Taxation of Real Estate Transactions in Armenia 2017-09-30T06:54:27+04:00

Foreign Ownership of Real Estate

Foreign nationals are allowed to own real estate in Armenia. There is no need to have a residence permit or otherwise show any links to Armenia. On the other hand, owning property in Armenia can be a legal basis for obtaining a temporary or permanent residence permit. Foreigners can acquire, hold, lease, sell, bequest and otherwise dispose of their property.

The only restriction applies to foreign ownership of agricultural land. In order to own agricultural land in Armenia a foreigner will have to set up a legal entity and acquire land in the name of that entity. Agricultural land can also be owned by foreigners who have special residency status in Armenia.

Buying/Selling Process

The transfer of ownership is done by signing a written contract of sale with detailed description of the property and purchase price. Normally the contract must be reviewed and authenticated by a notary public. In certain cases an employee  of the Cadastre (the Registry) can authenticate the contract. The buyer then has 30 days to register his ownership rights with the Cadastre. The failure to register these rights within 30 days will result in invalidation of the transaction.

It is customary to sign a preliminary agreement by which the seller agrees to take the property off the market for an agreed period of time in return for a small advance payment. If the buyer then fails to sign the main contract the advance payment will be forfeited. If the seller defaults he will be required to return the advance payment and pay a penalty.

Buyers and sellers can be represented by attorneys, their physical presence in Armenia is not required to complete the formalities.

Armenia ranks very high – the 13th – among 190 countries on the World Bank’s “Registering Property” index which measures both the efficiency and the quality of the property registration system. By way of comparison, the U.S. ranks 36th, the U.K. – 47th, , France – 100th.

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Managing Legal Risks

Because all deed records are kept in a single database and in computerized format  title search and title insurance are not common practices in Armenia. However, the sales contract can be authenticated only after a certificate is issued by the Cadastre confirming that the property in question is not mortgaged, under arrest or otherwise encumbered by third party rights.

Several banks offer escrow account services which enable the buyer to deposit the funds with the bank and have them transferred to the seller only after the transaction is completed and a new ownership certificate is issued to the buyer.

If the seller is married or divorced it is likely that the sale of the property will require the spouse’s or the ex-spouse’s consent. Even if the property was not acquired in marriage you still have to be careful because the spouse may claim that he/she contributed to the improvement of the property and thus acquired rights in it. Armenia does not recognize common law marriages. However, relying solely on public records may not be sufficient as the marriage could be contracted in a foreign country.

If the seller inherited the property or received it as a gift it is better to make sure there are no other family members who are likely to contest the will or the gift. It is possible that an heir will appear after the sale and claim rights in the property. In Armenia heirs generally have 6 months to present their claims to the notary public, and it is not advisable to buy property that was inherited less than 6 months ago.

If there are children (i.e. individuals under the age of 18) involved in the sale, it will need the approval of the guardianship authority (head of the local community). The latter is required by law to ensure that the sale is in the best interests of the child. Children under 14 are represented by their parents and do not need to sign documents, while children aged 14 to 18 sign the documents on their own but with the authorization of their parents.

Under Armenian law people with mental disability may be incapacitated by a court order, while those addicted to drugs, alcohol or even gambling may be limited in their capacity. Agreements with such people can be easily contested and invalidated by their guardians or other interested parties. You may want to check the court records or ask for a certificate confirming the seller is not registered with mental institutions.

If the seller is in a difficult financial situation and sells the property below market value, it is possible that he will be declared bankrupt shortly after the sale and the bankruptcy trustee may challenge the sale in court within a 3-year period of time. Thus, if you buy property at a discounted price make sure that the likelihood of bankruptcy is low.

Prior to signing the sale agreement the government will issue a free title certificate confirming that the property is not mortgaged, arrested or otherwise encumbered with third party rights. However, it is still recommended that you find out if the seller is involved in any litigation that may affect the property.

Even if there are no encumbrances registered and no pending disputes you should carefully check the history of the property to make sure there have been no suspicious activities in the past. For example, a number of transfers over a short period of time can be a sign of potential problems. The statute of limitations in Armenia normally does not exceed 10 years but even older transactions need to be scrutinized. Particular attention must be paid to acquisition of property by donations, inheritance or privatization.

Under Armenian law property tax liabilities are assumed by the new owner. If the seller did not pay taxes over a long period of time it is possible that substantial penalties have accumulated. Therefore, it is wise to ask for a certificate confirming there are not tax liabilities for the property in question.

By law the new owner does not assume any unpaid utility bills. However, in practice it may be difficult to sign new contracts in your name with the utility companies if the old owner owes them. To save time and nerves it is recommended that you ask for statements confirming the full payment of all utility bills.

While many sales do not require notarization you should still consider having the contract executed before a notary public. A notary is personally liable for malpractice and has the incentives to do all the necessary checks, such as ensuring all consents are in place, powers of attorney are valid and not revoked, the seller is in sound mind etc. Notarizing the agreement will show your good faith if any dispute arises in the future.

Payments must be made in local currency: the Armenian dram. If you pay in cash you may deposit the money with a safety deposit box in a bank and instruct the bank to give the seller access to it after you get a certificate of ownership (this can be done quickly if you pay for fast-track services). If you opt for bank transfer it is recommended that you open an escrow account with the bank and again instruct the bank to release the money to the seller when your ownership rights are registered. Contrary to the common practice it is not recommended that you pay the full amount while signing the contract at the notary’s office because there is a possibility (although not high) that something may go wrong between the notarization and the registration of title.

Why real estate in Armenia

Taxation

Stamp duty

There is no stamp duty for real estate transactions in Armenia.

Personal income tax

Normally transfer of real property between individuals is not taxable provided that both the buyer and the seller are individuals and are not registered as private entrepreneurs. Thus, tax on capital gains realized by individuals form selling real estate is 0%. However, if either party is a legal entity or a private entrepreneur a withholding tax of 10% is applicable.

Moreover, a 10% tax is applicable to re-selling (“flipping”) of a real estate if it is sold within one year of its acquisition. Sale of property for commercial, industrial or public use is taxed at a rate of 10% or, if the buyer is a legal entity or private entrepreneur, at a rate of 20%.

Individual real estate developers are taxable at 20% of the sales price.

Corporate income tax

A legal entity selling real property at profit is subject to profit tax. The single profit tax rate in Armenia is 20%. Therefore, capital gains from selling appreciated property are generally taxed at 20%.

Small and medium enterprises with annual turnover not exceeding AMD 58.35 million (approx. USD 120,000) may opt to be taxed with turnover tax. The turnover tax rate for selling real property is 10%.

Value Added Tax

Value added tax (VAT) is applicable only to legal entities and private entrepreneurs. Sale of real property is treated as supply of goods and therefore is subject to VAT of 20%.  Legal entities and private entrepreneurs are normally exempted from VAT if their annual turnover does not exceed AMD 58.35 million (approx. USD 120,000) and they opt to be taxed with turnover tax.

Real Estate Tax

The real estate tax is payable by the owner or the real property on an annual basis. Tax rates are in the range of 0% to 1% of the cadastral value which is normally significantly lower than the market value. Where the real property is sold by an individual the new owner assumes liability for any unpaid property tax.

Other Taxes

Tax on rental income – 10%

Gifts tax – 0%

Inheritance tax – 0%

Notary & Government Fees

The buyer and the seller shall agree on who will bear the costs of registration, which typically is around $200. Official fees are fixed and do not depend on the value of the property. Fast-track services are also available for additional fees.

  Regular fee Fast-track (same day)Fast-track (next business day)Fast-track (third business days)
Notary fee$21-31
Notarization state duty$10
Issuance of certificate of free title$21$125$41
Issuance of new ownership certificate$52$313$156$105
Registration state duty$41

FAQ

Is it possible to pay in foreign currency? 2017-05-16T09:00:27+04:00

The law requires the seller and the buyer to make payments in  Armenian drams. In practice, payments in cash are normally made in U.S. dollars.

What documents do I need to buy property in Armenia? 2017-05-16T09:03:03+04:00

Normally a valid ID document (e.g. passport) will be sufficient. If you are married you may also need your marriage certificate.

How long does it take to finalize a sale? 2017-05-16T08:51:28+04:00

Technically it is possible to complete all formalities in one day if you pay additional fees for fast-track service. Usually the legal formalities take about a week.

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