Key Points:
- From 1 January 2025, eligible high-tech/IT firms in Armenia can pay a 1% turnover tax (down from 5%), dramatically improving cash flow for tech startups and scale-ups.
- To qualify, ≥90% of a company’s income must come from government-defined high-tech/IT activities, and annual turnover must stay below AMD 115 million.
- Companies on the general tax regime can access additional incentives: 10% income tax on R&D staff salaries, 200% salary deduction for IT specialists, and 60% PIT rebate for new hires.
- The standard SME turnover tax increased to 10% in 2025, making the tech-specific 1% regime comparatively more attractive.
Last updated December 2025
Choosing between turnover tax and general taxation can make or break a tech company’s runway in Armenia. With 2025 reforms, the 1% turnover tax for high-tech firms and a suite of R&D and payroll incentives create powerful levers for founders and CFOs to optimize cash flow and growth.
Below is a decision framework to compare the 1% turnover tax with general profit-based taxation, clarify eligibility, and highlight the 2025 changes that may affect your competitive landscape.
For broader context on Armenia’s tax environment and company setup, see our guides on Taxes in Armenia and Business registration. Investors considering an Armenia strategy can also review Invest in Armenia.
Overview of Armenia’s tax regimes affecting tech firms
Armenia’s tax system offers multiple paths relevant to technology companies:
- Turnover tax regime: Tax charged on gross revenue at a statutory rate (1% for IT, 10% for other SMEs).
- General tax regime: Profit-based corporate income tax (18% CIT) with access to R&D and payroll incentives.
Important: You must choose one regime. The R&D incentives (10% PIT on salaries, 200% deduction, 60% rebate) are only available under the general tax regime, not the turnover tax regime.
High-Tech Support Law: 1% turnover tax — scope
Effective 1 January 2025, Armenia cut the turnover tax for qualifying high-tech/IT companies from 5% to 1% to spur innovation and sector growth. The policy aims to “develop the entire economy through high-tech” by improving startup cash flow and competitiveness.
| Measure | Rate / Change | Effective | Duration |
|---|---|---|---|
| Turnover tax for eligible high-tech/IT companies | Reduced from 5% to 1% | 1 Jan 2025 | Through 31 Dec 2031 |
| Annual turnover cap | AMD 115 million | — | — |
Legal basis and timeline
The reforms sit under Armenia’s Law on State Support for High-Tech and IT Sectors (HO-498-N), which entered into force on 1 January 2025. The law empowers the government to define eligible activities and provides multiple forms of support, including preferential turnover tax for qualifying tech companies.
Eligibility rules for high-tech tax benefits
To access the 1% turnover tax, a company must meet all of the following:
- ≥90% revenue test: At least 90% of income must come from government-defined high-tech/IT activities (software development, data/AI, engineering, R&D).
- Turnover cap: Annual revenue must stay below AMD 115 million (~$300,000).
- No overdue tax liabilities: Must be current on all tax obligations.
- High-Tech Registry: Must be registered in the state High-Tech Registry.
- Not an excluded business: Banks, insurance, legal services, accounting, management consultancy, and other prohibited categories cannot use turnover tax.
- No disqualifying related party relationships: Entities with 20%+ common ownership may be aggregated for threshold purposes.
Because the ≥90% income test is strict, startups with mixed business models (e.g., significant non-tech consulting or trading) may need to restructure service lines before applying.
If you exceed the AMD 115M threshold: You exit the turnover tax regime immediately and must switch to the general system (18% CIT + 20% VAT). You cannot return to turnover tax the following year — you must skip one full year, then reapply if that year’s revenue was under the threshold.
General regime incentives: 10% PIT, 200% salary deduction, and 60% rebate
Companies that choose (or are required to use) the general tax regime can access these additional incentives:
10% income tax on R&D salaries
R&D staff salaries are taxed at 10% personal income tax instead of the standard 20%, reducing employer costs for research and engineering roles. This requires approval from the specialized commission.
200% salary deduction for IT specialists
Companies can deduct 200% of IT specialist salaries from taxable profit, effectively doubling the tax benefit of payroll spending. This applies to all IT specialists, not just R&D roles.
60% PIT rebate for new hires
Qualifying tech firms can claim a 60% rebate on personal income tax paid for new hires entering the IT sector.
Important restrictions:
- The 3-year limit applies to “new” employees (those entering the IT sector for the first time)
- For foreign specialists, the rebate applies until 2031
- Only available under the general tax regime
Note: These incentives are not available if you’re using the 1% turnover tax regime. You must be on the general tax system to claim them.
Turnover tax reforms for SMEs
Outside the high-tech regime, Armenia increased the standard turnover tax for SMEs to 10% starting 2025. This raises the relative burden on non-tech firms and underscores the competitive advantage the 1% rate gives qualified tech companies.
| Regime | Rate (2025) | Who qualifies |
|---|---|---|
| High-tech turnover tax | 1% | IT/high-tech with ≥90% qualifying revenue, under AMD 115M |
| Standard SME turnover tax | 10% | General SME activities under AMD 115M |
Comparing turnover tax vs general taxation: decision framework
When deciding between the 1% turnover tax and profit-based taxation, consider margin profile, growth stage, and staffing plans:
Choose 1% turnover tax if:
- You’re a low-margin or pre-profit business — liabilities stay minimal even when margins are thin
- You want simplicity — no expense tracking required for tax purposes
- You’re early-stage with limited headcount
- Your revenue will stay under AMD 115 million
Choose general taxation if:
- You have high margins and significant profits — 18% of profit may be less than 1% of revenue
- You’re hiring aggressively and can leverage the 60% PIT rebate
- You have substantial R&D staff and want the 10% PIT rate and 200% deduction
- You’re export-focused — zero-rated VAT on exports plus input VAT recovery
- You’ve exceeded or will exceed the AMD 115M threshold
Comparison table
| Regime/Incentive | Rate/Benefit | Key qualifier | Available under turnover tax? |
|---|---|---|---|
| High-tech turnover tax | 1% of turnover | ≥90% IT income, <AMD 115M | ✅ Yes |
| Standard SME turnover tax | 10% of turnover | General SME activities | ✅ Yes |
| Corporate income tax | 18% of profit | General regime | ❌ No (general only) |
| 10% PIT on R&D salaries | 10% vs 20% | Commission approval | ❌ No (general only) |
| 200% salary deduction | Double deduction | IT specialist salaries | ❌ No (general only) |
| 60% PIT rebate | 60% refund | New hires in IT sector | ❌ No (general only) |
| VAT on exports | 0% (zero-rated) | Export sales | ❌ No (general only) |
| Input VAT recovery | Refundable | Domestic expenses | ❌ No (general only) |
When general regime beats turnover tax
For staff-intensive IT companies with export revenue, the general system can actually result in lower effective tax:
Example:
- Revenue: AMD 200 million (all export)
- IT salaries: AMD 80 million
- Other expenses: AMD 40 million
- With 200% salary deduction: Deduct AMD 160 million
- Taxable profit: AMD 0 or minimal
- Result: Lower tax than 1% of revenue would have been
Tip: Re-evaluate annually. A fast-growing product company might start on the 1% regime for simplicity and liquidity, then switch to profit-based taxation once margins and R&D headcount justify the incentives.
Need help modeling scenarios and registering the optimal regime? Our tax and corporate teams advise founders on structuring, compliance, and incentive capture. Explore our tax and company registration resources, or contact us for a bespoke assessment.
FAQ
Who qualifies for the 1% turnover tax?
Companies recognized as high-tech/IT firms whose income is at least 90% from government-defined eligible activities, with annual turnover under AMD 115 million, and registered in the High-Tech Registry.
When did the 1% turnover tax and other tech incentives take effect?
The Law on State Support for High-Tech and IT Sectors entered into force on 1 January 2025 and runs through 31 December 2031.
Can I use the 1% turnover tax AND claim the R&D incentives?
No. The 10% PIT on R&D salaries, 200% salary deduction, and 60% PIT rebate are only available under the general tax regime. If you use the 1% turnover tax, you cannot access these incentives.
Can mixed-activity companies qualify if they don’t meet the 90% threshold?
No. If at least 90% of income is not from eligible high-tech/IT activities, the company cannot access the 1% regime.
How does the 60% payroll income tax rebate work?
Eligible high-tech firms on the general tax regime receive a 60% refund of PIT for new hires entering the IT sector. The benefit has a 3-year limit for new employees; for foreign specialists, it applies until 2031.
What happens if I exceed the AMD 115M threshold?
You exit the turnover tax regime and must switch to the general system. You cannot return to turnover tax the following year — you must skip one full year, then reapply if that year’s revenue was under the threshold.
What changed for non-tech SMEs in 2025?
The standard turnover tax increased to 10% starting in 2025.
Conclusion
For tech companies in Armenia, the choice between turnover tax vs general taxation hinges on eligibility and economics. If you meet the ≥90% test and stay under AMD 115M, the 1% turnover tax is a powerful default for simplicity and cash flow. If your margins, headcount, and export profile favor R&D incentives, the general regime with 200% salary deduction and 0% VAT on exports can yield a lower effective rate. Model both paths and align with your growth plan.
For comprehensive support with business registration, tax compliance, and corporate structuring in Armenia, visit our Business Registration Services page.
