Exceeding Georgia's 500,000 GEL Threshold: What Happens Next

Cross 500,000 GEL of turnover in a year and Small Business Status does not switch off. What changes is subtler than most guides suggest, and the two-year rule that follows the crossing is the part that actually decides whether you keep the status at all. Here is what happens at the threshold, what the published guidance still disagrees about, and when converting to an LLC beats staying an Individual Entrepreneur.

What actually happens the moment you cross 500,000 GEL

Nothing happens to your registration on the day you cross. Small Business Status survives the calendar year you exceed the cap in. What changes is the rate: turnover above 500,000 GEL is taxed at 3% rather than 1%, and it starts accruing as soon as you pass the line, not at the start of a new tax year. The current thresholds and rate mechanics are also confirmed in PwC's Georgia tax summary.

On a business turning over 550,000 GEL, that means 500,000 GEL is taxed at 1% (5,000 GEL) and the remaining 50,000 GEL is taxed at 3% (1,500 GEL) under one reading of the mechanics, a total of 6,500 GEL. Under a second reading, the entire year's turnover is retaxed at 3% once you cross, which would put the bill at 16,500 GEL.

What is not in dispute: the higher rate applies for the remainder of that calendar year, and it resets to 1% on 1 January if your turnover for the new year starts back under the cap. A single year over the line does not, by itself, end your Small Business Status.

Two years over the line ends it

The status survives one year above 500,000 GEL. It does not survive two years running.

Exceed the 500,000 GEL cap in two consecutive calendar years and Small Business Status is revoked from 1 January of the third year, under the special taxation regime rules set out in the Tax Code of Georgia. From that date you are an ordinary Individual Entrepreneur taxed at the standard 20% personal income tax rate on your business income, with no deductions to offset it back down and no fast route back into the 1% regime for that turnover. The regime itself is administered by the Revenue Service of Georgia.

This is the mechanic that makes "just pay the higher rate this year" a bad plan if it is going to repeat. One expensive year is survivable. Two in a row is a structural problem, and it is the point at which the conversation should move from how to file this year's declaration to whether you should still be an Individual Entrepreneur at all.

What losing the status actually costs you

Two things end Small Business Status, and only one of them is about turnover. The first is the two-year overage above. The second is carrying out an activity the prohibited activities list excludes, which disqualifies you regardless of how far under the cap you are.

Either way, the cost is the same shape. Your income tax rate goes from 1% (or 3%) to the standard 20%, applied going forward from the revocation date rather than retroactively adjusting what you already paid correctly. On a business turning over 400,000 GEL a year, the difference between 1% and 20% is not a rounding error. It is usually the whole reason the business registered as an Individual Entrepreneur in the first place.

There is no appeal that restores the 1% rate for the same calendar year once revocation triggers. The only way back into a preferential regime is reapplying, and reapplying does not undo the years that already crossed the line.

Watching the number before it becomes a problem

The businesses that get caught out by the 500,000 GEL cap are almost never the ones who did not know the number existed. They are the ones who knew it in the abstract and did not track it against their actual running turnover through the year.

A few habits fix this:

• Track turnover monthly, not annually. Your monthly tax declaration already reports the number the Revenue Service is watching. Reading your own filing each month tells you exactly where you stand against the cap, months before year end.
• Remember the 100,000 GEL VAT threshold arrives first. VAT registration becomes mandatory once turnover passes 100,000 GEL in any rolling 12 months, a separate and much lower trigger than the 500,000 GEL cap. See the VAT registration threshold for how the two interact.
• Count pass-through revenue, not just what you keep. If you bill a client and pay most of it straight to a subcontractor, the full invoice counts toward your 500,000 GEL, not your margin. Agencies and resellers hit the cap far faster than their profit suggests.
• Decide in advance what you do with a large one-off contract. A single big invoice landing in December can push a business that was comfortably under the cap all year over it in one month. Knowing your position before you sign the contract, not after you invoice it, is what lets you plan the timing or the structure around it.
• Do not chase the last client of the year just to stay under. Deferring a genuinely marginal contract to avoid crossing by a few thousand GEL sometimes makes sense. Restructuring the business around avoiding a number is not planning, it is a sign the structure has outgrown the regime.

Most of our clients have this watched automatically through monthly accounting rather than checking the running total themselves. If you can see 500,000 GEL coming a year or two out, the honest planning question is not how to trim the excess. It is whether an LLC now fits the business better than an Individual Entrepreneur with Small Business Status, regardless of what happens with this year's number.

Converting your Individual Entrepreneur to an LLC

There is no single form that turns an Individual Entrepreneur into an LLC, because they are not the same legal form and there is no conversion procedure between them. What actually happens is three separate steps: you register a new LLC, move your business (contracts, clients, invoicing) across to it, and close the IE once the transition is complete.

That sequencing matters more than people expect. Income earned by the LLC is taxed under LLC rules from the date the LLC exists, not backdated to when you decided to make the move. A short overlap between the two registrations during handover is normal and fine. Letting the IE keep invoicing indefinitely "until things settle" just delays the point of doing this at all.

Why the LLC is usually the answer above the cap

An LLC has no turnover ceiling at all. Corporate tax is 15%, but only on profit you actually distribute out of the company. Money you reinvest is taxed at 0% until it is paid out as a dividend, at which point a further 5% withholding applies on top. That is a materially different economics from a turnover-based 1% or 3% once your business is large enough that the numbers stop being close.

On 600,000 GEL of turnover with a 40% net margin, an Individual Entrepreneur above the cap pays somewhere between 3% of the excess and a blended figure across the whole year, depending on which reading of the threshold rule applies, taxed regardless of what is actually taken home. The same business as an LLC pays 0% corporate tax on profit it keeps in the company, and 15% plus 5% withholding only on what it distributes. Reinvest most of the profit and the LLC wins outright. Distribute all of it and the two options move much closer together, which is exactly why the decision depends on your actual plans for the money, not just the turnover figure. For the fuller comparison, see Individual Entrepreneur vs LLC.

What the move actually involves

LLC registration itself takes three to five business days once documents are ready: a charter, the shareholder details, and filing at the National Agency of Public Registry, followed by tax authority setup. From there, moving the business means reissuing contracts in the LLC's name, redirecting invoicing, and opening a company bank account. The personal IE account does not simply relabel itself.

Closing the IE is the last step, not the first, and it requires clearing any outstanding tax liability before the Revenue Service treats the registration as closed. Leaving it open "just in case" after the LLC takes over the business means two sets of monthly filings running in parallel for no benefit.

We handle both ends of this move as one engagement rather than two separate jobs, because the sequencing is where people lose time and occasionally money. If you can see the 500,000 GEL line coming, the conversation is worth having before you cross it, not after the second year forces the decision for you.

Monthly Accounting and Threshold Monitoring

We file your monthly declaration and flag it the moment your running turnover starts approaching 500,000 GEL, so converting is a decision you make early rather than one the Revenue Service makes for you two years late.

See what it costs

When to actually make the move

There is no single number at which an LLC becomes obviously correct, but a few situations make the answer clear well before you are forced into it:

• You are on track to exceed 500,000 GEL for a second consecutive year.
• Most of your profit stays in the business rather than being drawn out as personal income.
• You are taking on a second owner, which an Individual Entrepreneur cannot have at all.
• Clients or payment processors are asking for a registered company rather than a sole proprietorship.
• You need liability separation because of the contracts you are signing.

None of these require you to have already crossed the cap. The businesses that convert cleanly are almost always the ones that decided based on where the business was heading, not the ones reacting to a Revenue Service notice.

If the picture is less clear-cut than that, tax consulting can model both structures against your actual numbers rather than the general case, and a free eligibility check is a faster first step than working through the arithmetic alone.

Key takeaways

• Crossing 500,000 GEL raises the rate to 3% for the rest of the calendar year. Small Business Status survives one year over the line.
• Published guidance disagrees on whether the 3% applies to the whole year's turnover or only the excess above the cap. Plan around the more expensive reading.
• Exceed the cap two years running and the status is revoked from 1 January of the third year, reverting you to the standard 20% rate.
• Carrying out a prohibited activity ends the status regardless of turnover, separately from the cap mechanic.
• Track your running turnover monthly rather than checking it once a year, and remember the 100,000 GEL VAT threshold arrives first.
• An Individual Entrepreneur cannot convert into an LLC directly. You register the LLC, migrate the business, then close the IE.
• An LLC has no turnover ceiling and taxes only distributed profit, which usually wins once you are reinvesting most of what you earn.

Frequently asked questions

What happens the moment I go over 500,000 GEL in turnover?

Your Small Business Status does not end immediately. The rate on turnover above the cap rises to 3% for the rest of that calendar year, and the status carries over into the new year as long as you have not exceeded the cap for a second year running.

Does the 3% apply to my whole year's turnover or just the amount over the cap?

Published guidance is genuinely split on this. One reading taxes only the turnover above 500,000 GEL at 3%. The other reclassifies the full year's turnover at 3% once you cross. We plan clients around the more expensive reading rather than assume the cheaper one, and a written eligibility check can confirm which applies before you are relying on an assumption.

How many years can I go over the threshold before I lose Small Business Status?

One. Exceeding 500,000 GEL for two consecutive calendar years revokes the status from 1 January of the third year, and your income reverts to the standard 20% personal income tax rate from that date.

Can I get Small Business Status back after it is revoked?

Not for the turnover already taxed at 20% after revocation. You can reapply for the status again, but the revocation itself does not retroactively restore the 1% rate for the period it applied to.

Is there a way to stay under the cap without turning away business?

Sometimes, mostly around timing. Watching your running monthly turnover rather than checking it once a year gives you enough notice to plan a large contract's invoicing date, or to start the LLC conversion before you are forced into it. There is no legitimate way to keep turnover under the cap by splitting it across arrangements that do not reflect how the business actually operates.

Does pass-through revenue to subcontractors count toward the 500,000 GEL cap?

Yes. The cap is measured on gross turnover, not on what you keep after paying subcontractors or suppliers. An agency billing 600,000 GEL and passing 400,000 GEL through to freelancers has still crossed the cap on 600,000 GEL, not the 200,000 GEL it retains.

Can I convert my Individual Entrepreneur registration directly into an LLC?

No. They are different legal forms and there is no conversion procedure between them. The practical route is to register a new LLC, move your contracts and clients across to it, and close the Individual Entrepreneur once the transition is complete.

Is an LLC always the right move once I am near 500,000 GEL?

Not automatically. It usually wins when you are reinvesting most of your profit, taking on a second owner, or need liability separation. If you plan to distribute most of what the business earns as personal income, the comparison between an LLC's 15% plus 5% withholding on distributions and the Individual Entrepreneur's 3% above the cap is closer than it looks and worth modelling against your actual numbers.

How long does it take to move from an Individual Entrepreneur to an LLC?

Registering the LLC itself takes three to five business days once your documents are ready. The full move, including migrating contracts, redirecting invoicing, opening a company bank account and closing the IE, typically runs longer depending on how quickly clients update their paperwork on their end.

What tax do I pay on the LLC once it is registered?

15% corporate tax, but only when profit is actually distributed, plus a further 5% dividend withholding on top of that. Profit you keep in the company rather than distribute is taxed at 0% until you take it out, which is the main reason an LLC often wins once a business is reinvesting rather than drawing everything out.

Do I need to close my Individual Entrepreneur the same day I register the LLC?

No, and trying to do so usually causes more problems than it solves. A short overlap while contracts and invoicing move across is normal. What you want to avoid is leaving the IE open indefinitely after the LLC has taken over the business, which means filing two sets of monthly declarations for a structure you are no longer using.