Publication Date: 30 July 2026

What Is Small Business Status and Why Is It So Popular?

Georgia’s Small Business Status allows individual entrepreneurs (IEs) to benefit from one of the most favourable tax regimes in the country. If a person meets the legal requirements, business income is taxed at only 1%, whereas the standard personal income tax rate is 20%.

Because of this preferential tax regime, Georgia has become particularly attractive for freelancers, IT specialists, marketing consultants, remote professionals, and foreign entrepreneurs conducting business from Georgia.

As of 2025, the 1% tax rate applies if the annual turnover does not exceed 500,000 GEL. For persons engaged in agritourism activities, the threshold is 700,000 GEL.

If the turnover exceeds the applicable threshold during a calendar year, the amount exceeding the limit is taxed at 3%, while the Small Business Status remains valid until the end of that year. If the turnover exceeds the permitted threshold for two consecutive years, the status is automatically revoked from 1 January of the third year.

How to Obtain Small Business Status?

To benefit from the Small Business Status, a person must first register as an Individual Entrepreneur (IE).

In Georgia, this procedure is relatively simple and is generally completed within one business day.

After registration, an application for Small Business Status may be submitted through the personal account on the electronic portal of the Revenue Service of Georgia.

Which Activities Qualify for the 1% Tax Regime?

Not every economic activity qualifies for the Small Business Status.

Under Georgian legislation, the following activities are excluded, among others:

• Legal and notarial services;
• Audit and tax consulting;
• Medical services;
• Architectural services;
• Financial services;
• Currency exchange activities;
• Financial intermediation;
• Gambling activities;
• Activities involving excise goods;
• Staffing services;
• Activities requiring a special licence (except for certain exceptions provided by law).

On the other hand, the Small Business Status is widely used in areas such as:

• Software development;
• Web development;
• Digital marketing;
• Graphic design;
• Online consulting;
• Other remote services.

Is All Income Taxed at 1%?

No.

Even if a person holds Small Business Status, the 1% tax regime does not apply to every type of income.

The standard 20% personal income tax still applies to:

• Income from renting out real estate;
• Capital gains from the sale of property;
• Dividends;
• Interest;
• Royalties;
• Gifts;
• Inheritance;
• Gambling winnings and other types of income specified by law.

Example

Assume that an Individual Entrepreneur earned 480,000 GEL from software development services and additionally received a car worth 50,000 GEL as a gift.

In this case:

• The income from services will be taxed at 1%, resulting in a tax liability of 4,800 GEL;
• The value of the gifted vehicle will be taxed at 20%, resulting in an additional tax liability of 10,000 GEL.

Is It Possible to Benefit from Small Business Status Without Living in Georgia?

Yes.

Foreign nationals may also register as Individual Entrepreneurs in Georgia and obtain Small Business Status if they satisfy the legal requirements.

However, the source of income is particularly important.

As a general rule, the 1% tax regime applies only to income considered to be derived from a Georgian source.

In practice, this often means that the services must be performed from within Georgia.

If a person is physically located in another country and carries out the activity there, the income may become subject to that country’s tax rules. In such cases, international tax issues should be taken into account, including:

• Tax residency;
• Permanent Establishment (PE);
• Double Taxation Avoidance Agreements.

Example

If a person is physically present in Georgia and provides online marketing services to a British company, the remuneration received will generally be regarded as Georgian-source income and may qualify for the 1% tax regime.

If the same services are performed from another country, the income may no longer satisfy the conditions for the Small Business Status and may instead become subject to the tax legislation of that country.

Is VAT Registration Required?

Small Business Status does not exempt a person from VAT registration obligations.

If, during any rolling 12-month period, VAT-taxable turnover in Georgia exceeds 100,000 GEL, the person becomes obliged to register as a VAT taxpayer.

The standard VAT rate in Georgia is 18%.

After VAT registration, the business becomes subject to additional tax obligations, including the monthly submission of VAT returns.

At the same time, where services are provided to a foreign (non-resident) customer and, under the Georgian VAT rules, the place of supply is not considered to be Georgia, such transactions are generally not subject to Georgian VAT and are not included in the 100,000 GEL registration threshold.

What Tax Obligations Does a Person with Small Business Status Have?

Every Individual Entrepreneur holding Small Business Status is required to submit tax returns on a regular basis.

A personal income tax return must be completed and submitted electronically to the Revenue Service every month, even if no income was earned during the relevant month.

Timely submission of tax returns and payment of taxes within the statutory deadlines are mandatory, as failure to comply may result in fines, penalties, or other tax liabilities.

Key Advantages of Small Business Status

In Georgia, the Small Business Status is considered one of the most popular tax regimes for both local entrepreneurs and foreign nationals. Its popularity is due to its simple administration, low tax burden, and fast registration procedure.

The main advantages of the Small Business Status include:

• 1% personal income tax within the turnover threshold established by law;
• Fast registration as an Individual Entrepreneur (IE);
• The possibility to submit the application electronically;
• Relatively simple tax administration;
• The opportunity to provide services to both Georgian and foreign clients;
• Low start-up costs for launching a business;
• A legal structure that is particularly convenient for freelancers and independent professionals.

Small Business Status or LLC – Which Is Better?

When starting a business, one of the most common questions is whether it is better to register as an Individual Entrepreneur with Small Business Status or to establish a Limited Liability Company (LLC).

As a general rule, the Small Business Status is more advantageous for individuals who conduct business independently and whose annual turnover does not exceed the statutory threshold. In such cases, administrative procedures are simpler and the tax burden is lower.

An LLC is often more appropriate where the business has multiple founders, plans to employ staff, attract investors, or engage in high-turnover activities.

Before choosing a legal structure, it is advisable to assess the nature of the business, expected income, and future development plans.

Most Common Mistakes

In practice, individuals holding Small Business Status frequently make mistakes that result in additional tax liabilities or financial penalties.

The most common mistakes include:

• Late submission or failure to submit monthly tax returns;
• Incorrect accounting of turnover;
• Failure to monitor the 500,000 GEL annual turnover threshold;
• Late compliance with VAT registration obligations;
• Carrying out activities that are not eligible for the Small Business Status;
• Mixing different categories of income and attempting to apply the 1% tax rate to all income.

Avoiding these mistakes significantly reduces tax risks and helps ensure compliance with Georgian legislation.

How Can Chikovani Law Office Help?

Before obtaining Small Business Status, it is important to determine whether the planned business activity complies with the requirements of Georgian tax legislation. Incorrect registration or misclassification of business activities may lead to additional tax obligations and legal liability in the future.

Chikovani Law Office offers clients:

• Registration as an Individual Entrepreneur (IE);
• Legal assistance in obtaining Small Business Status;
• Preliminary assessment of the eligibility of business activities;
• Tax and corporate legal advice;
• Legal services for foreign entrepreneurs and investors in Georgia;
• Company registration and ongoing legal support for businesses.

Frequently Asked Questions (FAQ)

Can a foreign citizen obtain Small Business Status?

Yes. Georgian legislation allows foreign nationals to register as Individual Entrepreneurs and obtain Small Business Status, provided they meet the applicable legal requirements.

Is a Georgian residence permit required?

Not in every case. However, the answer depends on the nature of the business activity, tax residency issues, and other legal circumstances.

What happens if the annual turnover exceeds 500,000 GEL?

Under the conditions established by law, the turnover exceeding the statutory threshold is taxed at 3%. If the threshold is exceeded for two consecutive years, the Small Business Status will be automatically revoked.

Is it necessary to hire an accountant?

The law does not require entrepreneurs to hire an accountant. However, professional assistance is often advisable to ensure compliance with tax obligations and to avoid potential mistakes.

Can a person holding Small Business Status work with foreign clients?

Yes. Individuals holding Small Business Status may provide services to foreign clients. However, in each case it is necessary to assess the source of income, international tax rules, and the requirements of Georgian legislation.

Contact Us

If you wish to register as an Individual Entrepreneur, obtain Small Business Status, or require professional legal and tax advice in Georgia, Chikovani Law Office is ready to provide comprehensive legal support.

We offer services to both Georgian citizens and foreign clients in the areas of business registration, tax matters, corporate law, and ongoing legal support for businesses.

Chikovani Law Office

📍 Address: Tbilisi, Georgia

📞 Phone: (+995) 555 15 13 13

📧 Email: chikovani.lawoffice@gmail.com

🌐 Website: www.chikovanilaw.com

If you would like to choose the most appropriate legal and tax solution for your business, contact us and receive professional advice from our team.

Publication Date: 30 July 2026