Special Taxation Regimes: Recent Amendments

On 6 February 2026, formal amendments were introduced to the Instruction "On the Application of Special Taxation Regimes," approved by Order №999 of the Minister of Finance. These changes are set to enter into force on 8 March 2026.

The updates primarily affect:

• Entities with Micro Business status;
• Entities with Small Business status;
• Fixed Tax payers.

Summary of Key Regulatory Updates:

• Transition Clarification: Defines the tax obligations arising from the transition from Micro Business to Small Business status.
• Strict Deadlines: Establishes a mandatory 15-day window for status updates.
• Effective Dates: Modifies the commencement date for Small Business status.
• Reporting Standards: Strengthens declaration and filing obligations.
• Record-keeping: Reduces the document retention period for Micro Businesses.
• Fixed Tax Requirements: Introduces additional mandatory criteria for the Fixed Tax regime.

Critical Practical Risk: Failure to adhere to the new 15-day notification window may result in a significant financial penalty, specifically the application of a 20% income tax rate on a portion of the total annual income.

Transitioning from Micro to Small Business: The 15-Day Critical Factor

A Micro Business status is forfeited if the individual:

1. Exceeds an annual turnover of GEL 30,000;
2. Commences the use of hired labour (employees).

While previous regulations left ambiguity regarding the taxation of income received prior to the status change within the same fiscal year, the new amendments provide absolute legal clarity.

1. Compliant Notification (Within 15 Days)

If the entrepreneur applies for Small Business status within 15 calendar days of exceeding the turnover threshold or hiring staff:

• Micro Business status is revoked effective from the date of the change;
• Small Business status is granted retrospectively from that same date;
• Tax Treatment: Income earned from the start of the year until the status change remains under the Micro Business regime (exempt from tax).

2. Non-Compliant Notification (After 15 Days)

If the notification window is missed and the application is submitted late:

• Small Business status is granted only from the date of application;
• Tax Treatment: All income earned from the beginning of the year until the date of the new status will be taxed under the Standard Regime at a 20% Personal Income Tax rate.

This represents the highest financial risk for practitioners, as a simple administrative delay can lead to a substantial tax burden on the year's prior earnings.

Voluntary Transition

For individuals who do not exceed the GEL 30,000 threshold but choose to voluntarily transition to the Small Business regime:

• Status is granted from the date of application;
• Prior income remains protected under the Micro Business regime.

Document Retention Period

The mandatory period for Micro Businesses to preserve tax-related documentation has been reduced:

• From 6 years to 3 years.

Commencement of Small Business Status

A significant operational improvement is that Small Business status now takes effect on the day of application, rather than the first day of the following month.

This allows businesses to benefit from the 1% preferential tax rate immediately. For example, if an Individual Entrepreneur applies on 10 January, the 1% rate applies to all qualifying income received from 10 January onwards.

Re-obtaining Status

The regulations now specify that if a Small Business status is revoked, it can only be reclaimed from the start of the following tax year. It is no longer possible to regain the status within the same calendar year.

Note: If an individual voluntarily requests the cancellation of their status, the existing rule applies—status is revoked from the first day of the month following the application.

Nil Returns (Zero Declarations)

The Instruction now explicitly states that if a Small Business fails to file a monthly income tax return, it will not be automatically deemed a "Nil Return." Compliance requires active filing.

Additional Requirements for Fixed Tax Payers

To qualify for and maintain Fixed Tax status, the following criteria are now mandatory:

• The individual must be formally registered as an Individual Entrepreneur;
• Should the Individual Entrepreneur registration be liquidated, the Fixed Tax status will be automatically terminated.

Termination upon Decease

The amendments clarify that Micro Business, Small Business, and Fixed Tax statuses are terminated upon the death of the individual. This ensures legal certainty and uniform administrative practice.

Professional Recommendations

In light of these developments, businesses are advised to focus on the following:

1. Strict Monitoring: Rigorous oversight of the 15-day notification window.
2. Strategic Planning: Timely scheduling of status transitions.
3. Filing Discipline: Ensuring all monthly declarations are submitted, regardless of turnover.
4. Registration Audits: Confirming Individual Entrepreneur status for those under the Fixed Tax regime.

We recommend a preliminary tax analysis prior to any status modification to ensure full utilisation of preferential regimes and to mitigate unnecessary tax liabilities.