For novice businessmen in Georgia, the organizational and legal form of individual entrepreneur (IE) may be of particular interest.
Unlike other forms of ownership, individual entrepreneurs carry a more loyal tax burden.
Under certain conditions, an individual entrepreneur in Georgia has the opportunity to work as a small business with an income tax of only 1%.
Small business is a great opportunity to launch your own startup and finally turn unique business ideas into reality.
1. What do you need to start and run a small business as an individual entrepreneur in Georgia?
Let’s look more closely at the conditions and procedures for registering individual entrepreneurs and small business status.
1.1. Individual Entrepreneur registration in Georgia takes place at the House of Justice. You must submit application in person or through a proxy. Power of attorney can be obtained in any language, in any country. But since the working language of the House of Justice is Georgian, ultimately you will need to translate the power of attorney and all other documents into Georgian.
An application to register an individual entrepreneur must contain the following information:
- Full name;
- The applicant’s phone number and email address;
- A legal address in Georgia;
- Date of completion and signature;
When opening an IE remotely, you must provide a notarized copy of the passport, certified by a notary, and a power of attorney certified by a notary. As already noted, one must translate both documents into Georgian.
It is important to know that if a non-resident does not own real estate in Georgia, then he/she must obtain a consent from the owner of any real estate in Georgia in order for the individual entrepreneur to register at a specific address. Consent can be in the form of a statement from the owner of the property.
After receiving a statement of registration, a private entrepreneur must create a personal account in the tax service, which can be done here. They will send you an username and password you will just need to set up your IE tax page.
1.2. If you decide to register as a small business, then after registering as an individual entrepreneur, you must contact the tax service to request small business status.
1.3. Small business income in Georgia should not exceed GEL 500,000 per year (approximately USD 200,000).
1.4. Despite the loyalty of Georgian legislation to businessmen from other countries, there are a number activities ineligible for Small Business Status. These activities include:
- activities requiring special licensing;
- gambling;
- financial services, tax and legal consulting;
- foreign exchange transactions;
- medical services;
- architectural services;
- Staffing;
1.5. Types of activities that fall into the status of small business include:
- marketing services;
- online trade;
- intermediary services;
- other services not specified in the prohibited activities;
2. Terms of registration of individual entrepreneurs and obtaining the status of a Small Business
An individual entrepreneur can be registered and receive status same day. 1% tax status takes effect from the date the application is submitted to the Revenue Service, provided the application is approved.
3. Taxable base, income tax rate for individual entrepreneurs
The tax base and tax rate for individual entrepreneurs in Georgia depend on turnover for the reporting year.
If the annual income of an entrepreneur with the small business status does not exceed GEL 500,000, then he/she pays tax at the rate of 1% of the turnover;
If annual revenue exceeds GEL 500,000, the tax rate increases to 3% from the month the threshold is exceeded until year-end. Small Business Status is lost if the threshold is exceeded in two consecutive calendar years.
4. Terms of tax payment and reporting of individual entrepreneurs and small businesses
An individual entrepreneur has significant advantages when submitting tax and accounting reports.
Unlike legal entities, an individual entrepreneur submits one income declaration for the reporting period to the tax authorities. (Unless IE becomes a VAT payer, or has reverse VAT and withholding tax obligations. See pitfalls section in the end of this article)
The special free electronic service exists for submitting reports, accessing essential information, and as a source of primary documentation. Electronic service can be accessed in Georgian and English. Unfortunately, the adaptation into Russian is not entirely correct, though it can provide an idea of the site.
IE must pay tax monthly, no later than the 15th day following the reporting month. Submission of the declaration also takes place monthly, no later than the 15th day following the reporting month.
5. Responsibility of an Individual Entrepreneur
An important feature of doing business as an individual entrepreneur is the fact that, in accordance with Georgian law:
An individual entrepreneur shall be responsible to creditors for his obligations with all his property (movable and immovable). In case of the cancellation of registration, the respective individual is the legal successor and executor of all debts. Current international legislation allows creditors to collect debts from foreign assets;
In all business relationships, an individual entrepreneur acts on his own behalf. However, additions can be made to the name, provided that they do not mislead consumers of the product.
FAQ about IE and SBS
How many days do you need to plan for a visit to Georgia? Can I open an IE remotely?
Registration of an individual entrepreneur in Georgia can take 1 day, though on average it takes 4 and in extreme circumstances can take up to a maximum of 5 days. It is not obligatory to be present in person. Our agency can open both a company and a bank account within a week, as mentioned already in clause 1.1, on the basis of a Power of Attorney.
What does an extract from the register of individual entrepreneurs in Georgia look like and in what languages is it available?
An extract from the register is available in Georgian as well as in English. Individual entrepreneurs are, as a rule, registered under their own first and last names, though one can add a corporate name as well.
Do you need a work permit before registering as an individual entrepreneur (IE) in Georgia?
Here’s a simple way to understand Georgia’s work permit requirements. Under the latest updates to the labor migration law, you don’t need a work permit if all your clients are based abroad. If you have clients based in Georgia, you need a work permit.
Nevertheless, if you want to apply for a residence permit based on your activities as an individual entrepreneur (IE), you’ll need a work permit even if all your clients are based abroad. If this sounds too complicated, BETTER CALL PB.
Liquidation of individual entrepreneurs
If something goes wrong, and you decide to terminate your status as an individual entrepreneur in Georgia, you can do so as easily as you set it up in the first place. First you submit documents for terminating individual entrepreneur status to the House of Justice, and in the absence of debts to creditors, you need not wait long. The Revenue Service may conduct a tax audit. Eventually the National Agency of Public Registry will cancel registration of an individual entrepreneur within one business day.
Pros and cons of the form of ownership of individual entrepreneurs in Georgia.
The SB status has the following advantages compared to the registration of your own LLC:
- Simplified business creation and liquidation processes
- free use of own proceeds
- no need to print on any documents
- only one tax is paid in the form of a fixed percentage of the monetary value per year
- simplified procedure for keeping records of business results and providing external reporting
- simplified decision-making procedure (no meetings, minutes, etc. are required)
- Free spending of money without additional taxation
- Can use an account and bank cards issued for an individual in business (if it does not contradict the agreement with the bank)
Main disadvantages:
- responsibility for the obligations with one’s own property, while the Tax Code of Georgia permits the debts of individual entrepreneurs to be written off from personal bank deposits and accounts.
- inability to receive certain licenses
- according to the established practice, some large (and not so large) companies refuse to work with individual entrepreneurs (since in most cases individual entrepreneurs do not pay VAT on work or goods to the budget and companies working with them, especially under “tax optimization” schemes)
- not suitable for joint business
Notes
- A bank account for an individual entrepreneur can be opened both in Georgia and in payment institutions
Known pitfalls
- If your clients are based in Georgia, you may reach the GEL 100,000 VAT threshold. Once you exceed it, you must register for VAT and charge 18% VAT on taxable sales.
- If you buy services from abroad, such as software subscriptions or online advertising, you may be liable for reverse-charge VAT, withholding tax, or both. There may be ways to reduce these costs.
BETTER CALL PB!