Taxes for individual entrepreneurs in Georgia

The Georgian government has created favorable conditions for foreigners to attract investment and stimulate the economy. Georgia is the absolute leader in the post-Soviet space in terms of the number of open individual entrepreneurs from Russians, Belarusians, and Ukrainians. In 2022 alone, twice as many individual entrepreneurs were opened (16,000+ units) than in the previous 25 years.

In Georgia, in addition to the famous tax for small businesses, 1% for individual entrepreneurs, there are also several special economic zones (SEZs) that offer favorable tax regimes and simplified procedures for companies. There are some pitfalls here, especially for Russians and Belarusians, but weighing all the pros and cons, you definitely come to the conclusion that Georgia is one of the most interesting countries for earning income from abroad.

If an individual entrepreneur in Georgia meets the criteria below, then he can qualify for one of the lowest turnover tax rates in the world (1%) :

• Annual turnover is less than 500,000 lari (approximately 185,000 US dollars)*.

• The individual entrepreneur is the sole operator (individual) of the business**.

• Activities are not included in the list of prohibited activities ***

  * 1 US dollar ≈ 3.7 lari – (as of October 2024)

  **You do not need to be a tax resident or citizen of Georgia to receive preferential tax rates

  *** activities that do not qualify for a preferential rate (for example, consulting, medical, architectural, legal services and others).

Foreigners from more than 90 countries (including the countries of Russia, Belarus, Ukraine, Kazakhstan) can take advantage of both tax breaks for individual entrepreneurs and the visa-free entry program to Georgia for one year to legally work and stay in the country, as well as open a business or relocate already existing business in the country.

Status of small businesses in Georgia

This status is ideal for freelancers and self-employed people with foreign sources of income. An entrepreneur does not automatically receive a tax rate of 1%; after registering as an individual entrepreneur, he will need to submit a separate application to the tax service in person or through a representative, and obtain the status of a small business. Having employees in this configuration is allowed, but the tax on employee salaries is already 20%.

If the threshold of GEL 500 thousand is exceeded, the turnover tax will be 3% from the month when this threshold was exceeded until the end of the tax year. For example, if an individual entrepreneur exceeds the threshold in July, the tax will be 3% from July to December.

If the excess occurs two years in a row, the small business status will be terminated for the next tax year. In this case, you can continue to work with a fixed tax rate of 20% on net profit, but perhaps in this case it would be advisable to register an LLC or other structure or open an individual entrepreneur in another jurisdiction, for example Kyrgyzstan.

The 1% rate begins to apply on the first day of the month following the month of successful registration of small business status. Income received before the beginning of the month from which the status begins to apply is not subject to recalculation at a preferential rate.

It is noteworthy that individuals with an annual turnover of less than GEL 30,000 can also apply for micro-business status (0% tax), but employees cannot be hired (Resolution No. 415), but there is no need to open an individual entrepreneur.

Tax structure for individual entrepreneurs in Georgia

Microbusiness

• Turnover: less than 30,000 GEL per calendar year.

• Taxes: exemption from income tax, 0% tax on gross turnover.

• Employees cannot be hired.

Small business

• Turnover: less than GEL 500,000 per calendar year.

• Taxes: 1% on gross turnover (3% if exceeding GEL 500,000 per year).

• You can hire workers.

VAT

• For microbusiness: there is no right to become a VAT payer.

• For small business: If the amount of VAT-taxable transactions exceeds GEL 100,000 in any 12 consecutive months, you are required to immediately register as a VAT payer and pay VAT on all subsequent transactions that are subject to VAT. The VAT rate is 18%.

Some activities are completely exempt from VAT, but you can voluntarily register for VAT to reclaim VAT on certain business expenses (subject to restrictions) and also claim reverse VAT.

Tax reporting for individual entrepreneurs in Georgia

• Microbusiness: submits a simplified annual income tax return by April 1 of the year following the reporting year.

• Small business: Files monthly income tax returns from the 1st to the 15th of each month. VAT payers, you submit VAT returns by the 15th of each month.

Cash register (point of sale)

• Microbusiness: Not required to use a cash register.

• Small business: Must use a cash register to accept cash payments. (Some banks offer mobile terminals that accept both cash and card payments.)

Accounting requirements

• Microbusiness: no requirements other than annual declaration.

• Small business: in addition to declarations (once a month), it is necessary to maintain a special accounting journal (recording expenses). (Article 91 (1) Tax Code of Georgia). You can get a free journal template and logging checklist.

How to file tax returns?

For small businesses, filing tax returns is mandatory and must be done through the tax website, an online portal rs.ge. Access to this portal is carried out through two-factor authentication (SMS code) only to Georgian phone numbers. After the monthly tax has been calculated, you need to pay from a Georgian bank account or pay the tax with any foreign card on the tax website.

Returns must be filed and taxes paid between the 1st and 15th of each month. If for some reason it is impossible to receive SMS messages to a Georgian phone number and submit declarations every month, then you will need a representative. Micro-businesses are only required to file annual tax returns by March 31

Cancellation of status

In this case, the microbusiness can apply to be a small business.

When calculating and declaring your monthly and annual turnover as a sole proprietor, some personal income may be excluded (however, tax on this income may be required to be paid elsewhere). Among others, this may be income in the form of:

• real estate rental/letting;

• loans;

• profits from gambling business;

• gift sales;

• capital gains from the sale of the following property: a) real estate; b) vehicle; c) securities;

• inherited property;

• dividends, interest;

• royalties;

• profits from debt write-offs;

• capital gains from the sale of shares.

Example: The entrepreneur earned 25,000 GEL from video editing and 10,000 GEL from interest on loans and royalties, totaling 35,000 GEL per calendar year. Despite the fact that he earned more than 30,000 lari, according to Resolution No. 415, he still remains a micro-business.

Note: Income from abroad is still considered “Georgian” if the work is performed in Georgia (for example, via a laptop). This also applies to Georgian tax residents who spend time outside Georgia working.

Taxes that need to be declared and paid every month:

Who cannot obtain small business status?

Not all activity codes can be used to obtain tax benefits. According to Decree of the Government of Georgia No. 415, this status is not granted for the following types of activities:

• Licensed or requiring separate permissions;

• Currency exchange operations;

• Medical, architectural, legal, notary, auditing and any consulting (including tax consultants);

• Gambling;

• Recruitment (there is no clear definition in the law, but, in our opinion, this includes the activities of selecting and hiring employees);

• Activities requiring significant investment or production of excisable goods.

It is important to note that income from employment of any kind (or any business that clearly resembles an employment relationship) is not included in the 1% tax rate. In other words, you can be employed, but this income will be taxed at 20% and will not be included in small business income.

Does a Russian need to pay tax in Russia from the activities of an individual entrepreneur in Georgia?

If an entrepreneur permanently resides in the Russian Federation, that is, is its tax resident, and does not have an individual entrepreneur in the Russian Federation, then he is obliged to pay personal income tax (NDFL) in Russia on income received both on the territory of the Russian Federation and and beyond.

Income received as an individual entrepreneur (IP) in Georgia will be subject to personal income tax in Russia at a rate of 13% until the total income for the calendar year exceeds 5 million rubles. For amounts exceeding this threshold, a rate of 15% is applied. If an entrepreneur has opened an individual entrepreneur on the simplified tax system in the Russian Federation, then the tax rate will be 6%.

For certain types of activities, it is also possible to switch to the patent taxation system (PTS) specified in paragraph 2 of Art. 346.43 of the Tax Code of the Russian Federation, however, a patent may be valid within a constituent entity of the Russian Federation or on the territory determined by the legislation of this constituent entity and therefore the possibility of using a patent as payment for obligations under an individual entrepreneur in Georgia in any particular case is not obvious, and it is recommended to coordinate the issue with the tax authorities .

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