Five Most Common Legal Mistakes Foreign Entrepreneurs Make in Georgia

Georgia ranks among the world’s leaders for a business-friendly legal environment and economic freedom. Flexible company-registration procedures, a liberal visa policy, and a favourable tax system are especially attractive to foreign entrepreneurs.

That same simplicity, however, can have downsides. The efficient regulations that support business operations in Georgia can create the illusion of fewer obligations. As a result, entrepreneurs make mistakes that may endanger their company’s legal standing, finances, and intellectual property. Below are the five most frequent and riskiest legal mistakes foreign entrepreneurs make in Georgia.

Ignoring business name registration and brand protection

Registering a legal entity under a chosen name only establishes the legal form of the company; it does not grant property or moral rights to that name as a brand.

• For example, if you register an LLC as “Business Law Georgia LLC” in the Public Registry, you are forming a limited liability company with that legal name.
• This alone does not create rights to the brand name “Business Law Georgia.” Another person or company even a competitor could obtain exclusive rights by registering “Business Law Georgia” as a trademark. In that case, they could demand that you stop using the registered mark, putting years of accumulated goodwill and operations at risk simply because the trademark was not secured after formation.

This applies whether your business is operation of a restaurant, developing software, or any other activity. Company registration is handled by the Public Registry, while rights in the brand (name/logo) are acquired through Sakpatenti, the National Intellectual Property Center of Georgia.

Incomplete understanding of the tax system

The “small business” status with a 1% turnover tax is attractive for individual entrepreneurs, but its use is often misunderstood. Many assume the status is universal or automatic.

In reality, strict legal steps apply:

• Before applying, you must first register as an Individual Entrepreneur (IE).
• Only after you can request small business status from the tax authority. Certain activities are ineligible by law, so you may be refused. IE registration does not automatically grant small business status.

If you skip these procedures, you may applicable for 20% personal income tax instead of 1%, or face penalties due to incomplete information.

Additionally, remember:

• If your annual turnover exceeds GEL 100,000, you must register as a VAT payer.
• Personal income tax applies to an individual’s income, whereas VAT applies to the supply of goods and services.
• You must file the VAT registration within 2 business days from the moment turnover exceeds GEL 100,000, and you are considered a VAT payer starting with the very transaction that pushed you over the threshold.

Relying on verbal agreements

In day-to-day operations many businesses avoid putting “routine” transactions in writing, believing a handshake is enough to manage contractual risk.

• In practice, a written contract signed by both parties is a fundamental piece of evidence: it shows what was agreed, when, how, and on what commercial terms protecting you from financial and legal exposure. Even a small deal can become a major headache if not documented.
• This risk is especially critical in employment. Under the Georgian Labour Code, written employment contracts are mandatory, setting out working conditions, pay, and other terms. Failure to have written contracts can lead to sanctions by the Labour Inspection Service or the tax authority, and can trigger unwanted workplace disputes in court.

Mixing company’s and personal finances

Another common mistake is poor financial management of company funds as personal money, including using business accounts for private expenses.

To avoid confusion and potential tax authority claims:

Open a corporate bank account and use funds exclusively for company purposes.

This is particularly important for LLCs (limited liability companies). The essence of limited liability is to separate the owner’s personal assets from business debts; Poor money management undermines that protection.

For Individual Entrepreneurs (IEs) (who already bear unlimited personal liability), commingling still makes accurate tax calculation especially under small business status very difficult and can lead to penalties during tax audits.

Leaving intellectual property unprotected

Beyond trademarking the company name discussed in Section 1, entrepreneurs often overlook other valuable intellectual property. In Georgia, IP protection covers software code, unique business concepts, product designs, creative content, and more.

Example: if a developer develops software or application for your company but the service and commercial terms are poorly defined, economic rights in the code may become disputed. By registering IP rights in your logo and design, and protecting your trademark at Sakpatenti, you can prevent competitors from appropriating your brand identity.

Conclusion

Doing business in Georgia offers strong prospects for success. Still, this comfortable yet complex path requires professional legal guidance at the outset and throughout operations to manage risks and keep the business running smoothly.

For detailed consultation, contact us at contact@justiceleague.ge or +995 598 553 429.