Starting a business: sole trader, LLC, tax regime: what to do under Georgian law

What to do

1. Legal form: a sole trader is not a legal entity and is personally liable for business debts with all of their property (Law of Georgia on Entrepreneurs, Art. 2); a partner in an LLC is not liable for the company's debts (Law on Entrepreneurs, Art. 26), except in cases of abuse of this form (Law on Entrepreneurs, Art. 26); an LLC may be founded by a single person (Law on Entrepreneurs, Art. 19).
2. Registration (Public Service Hall): mandatory; it includes both state and tax registration (Law on Entrepreneurs, Art. 8). For an LLC, a written founding agreement signed by all founders is required; certification is done by a notary, at the Public Registry or with an electronic signature (Law on Entrepreneurs, Art. 4).
3. Sole trader tax regime: small business status is available only to sole traders, upon application to the tax authority (Tax Code of Georgia, Art. 88); the tax is 1% of income (Tax Code, Art. 90); above GEL 500,000 in a year, the rate is 3% from the month in which the threshold is exceeded (Tax Code, Art. 90); status is lost if income exceeds GEL 500,000 in each of 2 years (Tax Code, Art. 89). Alternatively, micro-business status: no hired employees and income up to GEL 30,000 per year (Tax Code, Art. 84); no income tax is paid (Tax Code, Art. 86). Otherwise the general regime applies, at 20% (Tax Code, Art. 81).
4. LLC: the object of profit tax is primarily distributed profit (Tax Code, Art. 97); the rate is 15% (Tax Code, Art. 98); dividends and salary are taxed separately.
5. VAT for any legal form: if taxable turnover over any 12 consecutive months exceeded GEL 100,000, a registration application must be filed no later than 2 working days after that (Tax Code, Art. 165); VAT is payable from the transaction that exceeded the threshold (Tax Code, Art. 165); small businesses are not exempt from VAT (Tax Code, Art. 92).
6. Foreigners: a foreigner may register as a sole trader on the basis of an application and an identity document (Law on Entrepreneurs, Art. 11). However, a foreigner without permanent residence who runs a business or is a partner is treated as a “self-employed foreigner” (Law of Georgia on Labour Migration, Art. 3). A foreigner's right to engage in self-employed activity arises from a “right to engage in labour activity” granted by the Ministry of Labour (Law on Labour Migration, Art. 3). This right must be obtained (check the transitional deadlines of the law). The legal basis of stay (residence permit or visa) is a separate matter.
7. After registration: a bank account, income records, tax returns, and monitoring of the VAT threshold.
8. Where to apply: National Agency of Public Registry (Public Service Hall), for registration; Revenue Service, for status and VAT; Ministry of Labour, for a foreigner's right to labour activity.
9. Evidence: passport or ID, legal address, founding agreement, director's consent, income records.
10. Pitfalls: a missed VAT threshold means back-assessment from the date the threshold was exceeded; a sole trader risks personal property; for a foreigner, registering as a sole trader is not enough, as the right to labour activity and a lawful basis of stay are also required; activities prohibited for small or micro-business status should be checked against the government's list.

Be sure to check

• sole trader vs LLC (liability, profit tax)
• conditions and rates of small business status; micro-business status
• VAT registration threshold and deadline
• for foreigners: the right to engage in labour activity; subsequent obligations