Foreign Client Contracts and Georgia's 1% Small Business Status

A contract with a foreign client can help document what an Individual Entrepreneur actually does, but contract wording does not create eligibility for Georgia's 1% Small Business regime by itself.

The current Tax Code makes the core points clear:

• Small Business Status is available to an entrepreneur natural person, subject to the statutory and subordinate rules;
• qualifying Small Business taxable income is taxed at 1%, subject to the threshold rules;
• salary income is excluded from the Small Business taxable base; and
• the Government may prohibit specified activities from using the regime.

The practical task is therefore to make sure the contract describes the real activity accurately and is consistent with the person's registration and tax treatment.

A contract label is not the legal analysis

Calling an agreement a "services agreement," "consultancy agreement," or "independent contractor agreement" does not by itself determine how the income is treated.

Georgia's Labour Code defines a labour relationship by reference to work performed by an employee for an employer under organised labour conditions in exchange for remuneration.

The Tax Code separately provides the Small Business regime for entrepreneurial activity.

Where classification matters, the substance of the arrangement should be assessed rather than relying only on the document title.

Describe the actual service

A useful foreign-client agreement should identify what is actually being supplied.

Depending on the business, that can include:

• defined services or deliverables;
• the scope and limits of the engagement;
• fees and invoicing mechanics;
• responsibility for expenses or subcontractors where relevant;
• acceptance or completion mechanics; and
• intellectual-property or confidentiality terms where appropriate.

The purpose is accuracy, not inserting artificial language designed to "look independent."

Activity eligibility must be checked separately

Article 88 authorises the Government to prohibit specified activities from Small Business Status.

That means a contract drafter should not assume that a broad label such as "IT," "marketing," "consulting," or "crypto" answers the tax question. The actual activity should be checked against the current special-regime rules and Revenue Service registration position.

The old version of this article overstated Revenue Service practice by implying that certain words in a contract themselves trigger reclassification. We have removed that claim.

Foreign clients do not automatically mean foreign-source income

Article 104 of the Tax Code contains the rules for Georgian-source income.

For services, the source analysis can depend on where services are actually rendered and, in specified cases, the residence of the service provider. The fact that a client or payer is abroad does not, by itself, make the income foreign-source.

This is particularly important for remote professionals physically performing services from Georgia.

Timing and registration still matter

Small Business Status should not be treated as a retroactive label for every payment received before the relevant registration and status facts were in place.

For each reporting period, check:

• when the entrepreneurial activity began;
• when the person was registered;
• when Small Business Status became effective;
• what income was earned in that period;
• the source and category of that income; and
• whether the activity was eligible under the rules then in force.

Keep the commercial and tax record coherent

A defensible file generally has the agreement, invoices, payment records, registered activity and tax filings describing the same real business.

That does not guarantee a particular tax result, but it reduces avoidable contradictions.

For a foreign-client contract and Small Business Status review, see Remote Work Law or contact TK Counsel.