Georgia advertises a 1% tax rate and the number is real. What catches people out is everything around it: a prohibited-activities list that rules out consulting entirely, a status that does not apply to income you earned before it was granted, and a turnover ceiling that behaves differently from how most guides describe. Here is what qualifies, what disqualifies, and where the money actually gets lost.
What the 1% tax actually is
Georgia taxes registered small businesses at 1% of turnover, not profit. If you invoice 200,000 GEL in a year, you owe 2,000 GEL. Your costs do not enter the calculation.
That last point is the one people misread in both directions. There are no deductions to claim, so there is no bookkeeping burden around receipts and expense categories. There is also no relief if you have a bad year: a business that turns over 200,000 GEL and spends 195,000 GEL still pays 2,000 GEL, on 5,000 GEL of actual profit.
The comparison that matters is against Georgia's standard rate. Personal income tax in Georgia is a flat 20%, which is what you pay on business income without a special status.
| Annual turnover | 1% small business | 20% standard rate (on 60% margin) |
|---|---|---|
| 60,000 GEL | 600 GEL | 7,200 GEL |
| 150,000 GEL | 1,500 GEL | 18,000 GEL |
| 400,000 GEL | 4,000 GEL | 48,000 GEL |
The wider your margin, the better the 1% looks. A software developer with almost no costs keeps nearly all of it. A reseller running 8% margins can find that 1% of turnover is a meaningful share of profit, and occasionally more than the 20% rate would have cost.
Turnover means turnover
If you run an agency and bill a client 100,000 GEL, of which 70,000 GEL goes straight out to subcontractors, your turnover is 100,000 GEL. You are taxed on the full amount, not the 30,000 GEL you keep. This is the single most expensive misunderstanding for anyone with pass-through costs, and it also means you approach the turnover ceiling roughly three times faster than your accounts suggest.
Individual Entrepreneur and Small Business Status are two different things
Almost every problem we see traces back to this. They are separate registrations, at separate agencies, and having the first does not give you the second.
Individual Entrepreneur (IE) is the legal form. It is a sole proprietorship registered at the Public Service Hall. It is not a company and it is not a separate legal person from you, which has consequences for liability and, as covered below, for how your home country may treat it.
Small Business Status (SBS) is the tax regime. You apply for it separately at the Revenue Service after the IE exists. This is the thing that gives you 1%.
Register as an IE and stop there, and you are an ordinary sole trader paying 20%. The individual entrepreneur registration and the status application are one job done in the right order, not one form.
Who qualifies
The eligibility bar is genuinely low, and lower than most people assume.
You do not need to be a Georgian citizen. You do not need residency or a residence permit. You do not need to have spent a single day in the country before registering, and there is no minimum stay afterwards to keep the status. You do not need employees, an office, or share capital.
What you do need:
- Annual turnover below 500,000 GEL. Agritourism businesses get a higher ceiling of 700,000 GEL.
- An activity that is not on the prohibited list.
- Income that counts as Georgian-source.
- A monthly declaration filed every month, including months with no income.
If your turnover is very small, look at micro business status first. Below 30,000 GEL a year with no employees, the rate is 0% rather than 1%, though the prohibited-activities restrictions are tighter.
Who does not qualify: the prohibited activities list
This is where the published guidance is worst, and where a wrong assumption costs you the whole benefit.
Prohibited activities are set by Government of Georgia Resolution No. 415 of 29 December 2010, not by the tax code itself, which is why so many summaries miss or garble them. The excluded categories include:
- Medical, architectural, legal and notarial services
- Auditing services
- Consulting activities, including tax consulting
- Currency exchange operations, banking, insurance and financial intermediation
- Gambling and gaming
- Production of excisable goods
- Activities requiring a licence or permit
- Activities requiring significant investment
Consulting is prohibited. Not restricted, not conditional - prohibited, and the decree names tax consulting explicitly. Plenty of guides published in English say consulting is fine. It is not, and the wording in your contracts and invoices is what the Revenue Service will read. If your work is genuinely advisory, this needs resolving before you register, not after.
The practical difficulty is that "consulting" describes how a great deal of independent work is invoiced rather than what it is. A developer who writes code is not consulting. The same developer who bills for "technical consulting" on a retainer has created a problem out of a word choice. What the contract says matters, and it matters more than what you would say in conversation.
We go through the full prohibited activities list case by case elsewhere, including the categories where the line is genuinely unclear.
Employment dressed up as contracting
Separately from the decree, income from employment is taxed at 20% regardless of status. If you have one client, work their hours, use their equipment and answer to their manager, an arrangement described as a service contract can still be treated as employment. Moving that relationship onto a Georgian IE does not change its substance, and this is a well-understood pattern rather than a novel one.
Georgian-source income decides everything
The 1% applies to Georgian-source income. This is the load-bearing concept in the whole regime and it gets about two sentences in most guides.
For services, source generally follows where the work is performed rather than where the client sits. A designer physically in Tbilisi invoicing a client in Berlin is normally performing the work in Georgia, so the income is Georgian-source and the 1% applies. The same designer who registers an IE in Georgia, then lives and works in Portugal for the year, has a considerably weaker position: the work was not performed in Georgia, and the 1% may not apply to it at all.
There is a second route, and it is the part most guides miss entirely. If you have genuinely become a Georgian tax resident by crossing 183 days, the Tax Code deems your cross-border services Georgian-source on the strength of your residency, unless the work was delivered through a permanent establishment you maintain abroad. For an actual resident, an ordinary business trip does not move the income out of Georgian source. The catch is that Small Business Status carries no residency requirement, so most people holding it never became residents and cannot rely on this at all.
This is why "register an IE and pay 1% from anywhere" is the most common piece of bad advice in this market: it skips both tests. Which one protects you, and what evidence each demands, is worked through in Georgian-source income rules, and the honest answer to paying 1% without living in Georgia follows from it.
Registering, and the gap that costs money
The process is genuinely fast. Registration at the Public Service Hall is same-day. The Revenue Service application follows.
Where money gets lost is in between.
Small Business Status applies from the date it is granted. Income you earned as an IE before the status came through is taxed at 20%, not 1%, and it is not corrected later.
Register your IE in March, start invoicing immediately, and get the status confirmed in May, and two months of income sits at 20%. On 40,000 GEL of turnover in that window, the difference is 7,600 GEL. The fix is ordinary sequencing: get the status confirmed before you invoice, or at least before you invoice anything substantial.
If you are outside Georgia, the whole sequence can be done under power of attorney. We cover what that involves in remote company registration, including which documents need an apostille and how much time that adds in your country.
We'll handle the entire small business registration process for you, end-to-end. Fixed fee, three days, and we check your activity against the prohibited list before you pay.
See what it costs
What you file every month
Small Business Status is not a set-and-forget arrangement. A declaration is due by the 15th of each month for the month before, filed through the Revenue Service portal at rs.ge.
This is required in months where you earned nothing. A zero declaration is still a declaration, and missed filings accumulate penalties quietly while you assume the status is dormant. Foreign-currency income has to be converted to GEL at the correct rate for the reporting period, which is the other routine source of errors.
Most of our clients hand this to us with their monthly accounting rather than run it themselves, largely because the portal is in Georgian. If you would rather do it yourself, the monthly tax declaration walkthrough covers the filing screen by screen.
What crossing 500,000 GEL actually does
Published guidance disagrees on this, so it is worth being precise about what is settled and what is not.
What is settled: the rate increases to 3% when annual turnover exceeds 500,000 GEL, and you do not lose the status immediately. Exceed the ceiling in two consecutive years and the status is revoked from 1 January of the third year.
What is not settled in the English-language guidance: whether the 3% applies to the whole year's turnover or only to income earned after you crossed. The difference is not trivial. On 501,000 GEL of turnover, one reading produces roughly 5,040 GEL and the other roughly 15,030 GEL. We would not let a client drift over the line on the assumption that the cheaper reading applies.
Either way, the planning point is the same. If you can see 500,000 GEL coming, the decision to make is not how to handle the excess but whether the structure still fits. Past that level an LLC taxed on distributed profit often works out better, and the turnover threshold guide covers the arithmetic and the timing of a conversion.
The 1% is not your whole tax bill
Three things sit outside it, and the third is the one that ends the conversation for some people.
VAT. Once your taxable turnover passes 100,000 GEL in any rolling twelve-month period, VAT registration becomes mandatory and the rate is 18%. This is a separate threshold from the 500,000 GEL one and it arrives much sooner. Reverse-charge VAT on services you buy from abroad can also apply while you are below the registration threshold, which surprises people. See VAT registration in Georgia for how the two interact.
Pension contributions. Georgia operates a funded pension scheme. Whether and at what rate it applies to you depends on your residency and how you are categorised, so confirm your position rather than assuming the 1% is the end of it.
Your home country. Georgia taxing you at 1% does not stop anyone else taxing you. If you remain tax resident somewhere else, that country generally taxes your worldwide income, and a Georgian IE does not change that. Several countries go further: Germany's extended limited tax liability can reach a former resident for up to ten years after departure where the destination's tax burden is at least a third lower than the German equivalent, and Georgia's 1% fails that test by an enormous margin. The United States has neither a tax treaty nor a totalization agreement with Georgia, so a US citizen pays the 1% and their US self-employment tax with no relief between them.
Georgia has double taxation treaties with more than 55 countries, listed by the Ministry of Finance of Georgia. Whether one helps you depends on where you are resident, not where you registered. Our country-by-country tax guides work through what each home country does on the way out.
When the 1% stops being the right answer
It is a good regime and it is not the right one for everybody. It stops making sense when:
- Your margins are thin. Below a 5% net margin the standard 20% rate is literally cheaper. The arithmetic is in the next section.
- You bill through subcontractors. Gross pass-through revenue counts, so you hit the ceiling on money you never keep.
- Your activity is on the decree list. No structuring fixes this. An LLC is the answer, not a rewritten invoice.
- You are approaching 500,000 GEL. Plan the conversion before you cross, not after.
- You need liability separation or outside investment. An IE is not a separate legal person and cannot issue shares.
- Your home country has CFC or trailing-residence rules that bite. Worth knowing that CFC regimes generally attribute the income of a foreign corporation, and an IE is a sole proprietorship rather than a company. That distinction can work in your favour, and it varies by country enough that it needs checking rather than assuming.
Where the answer is an LLC, LLC registration is a different process with different economics, and IE versus an LLC compares them properly. Where you are not sure, a free eligibility check is quicker than reading another guide, and we will tell you when the answer is no.
The margin where 1% stops winning
This part is arithmetic rather than judgement, and it is worth doing before you assume the 1% is obviously better.
One percent of turnover equals 20% of profit at exactly one point: a net margin of 5%. Above that margin the 1% wins. Below it, the standard rate is cheaper.
| Net margin | 1% of 200,000 GEL turnover | 20% of profit | Cheaper |
|---|---|---|---|
| 60% | 2,000 GEL | 24,000 GEL | 1% by 12x |
| 30% | 2,000 GEL | 12,000 GEL | 1% by 6x |
| 15% | 2,000 GEL | 6,000 GEL | 1% by 3x |
| 5% | 2,000 GEL | 2,000 GEL | identical |
| 3% | 2,000 GEL | 1,200 GEL | standard 20% |
For most independent service work this is not a close call. A developer, designer or writer with few costs runs margins well north of 50%, and the 1% wins by an order of magnitude.
The businesses that land near or below the line are the ones with real cost of goods: resale, hardware, anything with significant subcontracting. An agency passing 70% of billings through to freelancers is running a 30% margin on paper, but it is taxed on gross turnover, so its effective position is worse than the table suggests and it reaches the 500,000 GEL ceiling three times faster.
One caveat on the right-hand column. Paying 20% on profit requires substantiating every expense you deduct, which means real bookkeeping and a real audit surface. The 1% costs you a monthly declaration and nothing else. Somewhere around the break-even, the simplicity is worth more than the difference.
Key takeaways
- The 1% is charged on turnover, not profit. Wide margins benefit most; thin margins may do better on the standard 20%.
- Individual Entrepreneur and Small Business Status are two separate registrations. The first alone leaves you paying 20%.
- Consulting, including tax consulting, is prohibited by Resolution No. 415. Contract wording decides how your work is read.
- The status is not retroactive. Income earned before it is granted is taxed at 20% permanently.
- The 1% applies to Georgian-source income, which generally follows where the work is performed.
- Monthly declarations are due by the 15th, including in months with no income.
- VAT registration becomes mandatory at 100,000 GEL of turnover, well before the 500,000 GEL ceiling.
- Your home country's rules still apply and can outweigh the entire saving.
Frequently asked questions
Do I need to live in Georgia to get the 1% tax?
No. There is no residency requirement to register as an Individual Entrepreneur or to be granted Small Business Status, and no minimum number of days afterwards. Whether the 1% actually applies to your income is a separate question, because the regime taxes Georgian-source income and source generally follows where the work is performed.
Can I register without travelling to Georgia?
Yes, through a power of attorney signed in front of a notary in your country and apostilled. The timeline depends almost entirely on how quickly your country handles apostilles, which ranges from a few days to several weeks. Everything on the Georgian side takes a few business days.
How much tax will I actually pay on 100,000 GEL?
1,000 GEL, assuming the turnover is Georgian-source and your activity is not prohibited. There are no deductions to apply and no expenses to offset, so the calculation is simply 1% of what you invoiced.
Is consulting really banned?
Yes. Resolution No. 415 of 29 December 2010 lists consulting activities, including tax consulting, among the prohibited categories for small business status. Many English-language guides state otherwise and they are wrong. If your work is genuinely advisory, an LLC is usually the right structure instead.
What happens if I go over 500,000 GEL?
The rate increases to 3% and you keep the status for the rest of the calendar year. Exceed the ceiling in two consecutive years and the status is revoked from 1 January of the third year. Published guidance disagrees on whether the 3% applies to the full year or only to income after you crossed, so treat the ceiling as a planning trigger rather than a soft limit.
Do I have to file in months when I earn nothing?
Yes. A zero declaration is still due by the 15th of the following month. Skipping it because there was no income is one of the most common ways people accumulate penalties without noticing.
Can I deduct business expenses?
No. The 1% is charged on gross turnover and there is no deduction mechanism. This is why the regime suits high-margin service work and suits resale or subcontract-heavy businesses poorly.
Do I need a Georgian bank account?
Not to register, but in practice yes to operate. You need somewhere to receive client payments and to pay the tax from, and having a Georgian account makes the monthly cycle considerably simpler. Account opening is a separate process with its own compliance checks.
What is the difference between micro business and small business status?
Micro business status is 0% tax below 30,000 GEL of annual turnover, with no employees permitted and a tighter list of eligible activities. Small business status is 1% below 500,000 GEL and allows employees. If you hold micro business status and are about to cross 30,000 GEL, you have 15 days to move to small business status or the whole year can fall to the 20% rate.
Will my home country still tax me?
Very likely, if you remain tax resident there. Registering a business in Georgia does not by itself change your tax residency, and most countries tax residents on worldwide income. Some also apply exit taxes or trailing-residence rules for years after you leave.
Is the 1% tax legitimate?
Yes. It is a published statutory regime administered by the Revenue Service of Georgia, not a loophole or an offshore arrangement, and Georgia participates in international information exchange. The rates and thresholds are documented in reference sources including PwC's Georgia tax summary. What makes it look aggressive from outside is the rate, not the structure.