Small Business Status

Welcome to the AI Law guide on the Small Business Status in Georgia. This page is designed to provide individual entrepreneurs with a clear, comprehensive overview of this preferential tax regime, from application to ongoing compliance.
The guide begins with the foundational aspects, outlining exactly who is eligible to apply and providing a step-by-step walkthrough of the application process, including details on fees and activation timelines. The most crucial sections detail the rules of the regime, starting with the full list of Prohibited Activities that can make you ineligible. Following that, the Taxation Rules section explains the 1% and 3% tax rates in detail and clarifies which types of income are taxed separately under general rules.
Next, we cover your Ongoing Responsibilities, which details your monthly filing duties and record-keeping requirements. Finally, we strongly advise reviewing the Revocation of Status section; it clarifies the key conditions that can lead to the cancellation of your status, from exceeding income limits to compliance violations. We encourage you to read through this guide to fully understand the benefits and responsibilities of the Small Business Status.

I. A Complete Guide to Small Business Status in Georgia

The Small Business Status is a special tax regime in Georgia designed for individual entrepreneurs, offering a simplified tax process and a preferential 1% tax rate. This guide covers every key aspect of the Small Business Status, explaining the entire lifecycle from initial eligibility and application to ongoing tax obligations and the rules for losing the status.

1. Eligibility: Do You Qualify?

Understanding if you qualify is the first step. Here is a simple breakdown of the core eligibility rules.

Who is Eligible?

The status can only be granted to an Individual Entrepreneur (IE).

What this means: Registering as an IE with the Public Registry is a mandatory first step before you can apply for the status.
Special case for artists/scientists: For activities like scientific or artistic work, you can apply to the tax authority for both tax registration and the Small Business Status simultaneously.

Key Considerations Before You Apply

You will not be granted the status under these conditions:

You Perform Prohibited Activities: Your business cannot involve any of the government-listed prohibited activities. (See Section 3 for the full list).
Your Activity is Subject to a Fixed Tax: You cannot apply the 1% Small Business tax rate to an activity that the government has designated for a "fixed tax". The status is simply not granted for that specific part of your business.
The Income Threshold: The standard annual income limit for this status is 500,000 GEL, with an extended limit of 700,000 GEL for those in wine or agrotourism. This is not a limit on who can apply, but a threshold that affects your tax rate and can lead to revocation if exceeded over time. (See Section 4 and Section 6 for details).

2. Application: Your Step-by-Step Guide

Getting Small Business Status is a straightforward process. Here’s exactly what you need to do:

Register as an Individual Entrepreneur (IE): As mentioned above, this is the mandatory first step.
Apply to the Revenue Service: Once your IE registration is complete, you can apply for the status. You have two options:

💻 Online (Recommended): Applying through your authorized user page on the Revenue Service website is free.
🏢 In-Person: You can visit a service center to apply for a fee of 100 GEL. Payment should be made to the following account:

Beneficiary Name: Treasury Single Account
Beneficiary Bank: State Treasury
Bank Code: TRESGE22
Treasury Code: 707017021

Activation and Your Certificate

When Your Status Begins: Your status officially becomes active on the first day of the month following the month you apply. For example, an application submitted in April becomes active on May 1st.
Receiving Your Certificate: Upon approval, the tax authority will issue you a Small Business Certificate. If it is ever lost or damaged, it can be restored via the "Restoration of Micro/Small Business Certificate (auto+)" application.

3. Prohibited Activities

The government maintains a specific list of activities not permitted under this regime. Performing any of these will make you ineligible.

Activities requiring a special license or permit (with an exception for licensed taxi services in Tbilisi ).
Activities requiring significant investment.
Currency exchange operations.
Medical, architectural, legal (advocacy), notarial, auditing, or consulting services (including tax consultants).
Gambling businesses.
Personnel placement or staffing services.
Production of excisable goods (e.g., alcohol, tobacco).

Important: Consequences of Violating these Rules

The consequences for performing a prohibited activity after being granted the status are severe:

Retroactive Cancellation: Your status will be cancelled retroactively to the beginning of the calendar year in which you started the prohibited activity.
Re-Taxation: All your income for that entire year will be subject to taxation under the general rule, not the preferential 1% rate.
Fine: You will also be subject to a 500 GEL fine.

4. Taxation Rules

The 1% Tax Rate (Standard Rule)

The primary tax rate for a small business is 1% on taxable income from Georgian sources, calculated on your gross income without deducting expenses.

The 3% Tax Rate (Higher Threshold)

If your gross income within a calendar year exceeds 500,000 GEL (or 700,000 GEL for wine/agrotourism), the tax rate increases to 3%.

CRITICAL CLARIFICATION: The 3% rate is not applied only to the amount above the limit. It applies to the entire taxable income from the beginning of the month in which you exceeded the threshold until the end of that year.
Example: If your income is 490,000 GEL at the end of October and you earn 30,000 GEL in November, your entire 30,000 GEL for November, and all income for December, will be taxed at 3%.

Income Taxed Separately (Under General Rules)

Certain types of income are excluded from the 1% regime and do not count towards your 500,000 GEL threshold. This income must be declared separately via an annual declaration and is taxed under general rules. This includes:

Leasing or renting out property.
Income from issuing a loan (interest).
Winnings from gambling.
Gifts, inherited property, dividends, royalties, and debt forgiveness.
Capital gains from selling real estate, vehicles, securities, or a partner's share.
Income from specific large-scale construction services when the client is an enterprise, organization, or another IE.

5. Your Ongoing Responsibilities

To stay in good standing, you must meet several ongoing obligations:

Tax Filings & Payments

🗓️ Monthly Declarations: You must file a declaration and pay your tax every month, no later than the 15th day of the following month.
📄 Annual Declarations: For any income taxed separately (like rent), you must file a separate annual declaration by April 1st of the following year.
✅ Key Benefit: Individuals with this status are exempt from making current (advance) tax payments during the year.

Record Keeping & Invoicing

📓 Accounting Journal: You are required to maintain a special accounting journal and may use either the cash or accrual method.
📠 Cash Register: You must use a cash control machine for all cash transactions, even if operating in a marketplace.
🚚 Waybills: You must use official consignment notes (waybills) when transporting or delivering goods.

Other Taxes

VAT Registration: This status does not exempt you from VAT. You must register as a VAT payer if your turnover meets the mandatory threshold.

6. Revocation of Status

Your status can be cancelled for several reasons, and the timing and consequences vary.

Exceeding Income Limits: If your income exceeds the 500,000/700,000 GEL limit for two consecutive years while you hold the status.
Effective Date: The status is cancelled from the start of the following year.
Cash Register Violations: If you are fined three or more times in one calendar year.
Effective Date: Cancelled retroactively to the beginning of that year.
Consequences: Your income is re-taxed under the general rule, and you are fined 500 GEL.
Voluntary Request: If you apply to cancel your status.
Effective Date: Cancelled from the first day of the month after your application.
Cancelling IE Registration: If you cancel your IE registration.
Effective Date: The status is cancelled automatically on the same date.

II. Q & A: Small Business Status

1. What are the tax rates for a Small Business?

The primary tax rate is 1% on your taxable income. If your annual income exceeds the 500,000 GEL threshold, the rate on your income from that month forward becomes 3%.

2. How do I apply for the status and is there a fee?

First, you must be a registered Individual Entrepreneur (IE). You can then apply online for free through the Revenue Service portal , or in person at a service center for a 100 GEL fee.

3. When does my status become active?

Your status officially begins on the first day of the month following the month you submit your application.

4. Are there any activities I am not allowed to do?

Yes, you cannot get the status for activities like medical, architectural, legal, or consulting services; currency exchange; gambling; providing personnel; producing excisable goods; or activities that require a special license (with an exception for Tbilisi taxis).

5. What happens if my income goes over 500,000 GEL in one year?

Your status is not immediately lost. The tax rate for the entire income of the month you exceeded the limit, and for all following months that year, will increase from 1% to 3%.

6. What if I have other income, like from renting an apartment?

Income from sources like rent, dividends, interest, or capital gains is taxed separately under general rules. It does not count toward your 500,000 GEL small business limit, and you must file a separate annual tax declaration for it by April 1st.

7. Is income from construction work taxed at 1%?

It depends on the client. If you provide specific large-scale construction services to an enterprise, organization, or another IE, that income is taxed separately under the general rule.

8. When do I need to file my declaration and pay the tax?

For your small business activities, you must file a declaration and pay tax monthly, no later than the 15th day of the following month.

9. Can I hire employees with this status?

Yes. There is also a tax benefit: the first 6,000 GEL in total salaries paid during a year is not taxed at the source, provided your gross income in the previous year was under 50,000 GEL or you registered as an IE and got the status in the same year.

10. What records do I need to keep?

You must maintain a special accounting journal, use a cash control machine for all cash transactions, and use official consignment notes (waybills) when transporting goods.

11. What happens if I make a loss in a given year?

Losses incurred while you have Small Business Status cannot be carried forward to the next tax year to offset future income.

12. What happens if I perform a prohibited activity?

Your status will be revoked retroactively to the beginning of the year the activity occurred. All your income for that year will be re-taxed under the general rule , and you will be fined 500 GEL.

13. How can I lose my status?

You can lose it if your income exceeds the limit for two consecutive years, you perform a prohibited activity, or you are fined 3+ times in a year for cash register violations. Performing a prohibited activity or receiving 3+ cash register fines will also result in a 500 GEL fine.

14. Can I have Small Business Status and also be a VAT payer?

Yes. Having Small Business Status does not exempt you from VAT. If your turnover in any continuous 12-month period exceeds 100,000 GEL, you must register as a VAT payer. This registration does not affect your Small Business Status.

15. Do I need to make advance tax payments during the year?

No, individuals with Small Business Status are exempt from making current (advance) tax payments.