In the past 10 years Georgia became an attractive country for investment not only for the wealthy but also for startups, freelancers, and even those with very modest financial capabilities. Georgia occupies a leading position in many international ratings, emphasizing how easy it is for a foreigner to start a business in Georgia in 2020. According to Doing Business, in 2019 Georgia overtook a number of EU countries in terms of the number of new companies that were registered.
The main factors driving this trend include the country’s tax attractiveness, the ease of registration and business maintenance, low levels of corruption, and simple and transparent financial reporting among others. 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;
- A non-resident of Georgia is assigned a 9-digit identification number;
- Date of completion and signature;
- The applicant’s phone number and email address;
- A legal address in Georgia;
When opening an IP 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 notarial 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.
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 of areas where a citizen cannot carry out entrepreneurial activity. These areas include:
- activities requiring special licensing;
- gambling;
- financial services, tax and legal consulting;
- art;
- foreign exchange transactions;
- medical services;
- architectural services;
- beauty centers;
- car repair services;
- rural or forestry activity;
1.5. Types of activities that fall into the status of small business include:
- marketing services;
- cryptocurrency trading;
- 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
Individual entrepreneurs may be registered in Georgia and receive small business status on the same day, though small business status is not valid until the first day of the next month.
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 the annual revenue exceeds GEL 500,000 – the individual entrepreneur shall lose small business status, with the tax rate rising to 3% of annual turnover.
Until July 2018, the tax rate was as high as 5%.
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. An individual entrepreneur does not pay income tax in Georgia.
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.
IP must pay tax monthly, no later than the 15th day following the reporting month. Submission of the declaration 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.
How many days do you need to plan for a visit to Georgia? Can I open an IP 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. An additional company name must necessarily follow the first and last name.
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 will conduct a tax audit and they 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 enterprise:
- 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
- requires constant personal participation, since you cannot appoint a “director”
Notes
- A bank account for an individual entrepreneur can be opened both in Georgia and in payment institutions
