Yerevan
EY
2 Vazgen Sargsyan Str.
Yerevan 0010
Armenia
Business Tax Services
Kamo Karapetyan
Law
Alexey Markov
Grigor Grigoryan
+374 (10) 500-790
Fax: +374 (10) 500-706
+374 (10) 500-790
Mobile: +374 99-886-700
Email: kamo.karapetyan@am.ey.com
+374 (10) 500-790
Mobile: +374 55-010-719
Email: alexey.markov@am.ey.com
+374 (10) 500-790
Mobile: +374 93-454-273
Email: grigor.grigoryan@am.ey.com
Because of the rapidly changing economic situation in Armenia, changes are expected to be made to the tax law of Armenia. As a result, readers should obtain updated information before engaging in transactions.
B. Taxes on corporate income and gains
Corporate income tax. Resident and nonresident entities pay corporate income tax in Armenia. Resident organizations are organizations that are state registered in Armenia. Nonresident organizations are organizations established in foreign countries. Resident entities are taxed on their worldwide income, which consists of income received from sources in and outside Armenia. Nonresident entities are taxed on Armenian-source income only.
Gross income comprises all revenues of the taxpayer received in the reporting year, except for revenues that are not treated as income according to the law. Gross income includes the following:
• Trading income
• Capital gains
• Income from financial activities
• Gratuitously received assets and income from discounts or remissions of liabilities
• Other items of income
Income received in foreign currency is converted into drams at the daily exchange rate determined by the Central Bank of Armenia for the date of receipt of the income.
Deductible expenses include all documentary supported entrepreneurial expenses. However, certain expenses are nondeductible or partially nondeductible for tax purposes.
Nondeductible expenses include, among others, the following:
• Fines, penalties and other proprietary sanctions transferred to the state and municipal budgets or the funded pension system
• Assets provided, works performed and services provided free of charge and remitted (forgiven) debts
• Depreciation expenses of fixed assets owned by the taxpayer that are provided under leases (in their various forms) if the lease contract stipulates that the right of ownership to the leased property can pass to the lessee on expiration of the term of the contract or prior to such expiration
• Expenses related to the obtaining of income that is deductible from gross income
• Amount of value-added tax (VAT), excise tax and environmental tax that is offset (deducted) in accordance with the procedure established by the Republic of Armenia Tax Code
• The amount of VAT and excise tax calculated and paid in accordance with the procedure established by the Republic of Armenia Tax Code for goods delivered, works performed or services provided free of charge or at a substantially lower value
• For taxpayers other than banks and credit organizations, interest paid on loans and borrowings if such borrowings or loans are provided by the taxpayers to third parties free of interest
• Payments made by taxpayers for leased assets if the assets are provided by them to third parties for free-of-charge use
• Expenses for obtained goods, services received and accepted works from taxpayers considered as micro-entrepreneurs in accordance with the procedure defined by the Republic of Armenia Tax Code
Partially nondeductible expenses include, among others, the following:
• Expenses for business trips outside Armenia that exceed 5% of the gross income for the tax year. The limit of 5% is not taken into account in the tax year of registration.
• Representative expenses exceeding 0.5% (but not more than AMD5 million) of the gross income for the tax year. The limit of 0.5% is not taken into account in the tax year of registration.
• Fees paid by the taxpayer for management services received from nonresident companies and individuals not having a permanent establishment in Armenia, exceeding 2% of the taxpayer’s gross income for the reporting year. This measure does not apply to management services rendered to resident companies by their nonresident founders if the companies are engaged in innovative activities in the information technology and computer technique fields, as well as management services rendered to resident companies within the framework of international credit (grant) agreements.
• Payments made by the employer for an employee that are within the terms of voluntary pension insurance in accordance with the legislation and that exceed 7.5% of the employee’s remuneration.
• Amounts of financial aid, food provided to individuals, costs for organization of social and cultural events and similar expenses, exceeding 0.25% of the taxable income for the tax year. If there is no gross income during the tax year, the limit is 1% of the total salaries and equivalent payments accrued during the tax year.
• Interest paid on loans and borrowings to the extent that it exceeds twice the bank interest rate defined by the Central Bank of Armenia (currently the deduction is limited to a rate of 24%).
• For taxpayers other than banks and credit organizations, the amount of interest payable on borrowings from entities other than banks and credit organizations in excess of twice the positive amount of equity on the last day of the tax year.
• For banks and credit organizations, the amount of interest payable on borrowings from entities other than banks and credit organizations in excess of nine times the positive amount of equity on the last day of the tax year.
• For taxpayers other than banks and credit organizations, the part of interest paid on loans and borrowings that exceeds the amount of interest received from borrowings made to other taxpayers.
• The part of payments made by taxpayers for leased assets that exceeds the payments received by them for providing the same assets to other taxpayers under subleases.
To calculate taxable income, the taxpayer must account for income and expenses on an accrual basis. Income and expenses are accounted for, respectively, from the moment of the acquisition of the right to receive such income or to recognize the expenses, regardless of the actual period of the deriving of such income or the making of such payments.
Inventories. Inventories are valued at acquisition cost. Costs for storage and transportation must be included in the value of inventory. The first-in, first-out (FIFO) method must be used to value inventory.
Provisions. Bad debts are deductible in accordance with the procedure established by the government of Armenia. Banks, lending organizations, investment companies and insurance companies may deduct bad debts in accordance with the procedure established jointly by the authorized body of the government of Armenia and the Central Bank of Armenia.
F. Treaty withholding tax rates
Armenia has entered into tax treaties with 51 jurisdictions. The following table lists the withholding tax rates under these treaties. In general, if the withholding tax rate provided in a treaty exceeds the rate provided by the Republic of Armenia Tax Code, the domestic rate applies.
(b)
(e)
(jj)
(i)
(i)
(k)
(f)
(kk) 5/10 (ll)
(j)
(l)
(oo) 0/10 (pp) 5/10 (qq)
(y)
5/10 (z)
(1) In several treaties, a 0% rate applies to interest paid to governmental entities, political or administrative-territorial subdivisions, local authorities, central banks or financial institutions owned or controlled by the government. This provision is not reflected in the rates shown in the table.
(a) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 10% of the capital of the company paying the dividends. The 15% rate applies in all other cases.
(b) The 10% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 30% of the capital of the company paying the dividends. The 15% rate applies in all other cases.
(c) The 5% rate applies if the actual owner of the dividends is a company that has invested in the payer more than USD100,000 (or the equivalent amount in Armenian currency). The 10% rate applies in all other cases.
(d) The 5% rate applies if the beneficial owner of the dividends is a company that holds directly at least 25% of the capital of the company paying the dividends and if the capital invested by the beneficial owner exceeds USD100,000 (or the equivalent amount in Armenian currency) on the date of declaration of the dividends. The 15% rate applies in all other cases.
(e) The 5% rate applies to interest on loans or credits granted by banks. The 10% rate applies in all other cases.
(f) The 5% rate applies to royalties for the use of, or the right of use, literary, artistic or scientific works, including television or radio content (films and compact discs). The 10% rate applies in all other cases.
(g) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 25% of the capital (assets) of the company paying the dividends. The 10% rate applies in all other cases.
(h) The 0% rate applies if the actual owner of the dividends is a company that directly or indirectly holds at least 25% of the capital of the company paying the dividends for a minimum period of two years before the payment of the dividends and if the dividends are not subject to tax in Croatia. The 10% rate applies in all other cases.
(i) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 25% of the assets of the company paying the dividends. The 15% rate applies in all other cases.
(j) The 5% rate applies to the royalties for the use of, or the right of use, computer software, patents, trademarks, designs or models, plans or secret formulas or processes, or for information concerning industrial, commercial or scientific experience (know-how). The 10% rate applies in all other cases.
(k) The 5% rate applies if the actual owner of the dividends is a company that directly or indirectly holds at least 10% of the assets of the company paying the dividends. The 15% rate applies in all other cases.
(l) The 5% rate applies to the royalties for the use of, or the right to use, copyrights. The 10% rate applies in all other cases.
(m) The 10% rate applies if the actual owner of the dividends is a company (other than a partnership) that owns at least 25% of the assets of the company paying the dividends. The 15% rate applies in all other cases.
(n) The 5% rate applies if the actual owner of the dividends is a company that directly holds at least 10% of the capital of the company paying the dividends for a minimum period of 12 months before the date of declaration of the dividends and if the capital invested by the beneficial owner exceeds USD100,000 or the equivalent amount in Armenian currency. The 10% rate applies in all other cases.
(o) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that holds at least 25% of the capital of the company paying the dividends. The 15% rate applies in all other cases.
(p) The 0% rate applies if the profits out of which the dividends are paid have been effectively taxed at the normal rate for profits tax and if the dividends
(pp) An exemption from tax shall apply if the interest is paid to the government of the other contracting state, a local authority or the central bank thereof or if the interest is paid by the government of that contracting state, a local authority or the central bank thereof.
(qq) The 5% rate applies to the use of, or the right to use, patents, trademarks, designs or models or plans; the use of, or the right to use, secret formulas or processes or information concerning industrial, commercial or scientific experience (know-how); and the use of, or the right to use, industrial, commercial, or scientific equipment. The 10% rate applies to the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinematographic films, and films or tapes for television or radio broadcasting.