Georgia's 1% Tax: Small Business Status for Individual Entrepreneurs (2026 Guide)
How Georgia's famous 1% tax regime actually works in 2026: who qualifies for Small Business Status, the 500,000 GEL threshold, the list of excluded activities, the VAT trigger, the new effective-date rule, the compliance obligations, and when an LLC is the better choice.
Georgia's 1% tax on small-business turnover is the single most searched reason founders and freelancers look at the country - and also the most misunderstood. The regime is real and it works, but it applies to a specific legal form, excludes a long list of activities, and has thresholds that change your rate if you cross them. Here is how it actually works in 2026, from the legal basis through the day-to-day compliance obligations.
The legal framework behind the 1%
Small Business Status is not a loophole or a marketing scheme; it is a defined special tax regime set out in the Tax Code of Georgia and administered by the LEPL Revenue Service. The Individual Entrepreneur itself is a legal form registered with the National Agency of Public Registry. Two separate instruments therefore govern your position: the entrepreneurial law that creates the IE, and the Tax Code that grants and conditions the preferential rate. Understanding that the status is conditional, and granted on the facts of your activity rather than on your intention, is the key to using it safely.
A natural person registered as an individual entrepreneur may be granted small business status, under which taxable turnover from economic activity is taxed at a reduced rate, provided the activity is not among those excluded from the regime and the turnover remains within the statutory cap.
What Small Business Status is - and what it is not
Small Business Status (SBS) is a special tax regime available to a registered Individual Entrepreneur (IE) - a natural person doing business in their own name. It is not available to an LLC. With SBS, your Georgian business turnover is taxed at 1% instead of the standard 20% personal income tax on profit. You do not need to be a Georgian citizen or resident to register as an IE and apply.
General information, not legal or tax advice. Rates, thresholds and the excluded-activity list are set by the Tax Code and change periodically. Confirm the current figures with the Revenue Service or an adviser before you rely on them.
The headline numbers
- 1% tax on gross turnover while annual turnover stays under 500,000 GEL (commonly cited threshold - confirm current).
- 3% tax on the portion of turnover in a year where you exceed the 500,000 GEL cap.
- Exceed the cap two calendar years in a row and the status is revoked from January 1 of the third year.
- VAT registration becomes mandatory once taxable turnover passes 100,000 GEL in any rolling 12-month period - VAT is separate from the 1% regime.
1%
On turnover within the cap
Not on profit - expenses are irrelevant
500,000 GEL
Annual turnover cap
3% on the excess above it
100,000 GEL
Separate VAT threshold
Rolling 12 months, independent of SBS
New for 2026: the effective-date rule
Under updated rules taking effect in 2026, Small Business Status becomes effective from the date the request is submitted to the Revenue Service, rather than the first day of the following month. Practically, this removes the old dead period between applying and benefiting - but it also makes the timing of your first invoices worth planning. As a rule, confirm the status is active in your Revenue Service profile before you issue invoices you intend to tax at 1%.
Excluded activities - the trap most people miss
A list of activities cannot use the 1% regime at all. The most important exclusion for online professionals: consulting. Also excluded, among others, are medical, architectural, legal and notarial services, gambling, currency exchange, and activities requiring licensing. Whether your work counts as 'consulting' or as a service delivered as a product (for example, software development) is exactly the kind of classification question to resolve before you register - getting it wrong risks reassessment at 20%.
| Activity | Typical treatment | Why it matters |
|---|---|---|
| Software development sold as a product | Often eligible | Treated as a deliverable, not advice |
| Consulting and advisory work | Excluded | Named exclusion for professional advice |
| Medical, legal, notarial, architectural services | Excluded | Regulated professions carved out |
| Gambling, currency exchange, licensed activities | Excluded | Sector-specific regulation applies |
| General trade and most services | Often eligible | Subject to the cap and the excluded list |
Resolve the classification in writing before you rely on the rate. A Revenue Service confirmation of your activity code is cheap insurance against a later reassessment at 20% on the whole turnover.
What counts as turnover - and what does not
- Taxed: your gross business receipts under the IE - not profit; expenses are irrelevant to the 1%.
- Not counted as SBS turnover: property rental income, dividends, interest, royalties, capital gains from real estate or securities, loans received, inheritance - these are taxed under their own rules.
- Salaries you pay employees are allowed, but payroll withholding applies to them normally.
Compliance obligations once you hold the status
The 1% rate carries ongoing duties, not just a one-off application. SBS filers declare and pay monthly, and the obligations run continuously while the status is held:
- File the monthly small-business turnover declaration with the Revenue Service and pay the 1% by the statutory monthly deadline.
- Keep records of gross receipts sufficient to support each declaration, since the tax is charged on turnover.
- Monitor the 500,000 GEL annual cap continuously, and the 3% rule on any excess.
- Monitor the separate 100,000 GEL rolling VAT threshold and register for VAT if it is crossed.
- Keep your registered activity and profile details accurate, so the classification the status rests on stays correct.
IE + SBS vs LLC: how to choose
- Choose IE + Small Business Status when you are genuinely self-employed, your activity is not excluded, your clients accept invoices from an individual entrepreneur, and turnover fits the cap.
- Choose an LLC when you need limited liability, a corporate counterparty (many platforms and enterprise clients require it), multiple owners, or a path to Virtual Zone / International Company status - those regimes are for companies, not IEs.
- Remember the IE is personally liable for business obligations - the 1% is a tax benefit, not a liability shield.
A freelance designer who crosses the cap
A designer registers as an IE with Small Business Status and bills 520,000 GEL in a year to clients abroad, having stayed well within the cap in prior years.
- 1Turnover up to 500,000 GEL in the year is taxed at 1%.
- 2The 20,000 GEL of turnover above the cap is taxed at 3% for that year.
- 3If the cap is exceeded again the following year, the status is revoked from January 1 of the year after that.
- 4Separately, once taxable turnover passed 100,000 GEL on a rolling 12-month basis, VAT registration was already mandatory.
The status survives a single year over the cap at a higher marginal rate, but two consecutive years over the cap ends it. The VAT trigger is a different clock entirely.
Illustrative arithmetic using the thresholds in this article. Confirm current rates before relying on it.
A note for foreign nationals
The status that arrived a month after the invoices did
A freelancer registers as an Individual Entrepreneur on the 3rd, invoices a client on the 10th, and receives Small Business status later that month.
- 1The status takes effect from the period the legislation specifies, not from the date the business began trading.
- 2Income earned before the status takes effect is taxed under the ordinary rules for that period, not at 1%.
- 3The freelancer had budgeted the whole year at 1% and priced the first engagement on that basis.
- 4The shortfall is small in absolute terms, and it appears in a declaration months later, when the money has been spent.
The 1% starts when the status starts. Register, apply, and confirm the effective date before you invoice - the sequence costs nothing to get right and cannot be corrected afterwards.
Illustrative. The effective-date rule has changed recently; confirm the current position before planning around it.
Non-residents can register as Georgian IEs, but recent practice adds requirements for foreign nationals operating as individual entrepreneurs - including labour-permit expectations that banks may check when opening the related business account. Plan the compliance file, not just the tax rate.
How to get it (the practical sequence)
- Register as an Individual Entrepreneur at the Public Registry (this is the legal form).
- Confirm your activity is not on the excluded list - in writing, before you rely on the rate.
- Apply for Small Business Status with the Revenue Service; from 2026 it takes effect on the day of submission.
- Set up monthly declarations - SBS filers declare and pay monthly, not annually.
- Watch the 100,000 GEL rolling VAT threshold separately from the 500,000 GEL SBS cap.