previous October. That threshold is reached well before the ₾500,000 ceiling.

A service delivered to a client abroad is usually not within the scope of Georgian VAT. That is why many entrepreneurs who work only for foreign clients never register.

What Happens When Turnover Exceeds ₾500,000

Crossing ₾500,000 in a calendar year does not end the status. Three rules are settled:

• The rate rises to 3% for the rest of that calendar year.
• The rate returns to 1% on 1 January if the new year’s turnover starts under the ceiling.
• If you exceed the ceiling in two consecutive calendar years, the status is revoked from 1 January of the third year and your business income is taxed at the standard 20%.

Published guidance disagrees on how the 3% is applied. Under the first reading, 3% is charged only on the part of the year’s turnover that exceeds ₾500,000. Under the second, crossing the ceiling moves the whole year’s turnover to 3%.

Annual turnover	3% on the excess only	3% on the whole year	Difference
₾550,000	₾6,500	₾16,500	₾10,000
₾600,000	₾8,000	₾18,000	₾10,000

Until a client has a written answer for their own case, we budget for the higher figure.

Once the status is revoked, no appeal restores the 1% rate for that year. You can reapply, but reapplying does not change the tax for the period already taxed at 20%.

The ceiling is measured on gross turnover. An agency that bills ₾600,000 and passes ₾400,000 to subcontractors has crossed it on the full ₾600,000. Your monthly declaration reports the running figure, so check it each month and before you sign a large contract late in the year.

Being on track to exceed the ₾500,000 threshold for a second consecutive year is the point to register an LLC, before the status is revoked.

Micro Business Status vs Small Business Status

Micro Business Status is a separate regime with a 0% rate for very small businesses with no staff.

	Micro Business Status	Small Business Status
Tax rate	0%	1%, and 3% once the ceiling is crossed
Turnover ceiling	₾30,000 a year	₾500,000 a year
Employees	Not permitted	Permitted
Eligible activities	Narrower, with ordinary trade and resale restricted	Broader, minus the Resolution No. 415 exclusions
Filing	Outside the monthly cycle, with lighter reporting	A declaration every month

The saving against the 1% is small. On ₾25,000 of turnover, Micro Business Status costs nothing and Small Business Status costs ₾250.

Under the rules amended in March 2026, crossing ₾30,000 or hiring an employee gives you 15 calendar days to apply for Small Business Status. If you miss the deadline, income earned from 1 January of that year until Small Business Status is granted is taxed at 20%. A business that had earned ₾25,000 when it crossed would owe up to ₾5,000, with no expenses deducted, on income that would otherwise have been untaxed.

When to Use the 20% Rate or an LLC Instead of the 1% Tax

Net Margin Below 5%

1% of turnover equals 20% of profit at a net margin of 5%. Above that margin the 1% is cheaper, and below it the standard rate is cheaper. The table uses ₾200,000 of turnover.

Net margin	1% of turnover	20% of profit	Cheaper rate
60%	₾2,000	₾24,000	1%
30%	₾2,000	₾12,000	1%
15%	₾2,000	₾6,000	1%
5%	₾2,000	₾2,000	Equal
3%	₾2,000	₾1,200	20%

Paying 20% on profit requires a document for every expense you deduct, which means full accounts.

Subcontracting and Pass-Through Revenue

An agency that passes 70% of its billings to freelancers keeps a 30% margin and is still taxed on 100% of what it bills. It also reaches the ₾500,000 ceiling about three times faster than its retained income suggests.

When to Register an LLC Instead of an IE

An LLC has no turnover ceiling and no activity exclusions of this kind. It pays 15% corporate tax when profit is distributed, plus 5% dividend withholding, and 0% on profit kept in the company.

On ₾200,000 of turnover at a 60% margin, an IE with the status pays ₾2,000. An LLC that distributes all ₾120,000 of profit pays roughly ₾24,000. The gap narrows when the LLC reinvests, because retained profit is not taxed.

An LLC is the structure to use when:

• your activity is on the Resolution No. 415 list
• your turnover is heading over ₾500,000 for a second year
• most of your profit stays in the business
• you need liability separation for the contracts you sign

An IE also cannot have a second owner or issue shares, so co-founders and outside investment call for a limited liability company.

There is no procedure that converts an IE into an LLC. You register a new LLC, which takes three to five business days once the documents are ready, move your contracts and invoicing to it, and close the IE after clearing any outstanding tax. An LLC keeps full accounts from incorporation, and LLC accounting includes a corporate tax declaration every month, even when nothing is distributed.

What Your Home Country May Still Tax

The 1% is a Georgian tax and has no effect on what another country charges you. Your tax residency stays where it was when you register an IE. Worldwide income is taxable to residents in most countries, so if you remain tax resident elsewhere, the 1% is paid in addition to your home tax.

Situation	What the other country can do
You remain tax resident in your home country	Tax your worldwide income, including turnover already taxed at 1% in Georgia
You work from another country for your Georgian IE	Tax the profit from work performed on its territory, as a permanent establishment
You are a German national who has left Germany	Apply extended limited tax liability for up to ten years, where the destination’s tax burden is at least a third lower than the German one
You are a US citizen	Tax your worldwide income by citizenship, with US self-employment tax on top

The Ministry of Finance of Georgia publishes the country’s double taxation treaties, which cover more than 55 countries. A treaty is only useful if your country of residence has one, and registering a business in Georgia does not change your country of residence. Georgia and the United States have signed neither a tax treaty nor a totalization agreement. A US citizen therefore owes US self-employment tax in full on top of the Georgian 1%.

Your home country’s claim ends only when you complete that country’s own exit process under its rules. Controlled foreign company rules generally apply to companies and not to sole proprietorships, which can work in an IE’s favour, but this varies by country and has to be checked.

Accounting Fees and Running Costs for the 1% Tax

Beyond the tax, the structure has these running costs:

• a registered address, roughly ₾390 a year for a virtual address, unless you own or lease Georgian property in your own name
• 18% reverse VAT on services bought from abroad
• the monthly declaration, filed by you or by an accountant

An IE with a few invoices a month and no VAT registration can file alone. The work takes about twenty minutes a month, and the rs.ge portal is the main obstacle.

Our accounting for individual entrepreneurs is priced by the number of transactions a month, not by revenue. One bank statement row, invoice, payment or expense is one transaction.

Transactions a month	Lite, not registered for VAT	Business, VAT registered or with employees
Up to 10	₾180	₾315
11 to 30	₾315	₾495
31 to 60	₾495	₾855
More than 60	Quoted	Quoted

Prices are per month and exclude 18% VAT, and the first quarter of the Lite package is paid upfront. Both packages include the monthly declaration and reverse VAT declarations, and Business adds monthly VAT returns and pension declarations. Months that were never filed are charged separately, and the full price list sets back-year filing at ₾270 per month.