The Small Business Regime in the System of Special Taxation
The Tax Code of Georgia builds a system of special taxation regimes that extends to physical persons holding micro business status, entrepreneur physical persons holding small business status, and persons holding the status of a fixed taxpayer. For an individual entrepreneur the central link of this system is precisely the small business status — with simplified rates and simplified accounting.
Small business status may be granted to an entrepreneur physical person. At the same time, with the consent of the Financial-Budget Committee of the Parliament of Georgia, the Government may prohibit the pursuit of particular activities within which this status cannot be granted to an entrepreneur, and may also define types of income that are not taxed under the special regime and are not counted in total income.
Granting the Status and the Income Thresholds
An entrepreneur physical person who satisfies the established conditions applies to the tax organ for the purpose of being granted small business status, and the organ issues a small business certificate. The threshold of total income for a calendar year is 500 000 lari, while for subjects of wine tourism and agrotourism activities it is 700 000 lari.
The logic of the threshold is repeated in the cancellation rule: if total income received from economic activity exceeded, for 2 calendar years, 500 000 lari in each year (700 000 lari for wine tourism and agrotourism), the status is cancelled. In that case it is considered cancelled from the beginning of the following year.
Other Grounds for Cancellation
Beyond exceeding the threshold, small business status is cancelled if: the person applied to the tax organ before the end of the calendar year — the status then ends from the first day of the month following the month of application; the person carries out a prohibited activity or does not satisfy the basic requirement of the regime — cancellation then operates from the beginning of the current year or from the date the ground arose; or the person was fined at least 3 times within a calendar year for violations of the rules on the use of cash registers.
Cash-register discipline is particularly sensitive here: three fines connected with the cash register within a year abolishes the status and returns the entrepreneur to the general regime, which entails an increased tax burden.
Rates and Taxable Income
The taxable income of a person holding small business status is taxed at 1 percent. Where total income exceeded 500 000 lari (700 000 lari for subjects of wine tourism and agrotourism), taxable income is taxed at 3 percent, and this rate operates from the beginning of the month in which the excess was recorded until the end of the calendar year. This two-step system of rates is the economic core of the regime.
Taxable income consists of income received from sources in Georgia, except salary income and income received from types that are not taxed under the special regime and are not counted in total income.
Accounting, Declaration and Other Obligations
A person holding small business status keeps a special journal of accounting; the rules for keeping it, including in electronic form, are determined by an order of the Minister of Finance. Waybills are used in the transport or delivery of goods in the cases provided for by the Code, and a loss incurred during the tax year is not carried over to the next year unless the person leaves the special regime.
The declaration calendar is clear: for a person holding small business status, the submission of the tax declaration and the payment of the tax are carried out no later than the 15th day of the month following the reporting month. Upon cancellation of the status, the accounting of existing goods stocks is likewise determined by an order of the Minister of Finance, as is the general procedure for submitting declarations.
Frequently Asked Questions About Small Business Taxation
At what rate is small business taxed?
At 1 percent; where total income exceeds 500 000 lari (700 000 lari for wine tourism and agrotourism), 3 percent applies from the month of the excess until the end of the year.
How is the status obtained?
An entrepreneur physical person applies to the tax organ, which issues a small business certificate if the conditions are met.
What happens when the threshold is exceeded?
Exceeding 500 000 lari over 2 calendar years (700 000 lari for agrotourism and wine tourism) cancels the status from the following year, while the 3 percent rate operates in the current year.
What does the journal of accounting give?
The special journal is the mandatory instrument for recording income and expenses; the rules for keeping it, including electronic form, are determined by an order of the Minister of Finance.
How We Help on Legal.ge
We help individual entrepreneurs plan and run the small business regime: we assess the possibility of obtaining the status, prepare the application, arrange the journal and waybill practice, and analyse the risks connected with the thresholds. Contact us — the right regime creates tax savings within the bounds of the law.