Georgia's 1% tax: who it really works for

Georgia is widely known as the 1% tax country. There's truth to that, but the headline alone is misleading. The famous rate applies only to a specific form, only up to a turnover cap, only with real residency, and consulting activities in particular often don't qualify at all. This article explains how the Small Business Status really works and who it pays off for.

What the Small Business Status is

The 1% rate is attached to the Individual Entrepreneur (IE), Georgia's sole-trader form. An IE who registers and is granted Small Business Status (SBS) pays 1% on turnover (not profit) as long as annual turnover stays below GEL 500,000 (about EUR 170,000). Above that, the rate rises to 3%.

An important clarification, because it's often stated wrongly: SBS is a personal regime for sole traders, not corporate tax. The alternative without SBS is not a 15% corporate tax, it's the normal 20% personal income tax. The 15% applies to the Georgian company (LLC), which is a different topic. There's also a smaller tier, the Micro Business Status, at 0% up to GEL 30,000 turnover, but without employees.

How it ties in with territorial taxation

Georgia taxes individuals territorially: only Georgian-source income is taxed, foreign income is generally exempt. Here lies the common mistake. Work you perform physically in Georgia counts as Georgian-source, even if all your clients are abroad. That's exactly the turnover the Small Business Status taxes at 1%. So the 1% status isn't a trick to make foreign income tax-free, it's a very low rate on the business you run from Georgia.

Who it does NOT work for

This is the part most accounts leave out, and the part that gets expensive.

Consulting doesn't qualify for the 1% rate. Consulting of any kind is excluded from the Small Business Status, as are medical, legal, architectural, auditing and notarial activities and licensed businesses. Many location-independent people who see themselves as consultants or freelancers therefore don't qualify.
Disguised employment. If you effectively work like an employee for essentially one client, the tax authority can reclassify it as employment under the substance-over-form principle (Art. 73.9.b). The regular 20% rate then applies retroactively, plus penalties.

So before you build on the 1% rate, it must be clear whether your specific activity qualifies at all. That belongs with a local tax advisor up front, not afterwards.

The most common costly mistake

Register too late and you pay the full 20% on everything earned before approval. Since a change in early 2026 the status is active from the day you apply (previously only from the first of the following month), with mandatory monthly returns. Still: secure the status first, then earn, not the other way around.

Requirement: real residency

The low rate only applies if you are genuinely resident in Georgia and run your activity from there. It doesn't work as paper alongside a life elsewhere, and it doesn't automatically end your tax liability back home. How Georgian residency works is covered in Tax residency in Georgia.

Sources

This article is a general overview, not tax advice. Georgia's special regimes change (most recently in 2026) and depend on your case. Have your specific activity checked by a local tax advisor before registering.