Small Business Tax Structuring (1% Tax) is a higher-level service than simple registration. This service is designed for entrepreneurs and freelancers whose activities are complex and sit on the borderline between prohibited and permitted activities, or who wish to optimize their existing business model within the 1% regime. While Small Business status is very popular in Georgia, maintaining it requires careful planning. For example, how should "consulting" (prohibited) be distinguished from "software development" (permitted) when processes are intertwined? This service answers exactly such questions and creates a safe framework for operations.
Tax structuring involves in-depth analysis and the development of the following components:
- Contract Review and Drafting: Formulating Service Agreements with clients to clearly demonstrate the technical/creative nature of the service and eliminate consulting elements.
- Activity Segregation: If an individual engages in both permitted (e.g., design) and prohibited (e.g., training) activities, a scheme will be developed to separate them (e.g., establishing an LLC for the prohibited part and retaining Individual Entrepreneur status for the permitted part).
- Employment Risk Management: Assessing the risk of "disguised employment" when working with foreign companies and structuring the contract so it does not qualify as an employment contract (which would trigger 20% taxation).
- VAT Planning: Managing VAT obligations if the 100,000 GEL threshold is exceeded and ensuring documentary support for 0% taxation rights in case of service export.
Let's consider real scenarios. Scenario 1: A marketer works for an international company. If the contract states "Marketing Consulting," this is a prohibited activity. If the activity actually involves managing ad campaigns and creating content, structuring will adjust the contract to reflect appropriate codes, making the 1% tax legal. Scenario 2: A programmer works for a single foreign company, has fixed working hours, and receives a fixed salary. The tax authority might consider this an employment relationship. A structuring expert will help transition the relationship to a B2B format (invoicing, project-based delivery) to protect the Small Business status.
The legal basis includes the Tax Code of Georgia, Government Decree No. 415, and methodological guidelines from the tax authority. Also important are the norms of the Civil Code regarding service and works contracts, as the content of the contract determines the tax regime. Regarding VAT (Articles 161-168), determining the place of service provision is crucial for VAT exemption (export) when working with foreign clients.
The process begins with a detailed audit of the client's business processes. The expert examines existing contracts, invoices, and communication with clients. Then, a package of recommendations is produced: changes to contracts, correction of NACE activity codes in the Public Registry, and ensuring correct descriptions for bank transactions. This is a preventive service that protects the business from future tax disputes.
Legal.ge is the platform where you can find highly qualified tax strategists. They do not limit themselves to just filling out declarations; they create a safe architecture for your business. If your activity is non-standard and you wish to maintain the 1% regime without risks, contact Legal.ge specialists today.
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