Small Business Status in Georgia: How the 1% Tax Works
Small Business Status in Georgia is the regime behind the 1% rate that freelancers hear about long before they land. It is narrower than the number suggests. It reaches the business income of individual entrepreneurs, it stops at GEL 500,000 a calendar year, 7 activities can never use it, and rent, dividends and interest stay outside it. Here is the rule on each.
- Small Business Status taxes an individual entrepreneur's Georgian-source business income at 1%, with no deduction for expenses.
- The limit is GEL 500,000 of gross income from economic activity per calendar year, or GEL 700,000 for wine tourism and agro tourism operators.
- Above it the rate becomes 3% from the start of the month of the excess until 31 December, and the status is lost only after 2 calendar years over the limit.
- 7 activities can never use the regime, among them consulting, audit, advocacy and notary work, medical and architectural activity, gambling and staffing.
- Rent, dividends, interest, royalties, gains and 7 further income types are outside the 1%, each taxed under its own rule and, where no payer withholds, declared by 31 March.
- The status runs from the day you file the application, and every month after that carries a return and a payment by the 15th, zero months included.
What Small Business Status is
Small Business Status is a special tax regime for an entrepreneur natural person, which is what Georgian law calls an individual entrepreneur. A VAT-registered one can hold it. A company cannot: Articles 88 to 94 of the Tax Code open the regime to natural persons only.
The rate is 1% of the taxable income under the regime: Georgian-source income other than salary and the income types the Government lists separately. The default rate on an individual's taxable income is 20%, so the 1% is a narrow exception inside Georgia's wider tax rules for individuals and companies, and the 20% comes back the moment income falls outside the regime.
Neither the Code nor the Ministry of Finance instruction gives any deduction against that base, so the 1% falls on what the activity brings in rather than on profit.
| Item | Rule |
|---|---|
| Who can hold it | Individual entrepreneurs, including VAT-registered ones |
| Rate | 1% on income from economic activity in Georgia |
| Annual limit | GEL 500,000, or GEL 700,000 for wine tourism and agro tourism operators |
| Above the limit | 3% from the start of the month of the excess to 31 December |
| Loss of status for turnover | Only after 2 consecutive calendar years over the limit |
| Return and payment | Monthly, by the 15th of the next month |
| Advance payments | None |
| Records | Special record book, tax documents kept 3 years |
Who qualifies for Small Business Status
Getting the status takes 2 steps: register as an individual entrepreneur in the Registry of Entrepreneurs and Non-Entrepreneurial (Non-Commercial) Legal Entities, then apply to the tax authority on the Annex 1 application form. The certificate is issued within a reasonable time and has no expiry date while the status lasts.
Activities that can never use the 1%
Annex 4 of Government Resolution No 415 lists 7 prohibited activities, and carrying out any of them both blocks the status and ends it if you hold it:
- activities that need a licence or permit, the light vehicle taxi permit in the capital excepted
- activities requiring significant investment, the item's own example being excise goods production
- currency exchange operations
- medical, architectural, advocacy or notary, audit and consulting activity, including tax consultants
- gambling
- provision of personnel
- production of excise goods
Items 2 and 7 both name the production of excise goods, so 2 of the 7 cover the same ground. What counts is the activity you carry out rather than the code on your registration, and one recorded instance is enough.
Consulting is item 4, and the resolution defines it no further than the bracketed inclusion of tax consultants, so anyone whose work is advice rather than delivery should measure it against the conditions for holding the 1% status before applying. Salary is outside the regime in every case, so pay from an employer stays at 20%.
Residency and Georgian-source income
The Code sets one eligibility test, that the applicant is an entrepreneur natural person, and names no tax residency, citizenship, residence permit or presence condition. The instruction adds one, being on tax registration, which is a different thing from tax residency.
What the regime turns on is the source of the income. Only Georgian-source income is taxed at 1%, so running the 1% regime from outside Georgia raises different questions from running it from a desk in Tbilisi. Services actually rendered in Georgia are Georgian-source whatever country the client pays from, and a non-resident pays Georgian income tax on that income alone.
When the status starts
The status applies from the day the application is filed. Income earned earlier in the same year does not become 1% income: it stays under the rules that applied then and goes on an annual return filed the following year, with no advance payments on it. For an individual entrepreneur with no special status that means 20% on gross income less the deductions the Code allows, declared by 31 March.
One case runs the other way. A micro business that passes GEL 30,000 or takes on staff and applies within 15 days holds the 1% status from the day of the excess or the hiring; applying later gives it from the application date, with income from 1 January to that date taxed under the general rules.
Micro business, small business and the other regimes
Georgia runs 3 special regimes for individuals alongside the general rules.
| Regime | Tax | Income limit | Return |
|---|---|---|---|
| Micro business | 0% on micro business income | GEL 30,000 a calendar year | Annual, by 31 March |
| Small business | 1%, or 3% from the month of the excess | GEL 500,000, or GEL 700,000 for wine and agro tourism operators | Monthly, by the 15th |
| Fixed tax | Fixed monthly amounts per object of taxation | n/a | n/a |
| General rules | 20% on gross income less allowable deductions | None | Annual by 31 March, with 25% advance payments on 15 May, 15 July, 15 September and 15 December |
If you work alone and your income stays within GEL 30,000 a year, micro business status and its 0% rate is cheaper, though it ends the moment you hire anyone, and its own list bars trade unless you process the goods you bought. Micro business also needs no individual entrepreneur registration and cannot be held by a VAT payer, while small business status has no headcount limit at all.
Fixed tax is charged per object rather than on income, at GEL 50 a month per workplace for hairdressing and GEL 30 for manicure and pedicure, and neither micro nor small business reaches an activity that falls under it.
The GEL 500,000 limit and the 3% rate
The limit is measured on gross income from economic activity across the calendar year: GEL 500,000, or GEL 700,000 if you hold wine tourism or agro tourism activity subject status. A rented flat and a share portfolio sit outside the GEL 500,000 ceiling, so a holder can be well past GEL 500,000 of total income and still pay 1% on the business side.
Passing the limit changes the rate rather than the status. The month that takes you past GEL 500,000 is taxed at 3% in full, and so is every month after it up to 31 December. The 3% falls on all of that month's income, not only on the part above the limit.
Say you invoice GEL 60,000 every month. After 8 months your income for the year is GEL 480,000 and the tax on it is GEL 4,800 at 1%. In month 9 the running total reaches GEL 540,000, so the whole of that month's GEL 60,000 is taxed at 3%, which is GEL 1,800, and month 10 costs the same again. Over 10 months, GEL 600,000 of income carries GEL 8,400 of tax.
Going over once does not cost you the status: revocation for turnover needs a second calendar year above the limit, and it takes effect only from 1 January of the year after that.
Income the 1% does not cover
Annex 5 of the same resolution lists 12 income types the regime does not tax and that do not count toward the limit: renting or leasing property, income from lending, gambling winnings, gifts, gains on immovable property, vehicles and securities, inherited property, dividends, interest, royalties, debt forgiveness, the gain on selling a partner's share, and construction services supplied to an enterprise, organisation or entrepreneur.
The construction item is the newest. Resolution No 436 added it from 1 February 2025, reaching groups 41.2, 42 and 43 of the national classifier where the customer is a business rather than a private individual. Each of the 12 is taxed under the rule written for it, and what no payer withholds on goes on the annual return by 31 March.
| Income | How it is taxed instead |
|---|---|
| Salary from an employer | 20% |
| Renting residential space for living | 5% with no deductions if you are in the Revenue Service register of landlords, 20% withheld by a legal person tenant if you are not |
| Dividends from a Georgian company | 5% withheld at source, final for a resident individual |
| Interest paid to you | 5% withheld at source and final; 0% on interest from a licensed financial institution such as a bank |
| Royalties | 20% at source for a resident individual not registered for VAT |
| Sale of a flat or house | Exempt if owned more than 2 years, otherwise 5% of the gain |
| Sale of a car | Exempt if owned more than 6 months, otherwise 5% of the gain |
| Gifts | Exempt up to GEL 1,000 from an individual who is not your employer, and from first and second line heirs |
| Construction services to a business | General rules, on the annual return |
Monthly returns, records and cash registers
Each monthly Small Business Status return reports the month's income, and it is filed with the tax paid by the 15th of the month after the reporting month. A month you skip is not treated as a zero return, so months with no income are filed too. Late filing costs 5% of the tax due under the return up to 2 months late and 10% after that, and unpaid tax carries interest of 0.05% for each overdue day.
Keep a special record book and keep your tax documents for 3 years. A loss cannot be carried forward while you stay in the regime.
Cash taken from customers goes through a cash register, a duty set by the Ministry of Finance instruction on special tax regimes rather than by the Tax Code. Each breach of those rules is a GEL 200 fine, and 3 of them in a calendar year end the status. A waybill is needed when you transport or supply goods in the cases the Code names, and a holder who is not registered for VAT issues no tax invoices.
If you pay staff, salary totalling up to GEL 6,000 in a calendar year is not taxed at source, either where you registered and got the status in the same year, or where your gross income in the previous year was GEL 50,000 or less. Beyond that you withhold and file the monthly withholding return by the 15th.
VAT for Small Business Status holders
Holding the status does not take you out of VAT: a holder who passes the threshold has to register, and a VAT-registered individual entrepreneur can hold the status at the same time.
VAT registration in Georgia runs on its own test, taxable supplies above GEL 100,000 in any 12 consecutive calendar months with the application due within 2 business days, which is a rolling count rather than the calendar year the 1% limit uses. VAT is charged at 18% from the transaction that takes you over, including that transaction itself. Most services supplied to business customers abroad fall outside Georgian VAT and never reach the threshold, because a service to a taxable customer is supplied where that customer is established.
Buying runs the other way. Services supplied in Georgia by a taxable person not established here are taxed on the customer as tax agent at 18%, and any person established in Georgia other than a non-entrepreneur individual or a free industrial zone enterprise is a tax agent, registered for VAT or not. A holder paying for software subscriptions from abroad is inside that rule.
How Small Business Status is revoked
The Code lists 5 grounds and only 5, and the date the status ends differs by ground.
| Ground | Status ends from |
|---|---|
| Your own request, made before the end of the calendar year | The 1st day of the month after the month of the application |
| Carrying out a prohibited activity | The start of that calendar year, plus a GEL 500 fine |
| At least 3 cash register fines in one calendar year | The start of that calendar year, plus a GEL 500 fine |
| Gross income over the limit in each of 2 calendar years | The start of the following year, with no new grant that year |
| No longer an entrepreneur natural person | The date the ground arose |
A prohibited activity or a third cash register fine does not end the status from the day it happens. It ends it from the start of that calendar year, and one recorded instance is enough. The monthly assessments for that year are cancelled, and the income received since 1 January is taxed under the general rules instead, at 20% on gross income less the deductions the Code allows, with a GEL 500 fine on top.
A backdated revocation turns on how the Revenue Service reads what you do, so where part of your work sits close to consulting, audit or architecture, send us the details and David Sisvadze will set out in a signed written opinion whether the 1% reaches it.
You may apply again from the tax year after a revocation. Earlier years stay open to the Revenue Service too: the audit window on a calendar year runs for the 3 years after it ends.
Individual entrepreneur or LLC
Small Business Status is closed to companies, which are taxed on a different event: an LLC pays 15% profit tax on the profit it distributes and nothing on the profit it keeps, and a dividend paid on to an individual is taxed at 5% at source.
So the choice between an individual entrepreneur and an LLC turns on whether you want tax charged on income as it arrives or on profit when it leaves the company. How much you draw out, how much stays in the business and whether the activity can hold the 1% status at all move the answer.
Frequently asked questions
Can individual entrepreneurs deduct expenses under the 1% tax?
No. The Tax Code and the Ministry of Finance instruction provide no deduction against the small business base, so the 1% is charged on the income the activity brings in. A loss cannot be carried forward while you stay in the regime.
Do I need to live in Georgia to get the 1% tax?
No. The eligibility test is that you are an entrepreneur natural person, and no residency, citizenship, residence permit or day count appears in it; the instruction adds only that you are on tax registration. Residency matters to the base rather than the status: the 1% covers Georgian-source income, and a non-resident pays Georgian income tax on that income alone.
Can I hire employees with Small Business Status?
Yes. No headcount limit appears in the articles on small business status or in the instruction, unlike micro business, which is closed to anyone using hired labour. Salary totalling up to GEL 6,000 in a calendar year is not taxed at source if you registered and got the status in the same year, or your previous year's gross income was GEL 50,000 or less.
Do I have to file a return in a month with no income?
Yes. A month with no return filed is not treated as a zero return, so the month still needs its declaration. Returns and payments are due by the 15th of the month after the reporting month.
Is income from foreign clients taxed at 1% in Georgia?
Yes, where the work is done in Georgia. Services actually rendered in Georgia are Georgian-source income, and the country the money is received from does not change that. Work done from Georgia for clients abroad is inside the 1%, not foreign income.
Can consultants get Small Business Status in Georgia?
No. Consulting activity, tax consultants included, is item 4 of the prohibited list, alongside audit, advocacy or notary, medical and architectural work. The resolution gives no wider definition of consulting, and the test is the activity you actually carry out rather than the activity code you registered.
Is rental income covered by the 1% tax?
No. Renting out property is the first of the 12 income types the regime does not tax, and it does not count toward the GEL 500,000 limit. Residential space let to someone who lives in it is taxed at 5% with no deductions when you are in the Revenue Service register of landlords, and where no tenant withholds it, the rent goes on the annual return by 31 March.
Do individual entrepreneurs pay pension contributions in Georgia?
Contributions are voluntary for the self-employed, and the rate for someone who opts in is 4% of income. The funded pension scheme covers Georgian citizens and foreign nationals holding a permanent residence permit, so a foreigner on a temporary permit is outside it.