If you are a freelancer or small business owner looking for a country to register your business, chances are the small Caucasus country of Georgia is not the first place that comes to mind. In fact, Georgia is somewhat of a well-kept secret that many in Western Europe or the US are not so familiar with—unless, of course, you are talking about the US state of Georgia, which has nothing to do with this article!
- Common types of businesses in Georgia
- Tax residency and starting a business in Georgia
- Micro- and small business status
- Other Taxes
- How to apply for small business status in Georgia
- Potential downside to be aware of
- Ways to get residency in Georgia
What if I were to tell you that you could be paying between 1-3% tax on your personal income if you are a Georgian tax resident with a small business? I’m sure this all sounds too good to be true, however, it is in fact totally possible and many freelancers, individual entrepreneurs, and small business owners are already doing exactly that—through a special tax consideration known as “small business status”.
Let’s look into how this is possible, and why Georgia should be on your radar if you are looking for a home base for your business, in a country with favourable tax rates, a growing economy, and easy paths for relocation.
Common types of businesses in Georgia
First of all, there are two main types of businesses that attract foreigners to incorporate in Georgia:
Private Individual Entrepreneur
This is someone who operates their own business as the sole proprietor, i.e. you cannot have more than one business owner, therefore it is suitable for digital nomads and freelancers, or anyone else who works for themselves. In order to qualify, the business must have only one partner. You may still have employees.
LLC (Limited Liability Company)
If your business has more than one partner, then you will be looking at opening an LLC instead. Although, in order to qualify for the 0-3% tax rates offered by small business status, you will need to be a private individual entrepreneur.
The LLC option in Georgia, however, is still quite attractive, as it operates in similar ways to Estonia’s e-residency, meaning you do not need to physically be a tax resident in Georgia in order to benefit, as there are no corporate taxes on income that is reinvested in the business. If you were to pay out a salary for a Georgian tax resident, it would be taxed at the usual 20% rate.
There is also a mandatory pension contribution of 2% for the employer and 2% for the employee – which is much lower than you will find in e.g. European countries. The government also adds up to a 2% contribution to your pension fund, depending on your income. Also unlike many other countries, all the contributed funds are earmarked for your individual pension, it’s not added to some general government slush fund.
As a sole proprietor you’re fully liable for any debt or damage caused by your business, so the LLC route is usually the better bet if you value limited liability. It also makes more sense if you have a high-turnover business with low margins. If your net profit is less than 5% of revenue you’ll anyway be better off tax-wise with the LLC (more on that below) instead paying of 1% of your full revenue. At that point though you’re likely earning more than 500,000 lari, so may not qualify for small business status anyway.
Tax residency and starting a business in Georgia
For both types of Georgian businesses, you do not necessarily need to live in Georgia or possibly even visit Georgia at all—although if you want to qualify for Georgia’s impressively low small business status income tax rates, then you will need to become a Georgian tax resident.
In order to be a Georgian tax resident, you must stay in the country for a minimum of 183 days per year. Technically speaking, any time spent out of the country for a vacation, business trip, or for medical treatment also qualifies as being physically present in Georgia, so it is not super strict as long as the residency isn’t completely abused—and also, importantly, you don’t end up becoming a tax resident somewhere else in the process.
To bypass this 183 day minimum requirement, there is the high net-worth individual program as well, which allows you to be a tax resident without spending most of your time in Georgia. The minimum income/assets requirements are pretty lenient compared to other HNWI programs, so it is worth checking out.
Luckily, moving to Georgia is quite straightforward for most nationalities—more on this later—however, most nationalities can stay in the country for 365 days visa-free. As a result, this has actually ended up being a popular option for Russian freelancers and self-employed people trying to escape the economic sanctions and military conscription due to Putin’s war.
It’s also worth noting that Georgia has a territorial tax regime for individuals, meaning that you only pay taxes on income originating from Georgia—not international income. This can be beneficial, for example, if you have capital gains or any kind of passive income from abroad.
Note though, that similarly to how time spent outside of the country for vacation, etc. can count as physically being present in Georgia, the same applies to “Georgian-sourced income”, as in, you cannot just go on vacation and claim that your income was internationally sourced—it’s still Georgian income.
Micro- and small business status
Earlier, I mentioned that you could be paying 1-3% income tax in Georgia, but there is actually even the possibility to pay no income tax at all by registering a business in Georgia. This is because, in addition to the small business status, you can alternatively apply and qualify for a _micro-business status. _
The reality is though, that most people will be looking at small business status, and the reason why is that in order to qualify for the micro business status, you must be earning an income lower than 30,000 lari per year (just over $11,000 at the time of writing), which obviously is quite a low amount.
Small Business Status
To be considered for small business status, you need to earn less than 500,000 lari per year (approx. $188,000). This allows you to pay 1% in income tax on your gross earnings (revenue).
If you go over the 500,000 lari minimum, you will be taxed at a rate of 3%, however, if you exceed 500,000 lari per year for two years in a row, then you will lose your small business status entirely.
Bonus: Virtual Zone Status
If your company is in the IT sector, you may also be able to claim another tax status known as the “virtual zone status”. This can be done in addition to the small business status, however it is not something everyone will qualify for.
For starters, you can’t be offering any services to Georgian business or clients, and additionally, the core of your business must be software development related – i.e. the majority of the work your business provides is software development, or you have a SaaS (software as a service) product.
The benefits you get in return include:
- A reduction from 15% to 0% in corporate taxes
- 5% on distributed dividends
- 0% VAT
- 0% export tax
You also don’t necessarily need to be a Georgian resident for this one, but you do need to have some kind of presence in Georgia if you don’t plan on living there, such as a physical office or local employees. If you do live in Georgia however, you are not restricted to hiring exclusively Georgian employees, it’s just that the more business ties you have to the country, the better.
Here I’ve listed some of the most relevant taxations for most people. There are a lot of other taxes to consider, such as VAT (which only applies to domestic transactions totalling 100,000 lari annually), import tax, excise, royalties, interest etc., however it is quite a complex topic that could be deserving of its own article, and does not apply to most people who would be applying for small business status.
However, it’s important to bear these things in mind, particularly if you plan on handling services and goods locally in Georgia as part of your business.
For everyone else, the main tax considerations you need to be aware of are the following.
Standard Income Tax Rates
As mentioned before, income is usually taxed at a standard rate of 20% in Georgia. This would be the case for paying out local employee salaries as an LLC, or your own salary as a private individual entrepreneur without small or micro business status.
Unlike most countries Georgia does not have any mandatory social security taxes, however both employer and employees pay 2% of the salary (4% total) to an individual pension savings account.
The standard CIT rate is 15%, but it is only paid when you distribute the profits, not when it is reinvested in the business.
If you are paying out dividends, the personal withholding tax is 5% on those (both for residents and non-residents), in addition to the 15% for corporate tax.
The standard rate is 18% however this applies to domestic supply of goods and services, if you are VAT registered – something which is required if your turnover exceeds 100,000 lari (approximately $37,000).
If you are supplying goods and services abroad, you must pay 18% VAT unless you are VAT registered, in which case you can claim all of this back and essentially pay 0% VAT on any transactions with non-Georgian residents.
You can voluntarily register for VAT, which would make sense if you primarily working with non-Georgian contractors or companies, as you can pay 0% VAT, however then you would then be required to pay the regular 18% for supplying to Georgian businesses.
Georgian capital gains are taxed at 20%, whereas foreign capital gains are taxed at 0%. Cryptocurrency is also 0% tax as it is not recognized as capital gains in Georgia.
You will pay 5% tax on any residential real estate rented out in Georgia, and 0% on any foreign real estate rental income, although that doesn’t mean it is necessarily exempt from tax in the country where the property is located.
How to apply for small business status in Georgia
First of all, there are two ways to go about this process. You can either take a trip to Tbilisi and do everything yourself, although you are going to need someone who speaks Georgian alongside you. Alternatively, there are some services available that will do everything from start to finish, using a power of attorney. This includes registering as a private individual entrepreneur, opening a Georgian bank account, and finally claiming small business status.
Some popular service options that will help you with this include:
It’s obviously much less hassle to hire the company to do things on your behalf, although, since you need to move to Georgia and become a tax resident in order to reap the benefits anyways, it could be more cost-efficient just to hire an interpreter when needed – or start making Georgian friends who can translate for you.
1. Register as a private individual entrepreneur
First, you will need to register your new Georgian business, as a private individual entrepreneur. To do this, you will need to visit a branch of Georgia’s “Public Service Hall” (and you will also need to bring along an interpreter). The main one is in Tbilisi, however branches are also found across the country.
To register, all you need is your passport and proof of address. This address does not necessarily have to be a Georgian address, however as mentioned above, you will need to be a Georgian tax resident in order to benefit from the low taxes offered by the small business status.
Apart from this, the only thing needed to qualify as a private individual entrepreneur is an annual income of less than 500,000 lari (~$188,000), and the business income cannot come from a list of prohibited activities, including:
- Gambling businesses
- Any activities requiring licensing or permission (such as gambling, some medical fields, energy and security)
- Foreign currency exchanges or business exchanging currency as their main source of business (although crypto-related exchanges are an exception—you can qualify for small business status with a crypto business)
- Any activities requiring licensing or permission, including law firms, tax consultants, medical services, and architectural services.
- Any other kind of “consultant”
- Any business producing excisable goods
2. Open a Georgian bank account
Again, you will need a power-of-attorney to complete this step remotely, otherwise, you need to visit a branch in person. It is fairly straightforward to open a Georgian bank account, even as a non-resident. Unless you are from an economically sanctioned country, particularly Russia or Belarus, you will only need to provide a passport. If you do have a Russian or Belarussian passport, Georgian banks are now asking for proof of address in Georgia, additionally.
3. Claim small business status
To do this independently, you will need to visit any branch of the Georgian revenue service, bringing the following information:
- An email address and Georgian phone number
- Legal business address in Georgia, with written consent from the legal owner to use it as the address. There are services that will provide a legal address for you for a fee, although if you are renting an apartment in Georgia, you can ask your landlord for this permission. Since this is quite a common requirement in Georgia, they will likely already be familiar with the process. The business does not need to operate from the address, you simply have to provide an address.
In addition to this, you will need to state your main business activities when claiming small business status. This is where it may be particularly handy to seek a consultancy service for help.
Potential downside to be aware of
According to the Georgian tax code, the authorities have the right to reclassify any tax rates up to three years in retrospect, if they feel your business doesn’t match its intended purpose.
This is very important to note, as they could, for example, reclassify your business as on the list of prohibited activities, thus making you retroactively pay 20% tax on any previous income for the past three years.
I’d be particularly cautious of this rule, as “offering consultancy services” is listed as a prohibited business activity, yet Georgian law doesn’t clearly define what it sees as consultancy services. For example, if you offer marketing services, they could claim you are actually a marketing consultant. You would need to be very specific on your contracts to avoid any potential issues—definitely worth checking over with a local consultant.
This law can also apply to people who are not true freelancers, but rather employees disguised as contractors. If the authorities have reason to believe that you are actually an employee and your employer is using this scheme as a way to get out of the 20% income tax, then likewise, you may retroactively pay 20% tax. This goes for any Georgian private individual entrepreneur with small business status, regardless of if they are contracted by Georgian or foreign companies.
Whether your business is a lawful freelancing business versus being a contracted employee is ultimately decided at the discretion of the Georgian courts to decide, should you appeal the decision. However, generally, you need to be wary of this if:
- You are a freelancing business with only one client
- You are featured on their website or publicly in any way as an employee with a job title
- Your contract has certain information about bonuses or other employee benefits, defined work hours, or non-compete clauses.
There are also a few other limitations for anyone with running a small business in Georgia, such as no possiblilty to carry losses forward to future years. So if your company is in a phase where you have large R&D costs leading to significant losses that you plan to credit against future tax liability, the program may not be the best fit.
Ways to get residency in Georgia
Citizens of 95 countries can enter Georgia for work, study, and tourism purposes for up to 365 days visa-free—impressively, something that no other country offers. You can’t extend this, but you can do a border run by leaving the country and getting another 365 days.
If you choose to do things this way, you will be a tax resident in Georgia (at least once you have been there for 183 days working), however, you will be classified as a non-resident for immigration purposes. Chances are though that long-term and owning a business in Georgia, you might want to get actual residence instead of living as a taxpayer but non-resident for immigration purposes.
Luckily, you can apply for a work residence permit if you have a business in Georgia. You must earn at least 50,000 lari ($18,000) per year in order to qualify for this. Like any resident visa application though, there is the chance of getting rejected and so if your income is barely over the minimum threshold, your likelihood of getting rejected is quite high. At the moment, it is especially competitive due to the influx of Russian solo-entrepreneurs using this option as a way to escape Russia.
Apart from these options, there are some that are slightly out of reach for a lot of small business owners. For example, you can get a short-term residence permit by investing in real estate in Georgia worth at least $100,000 (this can be a house or apartment that you purchase for living in), or investing a minimum of $300,000 in Georgian companies.
High net-worth individual program
Finally, something worth a brief mention is the high net-worth individual program which allows you to be a Georgian tax resident without actually residing in Georgia more than half the year. To qualify you either need to have an annual income of 200,000 lari (about $75,000) – and show proof of this for the past three years – OR personal assets adding up to 3 million lari (ca. $1.1 million).
You have to reapply for this residency on an annual basis, however if combined with owning a small business in Georgia with special tax status, it could be highly beneficial for your business. Just note that you do need to have some kind of physical presence in Georgia if you choose to do this, such as a fixed office with local employees.
Pay attention though that if you spend the majority of your time (183 days or more) in one other country, you will still likely become a tax resident there and your Georgian tax residency will be overruled by tax treates. It’s primarily a great option if you spend a lot of time in various countries as a digital nomad and you are looking for a beneficial tax home without spending much time there every year.
How soon should I apply for the small business status?
If you successfully get the small business status, the low tax rates will start applying from the 1st day of the following month. All previous months will be subject to the usual 20% income tax. Thus, it’s important to apply for the small business status as soon as you get to Georgia and start earning an income in Georgia since the small business status taxation does not apply in retrospect.
When is Georgia’s annual tax reporting deadline?
In Georgia, the year goes from January 1st to December 31st with the annual tax reporting deadline being March 31st.
Do you need to reside in Georgia to qualify for small business status?
Yes, you must remain a Georgian tax resident in order to get (and keep) the small business status, which requires residing in Georgia for a minimum of 183 days per year.
To have a Georgian LLC or to be registered as a private individual entrepreneur however, it is not required. If you can still benefit in other ways, such as not paying corporate tax on profits that are not distributed but instead reinvested into your business.
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