A defensible tax challenge needs transaction-level facts, the applicable tax period, the law in force then and contemporaneous primary documents. Eligible small-business income is generally taxed at 1%; separately, taxable transactions exceeding GEL 100,000 over any rolling 12 months generally trigger VAT registration. These are different regimes and must not be conflated.
Applicable legislation: Tax Code of Georgia, General Administrative Code
Small-business status: who qualifies
Article 88(1) of the Tax Code limits eligibility for small-business status to an entrepreneurial natural person. It is not a blanket 1% taxation status for an LLC, joint-stock company or any legal entity.
Sole ownership of an LLC does not make the company’s receipts taxable under that individual small-business regime. Determine which legal person actually receives the income, whether its activity is eligible and whether an individual has obtained the appropriate status.
Relevant statutory provisionAuditing each disputed assessment item
Build an itemised workpaper showing transaction date, counterparty, invoice, tax type, authority’s computation and your accounting entry. Separate principal tax, fines and late-payment charges as their evidential and legal bases may differ.
Check the legal version applicable to the taxable event, rather than silently applying a later amendment to an earlier transaction.
Relevant statutory provisionKey conditions and figures
Primary records
Contracts, invoices, payment trails and performance/acceptance documents should align with the underlying transaction.
Reviewing the assessment
Test administrative authority, factual findings, statutory interpretation and appeal deadlines.
Preparing the response
For each disputed item, align the fact, evidence, applicable rule and requested remedy.
Consistency across records
An invoice does not establish what occurred by itself. Compare contractual scope, payments, acceptance, performance evidence and accounting treatment. Explain inconsistencies without manufacturing facts. A chronology linking each transaction to evidence is more useful than numerous unorganised attachments.
What a persuasive appeal addresses
Address each audit conclusion. Separate factual mistakes, legal interpretation, evidential issues and procedural defects. Map objections to the sums and transactions disputed. Generic complaints that the authority 'evaluated the case incorrectly' rarely replace issue-by-issue analysis.
Why the correct legal version matters
Distinguish the substantive tax law applicable when a transaction occurred from procedural law governing its review. A later amendment does not necessarily apply retroactively. Analyse periods separately and use the legislative gazette's amendment history, not merely its headline.
Why an invoice is not the whole proof
A formally correct invoice may not prove that services were actually performed or goods delivered. Preserve statements of work, deliverables, correspondence, acceptance records and commercial rationale; for goods, retain logistics and warehouse evidence. Build a transaction-by-transaction response matrix identifying the contested fact, the authority's argument and your source document. Appeal conditions depend on the particular tax instrument and should be checked before the deadline.
A transaction-by-transaction audit file
Create a row for each transaction: counterparty, contract, invoice, evidence of delivery, place and date of supply, payment, declaration treatment and the auditor’s objection. A generic letter rarely answers multiple independent findings. Revenue accounting, place of supply for VAT and corporate tax consequences need distinct analysis.
VAT threshold: what to count
For mandatory VAT registration, the relevant calculation generally concerns VAT-taxable transactions over any continuous 12-calendar-month period, not just the calendar year. In the statutory case, an application is generally due within two working days after the GEL 100,000 threshold is exceeded. Determine the taxability, date and place of each transaction rather than simply summing bank credits.
The limits of the 1% small-business regime
The Revenue Service describes a 1% rate for eligible small-business taxable income. After the ordinary GEL 500,000 annual aggregate-income threshold, 3% can apply for the specified statutory period, while wine-tourism and agritourism cases have distinct thresholds. It does not follow that every sole trader, every activity or all turnover qualifies automatically.
How to formulate a precise tax objection
For each contested assessment, identify the amount, period, authority’s reasoning, legal provision and contrary evidence. Distinguish principal tax, late-payment interest and penalties. Obtain actual deliverables, correspondence and payment context where the factual characterization is disputed. Do not misrepresent later-created documents as contemporaneous. Appeal deadlines follow the applicable tax-dispute regime, not a generic assumption.
A useful tax-audit evidence matrix
Have finance and legal teams build a matrix for every disputed transaction. Record transaction date, contract and annex, proof of delivery, payment, declaration treatment and the auditor’s statutory basis. Distinguish contemporaneous records from later explanations. A later certificate cannot simply be passed off as a record created when the service was provided. For cross-border services, check place of supply, recipient, actual deliverables and the relevant VAT rules. Different statutory versions may apply to different tax periods; assessing all historic transactions under the current wording alone is unsafe. The file should reveal the economic substance and the legal characterization in parallel.
Recalculate the assessment before challenging it
Recalculate the assessment into principal tax, late-payment charges, penalties, payments already made and any allowable credit or offset. An accounting correction and a legal challenge may follow different procedures. Do not apply the 1% small-business regime to activities that cannot benefit from that status. Check the relevant period for the 3% rate when the ordinary annual threshold is crossed and note statutory exceptions. For VAT, test a rolling 12-month window, not only a January-to-December year. Ask whether a transaction is VAT-taxable, when registration duty arose, what was paid in each period and which record proves it. A challenge needs a legally supported alternative calculation, not only disagreement with an inspector.