Below is the FAQ regarding registration of individual entrepreneur in Georgia with small business status. These questions are followed by a full article where we have detailed information about individual entrepreneur registration and bank account opening.
Frequently Asked Questions
- I am a web developer and I want to register an individual entrepreneur in Georgia, as well as to obtain the status of a small business. What is needed for this?
Individual entrepreneur registration is possible both remotely and in person - upon your visit. For remote registration we will only need a power of attorney (the text of which we will send to you) notarized and apostilled (Apostille is not needed from CIS countries and Ukraine) physically sent to us. Keep in mind that it is advisable to plan to live in Georgia or to have other significant expenses in Georgia.
2. Can I open a personal bank account and an individual entrepreneur’s bank account in Georgia?
- Opening a personal bank accunt was always a simple 15-minute procedure at the bank. However, due to recent events, Russian and Belarusian citizens in some banks are additionally asked for a bank statement for the last 6 months and a copy of their employment contract.
- As for the remote opening of a personal bank account - it is valid and possible on the basis of power of attorney and copy of passport (both shall be notarized and apostilled), but there is a very high risk of rejection for the citizens of Russia and Belarus.
- It is impossible to open an individual entrepreneur account remotely. Your visit to the bank is necessary, however, keep in mind that due to the large number of recent clients, specifically from Russia and Belarus, banks are careful and request additional documents, such as: agreement with the landlord, service agreement, etc.
Read our article for comprehensive answers.
Legal forms of entrepreneurial activity in Georgia
There are currently 6 legal forms of entrepreneurial activity in Georgia, of which 5 are legal entities and one is an individual entrepreneur. In this article we will talk about an individual entrepreneur, his characteristics and tax benefits.
The Law of Georgia on Entrepreneurs states that an entrepreneur is a natural person or a legal entity that has an enterprise and an individual entrepreneur is not a legal entity, but a natural person who carries out his rights and duties as a natural person.
An individual entrepreneur shall be liable to the creditor personally for the liabilities arising from the entrepreneurial activity, with all his property, unless otherwise provided by the agreement between the individual entrepreneur and the creditor (except for the standard terms of the contract defined by the Civil Code of Georgia).
Name of Entrepreneur
When registering as an individual entrepreneur, you will definitely have to think of a name by which you will later carry out entrepreneurial activities. The name and / or surname of the individual entrepreneur can be used as the name of the entrepreneur. It is also important that when registering a name, it contains an addition to the legal form in the case of an individual entrepreneur - "individual entrepreneur".
Registration of Individual Entrepreneur
To register an individual entrepreneur, a natural person must submit a written application to the registration authority requesting registration as an individual entrepreneur and an identity document of a Georgian citizen, and if the applicant is a stateless person or a foreign citizen - an identity document (e.g passport).
The above must contain the data listed in Article 11 of the Law of Georgia on Entrepreneurs, namely:
- The name of the applicant;
- The legal address of the applicant;
- The personal number of the applicant, and if the applicant is a stateless person of Georgia or a citizen of a foreign state - the identification data of the identity document;
- The applicant's signature;
- Georgian phone number.
Registration of an individual entrepreneur is not a hassle if you follow all the requirements of the law, you do not need to draw up a charter or any other legal document.
Obtaining small business status
Small business is a special regime, after which you are entitled to a tax relief . This status can be obtained after registering as an individual entrepreneur.
Due to the current political and economic situation, many foreigners enter Georgia, applying for registration as individual entrepreneurs and obtaining the status of a small business, therefore the deadlines for obtaining the status were extended to 30 days, including the registration of LLCs.
At what rate is a small business income taxed?
An individual entrepreneur pays only 1% of 500,000 of the annual turnover, but if the income from economic activities exceeds GEL 500,000, 3% of the turnover is taxed.
Many foreigners use this status for trade, programming, or other permissible activity. However, the Tax Code of Georgia states that the income of an individual entrepreneur should consist of income received from a Georgian source.
According to the Tax Code, if the total income from economic activities exceeds GEL 500,000 for 2 years during each calendar year, then the status of a small business is revoked.
If it is not received from a Georgian source (based on the latest aggressive approach of the Revenue Service) we expect that such income can be considered by an individual entrepreneur without the status of a small business, which should normally be considered as income from a foreign source and fully exempt from income tax in Georgia. However, we do not rule out that ordinary (20%) taxation will be required on it.
What is considered as income received from a source in Georgia is determined by the Tax Code of Georgia.
Income received from a source in Georgia includes:
- Income received from employment (salary) in Georgia;
- Income or benefits received from the supply of goods on the territory of Georgia;
- Income received from providing services in Georgia. Here are some examples of what can be considered as a service in Georgia:
The service provider may have been in a different country and the service receiver may be a resident of Georgia, in which case it is considered that you provided the service from the territory of Georgia, unless the service provider provides services in another country through its permanent establishment; Which confirms that the service provider provided services in another country (except Georgia);
The service provider and the recipient are in different countries and the service provider provides the service through its permanent establishment in Georgia, through its employee or otherwise (including the service provider's service costs incurred in Georgia, regardless of where he or she actually paid), which confirms that the service provider provided services in Georgia.
The best option is if the individual entrepreneur natural person lives in Georgia for at least 183 days or while providing services. The second most relevant for foreigners, who are registered as individual entrepreneurs who receive funds from abroad, there may be costs associated with providing services (such as having a Georgian employee, office, equipment needed to provide services, etc.).
Prohibited activities
It should be noted that an individual entrepreneur who has the status of a small business is not entitled to provide the following services:
- 1. Activities that require licensing or permission.
- 2. Activities, the implementation of which requires a significant investment (production of excisable goods).
- 3. Carrying out foreign exchange transactions.
- 4. Medical, architectural, legal or notarial, auditing, consulting (including tax consultants) activities.
- 5. Gambling business.
- 6. Providing staff
- 7. Production of excisable goods.
Types of income that are not taxed under the special tax regime and are not considered in the joint income received within the framework of small business
- 1. Leasing / renting real estate.
- 2. Income from the loan.
- 3. Profits from the gambling business.
- 4. Gift.
- 5. Surplus income received from the sale of the following property:
- A) real estate;
- B) vehicle;
- C) securities.
- 6. Income received in the form of inherited property.
- 7. Income received in the form of dividends.
- 8. Income received as interest.
- 9. Income received in the form of royalties.
- 10. Income from debt forgiveness.
- 11. Surplus received from the sale of a partner's share.
Opening a bank account
The procedure for applying for a bank account and the chances of success in opening it are different, it depends on the applicant's residence, the type of bank account (personal or corporate), the type of business itself and the way the process is carried out - by power of attorney / in person.
Practice shows that all Georgian banks open bank accounts with non-resident individuals if the person applies to the bank in person (not by power of attorney). Proof of address is not required, only your passport is sufficient. In this case, basically you fill in the simple KYC, which you fill out by yourself or it is filled in by a bank employee. Internet banking, Digipass (token), (visa, mastercard) cards - all this is quite easy to get and can be implemented without any problems in a personal application.
At the same time, due to the large number of clients coming from Russia and Belarus in recent times, banks are taking precautions and additionally requesting a bank statement for the last 6 months and a copy of the employment contract.
Opening an account for an individual entrepreneur is a relatively difficult procedure, especially in the current situation if you are a non-resident. Your visit to the bank is necessary, however, consider the "being in Georgia" policy (living in Georgia / having Georgian employees / having an office) and the need for documentation to prove the legality of the transfer, otherwise the account may be closed.
Opening an account remotely for an individual entrepreneur is virtually impossible.
An alternative to opening a Georgian account for an individual entrepreneur is to open an account in a payment system such as wise.com / Bilderlings. At the same time, we do not rule out that these payment systems may refuse to provide services to Georgian companies / individual entrepreneurs when their beneficiary is a Russian / Belarus citizen.
Cancellation of individual entrepreneur registration
There are several reasons for canceling an individual entrepreneur registration:
· Personal Statement;
· Death of a natural person registered as an individual entrepreneur (a death certificate drawn up and certified in accordance with the legislation of Georgia), his / her declaration of death or missing person by a court, as well as recognition of his / her support recipient (in this case, registration of individual entrepreneur is canceled at the request of any person or at the initiative of the registration body, a court decision drawn up and certified in accordance with the legislation of Georgia must be submitted.).
In case of cancellation of the registration of an individual entrepreneur, his / her legal successor is the relevant natural person.
In connection with any of the above services, our law firm will provide you with qualified legal services. Contact us today.
Additional risk related to individual entrepreneur status
Nowadays, there are many foreigners registering themselves as individual entrepreneurs, especially software developers, although in fact they are employees of international company. For such cases revenue service may use "substance over form" principle, which allows them to deem that in fact the individual entrepreneur was always an employee and not an individual entrepreneur (for the previous period as well). This approach might trigger 20% tax on full income of the person, penalties and interest. We believe that the revenue service of Georgia will be more strict due to the latest wave of registrations of individual entrepreneurs. The revenue service has a special "test" that has an advisory (but not mandatory) character: < https://rs.ge/EmployeevsContractor?cat=3&tab=1 > which may give you a general assessment of risks related to it.
Legal Services for Individuals and Businesses
For those needing assistance with the business registration in Georgia and operation of a business as an individual entrepreneur in Georgia, consulting with a business lawyer in Tbilisi can be invaluable. With our legal services we can assist with the entire registration process, handle legal documentation, and offer ongoing legal support tailored to your business needs.
DISCLAIMER: This is not legal, tax or investment advice. Our opinion is not binding for any court or tax authorities. Any kind of investment bears risks.
