Georgia offers one of the most competitive tax regimes for individual entrepreneurs through its Small Business Status (SBS). The regime is designed to support small businesses by providing a significantly reduced income tax rate compared to the standard personal income tax regime. As a result, Georgia has become an attractive destination for freelancers, IT professionals, consultants, remote workers, and digital nomads who carry out their business activities from Georgia.
Eligible individual entrepreneurs may benefit from a 1% tax rate on their turnover, subject to certain conditions and limitations established by the Tax Code of Georgia.
What Is Small Business Status in Georgia?
Small Business Status is a preferential tax regime available exclusively to individual entrepreneurs who meet the requirements established by Georgian tax legislation.
Under this regime, qualifying entrepreneurs are taxed at 1% of their annual turnover instead of the standard 20% personal income tax. The 1% rate applies to annual turnover of up to 500,000 GEL, while businesses engaged in agritourism may benefit from the regime up to 700,000 GEL of annual turnover.
If the annual turnover exceeds the applicable threshold during the calendar year, the excess amount is taxed at 3%, while the entrepreneur retains Small Business Status until the end of that year. However, if the turnover limit is exceeded for two consecutive calendar years, the status is automatically revoked from 1 January of the third year.
Persons holding Small Business Status are required to submit monthly tax returns to the Georgian Revenue Service and pay the respective 1% income tax no later than the 15th day of the month following the reporting month.
Registration Process
Before applying for Small Business Status, a person must first register as an Individual Entrepreneur (IE).
Following the registration, the application for Small Business Status may be submitted electronically through the taxpayer‘s personal account on the Revenue Service portal. In practice, both procedures are straightforward and are generally completed within one business day.
Eligible and Ineligible Activities
Small Business Status is not available for every type of business activity. Georgian legislation excludes a number of professional and regulated services from the preferential regime.
Among the activities that generally cannot benefit from Small Business Status are legal and notarial services, tax advisory and audit services, medical and architectural activities, consulting services, financial services such as currency exchange and financial intermediation, gambling activities, excise-taxable businesses, staffing services, and activities requiring a special license, subject to limited statutory exceptions.
On the other hand, the regime is widely used by freelancers and independent professionals engaged in activities such as software development, information technology services, digital marketing, design, and other eligible business activities.
It is equally important to distinguish between business income qualifying for the preferential regime and other categories of personal income. Small Business Status applies only to income generated from qualifying entrepreneurial activities. Other income received by an individual entrepreneur continues to be taxed under the ordinary personal income tax rules.
For example, income from renting out property, capital gains from the sale of assets, dividends, interest, royalties, gifts, inheritances, and gambling winnings are not covered by the 1% regime and remain subject to the applicable general tax rules.
Can Non-Residents Benefit from Small Business Status?
Small Business Status is available not only to Georgian tax residents but also to non-residents, provided they register as an Individual Entrepreneur and satisfy all statutory requirements.
An important issue is determining whether the income qualifies as Georgian-source income. The preferential 1% regime applies only to qualifying business income that is regarded as Georgian-source income under the Tax Code of Georgia. In practice, this generally requires that the services be performed within the territory of Georgia.
If services are physically performed outside Georgia, the income may become taxable in another jurisdiction. Depending on the circumstances, issues relating to tax residency, permanent establishment, and the application of double tax treaties may also need to be considered.
For example, where an individual is physically present in Georgia and provides remote software development or marketing services to a foreign client, such income will generally qualify as Georgian-source income and may benefit from the Small Business Status regime. Conversely, if the same services are performed while the individual is located outside Georgia, different tax consequences may arise.
VAT Registration Requirements
Small Business Status does not exempt an entrepreneur from VAT obligations.
Under Georgian tax legislation, VAT registration becomes mandatory once the value of taxable supplies exceeds 100,000 GEL during any continuous 12-month period. Registration under the VAT regime is separate from obtaining Small Business Status and gives rise to additional compliance obligations, including the submission of monthly VAT returns.
At the same time, Georgia applies the standard B2B place of supply rules for services. Accordingly, where services are supplied to non-resident business customers, such transactions generally fall outside the scope of Georgian VAT and are not taken into account when calculating the 100,000 GEL VAT registration threshold.