The Republic of Armenia offers a diverse range of corporate tax regimes to cater to the needs of businesses operating within its jurisdiction. Whether you’re a newly registered company or an established enterprise, understanding the nuances of the Armenian tax system is crucial for navigating the legal and commercial landscape effectively.
Armenia operates a two-tiered tax system:
- General Taxation System: this is the default regime, applying 18% rate of corporate income tax (CIT) and 20% rate of value-added tax (VAT) on most businesses.
- Specific Taxation Systems: These offer alternative options like turnover tax or micro-enterprise exemptions, catering to specific business sizes and activities.
The Specific Taxation System
According to the Tax Code of RA, a newly registered company (as well as an individual entrepreneurship) has 20 days from the date of registration to apply for a specific taxation system. The company will not be able to operate under a specified taxation scheme after missing the deadline.
- Turnover Tax:
The turnover tax replaces VAT and/or corporate income tax. It’s an option only for small businesses with annual revenues totaling less than 115 million AMD. The rates start from 1.5% and depending on the nature and industry of business may reach up to 10%.
Branches of foreign companies in Armenia may not operate under this tax regime. Yet, it’s notable that the mentioned rates are applied on the revenue rather than the taxable income.
- Micro-Enterprise:
Micro-enterprises with yearly revenue below 24 million AMD are tax-exempted. However, very limited types of businesses may qualify for this kind of favorable tax treatment. Downside of this privilege is that the customers of micro-enterprises are not allowed to deduct expenses made by paying to micro-enterprises for services.
General Taxation System
- Corporate income tax:
Residents and non-residents conducting business in Armenia are subject to corporate income tax (CIT). Residents are taxed on their worldwide income, while non-residents are taxed on income sourced in Armenia. Currently, the standard CIT rate is 18%. Non-resident profit taxpayers doing business in Armenia without a permanent establishment are typically subject to a 20% corporate income tax (CIT) rate, unless exemptions are specified by law.
The taxable base for corporate income tax is the taxable income. Taxable income is calculated by subtracting deductible expenses from a taxpayer’s gross income. Gross income includes all revenues earned from any business activities, unless exempted by law. Deductible expenses cover all necessary and documented costs directly linked to conducting business, unless restricted by specific provisions in the law.
Payments to non-residents are subject to the following tax rates:
- Payments for insurance, reinsurance, and transportation are subject to withholding tax at the rate of 5%.
- Interests, royalties, income from the lease of property, and capital gains (except capital gains from the sale of securities) are subject to withholding tax at the rate of 10%, and dividends paid to non-residents are subject to withholding tax at a 5% rate.
- Capital gains from the sale of securities are subject to withholding tax at the rate of 0%.
- Other income (from services) received from Armenian sources is subject to withholding tax at the rate of 20%.
- Value Added Tax (VAT)
Value Added Tax (VAT) is a consumption tax imposed on the value added to goods and services at each stage of production or distribution. It is levied on the difference between the cost of inputs used to produce a product or service and the price at which the product or service is sold.
The standard VAT rate is 20%. Goods and services exported from Armenia are typically subject to a zero-rate VAT. Various supplies, including most financial and educational services, are exempt from VAT.
VAT payers are required to submit a unified VAT and excise tax return monthly, no later than the 20th day of the month following the reporting period.
- Income Tax
Individuals in Armenia are liable for personal income tax. They are categorized into two groups:
- Residents, who must pay tax on all their income worldwide.
- Non-residents, who are only taxed on income earned within Armenia.
The standard personal income tax rate is 20%, unless specified otherwise by law.
Different types of income are subject to specific tax rates:
- Employment income: 20% (For companies with IT tax privilege: 10%)
- Income from civil contracts: 20%
- Interest: 20%
- Dividends: 5%
- Royalty: 10%
- Rental income: 10%, with an additional 10% tax if rental payments exceed 60 million drams during the tax year.
Other Taxes and Considerations:
In addition to the above, the following types of taxes are part of the RA tax system:
- Environmental tax: The rate depends on the type of harmful material.
- Road tax: Applicable only to cargo vehicles not registered in Armenia, using Armenian highways. The rate varies based on the minimum permissible weight of the vehicle.
- Real estate tax: The rate varies depending on the type and value of the real estate.
- Vehicle property tax: The rate changes based on the power of the vehicle.
- Excise tax: Excise tax is payable on alcoholic beverages, tobacco products, and petroleum products, whether imported or produced domestically, rate varies depending on the type of goods.
Armenia’s tax system offers flexibility and benefits for businesses of various sizes and industries. By understanding the different regimes, their eligibility criteria, and relevant tax obligations, companies can make informed decisions to minimize their tax burden and operate efficiently within the Armenian market. Retrieve Legal and Tax’s professionals can help ensure compliance and maximize the potential of your business in the Armenian market.