Dec 05, 2023

Sole enterpreneur set-up in georgia (small business status)

You are self-employed if you run your own business as an individual and work for yourself. You can keep all your business’s profits after you have paid tax on them. You are personally responsible for any losses your business makes.
What needs to be set up as a sole entrepreneur?
You can set-up as a sole enterpreneur if any of following apply: ● you earn no more than 100 000 GEL from self-employement;● you perform services which are allowed for small business status holder; ● you work with different contracts on the basis of service agreement.
What is necessary to set up if distantly? 
If we register a sole entrepreneurship remotely you are kindly requested to perform a valid passport, notarized and legalized power of attorney, and information on business activity.
Why a sole entrepreneur setup?
The Most Popular and Simplest Form of Business in Information Technology
The most popular and simplest way to conduct business in the information technology sector is through individual entrepreneurship. In Georgia, individual entrepreneurs (IEs) have certain advantages, including tax benefits and other preferences.
A small entrepreneur in Georgia can be registered remotely, based on a notarized power of attorney, as well as in person.
How much does it cost?
The cost of registering a sole enterpreneur is 540 USD, which includes:● Legal address for 1 year;● A Georgian operator's phone number (required for registration); activation of all accounts;● Certificate of small business status.
Bonus: opening an account in the payment system Payoneer (see the offer for opening an account in Payoneer).
What a sole enterpreneur shall take into?

Important Risks to Consider When Being an Individual Entrepreneur

When you're running your own business as an individual entrepreneur, you need to be careful about how you handle your paperwork, especially when it comes to payments. Everything needs to follow the rules for individual entrepreneurs.

While the law allows you to hire people who are also registered as individual entrepreneurs, you don't have to follow any special rules for these contracts. But remember, if you do hire someone like this, you'll have to pay a 20% income tax on their earnings. Also, make sure that the contracts you sign with other businesses don't look like employment contracts, as this can lead to different tax responsibilities.

Information reference

Article 36: Individual Entrepreneur and Their Business Location

The following are recognized as individual entrepreneurs:
a) A “sole entrepreneur" refers to a natural person who is designated as an individual entrepreneur in accordance with Article 2 of the Georgian Law "On Entrepreneurs";
b) A natural person who engages in activities specified in item 3 of the first article of the Georgian Law "On Entrepreneurs".
The term "entrepreneurial natural persons" includes:
a) Sole entrepreneurs, who are natural persons identified as sole entrepreneurs under the Georgian Law "On Entrepreneurs";
b) Natural persons who engage in activities outlined in items 1 and 2 of Article 3 of the Georgian Law "On Entrepreneurs".
The engagement in economic activities by a natural person as defined in the first part of this article, without registration, license, or permission, does not constitute a reason to deny the recognition of such a person as a sole entrepreneur for the purposes of taxation of said natural person. The place of activity of a sole entrepreneur is considered to be the location where their economic activity is conducted.
TAX RISKS

It's important to understand that even though it's relatively easy to run a business and the tax system in Georgia is quite forgiving, there are always risks for businesses. An Individual Entrepreneur (IE) is a distinct economic entity, not just an employee who gets paid a salary. They earn profit, which is legally different. Avoiding taxes illegally can lead to serious consequences, including fines, late payment fees, and an extra tax charge of 20 percent.

PROHIBITED ACTIVITIES

It's important to note that an individual entrepreneur with small business status is not allowed to engage in the following services:

Activities that require licensing or permission.
Activities that need significant capital investment (such as the production of excisable goods).
Conducting currency exchange operations.
Medical, architectural, legal or notarial, auditing, consulting (including tax) services.
Gambling business.
Providing staffing services. Production of excisable goods.

Extra Risk Linked to Being an Individual Entrepreneur

Right now, many foreigners, especially software developers, are registering as individual entrepreneurs, but in truth, they work for international companies.
In these situations, the tax authorities might use a rule called "substance over form." This means they can decide that someone who's registered as an individual entrepreneur is really just an employee. This can happen even for past periods. If they do this, the person might have to pay a 20% tax on all their income, plus fines and interest.
We think that Georgia's tax authorities are being quite strict with the recent increase in people registering as sole entrepreneurs. The tax office has a special "test" on their website (https://rs.ge/EmployeevsContractor?cat=3&tab=1). It's just for guidance and not mandatory, but it can help you understand the risks better.

FILING DECLARATIONS

Individual entrepreneurs must submit their monthly declarations on the rs.ge portal in their personal account. The annual declaration is due on November 1, 2023.