Individual Entrepreneur & Small Business Status

Individual Entrepreneur status with Small Business taxation represents Georgia's most popular business structure, chosen by 90% of entrepreneurs for its simplicity, minimal costs, and remarkably favorable 1% turnover tax rate. Understanding IE registration, tax obligations, and operational requirements enables rapid business establishment with minimal bureaucracy and maximum tax efficiency.

Why Individual Entrepreneur Status Dominates Georgian Business

The overwhelming popularity of IE status stems from extraordinary simplicity combined with genuine tax advantages. Registration takes literally minutes online with minimal documentation, costs approximately 20-40 GEL total ($7-15 USD), and requires no minimum capital whatsoever. Unlike corporate structures demanding Articles of Association, shareholder agreements, and complex governance, IEs simply register personal details and begin operations immediately. This accessibility democratizes entrepreneurship making business ownership practical for freelancers, consultants, and small-scale operators.

Tax efficiency proves equally compelling with the Small Business Status providing flat 1% tax on gross turnover for revenues under GEL 500,000 annually (approximately $185,000 USD). This means GEL 50,000 revenue generates just GEL 500 tax liability - a remarkably low burden enabling entrepreneurs to retain 99% of revenues for living expenses and business reinvestment. No complex deductions, expense documentation, or accounting gymnastics required. Simple revenue tracking and one percent calculation creates tax compliance anyone can manage without professional assistance.

Operational flexibility allows IEs to operate across virtually any service-based or trading business without sector restrictions. Consulting, software development, design, marketing, education, e-commerce, trading, and countless other activities fall comfortably within IE scope. The only meaningful restrictions involve specific licensed activities like banking, insurance, or medical services requiring corporate structures. For typical digital nomads, freelancers, and small business operators, IE status provides complete operational freedom.

Complete IE Registration Process

Online registration through the Public Registry portal at napr.gov.ge enables IE status establishment from anywhere globally without physical presence in Georgia. The entire process completes in 15-30 minutes for straightforward cases. First, create an account on the portal using email address and setting password. The system requires basic identity verification through passport or national ID documentation uploaded as clear scans or photos showing all relevant pages.

Business name selection for IEs offers two options: operating under personal legal name or adopting a trade name. Personal name operation requires no additional documentation - simply "John Smith, Individual Entrepreneur" suffices. Trade names like "Smith Consulting" or "TechSolutions" require uniqueness verification through the registry database ensuring no other business uses identical or confusingly similar names. Trade names add modest professionalism though personal name operation works perfectly fine for many entrepreneurs.

Activity codes selection identifies business activities using standardized classification codes. The system provides searchable lists of economic activities from which you select relevant codes describing your business. Multiple codes can be selected covering diverse activities - a developer might select software development, consulting, and training codes. These codes inform tax authorities about business nature but don't restrict actual activities significantly. Selecting comprehensive codes provides flexibility for business evolution.

Address registration requires providing Georgian address where official correspondence will be received. This can be residential address, office address, or address of accountant or legal representative. Virtual office services provide registered addresses for 50-200 GEL monthly if you lack physical presence. The address must be real and able to receive mail as tax authorities and other government agencies send official notices there.

Registration fee payment of approximately 25-40 GEL occurs through the portal using credit/debit cards including international cards. Payment processes immediately with electronic confirmation. The modest fee covers registration processing and initial certificate issuance. Once payment clears, registration typically approves within hours during business days, often faster. The system emails confirmation and registration certificate becomes downloadable from your portal account.

Tax identification number issues automatically upon IE registration without separate tax authority application. The Public Registry notifies Revenue Service triggering immediate tax ID assignment. This nine-digit identification number enables all tax compliance including declarations, payments, and correspondence with authorities. No additional registration steps or fees required - the integrated system handles everything seamlessly.

Small Business Status - The 1% Tax Regime

Small Business Status automatically applies to Individual Entrepreneurs with annual turnover below GEL 500,000 (approximately $185,000 USD), providing the remarkably favorable 1% turnover tax. This status requires no special application - eligibility flows automatically from turnover levels. The tax calculation could not be simpler: total monthly revenue multiplied by 1% equals tax liability. A consultant earning GEL 10,000 monthly pays GEL 100 tax. An e-commerce business with GEL 30,000 monthly sales pays GEL 300 tax. Revenue tracking becomes the sole compliance requirement.

Expense deductions are completely irrelevant under this system - both blessing and limitation. Entrepreneurs pay 1% on gross revenue regardless of expenses incurred generating that revenue. High-margin businesses benefit enormously as expenses don't matter for tax purposes. Consulting or software development with minimal direct costs pays same 1% rate as revenue. Lower-margin businesses like trading or manufacturing may find 1% on gross revenue burdensome since actual profit margins might be slim. The lack of expense deductions simplifies compliance but requires considering profit margins when evaluating IE suitability.

Monthly tax declarations submit through Revenue Service online portal by the 15th of following month. The declaration form requires entering total revenue received during the month converted to GEL using official exchange rates for foreign currency revenues. The system calculates 1% tax automatically. Declaration preparation typically takes 5-10 minutes once revenue information is compiled. Electronic payment occurs through the same portal or via bank transfer using provided payment details.

Revenue tracking systems need only capture total incoming revenues without categorizing expenses or maintaining complex books. Simple spreadsheets recording date, client, description, and amount suffice for many IEs. Banking records showing deposits provide backup documentation. More sophisticated entrepreneurs use accounting software like QuickBooks or local Georgian solutions, though this represents overkill for straightforward operations. The key is reliably tracking all revenue to ensure accurate declarations.

Foreign currency revenues require conversion to GEL using National Bank of Georgia official exchange rates on the date payment was received. The Revenue Service portal provides exchange rate lookup tools simplifying this process. Many payment processors like PayPal, Stripe, or Wise provide GEL-equivalent reporting eliminating manual conversion needs. Multi-currency operations remain entirely manageable though requiring attention to exchange rate documentation for audit protection.

Operational Requirements and Compliance

Banking requirements for IEs remain minimal with personal bank accounts fully acceptable for business transactions. Many IEs operate using existing personal accounts without opening separate business accounts, though maintaining separate accounts improves record-keeping and professionalism. Georgian banks offer IE-specific accounts with modest monthly fees (typically GEL 0-15 monthly) providing business-oriented features like invoice integration and expense categorization. International banks or payment processors work perfectly fine - no requirement for Georgian banking though local accounts facilitate certain local transactions.

Invoicing standards under Georgian law require IEs to issue invoices for services provided though enforcement remains relaxed for many service businesses. Proper invoices include IE name and identification number, client details, service description, amount charged, and date. Simple invoice templates from Microsoft Word, Google Docs, or free invoice generators satisfy requirements. Many IEs especially in international services operate informally without elaborate invoicing, though proper invoices demonstrate professionalism and facilitate client accounting.

Record retention obligations require maintaining documentation supporting revenue declarations for three years. Bank statements, payment processor records, invoices issued, and correspondence with clients provide audit trail. Physical document storage or digital archiving both satisfy requirements. Cloud storage of scanned documents proves convenient for internationally mobile entrepreneurs. The minimal documentation burden compared to corporate accounting requirements represents another IE advantage.

Annual declarations supplement monthly tax declarations, summarizing full year revenues and tax payments. These declarations submit typically by April of following year, reconciling monthly declarations and verifying accuracy. The process remains straightforward as information directly aggregates from monthly declarations. Most IEs complete annual declarations in 15-30 minutes. Accountants can handle this for 50-150 GEL if preferred, though self-filing proves manageable for organized entrepreneurs.

Professional accountant services remain optional for straightforward IEs though many engage accountants for monthly declaration preparation and general tax guidance. Monthly fees range from 50-150 GEL ($18-55 USD) depending on transaction volume and complexity. Accountants ensure accurate compliance, answer questions, and provide peace of mind worth modest cost for many entrepreneurs. More complex IEs with inventory, multiple revenue streams, or international complications may justify 150-300 GEL monthly for comprehensive support.

Limitations and Restrictions of IE Status

Employment restrictions represent the most significant IE limitation - Individual Entrepreneurs cannot hire employees under any circumstances. All work must be performed personally or through subcontracting relationships with other IEs or companies. This restriction makes IE status unsuitable for businesses requiring employees. Entrepreneurs needing staff must either structure operations through contractor relationships or establish LLC providing employment capability. The inability to hire employees ultimately forces many successful IEs to convert to corporate structures as businesses scale.

Revenue ceiling of GEL 500,000 annually (approximately $185,000 USD) creates natural growth limit before tax treatment changes. Exceeding this threshold triggers transition to general taxation system with significantly higher rates and complex compliance. Approaching the threshold requires careful monitoring and planning for tax treatment changes. Some entrepreneurs deliberately structure operations to remain under thresholds through multiple IEs or corporate structures, though tax authorities scrutinize artificial arrangements avoiding proper taxation.

Personal liability means IE's personal assets remain exposed to business debts and liabilities without limited liability protection corporate structures provide. Entrepreneurs face lawsuits, creditor claims, or business failures with full personal asset risk. This liability exposure remains acceptable for low-risk service businesses but creates serious concerns for businesses with significant contracts, physical goods, or higher liability risks. Professional liability insurance and careful contract management mitigate risks though cannot eliminate fundamental personal liability.

Investor and partner limitations make IE status unsuitable for businesses seeking external investment or partnership arrangements. IEs operate solely in entrepreneur's personal name without mechanisms for equity sharing, investor participation, or formal partnership structures. Businesses with investment potential or partnership plans should establish corporate structures from inception rather than converting later. The IE model fundamentally serves solo practitioners and small-scale operators without scaling ambitions.

Banking and payment processing challenges emerge for some IEs especially those operating internationally or in certain sectors. Some international banks or payment processors prefer corporate entities over individual entrepreneurs, sometimes restricting account opening or imposing higher fees. Merchant acquiring for credit card acceptance may prove more difficult or expensive for IEs versus companies. These challenges vary significantly by business model and financial services needed, often proving manageable but occasionally forcing corporate structure adoption.

When IE Status Makes Perfect Sense

Freelancers and consultants working independently find IE status ideal, providing legitimate business structure with minimal overhead and maximum tax efficiency. Software developers, designers, marketers, writers, translators, and other service professionals operate comfortably as IEs. The 1% tax rate on consulting or freelance revenues creates remarkably low effective taxation while maintaining full legal business status for client contracting and banking purposes.

Digital nomads and location-independent entrepreneurs benefit from IE's simplicity and international operability. Registration requires no Georgian presence, operations occur entirely remotely, and compliance burden remains manageable from anywhere globally. Combined with Georgia's territorial taxation principles exempting foreign-source income from additional taxation, IEs provide excellent structure for internationally mobile entrepreneurs serving global clients while maintaining Georgian tax residency.

Small-scale traders and e-commerce operators with modest inventory and revenues operate successfully as IEs. Importing goods for resale, operating online stores, or managing small trading operations work within IE framework as long as revenues remain under thresholds and employee needs stay minimal. The 1% gross revenue tax requires careful margin analysis ensuring profitability after tax, but for many trading models the simplicity offsets higher effective taxation compared to expense-deducting alternatives.

Early-stage entrepreneurs testing business concepts benefit from IE's low barriers to entry and exit. Starting IE requires minimal investment and commitment, enabling market testing without complex corporate structures. If business proves viable and grows, converting to LLC becomes straightforward. If business fails or pivots, closing IE involves minimal complexity and cost. This flexibility makes IE ideal for experimental or uncertain ventures where commitment to elaborate corporate structures seems premature.

Side business and part-time entrepreneurship suits IE status perfectly, allowing individuals to maintain employment while developing business ventures. The minimal compliance burden enables managing IE obligations alongside full-time work without overwhelming time commitment. Many successful Georgian businesses began as part-time IE operations eventually growing into full-time corporate enterprises as revenue and opportunity expanded.

Managing Multiple IEs and Business Growth

Multiple IE registrations technically remain possible with individuals registering separate IEs for different business activities or brands. However, tax authorities scrutinize multiple IEs carefully, especially when aggregate revenues approach or exceed Small Business Status thresholds. Legitimate business reasons like clearly separate activities in different sectors may justify multiple registrations. Using multiple IEs primarily for tax avoidance through threshold splitting invites unwanted attention and potential reclassification challenges.

Threshold monitoring becomes critical as IE revenues grow toward GEL 500,000 annual limit. Exceeding thresholds triggers automatic transition to general taxation with 20% income tax plus accounting complexity. Entrepreneurs should track revenues monthly, projecting year-end totals and planning transitions before hitting limits. The fourth quarter of approaching-threshold years requires particular attention ensuring controlled transitions rather than unexpected tax treatment changes.

LLC conversion provides natural growth path when IEs outgrow status limitations through revenue thresholds, employee needs, or investment opportunities. Converting established IE operations to LLC preserves business continuity while providing corporate benefits. The conversion process involves LLC registration, transferring contracts and relationships to new entity, and closing IE registration. Professional legal and accounting assistance ensures smooth transitions preserving business momentum while establishing proper corporate governance.

Practical IE Operations Strategy

Starting with simple setup using personal bank accounts, basic spreadsheet tracking, and self-filed tax declarations proves entirely adequate for most new IEs. Avoiding premature complexity and overhead preserves resources while establishing business viability. As revenues grow and operations mature, gradually adding professional services like accountants, dedicated business banking, and sophisticated tracking systems makes sense. The beauty of IE status lies in scaling complexity appropriately to actual business needs rather than facing mandatory overhead regardless of business scale.

Building proper revenue records from day one prevents future headaches during tax seasons or potential audits. Simple systems capturing each transaction with date, client, description, amount, and payment method provide comprehensive audit trail. Monthly revenue compilation for tax declarations becomes trivial with organized records. Cloud storage ensures records remain accessible even when traveling or relocating, important for internationally mobile entrepreneurs.

Quarterly business reviews assessing revenue trends, effective tax rates, and growth trajectory inform strategic decisions about IE sustainability. Entrepreneurs should evaluate whether IE status continues serving business needs or whether growth necessitates corporate structures. These periodic assessments enable proactive transitions rather than reactive scrambling when thresholds loom or opportunities emerge requiring corporate capabilities.

Professional relationship building with accountant, lawyer, and other advisors proves valuable even for simple IEs. Having trusted professionals available for questions or guidance prevents costly mistakes while providing expert perspective on business development. Initial consultations establishing relationships cost little while creating resource network supporting business success and growth.