Armenia - Income Tax

Armenia - Income Tax

Taxation of international executives

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Tax returns and compliance

When are tax returns due? That is, what is the tax return due date?

15 April.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Armenia?

Residents

Employers are required to calculate income tax on a monthly basis from their employees’ salaries and transfer these amounts to the state budget, no later than the 20th day of the month following the month of calculation.

Taxpayers (namely who were engaged in business activities) have to file an Annual Income Calculation of business income and expenses by 15 April in the following year.

Taxpayers in business activities are required to make quarterly advance tax payments on/before 15 March, 15 June, 15 September, and 15 December. Any balance payments must be made by 1 May.

Income tax on other income received from legal entities is normally withheld at the source.

The individual receiving the income from other sources than Armenian legal entities shall declare it to the tax authorities and shall pay the tax him/herself.

Amounts withheld (imposed) by a tax agent shall be considered as the final amount of the income tax for foreign citizens and persons without citizenship in Armenia, with the exception of the cases when such person is a resident or he/she implements entrepreneurial activity in the Republic of Armenia. In the mentioned cases, foreign citizens and persons without citizenship must apply to the tax authorities of the location of their activity or domicile, in order to perform a recalculation and submit Annual Income Calculation.

Non-residents

Income tax on income received by non-residents from tax agents is normally withheld at the source.

Amounts withheld (imposed) by a tax agent shall be considered as the final amount of the income tax for non-residents.

Non-residents will have an obligation to submit an Annual Income Calculation only in the event he/she receives an income from Armenian sources but not through tax agents.

Tax rates

What are the current income tax rates1 for residents and non-residents in Armenia?

Residents

Income tax on wages and salaries of Armenian citizens, foreign citizens, and persons without citizenship are shown in Table A.

Table A

Monthly taxable income Tax rate
Up to AMD120,000 24.4% of taxable income
From AMD120,000 to AMD2,000,000
AMD29,280 plus 26% of the taxable income exceeding AMD120,000
Over AMD2,000,000 AMD518,080 plus 36% of the taxable income exceeding AMD2,000,000

The following special tax rates are provided by Law:

  • The tax agents, who signed a working agreement with residents of RA and according to the agreement employee worked exclusively outside the territory of the Republic of Armenia,  within implementation of the program according to Article 33 part 1,2 of RA Law on "Profit Tax" calculates income tax from employees’ wages and equal payments at 13%.
  • The tax agent certified by RA law on "State support of information technology sector" during certified period calculates income tax on wages and equal payments at 10%.

Royalties, income from leasing (for sole entrepreneurs the annual income tax rates are applied), and interest received by Armenian citizens are subject to income tax at 10 percent. In case the annual income received from rent exceeds AMD 58.35 mln. the individuals are subject to additional 10 % income tax on amount exceeding the threshold without considering any deductions, including taxes paid by the tax agent.

Employers are required to calculate income tax on a monthly basis from their employees’ salaries and transfer these amounts to the state budget, no later than the 20th day of the month following the month of calculation.

Non-residents

The income tax on salaries and wages and the income deemed equal thereto shall be calculated and withheld (imposed) at the rates specified in Table A.

The following types of income of foreign citizens or persons without citizenship are subject to income tax, which should be withheld (imposed) at the source through a tax agent, the rates for which are shown in Table B:

Table B

Type of income Rate
Insurance reimbursements and income from transportation (freight) 5%
Royalties, interests, lease payments, increase in the value of property and other passive income, as well as other income received from Armenian sources 10%

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Armenia?

The law on income tax provides that the following persons shall be deemed to be tax residents.

  • Individuals, who, during any 12-month period starting or ending in a tax year (from 1 January to 31 December, inclusive), totally has spent 183 days or more in the Republic of Armenia (RA).
  • Individuals, whose center of vital interests are in the RA2.
  • Individuals, who are in the civil service of the RA, but are temporarily working outside Armenia.

For taxation purposes, non-resident is an individual who does not comply with the requirements mentioned above.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country for more than 10 days after their assignment is over and they repatriate.

No.

What if the assignee enters the country before their assignment begins?

No special implications. The residency of the assignee does not depend on the beginning of the assignment.

Termination of residence

Are there any tax compliance requirements when leaving Armenia?

There are no special requirements upon leaving the country. In case of residency, the Annual Income Calculation should be submitted for the tax year.

What if the assignee comes back for a trip after residency has terminated?

No special implications.

Communication between immigration and taxation authorities

Do the immigration authorities in Armenia provide information to the local taxation authorities regarding when a person enters or leaves Armenia?

Yes (on a case-to-case basis).

Filing requirements

Will an assignee have a filing requirement in the host country after they leave the country and repatriate?

Being treated as tax resident in Armenia, the assignee will have an obligation to submit Annual Income Calculation in host country (Armenia) for tax year. 

Economic employer approach

Do the taxation authorities in Armenia adopt the economic employer approach3 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Armenia considering the adoption of this interpretation of economic employer in the future?

In general, yes. Although the Armenian legislation does not directly address the provisions and/or interpretations of the Article 15 of the OECD model treaty, the general approach is generally the same, as compared with the Economic Employer approach, adopted by the United Kingdom, Australian, and Canadian revenue authorities.

De minimus number of days

Are there a de minimus number of days4 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?

No.

Types of taxable compensation

What categories are subject to income tax in general situations?

As a general rule, all types of remuneration and benefits received by an employee for services rendered constitute taxable income. These include, but are not limited to, the following:

  • wages and salaries
  • interests
  • income from donations and assistance (unless specifically exempt)
  • royalties
  • income from any business or profession
  • income from leasing
  • benefits-in-kind.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Armenia? If so, please provide a general definition of these areas.

The following are several types of income that are exempted from the income tax:

  • income from securities, such as:
    1. dividends
    2. income from sale of stocks and other investment securities
    3. interest or discount received from government bonds and other government securities as well as bonds issued by the All-Armenian Bank
    4. income from trading in government securities and bonds issued by the Pan-Armenian Bank.
  • the property and monetary means which have been inherited or received as a gift, received from individuals
  • money and food aid provided to individuals by non-profit organizations in the process of their ordinary activities
  • property and cash provided by foreign as well as intergovernmental organizations without compensation
  • insurance compensation
  • scholarships and stipends.

Expatriate concessions

Are there any concessions made for expatriates in Armenia?

There are no concessions for expatriates in Armenia.

Salary earned from working abroad

Is salary earned from working abroad taxed in Armenia? If so, how?

Residents are taxed on worldwide income. Non-residents are taxed only on Armenian-sourced employment income.

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Armenia? If so, how?

There is no capital gains tax in Armenia. However, the increase in the value of property considered as income received from Armenian sources is subject to income tax for foreign citizens.

Dividends, interest, and rental income

Dividends are not subject to income tax.

Interest and rental income are subject to income tax at the rate of 10 percent.

Gains from stock option exercises

Residency status Taxable at:
  Grant Vest Exercise
Resident N Y N
Non-resident (foreign citizen) N Y Y
Other (if applicable) N/A N/A N/A

Foreign exchange gains and losses

Not applicable.

Principal residence gains and losses

Not applicable.

Capital losses

Not applicable.

Personal use items

Not applicable.

Gifts

Not applicable.

Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Armenia? If so, please discuss?

There is no capital gains tax in Armenia.

Are there capital gains tax exceptions in Armenia? If so, please discuss?

No.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income allowed in Armenia?

Voluntary cumulative pension contributions performed by the individual and (or) a third party (including employer) are deducted from the gross income in the amount not exceeding 5 % of the gross income of the individual (this provision is effective from 1 January 2011).

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Armenia?

Employers are required to calculate income tax on a monthly basis from their employees’ salaries and transfer these amounts to the state budget. There is no reimbursement method used in Armenia.

Calculation of estimates/ prepayments/ withholding

How are estimates/prepayments/withholding of tax handled in Armenia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.

Employers are required to calculate income tax on a monthly basis from their employees’ salaries and transfer these amounts to the state budget.

Pay-as-you-go (PAYG) withholding

Not applicable.

PAYG installments

Not applicable.

When are estimates/prepayments/withholding of tax due in Armenia? For example: monthly, annually, both, and so on.

Income tax withholdings are made for each payment.

Individual entrepreneurs are required to make quarterly advance tax payments on/before 15 March, 15 June, 15 September, and 15 December.

Relief for foreign taxes

Is there any Relief for Foreign Taxes in Armenia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?

Income tax payable by residents of the RA shall be reduced by the amount of tax withheld from them in foreign countries, pursuant to the legislation thereof (with the exception of the amount of tax withheld in foreign countries from income subject to deduction from gross income, pursuant to the legislation of the RA). Besides, the amount of the deducted (credited) tax should not exceed the amount of the tax payable in Armenia on income received in foreign countries, in accordance with the provisions of RA Law on Income Tax.

In addition to above domestic arrangements that provide foreign tax credit, Armenia has entered into double tax treaties with 41 countries to prevent double taxation and allow cooperation between Armenia and other tax authorities in enforcing their respective tax laws.

General tax credits

What are the general tax credits that may be claimed in Armenia? Please list below.

Not applicable.

Sample tax calculation

This calculation assumes a married taxpayer resident in Armenia with two children whose three-year assignment begins 1 January 2015 and ends 31 December 2017. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

  2015
USD
2016
USD
2017
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6,000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5,000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = AMD494.24 (10 Feb 2016)

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Armenia.
  • The company car is used for business and private purposes and originally cost USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.

Calculation of taxable income

Year-ended 2014
AMD
2015
AMD
2016
AMD
Days in Armenia during year 365 365 365
Earned income subject to income tax 84,515,040    77,101,440    84,515,040   
Salary   49,424,000   
49,424,000   
49,424,000   
Bonus  9,884,800   
9,884,800   
              9,884,800   
Cost-of-living allowance 4,942,400    
4,942,400   
4,942,400   
Net housing allowance 5,930,880      
 5,930,880     
 5,930,880     
Company car  2,965,440   
 2,965,440   
 2,965,440   
Moving expense reimbursement 9,884,800   
-
9,884,800   
Home leave -
2,471,200   
-
Education allowance 1,482,720     1,482,720   
1,482,720   
Total earned income 84,515,040   
77,101,440   
84,515,040   
Other income/Interest
965,440   
965,440   
965,440   
Total income
84,515,040   
77,101,440   
                84,515,040   
Total taxable income
84,515,040   
77,101,440   
84,515,040   
 

Calculation of tax liability

  2015
 
    AMD
2016
 
    AMD
2017
 
    AMD
Taxable income as above 84,515,040   
 
   
77,101,440   
 
   
84,515,040   
 
   
Armenian tax thereon 28,002,374   
 
   
25,333,478   
 
   
28,002,374   
 
   
Less: - - -
Domestic tax rebates (dependent spouse rebate) - - -
Foreign tax credits - - -
Total Armenian tax 28,002,374   
 
   
25,333,478   
 
   
28,002,374   
 
   
Income tax on interest 296,544   
 
   
296,544  
 
   
296,544   
 
   

FOOTNOTE

2In terms of RA Law on “Income Tax” (Article 3), the place where a person’s family or economic interests are concentrated shall be considered the center of the person’s vital interest. Interests of a person shall be deemed; in particular, to be located in RA, if the house or apartment where the person’s family resides is therein, or the principal personal or family property, as well as the principal place of the economic (professional) activity is located therein.

3Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee’s salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the ‘economic employer’ and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.

4For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.

Sample calculation generated by KPMG Armenia, the Armenian member firm of KPMG International, based on the Law “On unified income tax” No-HO-246-N, 30 December 2010.

6CBA exchange rate of 10 Feb 2016.

© 2016 KPMG Armenia cjsc, a company incorporated under the Laws of the Republic of Armenia, a subsidiary of KPMG Europe LLP, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

Tax rates are checked regularly by KPMG member firms; however, please confirm tax rates with the country's tax authority before using them to make business decisions.

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