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Armenia

Armenia

Individuals are liable to Armenian personal income tax either on their Armenian-sourced income or on their worldwide income, depending on their tax residence status. The tax due is determined based on the gross income.

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Key message

The Armenian tax legislation specifies that Armenian-sourced income consists of income directly paid by Armenian entities as well as income resulting from activities performed in Armenia.

Income tax

The Republic of Armenia (RA) law “On income tax” was adopted by RA National Assembly, which is effective from 01 January 2013. The law replaced the existing laws “On income tax” and “On Mandatory social security payments (SSP)”. and defines “new income tax” instead of previous income tax and SSP.

The adoption of the Law was conditioned by the adoption of funded pension schemes in Armenia, which has voluntary and mandatory components. The mandatory part had to be effective starting from 2014 and was obligatory for individuals born in/after 1974. However, effective from 01 July 2014, the following major changes have been made in the RA Law “On funded pensions”:

  • The wording of “Mandatory funded pension contributions” have been replaced by “Social payments”
  • A maximum threshold of basic salary has been established for applying the social payments rates. Thus social payments should not be calculated on amount exceeding 15 size of minimal salary defined by 01 January of the current year. 

Currently the minimum monthly net salary is AMD 55,000.

However the above threshold should be applied starting from 01 July 2020. Up to 01 July 2020 the maximum monthly threshold of basic income is established AMD 500,000. Meanwhile the person, who as at 01 July 2014 has been in employment relationship with an employer registered in Armenia, has the right to refuse of making social payments up to 01 July 2017 by submitting a relevant application. Otherwise, the employee is subject to social contributions starting from 01 July 2014.

The purpose of the scheme is to establish that employees also receive pension income directly connected to the size of contributions to the pension fund besides the state pension. 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 percent of the gross income of the individual.

It should be noted, that RA Tax Code was adopted by RA National Assembly on 04 October 2016 and will come into force on 1 January 2018, except for some of articles which will come into force on 1 January 2017.  By the Tax Code changes related to income tax, particularly new income tax rates will become into force.

Liability for income tax

Income tax payers are resident and non-resident individuals of RA, including individual entrepreneurs and notaries.

For the purposes of the law, an individual that, during any 12-month period starting or ending in a tax year (from 1 January to 31 December inclusive) has been residing in the RA for a total duration of 183 days or more, or whose center of vital interests is in the RA, as well as an individual in the civil service of the RA who is temporarily working outside the territory of the RA, shall be considered a resident.

The center of a person’s vital interests is the place where a person’s family or economic interests are located. Interests of a person shall be deemed, in particular, to be located in the RA, provided 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 implementation of the economic (professional) activity is located therein.

For residents, taxable income received within or outside the territory of the RA is considered the object of taxation. For a non-resident, taxable income received from Armenian sources is considered the object of taxation.

Tax trigger points

The Armenian tax legislation places no minimum threshold with respect to when the individuals begin to have tax obligations in the country. Thus, from an Armenian perspective, personal income tax is levied from the 1st day during which work is performed in Armenia. In the case of income received from tax agents, it is taxed at the source of payment. For residents receiving income from non-tax agents, income tax is paid annually based on declaration.

Types of taxable income

Generally, all types of income (monetary and/or nonmonetary) are subject to personal income tax in Armenia unless specifically exempted. In view of this the following categories of income will be treated as taxable:

  • employment income (including salary payments and all additional bonuses provided by the employer)
  • income based on civil contracts 
  • interest income
  • dividends
  • royalty
  • income from other economic activity
  • capital gains from the sale of property
  • rental income, and others. 

Tax rates

Wages and salaries of Armenian citizens, foreign citizens, and persons without citizenship are taxed at graduated income tax rates ranging from 24.4 to 36 percent. Income from receipt of pensions from the amount of voluntary funded insurance scheme, royalties, leasing, and interest received by Armenian citizens are subject to income tax at 10 percent, without making any deductions from ncome received.

The following types of income are subject to income tax, which should be withheld at the source through a tax agent. by following rates:

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

In case the 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 tax agent. Individual entrepreneurs have to file and submit to the tax authorities an annual declaration of business income and expenses exclusively electronically by 15 April in the following year.

Starting 1 January 2017 dividends received from Armenian sources by foreign citizens are subject to 10% Income tax (applicable to dividends declared after 1 January 2017)  and for Armenian citizens dividends received will be subjected to 5% income tax starting 1 January 2018 (applicable to dividends declared after 1 January 2018). 

At the same time the Tax Code provides an opportunity to refund from the state budget tax amounts paid to the state budget from dividends, in case during the year these dividends are received they are invested according to the procedure established by the legislation in the charter or share capital of the same RA resident entity that pays dividends. 

Compliance obligations

Employee compliance obligations

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

The resident individuals receiving income from sources other than Armenian legal entities shall pay the income tax through self-declaration and submit an Annual Income Tax Declaration by 15 April of the following year.

Employer reporting and withholding requirements

Employers are required to calculate and withhold income tax and social payments 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.

Employers submit reports on income tax exclusively electronically on a monthly basis.

According to the RA Law “On compensation for fallen or damaged servicemen during the defines of the Republic of Armenia” RA resident individuals who work on the RA territory or outside the RA territory and non RA residents who work on the RA territory shall pay to the state budget a stamp fee of AMD 1,000 for each month starting 1 January 2017. The stamp fee is withheld by employer/tax agent on a monthly basis from their employees’ salaries and transfer these amounts to the specified bank account.

Other issues

Double taxation treaties

Armenia has entered into double tax treaties with approximately 44 countries to prevent double taxation and allow cooperation between Armenian and other tax authorities in enforcing their respective tax laws.

Permanent establishment implications

Armenian domestic legislation does not contain a provision according to which an entity must have a permanent establishment (PE) for the purposes of exercising business activities in Armenia. The definition of PE is applied with respect to double tax treaties (DTT) only, and the PE is the base for the determination whether the income received by the resident of a contractual state is subject to taxation on the source basis or the residency basis under the DTT provisions.

There is the potential that a PE could be created as a result of extended business travel, but this would be dependent on the type of activities/services performed and the level of authority the employee has, as well as the provisions of the relevant tax treaty.

Indirect taxes

Value-added tax (VAT) is applicable at 20 percent for taxable turnover.

Transfer pricing

From 1 January 2018 RA Tax Code will come into force. The Tax Code will comprise provisions related to transfer pricing, particularly the following is defined:

  • related party transactions;
  • controlled transactions;
  • tax liabilities arising from these transactions.

It should be reminded that currently no such provisions are stipulated by the legislation of the Republic of Armenia.

Related parties

Related parties are those parties, one of which directly or indirectly (as a rule by 20% and more share ownership in the charter capital) participates in management, control of the other party or has a share (shareholding, interest) in the charter (share) capital of the other party.

Controlled transactions

Controlled transaction is:

  • A transaction conducted between the related parties
  • A transaction conducted between the related taxpayers being the RA residents, in case:
  1. one of the parties is considered to be a royalty payer
  2. one of the parties enjoys profit tax, VAT and (or) royalty privileges
  3. one of the parties is considered to be an operator of a free economic zone
  • A transaction conducted between the RA resident taxpayer and the taxpayers registered in offshore zones (countries), regardless the relatedness of these parties

Types of taxes

Transfer pricing provisions apply to VAT payers and relate to the following taxes:

  • VAT
  • Profit tax
  • Royalty

Arm’s length principle

In case of controlled transaction:

  • taxable base for profit tax,
  • taxable base for VAT and
  • taxable base for royalty

are determined based on the prices or other financial indicators (price, premium, gross, operating or net profit coefficient) estimated according to the arm’s length principle.

Notification on controlled transactions

  • Transfer pricing provisions are applicable in case the total cost of the controlled transactions preformed by the taxpayer during the tax year exceeds AMD 200 million.
  • In case the total cost of the controlled transactions exceeds AMD 200 million (excluding indirect taxes), the taxpayer shall submit to the tax authorities a notification on the controlled transactions which shall include the information about the transactions.

Work permit/visa requirements

As a general rule, a visa is required for visiting Armenia. There is a  quite large list of countries, which Armenia has a non-visa regime with on a basis of bilateral or multilateral agreements... Citizens of foreign countries for whom a visa-free regime is set can stay on the territory of the Republic of Armenia for no more than 180 days during one year if no other term is defined by the international agreements of the Republic of Armenia.

Where a visa is required, it must be applied for before the individual enters Armenia (in consulate bodies or electronically), or on the crossing points of the Armenian border (e.g. airport). Documents required for a visa and the type of visa will depend on the individual’s country of citizenship and the purpose of the individual’s entry into Armenia. Transit visas entitle the person to stay in Armenia for 120 days with the option to extend its term for 60. To stay in Armenia for longer periods, a residence permit should be obtained.

Currently work permits are not required for foreign citizens to work in Armenia till 01.01.2018 (the force of the legal act is now suspended).

Local data privacy requirements

Armenia has data privacy legislation. As a general rule, processing of the personal data of an individual is permitted only on the basis of the consent of the subject of personal data.

Exchange control

Armenia does not restrict the flow of Armenian or foreign currency into or out of the country. Certain reporting obligations are imposed, however, to control money laundering. Certain limitations on the amount of importing and exporting of cash without customs declaration are applied (for export – the limit is equivalent to 5 million Armenian dram (AMD) (approximately 10,000 euros (EUR)), for import – the limit is equivalent to EUR15,000).

Non-deductible costs for assignees

Armenia does not provide for any personal allowances or deductions.  Work related expenses, commuting costs and moving expenses are not deductible.

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