Benefit from 0% to 3% tax rates (1% in most cases) on turnover by becoming an individual entrepreneur with small business status (or micro business status) in Georgia (country).
If you and your business meet the following criteria, you could qualify for these amazingly low tax rates:
- Business turnover of less than 500,000 GEL (approx $165,000 USD) annually
- You are the sole director (individual) of the business.
- Not be on the list of prohibited business activities
- You do NOT need to be a permanent resident or citizen of Georgia.
See below for more details and some caveats relating to the above summary.
(Note: 3 GEL = $1 USD approx)
Foreigners from more than 90 countries (including The EU, UK, USA, NZ, AUS) are welcomed to use the Georgian 1 year visa on arrival program to legally work and stay in Georgia as well as open a business, or move your current business here.
UPDATE: During the coronavirus epidemic, Georgia has been offering the opportunity to remote workers to come to Georgia, even if their passport is on the temporarily banned list (like The USA & UK). Read more about that program here.
About Individual Entrepreneur & Small Business Status Registration
The Individual Entrepreneur registration is not a legal entity. Instead, it is the registering of an individual person as a business. You retain liability over debts and legal matters relating to this business type.
You do not automatically get the 0% to 3% tax rate just by registering as an Individual Entrepreneur. To gain the tax benefits described above, you need to apply, using your Individual Entrepreneur status, at the revenue service, in person, or using a representative, for either:
- Small business status (Annual turnover between 30,000 & 500,000 GEL – 1% tax). Employees allowed (Tax withholding is typically due on employee salary).
- Micro Business Status (Annual Turnover below 30,000 GEL – 0% tax). No employees allowed. (Resolution 415)
The small business status is ideal for freelancers and self employed individuals with a foreign income source but also for anyone else operating a sole proprietorship, or intending to do so in Georgia, so long as it is not on the list of prohibited activities (including: Medical, architectural, legal and more – full list below).
If your annual turnover exceeds the 500,000 GEL annual threshold, you will be taxed 3% on turnover for all income over that amount for the remainder of the tax year. If it exceeds 500,000 GEL in two consecutive years, your small business status will be revoked going forward to the next tax year. You will be able to continue to operate with the flat tax rate of 20% on net profit. You may be advised at this point though to form an LLC or other business structure.
When Should I Register For The 1%?
It’s essential to note that these low tax rates do not apply retroactively for the whole tax year. They apply only from the 1st day of the month following your successful registration.
For any months of the tax year when you become a tax resident automatically and you were earning income working remotely from Georgia or locally, prior to getting the small business status, you will owe 20% on your gross income, which must be declared and paid by March 31st of the year following that reporting year.
If you are here more than 183 days in any tax year, then most double taxation avoidance treaties will not protect you, and if paying tax elsewhere, you’ll find you actually owe that tax in Georgia. It should be noted this is not a special law of Georgia, it’s actually true of most countries in the world. Read more about tax liability for Digital nomads here.
For this reason, it’s essential you register your business as soon as you arrive in Georgia, otherwise, if intending to stay here, you will end up paying 20% tax on turnover, rather than 1%, and you might be paying unnecessary tax elsewhere which you may struggle to claim back after the fact. We have a complete guide to the best way to plan moving your taxes to Georgia with minimal tax leakage here.
If you’d like personalised advice on your options, book a free consultation with us – online via Zoom, or in-person in Tbilisi.
Why are the taxes so low?
The Georgian government has created a favorable environment for foreigners to attract investments and boost the economy. To achieve that goal, both Georgian residents and non-residents are introduced to tax reforms that bring a lot of benefits to them and aid growth of the entrepreneurial community.
Small businesses with a single owner may also consider registering as an LLC, which you may prefer to do in some cases, for liability (no personal liability on debts etc.) or tax reasons (ie. a very high turnover business with high expenses and low net profit, may be better off with being taxed on profit, not turnover). You can read more about Georgian LLCs here (Coming soon)
If you work in the IT sector (most specifically software development businesses, though some other businesses may qualify) you may also want to become an LLC so that you can apply for Virtual Zone status which can mean 0% VAT, 0% profit tax (article 99) and other benefits (Source: Georgian Law N5969)
However, for most contractor and freelancer style businesses, as well as many other, the small business status is going to be your best option for the lowest possible tax rates in Georgia (or micro business if you earn under 30k GEL).
So here are the specific details relating to those two business statuses:
|Micro Business||Small Business|
|Structure||Natural person or individual entrepreneur||Individual Entrepreneur|
|Turnover||<30,000 Gel for a calendar year||< 500,000 Gel for a calendar year|
|Employees||No employees||Can have employees. (if their salary is under 6000 GEL annually, and your business turnover is below 50k GEL, no tax is due on employee salary. If salary is above 6k, then 20% tax withholding is due on total salary)|
|What taxes should you pay?||Exempt from personal income taxes. 0% (on Gross Turnover) rather than 20% (on net income)||* Gross turnover is taxed at 1%;|
* Gross turnover taxed at 3 % if it exceeds 500,000 GEL in a calendar year.
Example: A small business exceeds the turnover of 500,000 GEL in August, the tax is 3% from August to December. If that situation happens during 2 consecutive years, the status of the Small Business will be cancelled in the following year.
|VAT||As a Micro Business, you are not eligible to become a VAT taxpayer. |
But you still have to pay reverse VAT if you purchase products/services from abroad.
|If your VAT taxable transactions exceeds 100,000 GEL during any continuous 12 calendar months, you need to register as a VAT taxpayer immediately and pay VAT on all future transactions that qualify for VAT. VAT is 18%. |
Certain business activities are completely exempt from paying VAT, but you can still register for VAT if you choose, no matter your turnover, so you can the claim back VAT on certain business purchases – and claim back reverse VAT.
|Tax Declarations||Submit a simplified annual income tax declaration prior to April 1st of the year following your reporting year.||Submit monthly income tax Declarations between 1st and 15th of each month. |
If you are a VAT taxpayer, submit VAT Declarations before 15th of each month
|Cash register (point of sale)||No obligation to use the cash register.||Needs to use a cash Register for receiving cash payments.|
(If you expect to take cash payments, some banks offer a 2-in-1 mobile terminal that allows card and cash payments)
|Accounting Requirements||No requirements except the annual declaration.||Needs to keep a Special Journal (a record of expenses) of Small Business accounting. (Tax code/ article 91 (1) ).|
Get a free special journal template and registration checklist below
|Revocation of status||Your Micro Business status will be revoked if:|
*You become a VAT payer
*Total gross income received by the natural person during a calendar year >30,000 GEL
*You start hiring employees
*Balance of your inventory items exceeds 45,000 GEL (Tax Code, Article 85)
*In that case, a Micro Business can submit an application to become a Small Business.
|*Your Small Business status will be revoked if:|
*Total gross income received by the small business during a calendar year exceeds 500,000 GEL for 2 consecutive years.
*If a Small Business was fined 3 times in a calendar year due to not using a cash register.
Which Status Do You Qualify For? How much tax will you pay?
Calculating your total Georgian turnover
When calculating and reporting your monthly and annual turnover as an individual entrepreneur, certain personal income can be excluded (note: tax may be due elsewhere on that income):
- Leasing of property.
- Income from loans.
- Profits from a gambling business.
- Surplus income received from the sale of the following property:
- A) real estate; B) vehicle; C) securities.
- Income received in the form of inherited property.
- Income received in the form of dividends.
- Income received as interest.
- Income received in the form of royalties.
- Income from debt forgiveness.
- Surplus obtained from the sale of a partner’s share (From an additional business – as Individual Entrepreneur registration cannot include partners)
(Source: Resolution 415)
Example: You have earned 25,000 GEL by editing videos and 10,000 GEL from loan interest and royalties, which is a total of 35,000 GEL in a calendar year. Even though you have earned more than 30 000 GEL, in that case, according to Resolution 415, you still remain as a Micro Business.
Summary of taxes you will need to declare and pay each month
With the small business status, you are required by law to declare and pay taxes by the 15th day of each month. The declarations you need to make:
- Income Declarations. (1% on turnover)
- IF registered for VAT, you must make monthly VAT turnover declarations – including VATable (18%) and non-VATable (0%) turnover). Being registered means you can claim back VAT on purchases where it is collected at source.
- Reverse VAT declarations (18% on all international purchases) (Mandatory on international purchases, even if you are not VAT registered). If VAT registered, you can claim this 18% back and effectively pay 0%.
- Tax Withholding declarations (on international purchases of products and services from non-treaty countries – 10% or 15% depending on the country you purchase from)
- Salary tax (20%) + 2+2% pension, for georgian employees. Salary tax depending on where your employees are based. If in Georgia or non-treaty countries, then it is 20%. For treaty countries, pay gross salary and the employee pays their own taxes at home,
- Keeping of the general journal (effectively a spreadsheet of your business expenses). This is not a tax to pay, it is simply a mandatory record keeping requirement. In the event of an audit, the journal must be supplied. It does not need to be submitted to the RS at any other time.
Should you register for VAT? If all your income derives from B2B transactions from foreign clients, and you have any business expenses where you pay VAT or reverse VAT, then the answer is almost always YES. If that is not quite the case, then read our guide on VAT here to decide.
As you can see from this breakdown, if you are an Individual whose clients are based outside Georgia, and if your business purchases, employees, contractors etc. are from treaty countries and you are VAT registered, you will likely only pay 1% on turnover with no other tax to pay at all.
Even if some of your purchases are from non-treaty countries, the overall tax situation is still VERY good.
The taxes are great but there is a lot of monthly declarations and record keeping which needs to be performed. If you want someone else to take responsibility for that, contact us about our discounted accounting for Individual Entrepreneurs.
When should I register my business?
As soon as possible within the tax year (calendar year) where you will become a tax resident in Georgia. This happens automatically after 183 days in any 12 month period. Read our article about automatic tax residency and its implications here. Or, by December of the year prior to the year you will become tax resident.
You will only receive the tax rates outlined above from the first day of the month after your application is approved. You may be taxed the flat 20% on gross income earned prior to approval in any given year you were a tax resident. Foreign income from the tax year you became a tax resident in Georgia, that was earned before entering Georgia is sometimes not taxable in Georgia but it may be taxed elsewhere (in the country it was earned, or your previous country of tax residency).
How to register as an individual entrepreneur and get small business status
Registering your new business, and with the revenue service, is relatively straightforward but if you don’t speak Georgian, or don’t have a full understanding of the paperwork you need to submit, it is easy enough to make mistakes that could lead to your application being rejected.
If you’d like help and advice on getting your application submitted correctly and approved, as well as important services like monthly accounting and opening a business bank account, then please book a free consultation with one of our fluent bi-lingual tax advisers.
What business activities are prohibited from getting small business/micro business status?
According to the Resolution of the Government of Georgia №415, Micro Business Status is not granted for these activities:
- Activities that require specific licensing or permission
- Currency exchange operations
- Medical, architectural, legal or notarial, auditing, consulting (including tax consultants) activities;
- Trade (unless you buy materials, produce and sell)
- Gambling Business
For Small Business Status, all of the above activities are prohibited. In addition, the following are prohibited:
- Engage in activities that require a significant investment, or in the production of excisable goods
What If I spend Less than 183 days in Georgia per tax year, or want to spend time in other countries?
If you spend less than 183 days in Georgia per tax year, you will no longer be a tax resident and you will no longer be protected against your tax residency reverting back to your country of domicile (A country in which you have strong ties, perhaps your country of citizenship, a country in which you’ve spent significant amount of time, or a country where you have bank accounts, property, family etc. This could be Georgia if you have become a permanent resident here or meet some other requirements to show domicile status)
Georgian double taxation treaties cannot protect you from taxation elsewhere if you are not a tax resident of Georgia.
If your business is registered in Georgia, you will continue to pay tax on all income derived on work performed in Georgia, or on revenue generated inside Georgia. Foreign source income generated while not physically present in Georgia, may in some cases be exempt from Georgian tax. But this is a nuanced issue and should be discussed with a tax adviser to determine if your foreign income would actually qualify.
If you trigger tax residency in another country, you may be liable to pay tax on some or all of your income in that other country. If you perform physical work while traveling, even though the work is virtual and income is foreign sourced, you may have some tax liability in the countries you are travelling in.
If you will not be physically present in the Republic of Georgia at least 183 days in order to be a tax resident each year, you can consider the high net worth program, with which you may not even need to visit Georgia to qualify for tax residency.
An additional option is to move your centre of vital interests to Georgia. This means creating clear ties to Georgia as you home. Some ways to work towards this include, but are not limited to:
- Legal Residency,
- Owning residential property in Georgia in which you reside,
- Not triggering tax residency anywhere else in the world, and avoiding spending time in your current country of citizenship,
- Having your business and income centered in Georgia,
- Family ties to Georgia (such as marriage and/or dependants),
- Citizenship in Georgia.
Once your vital interests are clearly connected to Georgia, above anywhere else, and as long as you don’t spend enough time anywhere else to trigger tax residency, then you may have a case to protect you from taxation by your country of citizenship. It should be noted, that you should also normally have filed paperwork with your country of citizenship in order to revoke your tax status their, as this revocation is rarely automatic.
If you are from the USA, other considerations apply.
What happens If I earn over the 500,000 GEL threshold for small business status?
You will be charged 3% on all turnover past the 500,000 GEL threshold. If you earn over 500k for 2 consecutive years, your small business status will be revoked and you will no longer be eligible for the tax benefits discussed in this article.
How do I submit tax declarations?
For the small business status, monthly tax declarations are mandatory and must be submitted through the rs.ge online portal. Access to this portal is granted via 2 step authentication (SMS code) only to Georgian phone numbers. After your monthly tax bill is generated, you must make payment direct from a Georgian bank account – not a foreign bank account.
Declarations must be submitted, and taxes paid, between the 1st and 15th of each month. So, if you will not be physically in Georgia for this monthly procedure every single month, you will need a representative here who can make the submission on your behalf. Our accountants can handle this for you.
Micro businesses are only required to submit annual tax declarations, by March 31st (Tax Code, Article 93.
What expenses should be tracked and what can be charged against my tax bill?
Georgian tax law still requires small business owners to keep a special journal documenting all of their business expenses (Get a free template below). You are not required to declare or submit the figures from this journal as part of your monthly tax return. But they may be requested if you were audited. (Tax Code, Article 91)
Your tax liability is on gross turnover, and you cannot claim back any tax relief based on your expenses.
Micro Businesses are not required to keep any records of expenses, only of turnover.
Other Tax & Reporting Considerations?
Although your expenses are not deductible, your foreign expenses are still subject to reverse-VAT and Tax withholding.
Meaning, if you hire contractors from abroad, or have other expenses (such as a zoom subscription, or other products and services that are not already taxed at source in Georgia) you are liable to declare and pay reverse-VAT monthly. In addition, tax withholding will also be due to be declared and paid from 0% to 15% depending on the country you are purchasing from.
Reverse-VAT can be claimed back, if you are a VAT taxpayer – which you can register to be voluntarily, or are required to if your VAT turnover exceeds 100,000 GEL in any 12 month period.
Get Help or Get Our Small Business Registration Checklist
If you’d like help and advice on getting your application submitted correctly and approved, as well as important services like managing your monthly accounts, and opening a Georgian business bank account, then please book a free consultation with one of our fluent bi-lingual tax advisers.
If you’d like to DIY the process, you can follow our Small/Micro Business Status checklist