Lawyer, civil rights specialist and business consultant Gvantsa Zhorzholiani spoke about how small, micro and individual entrepreneurs differ from each other in air of the radio Commersant.
According to Zhorzholiani, an individual entrepreneur is a broad concept.
“An individual entrepreneur is a legal entity registered in the National Agency of the Public Registry. He may work alone or jointly with family members, as well as involve other persons in the work.
Also, he is not limited to do economic activities and does not have an upper limit on economic income, like a small entrepreneur or microentrepreneur.
The most important thing I want to emphasize is that an individual entrepreneur’s income is taxed at a standard rate of 20%.
As the lawyer notes, a small entrepreneur is a somewhat simpler form of an individual entrepreneur, which is initially registered in the public register, and then with the Revenue Service.
“A small entrepreneur is a slightly simpler form of individual entrepreneur, which is also registered with the National Agency of the Public Registry, and then must be registered with the Revenue Service.
An entrepreneur with the small business status pays tax at the rate of 1% of the turnover but it has a limit- small business income should not exceed GEL 500,000 per year.
We know that a business entity must register as a VAT payer when its taxable turnover exceeds GEL100,000. Indeed, a small entrepreneur may have a turnover of less than GEL 500,000 over the last 12 months, but he must take into account that as soon as it exceeds GEL 100,000, he must register as a VAT payer. In this case, a small entrepreneur will be subject to two types of taxes: value added tax and 1% personal income tax.
A small entrepreneur, unlike an individual entrepreneur, has limited areas of activity and does not have the right to carry out any activities permitted by law (however, an individual entrepreneur has the right to carry out any activity permitted by law).
According to the civil rights specialist, a micro-entrepreneur is an individual who registers directly with the Revenue Service.
"A micro-entrepreneur is not a legal entity or an entity under the umbrella of an individual entrepreneur. That is, a natural person who registers directly with the Revenue Service.
Here, one factor should be taken into account, an individual entrepreneur may obtain the status of micro business, if its annual income does not exceed GEL 30,000 and most importantly, he should work alone. He has no right to have another employee, the micro-entrepreneur is limited in certain activities as well."
Gvantsa Zhorzholiani spoke about the limitations faced by all three types of entrepreneurs.
“The state and legislation have established certain restrictions for small and micro businesses. (That is, in this case they will not be able to register as small or micro entrepreneurs).
Firstly, if the activity requires obtaining a license or permits, in this case they cannot be registered as a small and micro-entrepreneur. Also, they cannot be registered if the activity is related to architectural, legal, notary, medical services, foreign exchange transactions, gambling and those activities which turnover exceeds GEL 500,000 in one case and GEL 30,000 in another.
In other cases, such as plumbing services, electrical services, marketing and any other activity not limited by the decree of Georgian government #415, they can register as a small or micro entrepreneur.”
Gvantsa Zhorzholiani also answered questions from listeners:
• Do I need an accountant to start a small business?
“In this case, accounting is simplified. You are required to file only one return on the 15th of each month. When sending a declaration, one can use the services of the Revenue Service operator, and if you have an accountant, you may be limited to only a small amount when it comes to paying the accountant.
• May a small entrepreneur have an employee and pay him a salary from his income?
“No. This is the difference between an individual and a small entrepreneur. An individual entrepreneur is free. He can work alone, hire family members and have employees, but small and microentrepreneurs are self-employed and cannot have employees.
•What should a small entrepreneur do if his income exceeds GEL 500,000?
“When income exceeds GEL100 thousand, he is registered as a small entrepreneur and wants to register as a VAT payer, I would advise canceling the status of a small entrepreneur and registering as an individual entrepreneur. As it is very difficult to control whether the turnover will be more than 500,000 or less.
The taxable income of a person having the status of a small business shall be taxed at the rate of 3%, if the taxable income received from economic activities during the calendar year exceeds GEL 500,000.
When we say the turnover of the last one year, we mean the turnover of the last 12 months, and not, for example, from January 1 to January 1 of the next year. Here we are talking about the turnover of the last 12 months".
• How to register as a small business or individual enterpreneur? What are the procedures to go through?
"Unlike LLC, registration here is relatively simplified. No need for charter capital, decisions of partners, protocols etc. A person goes to the House of Justice and registers as an individual entrepreneur with an ID card.
After registering as an individual entrepreneur, if a person wants to register as a small entrepreneur, he is obliged to go to the Revenue Service and register very easily."
• In which case, which status is better to register.
"When a person wants to start a business, he should make a decision based on his business idea and calculations. He should take into account what limitations and possibilities the subject has in each case.
The law sets out a list of cases in which 1% taxation is not imposed on small entrepreneurs. These are: Leasing of property/renting out immovable property; Income from loans; profits from a gambling business; capital gains derived from the sale of the following property.
