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LLC or sole trader in Georgia: choosing the form

This is for people about to do business in Georgia who face the first structural decision: register as an individual entrepreneur (ინდივიდუალური მეწარმე, IE) or set up an LLC (შპს). What follows is the logic of the choice rather than a ready answer: it depends on the kind of activity, turnover, who the owners are and where you yourself are tax resident. The aim is to help you arrive at a consultation with the right questions and the right facts.

The essential difference

These are not "two degrees of seriousness" of the same thing. They are two different constructions.

A sole trader is not a separate person. It is you, an individual, with an entry in the register recording business activity. A sole trader has no participants and no assets separate from your own. The sole trader's income is your personal income.

An LLC is a legal person in its own right, with its own assets, its own balance sheet, its own obligations and its own tax regime. You hold a share in it and are usually appointed director separately. The company's money is not your money until profit is distributed.

An important aside, because people often expect the opposite: registering an LLC in Georgia does not require any statutory minimum capital. The amount is set by the members themselves, and "the cost of entry" is not usually an argument against an LLC. The difference between the forms lies not in the initial outlay but in how liability, taxation and administration are constructed.

Almost everything else follows from that distinction.

Liability

A sole trader answers for obligations with all their personal property, with no cap at the amount invested. A debt to a counterparty, a tax assessment, a contractual claim - all of it ultimately reaches you as an individual.

A member of an LLC as a general rule risks their contribution to the company rather than all their personal property. But that limitation has boundaries, and they tend to be remembered late:

• a director answers to the company itself for their own bad faith or unreasonable conduct - that is a separate role from being a member, with a separate set of duties;
• if you have personally signed a guarantee for a loan, a lease or another obligation, the limitation of liability does not apply to that part;

So an LLC reduces risk without reducing it to zero. If the activity involves other people's money, goods, or obligations towards clients or contractors, that is an argument for an LLC.

Tax: how the form matters

What matters here is less the level of the rates (they change and are set by tax legislation) than the mechanics.

An LLC. Georgia applies a model under which profit tax as a general rule arises not when profit is earned but when it is distributed - that is, on payment of dividends. The scope of that model is defined by the Tax Code and is not the same for every sector: particular categories of taxpayer have rules of their own, so whether the model applies to a given business is checked separately.

Profit left in the business is, under that regime, generally not taxed when earned. But that is not an automatic guarantee: the law treats a whole range of transactions as equivalent to distribution, and it is the tax authority that classifies a given transaction. What may count as distribution includes expenses unconnected with economic activity, gratuitous transfers, the granting of loans and certain entertainment expenses. Note: this is not confined to transactions with related parties - a loan to an unconnected person can fall within the same perimeter. The current list is in the Tax Code and in the tax service's guidance; at a consultation it is checked against your own payment model, because this is where most unexpected assessments arise.

A sole trader. Income is taxed as personal income tax. There is no separate layer between the business and you: earned, taxed, yours. That is simpler, but it removes flexibility: you cannot retain profit "in the company" with deferred taxation, because there is no company.

VAT does not depend on the form: the obligation to register arises when turnover exceeds the threshold set by the Tax Code, and for certain transactions regardless of the threshold. This applies to sole traders and LLCs alike. The rate and the threshold are set by law and revised periodically, so calculations are worth building on figures confirmed on the date of the enquiry.

One point deserves saying separately, because it is the most commonly misunderstood: a preferential regime for a sole trader's income does not displace the VAT rules. The special status and the VAT obligation exist in parallel, and an entrepreneur who crosses the turnover threshold becomes a VAT payer regardless of the rate at which their income is taxed.

Small business status

A separate regime for sole traders: with small business status, tax is calculated at a reduced rate on turnover rather than on profit. This is the regime people usually mean when they talk about "the low percentage in Georgia".

What is worth knowing before building calculations on it:

• the status is available only to sole traders, and not to all of them: the Tax Code and secondary legislation list activities to which the regime does not apply; the list has been revised, and some services, including certain kinds of consulting, have traditionally sat in a grey area;
• there is a maximum annual turnover; when it is exceeded the regime changes, and how and when the status is lost is governed by rules rather than taking effect automatically "from next year";
• the status is not granted automatically on registration - it is obtained separately, in the prescribed way;
• expenses under this regime as a general rule do not reduce the taxable base, but the rules on documenting transactions still matter: failing to observe them can affect how tax is charged;
• the rate, the turnover limit and the list of exclusions are set by legislation and change - the current figures as at the date of your enquiry are confirmed at the consultation.

Micro business status

Besides small business, the law provides for micro business status for individuals. It is a regime in its own right, with its own turnover limit, its own restrictions on activities and on employing staff. It is often overlooked when choosing, although for a small one-person activity it may suit better. The conditions, limits and restrictions are set by the Tax Code and secondary legislation.

Withholding tax on payments to non-residents

A point equally significant for both forms and a regular source of assessments: on payments to non-residents - for services, for the use of rights, on interest - the payer may be obliged to withhold tax at source. The obligation falls on the Georgian entrepreneur or company regardless of where the recipient is, and regardless of whether the payer uses a preferential regime. The rates, the list of payments and the availability of reduced rates under double tax treaties are governed by the Tax Code and the relevant treaties.

Property tax

Property tax obligations depend on whether you or the company hold taxable assets, and the treatment differs: an individual (including one registered as a sole trader) is dealt with one way, a legal person another, with its own rules on the base and on reporting. If the activity is expected to involve real estate or other assets, this is worth discussing separately.

What tilts the choice one way or the other

This is not an algorithm or a checklist: everyone's combination of circumstances is different, and one heavy factor can outweigh several light ones. In practice the choice more often leans towards a sole trader when:

• the activity is carried on by one person, in the form of services, without staff and without substantial obligations to counterparties;
• the forecast turnover fits within the limit of the preferential regime;
• the activity is not among those excluded from that regime;
• partners, investors and a future sale of the business are not contemplated.

The choice leans towards an LLC more often when:

• there is more than one owner, or others are expected to join;
• there are material risks: goods, a warehouse, construction, other people's money, a licensed activity;
• staff are expected, along with a clear corporate structure;
• the clients are companies for whom contracting with a legal entity matters;
• profit is expected to be retained in the business rather than distributed in full, in which case the mechanics of tax on distribution become significant;
• the business is seen as an asset that can be sold or that an investor may join.

A further layer is your own tax position outside Georgia. If you remain tax resident of another state, a Georgian LLC may be characterised there under controlled foreign company rules, and a sole trader's income as your personal income, with the corresponding consequences where you are resident. These consequences are usually worked out before registration: changing the form after the business is running is harder and more expensive than choosing it deliberately.

And one more thing that is constantly conflated: registering as a sole trader or a company in Georgia does not in itself give a right to stay in the country. Business status and immigration status are different things, and residence is decided on its own bases and in its own procedure.

What registration requires

Registration of entrepreneurs and legal entities is handled by the National Agency of Public Registry; documents are usually filed through the House of Justice, which acts as the front office. The basics:

• proof of identity (for a foreign national, a passport, as a rule with a notarised translation);
• an address in Georgia for registration purposes and a document confirming the right to use it (the owner's consent, a lease);
• for an LLC - the constitutional documents and the information required by the entrepreneurs legislation in force: details of the members and the management, the size and allocation of shares. The contents of the file changed along with the reform of that legislation, so the current list is checked on the date of filing;
• where a representative acts - a power of attorney. If issued abroad, it usually requires legalisation or an apostille and a notarised translation into Georgian; the exact requirements depend on the issuing country and on whether a legal assistance treaty exists.

Registration timescales and state fees, including expedited processing tariffs, are set by regulation and revised periodically; the current figures are confirmed before filing.

After registration come separate steps: tax registration and access to the tax service's electronic cabinet, opening a bank account, where relevant an application for a special tax status, VAT registration, and obtaining licences or permits for the activity.

The bank account is the least predictable stage. The decision is the bank's, it depends on the activity, the countries your clients are in and your own profile; neither a lawyer nor a registrar can guarantee it.

Ongoing administration: what only becomes visible after you start

The form determines not only tax but the volume of routine work, which begins immediately after registration and does not stop:

• tax returns are filed at the intervals the law prescribes, including monthly for certain taxes, and the frequency and content do not always depend on whether any activity took place;
• a large part of the communication with the tax service goes through the electronic cabinet, and notices there are easy to miss;
• certain activities, above all retail payments, are subject to requirements on the use of cash registers;
• a legal entity has an additional corporate layer: members' resolutions, recording changes in the register, keeping accounts.

For a sole trader on the preferential regime the administrative load often comes as a surprise: a low rate does not mean no reporting.

What changes when you hire, and when you work with foreign clients

Hiring staff. Both a sole trader and an LLC can hire - the form does not prevent it. But with the first employee comes the employer function: a written employment contract, withholding income tax at source, contributions to the funded pension system (the participation rules differ for citizens, residents and foreign nationals and are set by the pension law), regular reporting, and compliance with employment law on working time, leave and termination. For a sole trader on the preferential regime, taking on staff usually changes the economics of the model: the administrative load stops being nominal, and calculations made for one person no longer fit.

Foreign clients. Whether a service falls under Georgian VAT is determined by the place-of-supply rules: depending on the type of service and the status of the client, the transaction is either taxable in Georgia or outside the scope of Georgian VAT. Separately there is the reverse charge - an obligation to account for VAT yourself on services received from a non-resident; it can arise even for someone who is not a VAT payer. This is one of the most frequent surprises.

Also relevant:

• incoming foreign currency and the bank's requirements for supporting documents;
• contracts and invoices whose contents can be shown to the tax authority;
• tax residence certificates for applying double tax treaties;
• for particular sectors, above all IT, special tax regimes (notably international company status and the virtual zone regime). These are not an alternative to choosing a form but a layer on top of it: each regime has its own entry conditions - on the type of activity, on the applicant's legal form, on evidencing real presence and experience - and those conditions are among the most frequently amended parts of the rules. Whether a given regime applies to a given activity is checked separately and on a current date.

How you exit the form: closing down

Almost nobody asks about this at the start, although for choosing a form it sometimes matters more than the tax rate. Deregistering a sole trader and liquidating an LLC differ fundamentally in effort. Deregistering a sole trader is an administrative procedure. Liquidating a company is a formalised procedure with settlements with creditors, closing out tax obligations and an entry in the register, and it takes substantially longer and needs support. A company that has stopped trading cannot simply be left: obligations to the tax authority do not end by themselves - how to close them is established separately. If the project is experimental and the chance of closing it is high, the cost of exit is a legitimate argument when choosing the form.

Common mistakes in choosing

1. Choosing by rate rather than by construction. "Where the percentage is lower" is a weak criterion if a partner or an employee appears six months later.
2. Treating the preferential status as automatic. It is obtained separately, and it is not available to everyone.
3. Ignoring the type of activity. The list of exclusions from the preferential regime belongs to the questions usually checked at the very start, not after registration.
4. Mixing personal and company money in an LLC. Taking money out "as a sole trader would" can be reclassified as a distribution, with all the tax consequences.
5. Ignoring the country where you are tax resident. The optimal Georgian form can create a problem in another jurisdiction.
6. Expecting registration to settle the immigration question. Business status does not confer a right to stay.
7. Forgotten formalities after registration. Address, reporting and deadlines - registration is the beginning, not the finish.
8. Planning right up against the turnover limit. Exceeding the limit is not "slightly more tax" but a change of regime.
9. No exit plan. A company left unclosed keeps generating obligations.

What to prepare for the consultation

• A description of the activity, as specific as possible: what exactly you sell or provide, to whom and how.
• Expected turnover over 12 months and its shape: occasional large payments or regular small ones.
• Where your clients are and what they are: companies or individuals.
• Your tax position: citizenship, where you are currently tax resident, whether you plan to change that.
• Plans on partners: one owner or several, shares, future investors.
• Plans on staff: whether you need employees, in Georgia or remotely, and when.
• What money you expect to take personally and what to leave in the business.
• Whether payments to foreign contractors, service providers or rights holders are expected.
• Whether you have an address in Georgia and whose it is.
• Current contracts or templates, if the work has already started.
• Any requirements your clients have stated for their counterparty.
• The expected horizon of the project and a view on how it might be wound up.
• A passport and, if you have them, residence documents or papers on previous registrations in Georgia.
• If you have registered before: an extract from the register, details of any tax statuses obtained and the latest filings.

About the status of this material

This material was prepared in August 2026 and is for reference and information. It is not legal or tax advice: it describes a general approach and does not take account of the circumstances of your matter, your contracts, your tax position or your counterparties' positions. Reading it does not create a lawyer-client relationship and it cannot serve as the sole basis for a registration, a transaction or any other decision with legal consequences.

Georgian legislation, rates, limits, lists of activities and administrative practice change, sometimes without the rules themselves changing; the information is current as at the date of preparation and needs checking on the date of your enquiry. Decisions of the registering authority, the tax service and banks are taken by them independently and cannot be guaranteed by a lawyer or a registrar. To assess a specific situation, an individual consultation is the sensible step.