Your Armenian Company’s First Employee Abroad: Payroll and EOR Options

An Armenian company can hire someone who lives and works abroad in four ways: directly under an Armenian employment contract, through a foreign employer of record (EOR), as an independent contractor, or through its own entity in that country. On a direct hire the company withholds 20% Armenian income tax from the salary, unless a tax treaty gives the right to tax to the country where the employee lives and works.

Why this is a different question from hiring in Armenia

Our pages on the Employer of Record service and on hiring in Armenia through an EOR cover the reverse case: a foreign company employing staff in Armenia. Here the Armenian company is the employer and the worker is in Serbia, Turkey or elsewhere, so two legal systems apply at once.

On the Armenian side, Labor Code Article 7(1) applies Armenian labour legislation to employment relationships arising in Armenia, including where the employer sends the work to another state. Under Article 14(1.1), a contract signed abroad or by electronic exchange is deemed concluded in Armenia when the employer is an Armenian-resident legal person whose permanent operating body is in Armenia. That makes Armenian law applicable to a typical Armenian LLC’s overseas hire. It does not displace the mandatory employment, tax and social-insurance rules of the country where the work is done, which apply to the same person in parallel.

Option 1: Employer of Record abroad

An EOR provider in the destination country employs the worker under local law, runs local payroll and social insurance, and invoices your company. Your team directs the day-to-day work. The arrangement suits a single hire or a market test where opening an entity would be premature.

The label “EOR” says nothing about the legal mechanism behind it, and the mechanism differs by country:

• Serbia. Under the Agency Employment Law the agency employs and pays the assigned worker, and the user company keeps duties and joint liability for wage-related obligations. The law defines the user employer as one registered in Serbia, including a registered branch or representative office of a foreign company. It has not been established that an Armenian company with no Serbian registration can use this statutory route, so ask the provider in writing what legal structure it uses.
• Turkey. Temporary agency work under Labor Law 4857, Article 7 (as replaced by Law 6715) requires a private employment agency authorised by ISKUR, written contracts, and compliance with permitted reasons and maximum durations. If the assignment continues after the permitted period, an indefinite employment relationship can arise with the user company.

Armenian tax on the EOR invoice

The Tax Code treats certain services supplied from outside Armenia to an Armenian taxpayer, including consulting, legal, accounting and management services, as Armenian-source income of the foreign supplier. Where a provider’s income falls within that rule and no exemption or treaty relief applies, your company withholds non-resident tax at 20% when it pays. Whether a given EOR package falls within that list, and whether the tax base is the whole invoice or only the provider’s own fee, is unsettled: we found no State Revenue Committee ruling on EOR invoices, and the point is being confirmed. A Serbian-resident corporate provider with no permanent establishment in Armenia can rely on the Armenia-Serbia treaty to protect its business profits from Armenian tax.

VAT is a separate test. The place of supply rules treat consulting and accounting services as supplied where the Armenian customer is, while the rule for supply of staff carries an extra condition about the staff working at the customer’s place of activity. The Armenian VAT result for an EOR invoice therefore turns on how the package is classified and on the VAT status of both parties; a blanket “20% VAT always applies” and a blanket “no VAT because the worker is abroad” are both unsupported. Ask the provider for invoices that show its fee separately from salary and payroll charges, because every one of these questions turns on that split.

Option 2: Independent contractor

Armenian law decides classification by the substance of the relationship. Labor Code Article 13(1) defines employment through personal work for pay, submission to internal work rules and the employer providing working conditions. Under Article 7(6), if a court establishes that a civil-law contract in fact regulates employment, labour legislation applies to it, and Article 6(1) makes any term worse for the worker than the mandatory standard ineffective. Calling the agreement “consultancy” settles nothing.

Paying an individual contractor does not avoid Armenian tax. Fees under a civil-law contract with an Armenian-resident company are Armenian-source income, and the company withholds 20% income tax even when the work is done abroad. A treaty can change this: under the Armenia-Serbia treaty, a Serbian resident’s income from independent services is generally taxable only in Serbia unless that person has a fixed base in Armenia or meets the treaty’s 183-day condition. How withholding applies to a foreign-registered sole trader has not been settled by any official source we found.

The destination country runs its own tests:

• Serbia, employment law. The Labor Law separates employment from permitted contracts for independent work, and courts look at the actual arrangement. In case Rev2 631/2024 the Supreme Court weighed continuous regular duties, full-time shifts and managerial instructions. Article 273 sets a fine of RSD 800,000 to 2,000,000 on a company that fails to conclude an employment contract or another legally permitted work contract, with separate fines for the responsible person.
• Serbia, tax. Under Personal Income Tax Law Article 85(1)(17), an entrepreneur who meets at least five of nine criteria is treated as not independent for tax purposes. The criteria cover working hours and leave, premises, training, recruitment, tools and control, a 70% share of income from one client, commercial risk, restrictions on working for other clients, and a 130-working-day threshold. That income is generally taxed at 20% of gross, with contributions assessed separately.
• Turkey. Labor Law 4857, Article 8 defines employment by dependent work for a wage, and a contractor label does not remove dependency. The social security institution (SGK) treats unreported workers, days and earnings as undeclared employment, with administrative fines and loss of incentives. No single misclassification fine applies to every case.

One Armenian-side consequence applies to any structure: the 60% income tax reimbursement for qualifying high-tech hires under HO-498-N, as amended by HO-221-N, is available only for staff on an employment contract. Civil-law contractors are excluded.

Option 3: Opening your own entity in the destination country

A subsidiary or branch abroad becomes the local employer and runs local payroll, which removes the question of whether your Armenian company has a hidden taxable presence there. It also qualifies as a user employer under Serbia’s Agency Employment Law. For an Armenian LLC, LLC Law Article 6 governs the decision to create a branch and refers the creation of a foreign branch to the law of the destination country; the Armenian registration requirement in that article concerns branches in Armenia. If you are still setting up the Armenian parent, see our company registration service.

We found no universal Armenian notification triggered just by opening a foreign subsidiary or branch. A separate statistical duty does exist: under Statistical Council Decision 01-N of 19 January 2023, legal entities investing abroad that have been notified to report file Form 9-Investment each quarter, by the 25th of the month after each of the first three quarters and by 25 February for the fourth.

Permanent-establishment risk: one person can be enough

A permanent establishment (PE) makes part of your Armenian company’s profit taxable in the other country. Headcount is irrelevant; what the person does, and where, decides it.

Serbia

• Corporate Income Tax Law Articles 3 and 4 tax a non-resident on profits earned through a fixed place of business in Serbia, expressly including an office, with no minimum number of staff. A representative who holds and exercises authority to conclude contracts for the company also creates a PE.
• The Armenia-Serbia tax treaty has been in force since 3 November 2016. Serbia’s official combined text applies Article 12 of the OECD Multilateral Instrument, so a dependent-agent PE can also arise where a person habitually plays the principal role leading to contracts that are routinely concluded without material modification. This applies to withholding from 1 January 2024 and to other taxes for periods starting on or after 1 July 2024.
• Article 5 of the Serbian law requires a tax balance and return where a PE exists under Serbian law even if the treaty excludes it.
• For home working, the OECD’s 2025 Commentary update says a home used for less than 50% of a person’s working time over any twelve-month period is generally not the company’s place of business. At 50% or more the answer depends on the facts, including whether there is a commercial reason for the person to be in that country. This is interpretive guidance, it does not bind Serbian authorities, and it does not address the dependent-agent route.

Turkey

• Corporate Tax Law 5520, Article 3 taxes a non-resident company on commercial profits earned through a Turkish workplace or a permanent representative.
• Income Tax Law 193, Article 8 defines a permanent representative as a person tied to the company by an employment or agency contract and authorised to carry out its commercial transactions, and adds deemed categories.
• No Armenia-Turkey income tax treaty was established: Armenia is absent from the Turkish Revenue Administration’s list of treaties in force dated 23 April 2025, and Turkey is absent from the Armenian Finance Ministry’s lists. Plan on Turkish domestic rules alone, with no treaty limit on PE.

Payroll and social-insurance duties are a separate question from PE. In Serbia, Personal Income Tax Law Article 100a lets an employee self-assess tax on wages from a foreign payer that does not withhold. In Turkey, Law 5510, Article 11 requires workplace notification to SGK by the start of insured employment. The full registration procedure for a wholly offshore Armenian employer with a single home-based worker has not been established for either country, which is the question to put to a local adviser before the first payroll.

What the Armenian side must handle

The employment contract on a direct hire

Labor Code Article 13(5), added by HO-39-N, covers employment with a person outside Armenia who will work outside Armenia, and keeps it out of the state digital contract system. The mandatory move to digital contracts on 1 July 2027 does not change that. Under Article 85(8) the contract is one document signed by both parties in two copies, and the employee receives a copy within three days. Article 85(2) allows signing by authenticated post or electronic exchange, including signed scans; whether every electronic method meets the two-copy rule for an overseas hire is unsettled, so a wet-signed pair of originals is the safe course.

Article 84 sets the contract contents. For an overseas hire the points most often missed are:

• the actual place of work, stated separately from the place where the contract is deemed concluded;
• the employee’s email address and public-services number, with an exception for a foreign citizen or stateless person without Armenian residence status who will not be in Armenia;
• base pay stated including taxes and mandatory payments, and the method of calculation;
• working-time regime, type and length of annual leave, and how each side gives notices.

Where the arrangement is remote work, Article 106.1 requires a written agreement on it. Our employment compliance team drafts these contracts on the Armenian side.

Paying the salary

Labor Code Article 192(2) requires salary to be paid in Armenian drams, and no exemption for employees working abroad has been established. The Currency Regulation and Currency Control Law allows ordinary cross-border current payments, so a dram salary can be converted and transferred to an account abroad.

Income tax and social payment on a direct hire

The company acts as tax agent: it withholds 20% income tax and files and pays monthly, by the 20th of the following month. Working abroad does not change the Armenian-source status of the salary. A treaty can: under Article 15(1) of the Armenia-Serbia treaty, an employee who is treaty-resident in Serbia and works entirely in Serbia is generally taxable only in Serbia, even with an Armenian employer. Keep evidence of the employee’s treaty residence before relying on that. See our Armenian tax service for the filing side.

A foreign employee without Armenian residence status is not a social-payment payer (State Revenue Committee guidance No. 127). For Armenian citizens, the Funded Pensions Law has no general exemption for living abroad, so the ordinary rates generally apply to mandatory participants, who are employees born on or after 1 January 1974: 5% of monthly pay up to AMD 500,000 (about USD 1,384 at the house rate of AMD 361.36 per USD, CBA rate of 19 October 2026); above that, 10% minus AMD 25,000 (about USD 69); and a maximum of AMD 87,500 (about USD 242) a month, reached at AMD 1,125,000 (about USD 3,113). How the rule applies to a citizen who has emigrated permanently has not been settled by official guidance.

Documents for deducting the cost

For purchases from a non-resident organisation with no Armenian PE, Government Decision 547-N of 9 April 2020 lets the company support the expense with two documents together: proof of the non-cash payment and a document from the supplier substantiating the service. The route does not cover services whose place of supply is Armenia, and it does not automatically extend to individual contractors. For an EOR, also keep the services agreement, work orders, invoices splitting the fee from payroll amounts, and evidence of the work received.

The Tax Code and the Accounting Law each require at least five years’ retention. Settlement documents in a language other than Armenian, English or Russian need an Armenian translation, without notarisation. Before the first offer letter, settle which of the four structures you are using and get the destination-country view on PE and registration; the Armenian contract, tax and records work for each of them is what our team handles.

Frequently asked questions

Related reading: the EOR hiring process in Armenia, EOR for project-based staffing in Armenia and Armenia vs Georgia hiring cost.

Last updated: 21 October 2026