Small Business Status Prohibited Activities in Georgia

Small Business Status taxes an individual entrepreneur at 1% of turnover, but a defined list of activities cannot use the regime at any turnover. If your work is on that list, the income is taxed at 20%, and penalties and interest can be added for the months already declared at 1%. This post sets out the Small Business Status prohibited activities, how the consulting exclusion is applied, the borderline cases, what a breach costs and which structure to use instead.

Full List of Prohibited Activities Under Small Business Status

Government Resolution No. 415 excludes these activities from Small Business Status, however small the turnover is:

• medical, architectural, legal and notarial services
• auditing services
• consulting activities of any kind, including tax consulting
• currency exchange operations
• 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

Regulated Professions

Medical practice, architecture, legal and notarial services and auditing are excluded by name, separately from the general licence test. A doctor, lawyer, architect or auditor working in Georgia needs a different structure at any level of income.

Financial Activities

Currency exchange operations, banking, insurance and financial intermediation are excluded by name. If your business holds client funds, exchanges currency or provides insurance, it is excluded because of the activity itself, and the wording of your invoices makes no difference.

Licensed Activities and Significant Investment

Two general tests cover activities the list does not name. The licence or permit test covers sectors such as pharmaceuticals, some transport operations and certain financial services. The significant investment test is the less precise of the two and has no exact definition in general guidance, so an unusual business model needs an answer for its specific case.

Legal Basis: Government Resolution No. 415

The prohibited activities are not written into the Tax Code. They are set by Government of Georgia Resolution No. 415 of 29 December 2010, which defines the activities that do not qualify for Micro Business Status or Small Business Status. The resolution has been amended more than once since 2010, so an activity has to be checked against the current version.

The Tax Code sets the rate of the 1% tax and the ₾500,000 turnover ceiling, and the exclusions are in the resolution. Some English-language guides state that consulting qualifies, and that is incorrect.

The same resolution governs Micro Business Status, the 0% regime for turnover up to ₾30,000 a year with no employees. Its set of eligible activities is narrower. The two lists overlap and are not identical, so if you move from Micro Business Status to Small Business Status, check your activity against the small business list again.

Consulting Under Small Business Status: Rules and Examples

Consulting is excluded outright, and the resolution names tax consulting.

When a developer builds software for a client, the work is development and falls outside the exclusion, but the identical work invoiced on a retainer as technical consulting services is documented as an excluded activity.

Work performed	Wording in the contract or invoice	Result
Building and delivering software for a client	Software development	Qualifies
Identical work invoiced as hours of advice	Technical consulting	Excluded
Managing a client’s paid advertising	Digital marketing	Qualifies
Recommending campaigns that someone else runs	Marketing strategy consulting	Excluded
Producing a product or brand design for a client	Design	Qualifies
Strategy advice with nothing handed over	Business consulting	Excluded

Where the client receives something concrete (code, a design, a campaign, a set of books), the work usually falls outside the list. Where the invoice is for advice, judgement or an opinion and nothing else is handed over, it usually falls inside. This is a rule of thumb and not a legal test, and it does not settle a mixed engagement.

An invoice is a tax source document under Article 72 of the Tax Code, so the description of what was supplied is a required element. It should match the activity your business is registered for. A business that is advisory in substance, such as strategy, tax planning or management consulting, cannot become eligible by changing the wording.

Borderline Activities: Marketing, Accounting, Coaching and Agencies

Four types of work are close to the excluded category and have to be checked case by case.

Activity	Generally outside the list	Closer to the excluded category
Marketing and creative work	Creating a campaign and running it	The same project billed as brand strategy consulting
Accounting	Keeping transaction records and preparing basic accounts	Signing off financial statements or advising on structuring
Coaching and training	Teaching a course or a training session	Continuing advice charged at an hourly rate
Agencies	Carrying out design, development or content work	Consulting hours billed separately alongside that work

An agency that carries out work and also bills consulting hours is running two activities on a single registration, and the consulting hours do not qualify. Two people doing similar work can be treated differently, one as eligible and one as excluded, because of the codes they chose and the way their contracts describe the engagement.

Employee or Independent Contractor: Reclassification Rules

Employment is a separate limit from the resolution. Income from employment is taxed at a flat 20% whatever status the worker holds, and the Tax Code lets the Revenue Service assess a transaction by its actual content and not by the title of the contract.

What is examined	Employment	Independent contractor
Hours	Fixed schedule set by the business	Set by the contractor, or only a project deadline
Equipment	Supplied by the business	The contractor’s own
Supervision	Day to day	By the deliverable
Exclusivity	One client	Free to work for others
Duration	Open-ended	A defined project or term
Integration	Part of the client’s team and processes	Engaged for a specific output

No single factor decides the question. A relationship that matches the employment column on nearly every row can be reclassified, even when it is invoiced as a service contract.

After a reclassification, the worker’s income is reassessed at 20% in place of 1%, with interest and penalties. The paying business becomes liable for the income tax it should have withheld and for pension contributions, with interest and penalties counted from the date the withholding should have started. A role that needs fixed hours, company equipment and a person integrated into the team indefinitely should be set up as employment, where the employer withholds 20% income tax, pays a 2% employer pension contribution where the scheme applies and files a monthly payroll declaration.

Penalties for Carrying Out a Prohibited Activity

Income from an excluded activity is not covered by Small Business Status, even when the registration went through and the Revenue Service has not yet identified the activity. Once it is identified, three things follow:

1. The status is revoked for that activity, so the 1% rate no longer applies to it.
2. That income is taxed at the standard 20% personal income tax rate instead.
3. Penalties for underpayment and daily interest can be charged on the gap between the 1% declared and the 20% due.

The table shows the shortfall when 20% is applied to the full amount, before penalties and interest.

Income reclassified	Declared at 1%	Tax at 20%	Shortfall
₾40,000	₾400	₾8,000	₾7,600
₾100,000	₾1,000	₾20,000	₾19,000
₾200,000	₾2,000	₾40,000	₾38,000

The ordinary statute of limitations for a tax assessment is three years, so an audit can reach back that far into declarations already filed. A reclassification set out in a tax act is not final if you disagree with it. An appeal against a tax act goes first to the Dispute Resolution Council at the Ministry of Finance and then to court, and each stage has a fixed statutory time limit.

How to Check Your Activity Before You Register

An excluded activity code can be registered at the Public Service Hall without any automatic flag, and the Revenue Service gives no warning in advance. Check these four things before you register:

1. Activity codes. The list is applied to the codes you register at the Public Service Hall and with the Revenue Service. A general description of the business is not what is compared.
2. Contracts. Read each client agreement for wording that reads as consulting, legal or financial advisory work.
3. Invoices. Check that the description of the supply matches the registered activity.
4. The resolution. Compare the codes, contracts and invoices with the current version of Resolution No. 415.

An activity that qualifies still comes with a declaration due by the 15th of every month, and our accounting for individual entrepreneurs covers it from ₾180 a month plus VAT.

Which Structure to Use If Your Activity Is Prohibited

An LLC is the structure for an excluded activity. Small Business Status is available only to an individual entrepreneur, so an LLC cannot get the 1% rate, and the Resolution No. 415 exclusions do not apply to an LLC.

	Individual entrepreneur with Small Business Status	LLC
Activity exclusions	The Resolution No. 415 list	None of this kind
Turnover ceiling	₾500,000 a year	None
Tax	1% of turnover	15% on distributed profit plus 5% dividend withholding, 0% on retained profit
Liability	Unlimited and personal	Limited to the company

The 15% corporate income tax is charged only when the LLC distributes profit, and with the 5% dividend withholding it comes to roughly 20% of the money taken out. On ₾200,000 of turnover at a 60% margin, an LLC that distributes all ₾120,000 of profit pays roughly ₾24,000, and the owner keeps about ₾96,000.

Under the Law of Georgia on Entrepreneurs, an individual entrepreneur is not a legal person and is personally liable to creditors with all assets. The choice between an individual entrepreneur and an LLC starts with the prohibited list: if the activity is on it, the 1% is unavailable and the LLC is the default.

An LLC is often the better structure for a business that exceeds the ₾500,000 turnover ceiling as well. Exceeding it in two consecutive years revokes the status from 1 January of the third year, and from that date the business is taxed as an ordinary individual entrepreneur at 20%.

There is no procedure that converts an individual entrepreneur into an LLC. The route is a new LLC registration, after which contracts and banking are transferred to the company and the individual entrepreneur registration is closed. An LLC keeps full accounts from the day it is incorporated, and LLC accounting includes a declaration every month by the 15th, including months with no distribution.