The 500k moment — what triggers the decision

For most Georgian Individual Entrepreneurs with Small Business Status, the tax story is simple and very generous: 1% on turnover up to 500,000 GEL per calendar year. That single number is what makes the IE structure so popular for freelancers, consultants, and IT exporters. But the 1% rate is not unlimited — it is a threshold, and crossing it forces a decision you should make on your own terms rather than discover at year-end.

The trigger is turnover, not profit. The moment your annual turnover starts trending toward 500,000 GEL, you should already be modelling two questions: what your tax bill looks like just above the cap, and whether an LLC would serve you better from here on. If you are still early in this, it is worth taking a moment to review your current IE small-business setup before you make any structural change.

What happens at and above 500,000 GEL

Crossing 500,000 GEL does not instantly destroy your status. It changes the rate, and it starts a clock. Here is the sequence:

• 3% on the excess in the breach year. The first 500,000 GEL of turnover stays at 1%. Turnover above 500,000 GEL in the year you breach it is taxed at 3%. Your status is not lost the moment you cross the line.
• Status is retained through year-end. You keep Small Business Status for the remainder of the calendar year in which the breach happens — the 1%/3% split applies to that whole year.
• The two-consecutive-year rule. If you exceed 500,000 GEL in two consecutive years, the status is automatically revoked from 1 January of the third year.
• 20% PIT after revocation. Once the status is gone, a statusless IE is taxed as an ordinary individual: a flat 20% personal income tax on profit. That is a structural change in your effective rate, not a small adjustment.

So the real risk is not a single big year. A one-off spike above 500k costs you 3% on the overage and nothing more. The structural risk is a sustained business above the cap, because that is what triggers revocation and the jump to 20%.

Why staying an IE at 20% sometimes still wins — and when it doesn’t

It is tempting to assume that losing the 1% rate means you must incorporate immediately. Not necessarily. A statusless IE at 20% PIT is taxed on profit, not turnover. If your business carries real, deductible costs — contractors, software, travel, equipment, office — your taxable profit can be far lower than your turnover, and 20% of a modest profit may be perfectly acceptable. The IE also stays administratively lighter than a company.

Where staying an IE stops winning:

• Thin-cost, high-margin work. A consultant or IT exporter with almost no deductible costs is taxed on nearly all of their income at 20%. An LLC on the Estonian model would defer tax on every lari they reinvest.
• Personal liability matters. An IE has unlimited personal liability — your private assets back the business. As contracts and exposure grow, that becomes a genuine risk.
• You want the IT regimes. The most valuable export incentives, including Virtual Zone 0% corporate tax on IT exports, are only available to companies.

The LLC alternative

A Georgian LLC is taxed at a 15% corporate income tax rate — never 20% — and it runs on the Estonian model. That changes the math in a way that matters a great deal for a growing business:

• 0% on reinvested profit. Profit that stays in the company and is reinvested is not taxed at all. CIT only applies when profit is distributed.
• 15% only on distribution, plus 5% dividend withholding. When you actually take money out as a dividend, the 15% CIT applies, and a 5% dividend withholding tax applies on top.
• Limited liability. Unlike the IE’s unlimited personal liability, an LLC limits your exposure to the company.
• IT export regimes unlock. An LLC can pursue Virtual Zone 0% corporate tax on qualifying IT exports — a regime an IE simply cannot use.

If most of your profit is reinvested into growth, the effective rate on an LLC can sit well below 15%. It is worth understanding exactly how the Estonian 15% model changes your tax math before deciding, and if you are in software or digital services, how to claim Virtual Zone 0% tax once you’re an LLC.

A break-even illustration

The figures below are illustrative only — round numbers chosen to show the mechanics, not your actual liability. They assume a 600,000 GEL turnover year and ignore VAT and deductions detail. Always model your own real costs and distribution plans.

Scenario (illustrative)	IE at 1%	IE at 20% after revocation	LLC 15% Estonian
Turnover	600,000 GEL	600,000 GEL	600,000 GEL
Assumed profit base	turnover-based	200,000 GEL profit	200,000 GEL profit
Tax on the year	1% to 500k + 3% on 100k = 8,000 GEL	20% of 200,000 = 40,000 GEL	0 if reinvested; 15% + 5% only on what is distributed
If 100,000 GEL distributed	n/a	n/a	~15,000 CIT + ~5,000 withholding = ~20,000 GEL

The takeaway: the 1% IE is unbeatable while it lasts, the statusless 20% IE only stings when profit margins are high, and the LLC wins decisively for anyone reinvesting profit rather than drawing it all out.

How to make the switch in practice

Here is the part that surprises people: Georgia has no statutory “conversion” of an IE into an LLC. You cannot file a form that turns your existing IE into a company. In practice, the route is to build a new company alongside the IE and move the business across:

1. Register a new LLC. Incorporate the company that will carry the business going forward. You can register a Georgian LLC to replace your IE while the IE is still operating.
2. Migrate contracts. Re-paper client and supplier agreements into the LLC’s name, ideally at a clean date such as a new contract cycle or the start of a month.
3. Move banking and invoicing. Open the company’s bank account and switch all invoicing to the LLC so new revenue lands in the new entity.
4. Wind down the IE. Once revenue has fully moved across, settle any final IE obligations and close it. There is no automatic transfer — treat the IE and the LLC as two separate taxpayers during the overlap.

Frame this as a practical migration, not a legal conversion. For a side-by-side view of both structures before you commit, see the full IE vs LLC comparison.

Timing & VAT — the 100,000 GEL threshold you’ll likely hit first

Before you ever reach the 500,000 GEL Small Business cap, there is a more immediate line to watch: VAT registration becomes mandatory once your taxable turnover passes 100,000 GEL in any continuous 12-month period. For a business growing toward half a million in turnover, this threshold is usually crossed well before the SBS cap — so VAT is part of the same timing conversation, not a later problem.

Practically, this means the “should I stay an IE or form an LLC” question often arrives together with “I now have to charge and account for VAT.” Plan the switch around both lines at once: track your rolling 12-month taxable turnover, register for VAT when you cross 100,000 GEL regardless of structure, and decide on the LLC move as turnover approaches the 500k cap.

The two-consecutive-year revocation trap

The most expensive mistake is treating revocation as a same-year event. It is not. You can exceed 500,000 GEL once and keep your 1%/3% status. But exceed it in two consecutive years, and the status is automatically revoked from 1 January of the third year — and from that point a statusless IE pays a flat 20% PIT on profit. The trap is drifting: a business that quietly clears the cap two years running can wake up on 1 January with a fundamentally different tax position and no plan. If your second year is heading above 500k, that is the year to have the LLC decision made, not the year after.

FAQ

Do I lose my 1% rate the moment I cross 500,000 GEL?

No. The first 500,000 GEL stays at 1%, and turnover above it in that year is taxed at 3%. You keep Small Business Status through the end of the breach year.

When exactly is my status revoked?

If you exceed 500,000 GEL in two consecutive years, Small Business Status is automatically revoked from 1 January of the third year. After that, a statusless IE pays a flat 20% personal income tax on profit.

Can I convert my IE directly into an LLC?

There is no statutory conversion in Georgia. In practice you register a new LLC, migrate your contracts, bank account and invoicing to it, then wind down the IE — they are two separate taxpayers during the overlap.

What about VAT?

VAT registration is mandatory once taxable turnover passes 100,000 GEL in any continuous 12 months. Most growing IEs hit this well before the 500,000 GEL Small Business cap, so plan for VAT as part of the same timing decision.

Disclaimer: This article is general information, not tax or legal advice. Tax outcomes depend on your specific turnover, costs, and circumstances, and rules can change. The break-even figures are illustrative only. Consult a qualified Georgian tax advisor before acting.