Individual Entrepreneur vs LLC in Georgia: The Tax Difference
You are about to register a business in Georgia, and the form you pick sets your tax bill for years. An individual entrepreneur with Small Business Status pays 1% of what the business takes in, profit or no profit. A Georgian LLC pays nothing while the money stays inside it, then 15% when profit leaves and 5% more when it reaches you. Here is what each one costs, and the margin at which the cheaper answer flips.
- An individual entrepreneur with Small Business Status pays 1% on income from economic activity in Georgia, up to GEL 500,000 in a calendar year, with no deduction for costs.
- A company cannot hold that status. A resident LLC pays 15% profit tax only on profit it distributes, and nothing on profit it keeps.
- A dividend reaching an individual is taxed a further 5% at source, so 19.25% of the cash that leaves the company ends up as tax.
- The two cost the same when the cash available to pay out is 5.19% of turnover. Above that margin the 1% is cheaper, below it the company is.
- Rent, dividends, interest, royalties and capital gains sit outside the 1% even for a status holder, and are taxed under the general rules.
- VAT follows turnover rather than structure: registration is compulsory once taxable supplies over any 12 consecutive months exceed GEL 100,000, and the rate is 18%.
The two structures at a glance
The comparison is not like for like. One tax is charged on money coming in, whatever happens to it afterwards; the other is charged on money going out, and only when it goes out. That single difference is why a rate of 1% and a rate of 15% can produce almost the same bill in one business and a wide gap in another.
The 1% is not a rate the Tax Code hands to businesses in general. It comes with Small Business Status, which is granted to an entrepreneur natural person, so no company of any size can hold it.
| Individual entrepreneur with Small Business Status | Georgian LLC | |
|---|---|---|
| Rate | 1% | 15% |
| What the rate is charged on | Income from a source in Georgia, salary and the listed income types excluded | Distributed profit, plus 3 other objects: non-business expenses, free supplies and entertainment costs above the limit |
| Tax on money you leave in the business | Yes, the 1% is charged when the income arrives | No |
| Annual ceiling | GEL 500,000, then 3% for the rest of the year | One rate, with no turnover band |
| Second layer of tax | None | 5% withheld when a dividend reaches an individual |
| Total on money reaching you | 1% of income received | 19.25% of the cash that leaves the company |
| Costs and expenses | No deduction against the 1% base | Reduce the profit there is to distribute |
| A loss-making year | Still costs 1%, and losses are not carried forward | Costs nothing while nothing is distributed |
| Advance tax payments | None | None |
| VAT | 18% over GEL 100,000 in any 12 months | The same |
| Filing | Monthly, by the 15th | Monthly, by the 15th |
What an individual entrepreneur pays
You register as an individual entrepreneur first, then apply to the tax authority for the status, and it runs from the day the application is filed. Income you earned earlier in the same year stays under the regime that applied then and is declared on next year's annual return.
The rate is 1% of taxable income under the regime, which is income from a source in Georgia less two carve-outs: salary, and the income types the Government has listed. Nothing in Article 90 of the Tax Code or in the ministerial order under it allows expenses to be set against that base, so the tax is charged on what you receive and not on what you keep.
The ceiling counts gross income from economic activity over a calendar year, and it sits at GEL 500,000, or at GEL 700,000 where the business is wine tourism or agro tourism. Passing it does not lift the rate on the excess alone: 3% takes over for the whole of the month the excess lands in and for every month after it to 31 December, so the month you cross the limit matters more than the amount you cross it by. The status itself survives that year, and is revoked for turnover only if the ceiling is passed in each of 2 consecutive calendar years.
Losses are not carried forward under the regime, so a bad year is not credited against a good one. You keep a special record book and hold tax documents for 3 years.
Activities that rule the 1% out
The Government list closes 7 categories of activity to Small Business Status, and 2 of the 7 turn on the same thing:
- Activities requiring a licence or permit, with one exception, the permit for carriage by light vehicle (taxi, category M1) in Tbilisi.
- Activities whose performance requires significant investment, given as the production of excise goods.
- Currency operations.
- Medical, architectural, advocacy or notary, audit and consulting activity, tax consultants expressly included.
- Gambling.
- Provision of personnel.
- Production of excise goods.
Item 4 is the one to read twice. A consultant cannot hold the status, so the comparison for a consultant is not 1% against 15%: it is 20% personal income tax against the company rates. The test is the work you actually do rather than the code you registered, and what counts as a qualifying activity turns on that alone. Whether your own activity falls inside item 4 settles the structure before any rate does.
What a Georgian LLC pays
A resident company is taxed on distributed profit, on expenses and payments not connected with economic activity, on free supplies and transfers, and on entertainment costs above the limit. Profit that stays in the company is not one of those objects. Profit tax on distributed profit is charged at 15%.
The 15% is not 15% of the dividend. The taxable amount is the payment divided by 0.85, so the tax works out at 17.65% of the net sum paid out. The 5% withheld from a dividend then comes off what reaches an individual shareholder, and for a Georgian tax resident individual that 5% is final: the dividend is not added to gross income and is not declared again. A non-resident shareholder pays the same 5%.
Net dividend paid out: GEL 85,000
Taxable amount, GEL 85,000 divided by 0.85: GEL 100,000
Profit tax at 15%: GEL 15,000
Say your company has GEL 150,000 of cash available to take out. The net dividend is GEL 127,500 and the profit tax on it is GEL 22,500, and those two together are the GEL 150,000 that leaves the company. The 5% withheld from the dividend is GEL 6,375, so GEL 121,125 reaches your hand. Total tax GEL 28,875, or 19.25% of what left the company.
Retained profit is the company's real advantage. There is no profit tax at all for as long as the money stays in the business, and a reporting month with no distribution carries no profit tax liability.
Where the 5% company rate comes from
The 5% company rate belongs to 3 special statuses, not to an ordinary LLC. Each is granted for a defined kind of activity and carries its own conditions.
| Status | Profit tax when profit is distributed | Dividend reaching an individual |
|---|---|---|
| Ordinary resident LLC | 15% | 5% |
| International company | 5% | 0% |
| Virtual zone person | 0% on profit from information technologies it created and supplies outside Georgia | 5% |
| Free industrial zone enterprise | 0% on profit from activity permitted in the zone | 0% |
An international company is a Georgian enterprise that carries on the activities set by Government resolution and takes income only from those activities; the Government grants the status, and carrying on anything outside the list cancels it from 1 January of the year that activity began. Its taxable amount is grossed up by dividing by 0.95 rather than 0.85, and salary it pays is taxed at 5% instead of 20%.
Each zone status carries limits the profit tax rate does not show. A virtual zone person gets no special salary rate and no dividend exemption, so the 5% withholding still applies on the way to a shareholder. A free industrial zone enterprise pays 4% when it supplies goods to a Georgian-registered person outside the zone and 4% again when it buys goods from one, and it is barred from buying most services from Georgian-registered suppliers.
Which one costs less
Because the two taxes are charged on different things, the answer turns on your margin rather than on your size. Set 1% of turnover against 19.25% of the cash you pay out and the two are equal when that cash is 5.19% of turnover. Above that margin the individual entrepreneur is cheaper; below it the company is, and the gap widens the thinner the margin gets.
Take GEL 200,000 of turnover as an example and vary only what is left to pay out.
| Cash available to pay out | Individual entrepreneur at 1% | LLC paying all of it out |
|---|---|---|
| GEL 10,000 (5% of turnover) | GEL 2,000 | GEL 1,925 |
| GEL 50,000 (25%) | GEL 2,000 | GEL 9,625 |
| GEL 100,000 (50%) | GEL 2,000 | GEL 19,250 |
| GEL 160,000 (80%) | GEL 2,000 | GEL 30,800 |
A service business with no cost of goods runs far above a 5.19% margin, so for a freelancer with a laptop the 1% wins on rate by a distance. Trading businesses, and anything that buys stock or pays subcontractors, sit much closer to the line.
Two situations reverse the answer outright. A business that reinvests rather than pays out owes no profit tax at all while the money stays in. And a year in which you lose money still costs 1% of everything you invoiced, with nothing to carry into the next year.
At the small end there is a third option. The 0% micro business rate covers gross income up to GEL 30,000 a year for an individual who uses no hired labour, and it needs no individual entrepreneur registration at all. Its prohibited list is a different list of 6 items, and passing GEL 30,000 or taking on one employee starts a clock of 15 days: apply for Small Business Status inside it and the 1% runs from the day of the excess, apply later and income from 1 January to the application date is taxed under the general rules instead.
Income the 1% does not cover
Holding the status does not put everything you earn at 1%. The Government has put 12 kinds of income outside the regime, and none of them counts toward the GEL 500,000 limit either. Five are returns on capital: rent from a property you let out, interest, dividends, royalties and income from lending. Four arrive with no work behind them: gambling winnings, gifts, inheritance and a debt someone writes off. Two are gains on a disposal, one covering real estate, vehicles and securities, the other the sale of a partner's share. The twelfth is the newest: construction services supplied to an enterprise, organisation or entrepreneur joined the other 11 on the Government list of excluded income on 1 February 2025.
All of it is taxed under the general rules and goes on the annual return, due by 31 March of the following year.
| Income | How it is taxed instead |
|---|---|
| Residential rent | 5% where the landlord is in the Revenue Service register, otherwise a company tenant withholds 20% |
| Dividends from a Georgian company | 5% at source, final for a resident individual |
| Interest | 5% at source, and nothing at all on interest from a licensed financial institution |
| Royalties | 20% at source for a resident individual who is not registered for VAT |
Rent is the common case, and it sits outside both the 1% regime and the micro business regime. A landlord who registers as an individual entrepreneur to get the 1% and then rents out a flat is taxed on that flat at the 5% residential rental rate if the register entry is in place, and at 20% if a company tenant is withholding and it is not. The structure decision has not touched that income at all.
VAT applies to both the same way
VAT is settled by turnover, not by structure. The rate is 18%, and registration stops being optional the moment your VAT taxable supplies exceed GEL 100,000 across any 12 consecutive calendar months, which leaves you 2 business days to file the application. The tax is charged from the transaction that takes you over the line, including that transaction itself, which is the detail that turns a missed threshold into a bill rather than a warning.
A Small Business Status holder who crosses the threshold registers like anyone else, and the status is not lost by registering: the Code grants it to an entrepreneur natural person expressly including a VAT-registered one.
Most services supplied to a business customer established abroad are outside Georgian VAT and do not count toward the GEL 100,000 at all, so an exporting freelancer can invoice well past that figure without ever reaching the threshold. VAT registration in Georgia follows the place of supply rules before it follows any number.
Both structures are also tax agents for the reverse charge. Buy a service from a supplier not established in Georgia and 18% is due from you on the amount paid, whether or not you are registered for VAT, because the tax agent is any person established in Georgia except a non-entrepreneur individual and a free industrial zone enterprise.
Filing dates and payments
Neither structure files once a year and forgets it. Both report monthly, and the 15th is the date that matters on both sides.
| Return or payment | Who | When |
|---|---|---|
| Small business return, and the tax with it | Individual entrepreneur with the status | By the 15th of the month after the reporting month |
| Profit tax return, and the tax with it | LLC | By the 15th of the month after the reporting month |
| Tax withheld from a dividend | LLC paying the dividend | To the budget at the moment of payment, declared by the 15th of the following month |
| Withholding return on salaries paid | Either, once it has staff | By the 15th of the following month |
| Annual income tax return | An individual with income taxed under the general rules | By 31 March of the following year, tax paid the same day |
| Advance payments of 25% each | An entrepreneur whose accounting period is the calendar year | 15 May, 15 July, 15 September and 15 December |
That last row is the one the status removes. A Small Business Status holder makes no advance payments at all, and a company on the distributed profit model makes none either, because the quarterly regime applies only where the reporting period is the calendar year. An individual with income outside the 1% still files once a year, and the Revenue Service sets 31 March as the last day for that return and the tax with it. A company files no annual profit tax return on top of its monthly ones.
Since the 2026 amendment to the ministerial order on the special regimes, an unfiled monthly small business return is expressly not treated as a return showing zero.
The late filing rules then run against it: 5% of the tax due on the return when it is up to 2 months late, 10% after that, plus 0.05% of the unpaid tax for every day it stays unpaid. Nothing is charged where the tax due really is zero, but that is decided when the return is filed, not by leaving it unfiled.
Staff, salary and pension contributions
A Small Business Status holder can employ people. The Code assumes it, and gives a narrow relief: the first GEL 6,000 of salary you pay out across a calendar year escapes tax at source, on one of two conditions. Either your registration as an individual entrepreneur and the grant of the status both fall in that same year, or your gross income the previous year was GEL 50,000 or less. Above that total the general 20% applies, and you are the one withholding it. No headcount limit exists for the status; the zero-employee rule belongs to micro business, not to this one.
Pension contributions are where the two structures genuinely part, and the eligibility condition decides it before the percentage does. The funded scheme covers Georgian citizens, and foreign citizens and stateless persons who hold a permanent residence permit. A foreigner without one is outside the scheme entirely.
| Situation | Contribution | Mandatory |
|---|---|---|
| Employee on a payroll | 2% from the employer plus 2% from the employee | Yes |
| Self-employed, individual entrepreneurs included | 4% of income | No, membership is voluntary |
| Foreign citizen without a permanent residence permit | None | Outside the scheme |
Property tax reaches the choice too. For a Small Business Status holder, only 25% of the income taxed under the 1% regime counts toward family income. That number decides two things: whether the GEL 40,000 family income exemption on property other than land still applies, and which rate band you land in, 0.05% to 0.2% of market value below GEL 100,000 of family income, or 0.8% to 1% at or above it. The same earnings taken as salary or dividends from a company count in full.
The 3 questions that settle it
Most cases are decided by 3 answers.
Is your activity on the excluded list? If it is, the 1% is not available and the choice is between 20% personal income tax and the company model. Nothing else in the comparison matters.
Does your margin sit above or below 5.19%? Above it, the individual entrepreneur is cheaper on rate. Below it, the company is, and the thinner the margin the larger the gap.
Does the money come out, or stay in? Profit you leave in a company is untaxed until it moves. Income an individual entrepreneur receives is taxed the month it arrives, whatever you do with it next.
Mixed income is where those 3 answers run out. If you are invoicing clients and renting out a flat, or holding shares, or planning to bring in a second owner, the choice is no longer a rate but a calculation across more than one regime at once, and that is the sort of question we answer in a written opinion signed by David Sisvadze. What you register this year sets this year's tax, not the rest of your working life.
Frequently asked questions
Can a Georgian LLC use the 1% tax?
No. Small Business Status is granted to an entrepreneur natural person, and a company is not one, at any size or turnover. A resident LLC pays 15% on profit it distributes and nothing on profit it keeps, which is a different model rather than a worse rate.
Is an individual entrepreneur cheaper than an LLC in Georgia?
Above a margin of 5.19% it is, because 1% of turnover then comes to less than 19.25% of the cash paid out. Below that margin, or in any year where the profit stays in the company, the LLC costs less. On GEL 200,000 of turnover with GEL 100,000 paid out, the individual entrepreneur pays GEL 2,000 and the company pays GEL 19,250.
Can an individual entrepreneur deduct business expenses?
No. The 1% is charged on income received from economic activity in Georgia, and neither the Tax Code nor the ministerial order under it provides any deduction against that base. Losses are not carried forward either, so a year of heavy costs still costs 1% of everything invoiced.
What happens if my turnover passes GEL 500,000?
The rate becomes 3% for the entire month in which the excess is recorded, and holds there until 31 December. It reaches income across that whole period, not only the amount above the ceiling. The status is revoked for turnover only after the limit has been passed in each of 2 consecutive calendar years.
Can consultants use the 1% rate?
No. Consulting activity is one of the 7 excluded categories, with tax consultants named inside it. A consultant's real comparison is 20% personal income tax on income after allowable deductions, against 15% plus 5% through a company.
Does an individual entrepreneur have to register for VAT?
Yes. Once your VAT taxable supplies cross GEL 100,000 over any 12 consecutive calendar months, you have 2 business days to apply. Small Business Status is not lost by registering: the Code grants it to an entrepreneur natural person including one registered for VAT. Services to business customers established abroad fall outside Georgian VAT and do not count toward the threshold.
Can an individual entrepreneur with Small Business Status hire staff?
Yes, and no headcount limit appears anywhere in the rules for the status. Salary up to GEL 6,000 a year is not taxed at source if you got the status in your first year of registration or earned GEL 50,000 or less the previous year; beyond that you withhold 20% and file the monthly withholding return by the 15th.
Do I have to live in Georgia to pay 1%?
No. The status attaches to the individual entrepreneur registration and to being on tax registration, not to tax residency, citizenship or a day count. What the 1% reaches is income from a source in Georgia, which includes work you do from Georgia for clients abroad.
Is 0% micro business status better than 1%?
On rate, yes: under GEL 30,000 a year with no employees, micro business income is exempt, which beats 1% by definition. Its prohibited list is a separate list of 6 items and it is closed to anyone registered for VAT. Pass GEL 30,000 or take on staff and you have 15 days to apply for Small Business Status before the 1% start date slips.
What do I owe if I file the monthly return late?
A return filed within 2 months of its due date costs 5% of the tax it shows, and one filed later than that costs 10%. Interest runs alongside the fine at 0.05% of the unpaid tax for each overdue day. A return whose tax comes to zero carries no late filing fine at all, but you establish that by filing it: an unfiled monthly return is not read as a zero one.