Small Business Status (1% Tax) in Georgia
IE · SBS · 1% tax status · Individual Entrepreneur 1% tax · Georgian micro business regime
Definition
Small Business Status in Georgia is a special preferential tax regime for registered Individual Entrepreneurs (IEs) whose annual gross revenue does not exceed 500,000 GEL. It taxes gross turnover at a flat 1% rate instead of the standard 20% personal income tax rate. However, passive real estate rental income is explicitly excluded from this regime.
In detail
Overview of the 1% Tax Regime
Georgia’s Small Business Status (governed by the Tax Code of Georgia, Articles 88–90) is designed to simplify tax compliance and lower financial burdens for micro-entrepreneurs and freelancers. Under this regime, an eligible Individual Entrepreneur (IE) pays a flat 1% tax on gross turnover, replacing the standard 20% personal income tax.
To qualify, the entrepreneur must register with the Revenue Service of Georgia (RS.ge) and maintain an annual gross turnover below 500,000 GEL (approx. {{data:gel_usd_exchange_rate}} USD equivalent).
Key Tax Rules and Limits
- Gross Revenue Taxation: The 1% tax is levied on total gross income without accounting for operational expense deductions.
- Turnover Threshold: If annual gross turnover exceeds 500,000 GEL during a calendar year, the revenue up to 500,000 GEL is taxed at 1%, while the excess amount is taxed at 3%.
- Loss of Status: If an entrepreneur exceeds the 500,000 GEL threshold for two consecutive calendar years, their Small Business Status is revoked, defaulting them to the standard taxation scheme.
- Filing Frequency: Tax declarations and payments must be submitted monthly via the online Revenue Service portal (RS.ge) by the 15th day of the following month.
Excluded Activities and Real Estate Limitations
Not all business activities are eligible for Small Business Status. The Government of Georgia maintains a strict list of prohibited activities, including:
1. Financial services and currency exchange.
2. Legal, consulting, and audit services.
3. Real estate leasing and rental activities.
Passive Rental vs. Business Activity
Passive real estate income—such as leasing residential or commercial property—is explicitly prohibited from using the 1% Small Business Status. Instead, residential leasing is typically taxed under Georgia's special 5% flat rental tax regime (without expense deductions) or the standard 20% income tax scheme.
Short-term holiday lettings (e.g., Airbnb) generally do not qualify for the 1% rate unless structured as a fully operational hospitality business providing active hotel-style services (e.g., daily cleaning, concierge, breakfast) rather than a simple property lease.
Georgian context
In Georgia, Small Business Status is tied directly to an individual's registration as an Individual Entrepreneur (IE) at the National Agency of Public Registry (NAPR) and subsequent application through the Revenue Service (RS.ge). While foreign property buyers frequently relocate or establish local business presence under this regime, they must clearly separate active freelance/commercial turnover from property investments. Real estate rental proceeds cannot legally be merged into an IE's 1% tax declaration. Combining passive property yield with 1% business operations constitutes tax non-compliance under Georgian tax audits.
Real example
An expat residing in Tbilisi operates as an Individual Entrepreneur providing software development services to international clients. She earns 200,000 GEL in gross revenue annually. Under Small Business Status, her tax obligation is 2,000 GEL (1% of gross revenue), declared and paid monthly. Simultaneously, she purchases an apartment in Batumi for $150,000 USD and leases it to long-term tenants. The rental revenue cannot be taxed at 1%; instead, she registers the property lease separately with the Revenue Service to pay the flat 5% residential rental income tax.
Common mistakes
- ×Assuming passive residential or commercial property rental income qualifies for the 1% tax rate.
- ×Attempting to apply for Small Business Status under a corporate legal entity (LLC/LTD) rather than an Individual Entrepreneur (IE) registration.
- ×Deducting business expenses, contractor fees, or maintenance costs from gross turnover before calculating the 1% tax.
- ×Failing to submit monthly online declarations by the 15th deadline, leading to automatic tax penalties.
- ×Confusing the 1% Small Business Status with VAT exemption when crossing the 100,000 GEL mandatory VAT registration threshold.
Frequently asked questions
Can foreign non-residents apply for Small Business Status in Georgia?
Yes. Non-resident individuals who register as an Individual Entrepreneur (IE) with the Georgian Revenue Service can obtain Small Business Status, provided their business activities qualify and stay under the 500,000 GEL annual turnover threshold.
Can I use the 1% tax rate for residential real estate rental income?
No. Passive real estate rental income is strictly excluded from the 1% Small Business Status. Residential lease income is typically taxed under a preferential 5% flat residential rental regime or the standard 20% personal income tax.
Does Small Business Status exempt an entrepreneur from VAT?
No. Small Business Status covers income tax, not Value Added Tax (VAT). If an IE executes VAT-taxable transactions exceeding 100,000 GEL within any continuous 12-month period, they must register for VAT separately.
What happens if gross turnover exceeds 500,000 GEL in a single year?
Gross revenue up to 500,000 GEL is taxed at 1%. Any turnover exceeding 500,000 GEL within that calendar year is taxed at 3%. If the limit is exceeded in two consecutive calendar years, the Small Business Status is revoked.
Also available in: AR · DE · ES · FR · HE · IT · KA · NL · RU · TR · UK