Ten mistakes that turn Georgia’s 1% tax into an expensive surprise

Individual Entrepreneur registration and Small Business Status are two separate legal events. The business registry establishes the entrepreneur; the Revenue Service grants the tax status. An IE certificate displaying a registration date is not proof that receipts from that date are taxed at 1%.

Before invoicing, obtain and save the status certificate, confirm its effective date and make sure the declared activity is accurate. Income received before the status applies may follow the ordinary rules. A WhatsApp promise that the accountant “activated everything” is not a substitute for checking RS.ge.

The Tax Code permits the Government to prohibit activities and identify income excluded from the special treatment. Salary is not converted into Small Business income merely because an employee registers as an IE. Nor should dividends, rent, asset sales, interest or unrelated personal receipts be dropped into the 1% return without classification.

Write down each revenue stream: customer, contract, service, performance location, payment route and legal character. A consultant with one clean service line is different from a person combining employment, apartment rent, crypto disposals and agency collections.

Article 90 ties Small Business taxable income to Georgian-source income. Source is a legal classification, not the location of the customer’s bank or the currency shown in the IBAN. For services, the entrepreneur’s activity and the Tax Code source rules must be analysed.

Two opposite shortcuts cause trouble: reporting every foreign receipt at 1% because it feels conservative, or excluding every foreign customer because the money came from abroad. Both can be wrong. Preserve contracts, invoices and evidence showing who performed what, where and for whom.

The regime generally works on gross qualifying income. Laptop costs, advertising, software, subcontractors, travel and coworking may be real business expenses, but they do not automatically reduce the 1% base. A low-margin agency can therefore have a very different effective burden from a solo consultant with the same turnover.

Model the tax on revenue, then add accounting, VAT and operating costs. If the business pays large pass-through amounts, review whether it acts as principal or genuine agent; contract wording and actual control matter.

The 3% rate begins from the start of the month in which annual economic-activity gross income exceeds GEL 500,000 and continues through the end of that calendar year. Status revocation uses a separate two-year rule. These are not the same consequence.

Maintain a monthly cumulative schedule and forecast signed contracts. Currency conversion can move the GEL result, so a freelancer billing in dollars or euros needs more than a foreign-currency total. Plan before accepting a large December prepayment.

Small Business Status and VAT coexist. Mandatory VAT registration, place of supply, foreign-client services and reverse charge use their own tests. A person can keep Small Business Status and also become a VAT payer.

Monitor a rolling 12-month VAT schedule separately from the calendar-year GEL 500,000 Small Business schedule. The numbers may contain different transactions and answer different questions.

Tax timing is not a choice between Georgian and foreign accounts. Payment processors, overseas accounts, cash, set-off and customer payments made to another person can still require recognition. Reconcile invoices and contracts to every collection channel.

Monthly filing by the 15th means bookkeeping cannot be reconstructed once a year. Keep a special record book and source documents as required by the Code, and document refunds or transfers so they are not mistaken for new sales.

An IE is the same natural person legally, but operational separation is still essential. When family transfers, loan proceeds, savings and client fees arrive in one account, both the accountant and bank must reconstruct the story.

Use a dedicated account where practical, invoice consistently and label owner movements. Clean records help tax compliance, KYC reviews, residence applications and a future sale or restructuring of the business.

A contract called “consulting” can still raise employment questions when one customer controls hours, workplace and duties. Separately, a foreign IE working in Georgia must now assess the 2026 labour-migration framework and any exemption. Tax registration does not itself grant a right to work or reside.

Put the commercial relationship, tax status and immigration position side by side. If the three descriptions conflict, fix the structure rather than relying on labels.

Georgia can tax an item favourably while another country still treats the entrepreneur as resident, regards the business as managed there, requires social contributions or denies treaty relief. Citizenship alone does not answer residence, and 183 days is not the only fact another country may use.

A responsible calculation includes both sides. The 1% rate is valuable precisely when it rests on a coherent life and business structure—not when it is used to hide an unresolved foreign obligation.