Tax5 min read
₾500,000 Turnover Threshold in Georgia: 3% Rate and Rules
Small Business Status above ₾500,000 of turnover in Georgia: the rate rises from 1% to 3%, and two consecutive years above the ceiling revoke the status.
Levan JojuaCEO and Lead Tax Adviser
In short
- Turnover above ₾500,000 in a calendar year raises the rate from 1% to 3% for the rest of that year, and Small Business Status stays in place.
- On ₾550,000 of turnover the two published readings of the 3% rule give ₾6,500 and ₾16,500, and the question is not settled.
- Two calendar years in a row above ₾500,000 end Small Business Status on 1 January of the third year, and business income is then taxed at 20%.
Small Business Status taxes an individual entrepreneur at 1% of turnover up to ₾500,000 (500,000 GEL) a year. Passing that turnover threshold does not end the status. The rate rises to 3%, and a second consecutive year above the ceiling revokes the status and puts the business on the standard 20% rate. This post covers what changes at ₾500,000, how the 3% is calculated, when the status is revoked, what counts as turnover and when to move to an LLC.
What Changes When Turnover Passes ₾500,000
Your registration does not change on the day turnover passes ₾500,000. The status stays in place, and the rate rises from 1% to 3% for the rest of that calendar year.
| Turnover in the calendar year | Tax rate | Small Business Status |
|---|---|---|
| Up to ₾500,000 | 1% | Kept |
| Above ₾500,000 in one year | 3% for the rest of that year | Kept, and the rate returns to 1% on 1 January if the new year’s turnover starts under the ceiling |
| Above ₾500,000 in two consecutive years | 3% | Revoked from 1 January of the third year |
The regime is administered by the Revenue Service of Georgia, and the declaration is still due by the 15th of every month. For agritourism businesses the ceiling is ₾700,000.
How the 3% Rate Is Calculated Above ₾500,000
Published guidance disagrees on how the 3% is calculated, and the question is not settled. Under the first reading, the first ₾500,000 stays at 1% and only the amount over it is charged 3%. Under the second, the whole year’s turnover is charged 3% once the ceiling is crossed. On ₾550,000 of turnover the two readings are ₾10,000 apart.
| Reading, on ₾550,000 of turnover | Calculation | Tax |
|---|---|---|
| 3% on the excess only | 1% of ₾500,000 plus 3% of ₾50,000 | ₾6,500 |
| 3% on the whole year | 3% of ₾550,000 | ₾16,500 |
When Small Business Status Is Revoked After Exceeding ₾500,000
If you exceed the ceiling in two consecutive calendar years, the status is revoked from 1 January of the third year, under the special taxation regime rules in the Tax Code of Georgia. From that date your business income is taxed at the standard 20% rate.
No appeal restores the 1% rate for the calendar year in which the revocation applies. You can reapply for the status, but reapplying does not change the tax for the period already taxed at 20%.
What Counts as Turnover for the ₾500,000 Ceiling
The ceiling is measured on gross turnover, which is everything you invoice. Money you pass on to subcontractors or suppliers is not subtracted. An agency that bills ₾600,000 and pays ₾400,000 of it to subcontractors has crossed the ceiling on the full ₾600,000, not on the ₾200,000 it keeps.
How to Track Turnover Against the ₾500,000 Ceiling
Make three checks during the year:
- Check the running total every month. The monthly declaration reports the turnover figure the Revenue Service measures against the ceiling.
- Check your position before you sign a large contract late in the year. One large invoice in December can take a business over the ceiling in a single month.
- Check the VAT threshold as well, which you reach first. You have to register for VAT when taxable turnover over any rolling 12 months goes above ₾100,000.
Our accounting for individual entrepreneurs includes the monthly declaration, and we tell clients when their running turnover approaches ₾500,000.
When to Move From an Individual Entrepreneur to an LLC
An LLC has no turnover ceiling. It pays 15% corporate tax only on profit it distributes, with a further 5% withheld from the dividend, and 0% on profit kept in the company. Depending on which reading of the 3% rule applies, an individual entrepreneur above the ceiling pays between 1% and 3% of turnover whatever is taken home, so the LLC costs less when most of the profit is reinvested. An individual entrepreneur is not a separate legal person, so it cannot have a second owner or limit your personal liability.
Any of these situations is a reason to move to an LLC, including before you have crossed the ceiling:
- a co-owner is joining the business
- the business keeps more of its profit than you draw out
- a client or a payment provider asks to deal with a company
- the contracts you sign carry risk you do not want on your personal assets
- last year’s turnover was above ₾500,000 and this year’s will be too
Steps to Register the LLC and Close the Individual Entrepreneur
No procedure converts an individual entrepreneur into an LLC. The move has three steps:
- Register a new LLC at the National Agency of Public Registry, which takes three to five business days once the documents are ready.
- Open a bank account for the company, sign new contracts with your clients under the LLC and start invoicing from it.
- Close the individual entrepreneur registration after clearing any outstanding tax.
LLC tax rules apply to what the LLC earns from the day it is registered, with no backdating to the day you decided to move. Expect the two registrations to run side by side for a short time during the handover. If the individual entrepreneur stays open after the LLC has taken over the business, you file monthly declarations for both. LLC accounting means full accounts from the day of incorporation and a declaration every month.
Book a Free Turnover Threshold Consultation
A free 30-minute consultation. Bring your turnover for the year so far and your usual number of transactions a month, and you leave with a monthly price for your accounting.
₾500,000 Turnover Threshold: FAQ
What happens if turnover goes over ₾500,000 under Small Business Status?
The rate rises from 1% to 3% and you keep the status 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. Two consecutive years above ₾500,000 revoke the status.
Does the 3% apply to the whole year or only to turnover above ₾500,000?
Published guidance disagrees and the question is not settled. On ₾550,000 of turnover, 3% on the excess only gives ₾6,500 and 3% on the whole year gives ₾16,500. Budget for the higher figure until you have a written answer for your own case.
How many years can I exceed ₾500,000 before losing Small Business Status?
One. A second year in a row above ₾500,000 costs you the status, which ends on 1 January of the year after. After that date the standard 20% rate applies to your business income.
Can I get the 1% rate back after Small Business Status is revoked?
You can reapply for Small Business Status after it is revoked. Reapplying does not reduce the tax for the period already taxed at 20%, and the 1% rate cannot be restored by appeal for the calendar year the revocation applies to.
Do payments to subcontractors count toward the ₾500,000 ceiling?
Yes. The ceiling is measured on gross turnover, so the full amount you invoice counts and what you pay to subcontractors or suppliers is not subtracted. If you invoice ₾600,000 and pay ₾400,000 of it to freelancers, all ₾600,000 counts and you are over the ceiling.
Should I switch to an LLC when turnover reaches ₾500,000?
Not automatically. An LLC has no turnover ceiling and pays 0% on profit kept in the company, so it usually costs less when most of the profit is reinvested. A second owner or a need for liability separation is also a reason to move to an LLC. If you distribute most of the profit, the LLC pays 15% corporate tax plus 5% dividend withholding on it, against the 3% rate an individual entrepreneur pays above the ceiling.
