Software Company in Armenia or Georgia: Which Activities Qualify for Each Regime?

An Armenian software company pays 1% on income from any of the 32 activities listed in Government Decision 142-N, provided its sales in the previous year were no more than AMD 115 million (about USD 318,000 at the house rate of AMD 361.36 per USD, CBA rate of 19 October 2026) and it elected turnover-tax status on time. In Georgia, virtual-zone status exempts from profit tax the profit on software a company creates in Georgia and supplies abroad, and International Company status taxes distributed profit at 5%. Which country suits a given company depends on what it does, where its people sit and how its revenue splits between listed and other work.

Armenia: which activities qualify for the 1% rate

Law HO-500-N of 4 December 2024 added a 1% rate to the Tax Code for income from high-tech activities on a list set by the Government. Government Decision 142-N of 13 February 2025 supplies that list. It took effect on 14 February 2025 and applies from 1 January 2025. The rate is scheduled to run until 31 December 2031.

The list has 32 activity codes, drawn from Armenia’s economic-activity classifier (Minister of Economy Order 874-N of 2013): 10 software and IT codes, 17 electronics and machinery manufacturing codes, and 5 research and engineering codes. The software and IT codes are:

The research and engineering codes include integrated-circuit design and testing (M71.12.5) and R&D in biotechnology, the natural sciences, engineering and technology, and the social sciences and humanities. A label such as “consulting” or “online business” qualifies only if the work actually done fits one of these classifier descriptions.

The 1% applies to income, activity by activity

The rate attaches to income derived from a listed activity. A company that also rents out office space, earns interest or resells hardware reports that income on separate lines of the quarterly turnover-tax return, at the rate that applies to it. The 1% is charged on qualifying income itself, with no deduction for salaries or other expenses. For a contract that bundles listed and unlisted services, or a licence payment that could fall on the royalty line, no special allocation rule has been published; the split has to be worked out contract by contract.

Neither the Tax Code provision nor GD 142-N sets a minimum share of turnover that must come from listed activities. A company earning 60% from software development and 40% from other work still pays 1% on the 60%. Nor is there a high-tech certificate, ministry approval or registry entry: the company elects turnover-tax status and reports its listed income on the right line. Our page on the 1% tech tax covers the rate in more detail.

Getting into the turnover-tax system

The 1% rate exists only inside the turnover-tax system, so a company has to qualify for that system first:

• Resident commercial organisations and individual entrepreneurs are eligible. A branch of a foreign company registered in Armenia is not a resident Armenian commercial organisation and cannot use the regime; an Armenian subsidiary can.
• Sales in the previous calendar year must not exceed AMD 115 million excluding VAT (about USD 318,000 at the house rate of AMD 361.36 per USD, CBA rate of 19 October 2026). The ceiling counts all sales, including income from unlisted activities. Crossing the ceiling during the year ends eligibility.
• The election is made electronically on Form 201: by 20 February for an existing business, or within 20 days after registration for a new one. A company that misses the deadline is a VAT payer for the year. The Court of Cassation held in case VD/3138/05/20 (17 November 2022) that the deadline cannot be restored even for a justified delay.
• Certain relationships with related persons exclude a company, with an exception for a related person that has declared cessation of activity and actually stays inactive. The older test that barred any company 20% owned by another resident came from the former Turnover Tax Law and is no longer the rule.
• From 1 January 2027 operators of electronic trading platforms are excluded (Law HO-83-N), and from 1 February 2027 organisations holding an interest in a bank are excluded (Law HO-385-N). Building software for a trading platform is a different activity from operating one.

The micro-business regime is closed to software and IT activity, so the 1% rate is the turnover-tax route for a software company. Registration and the election are covered on our business registration page.

Armenia: the high-tech support programme and its 90% test

A second Armenian measure pays cash from the state budget to employers in the sector. It is governed by Law HO-498-N on state support for the high-tech sector (in force 1 January 2025, running to 31 December 2031), as amended by Law HO-221-N (in force 30 May 2026, applying to reporting periods from 1 January 2026). The procedure is Government Decision 450-N, restated in full by Decision 1092-N, in force 28 July 2026. The restated procedure applies to support periods from 1 January 2026.

What it pays

• 60% of the income tax calculated on qualifying new employees, paid to the employer.
• 50% of the income tax on employees who have completed qualifying training, paid to the employer.
• 60% of the income tax on qualifying migrant employees. This money belongs to the employee: the employer receives it as an intermediary and must pass it on within five working days.

Only staff on employment contracts count; civil-law contractors do not. For employees who already benefit from the reduced R&D income-tax treatment, the support is calculated on a base equal to 20% of salary (see our page on the 10% R&D income-tax rate).

The 90% test and the other conditions

At least 90% of the company’s sales turnover for the quarter must come from activities on the GD 142-N list. The procedure measures this as the arithmetic average of the percentages declared in the tax returns covering the quarter: for a VAT payer, the three monthly returns, (p1 + p2 + p3) / 3; for a turnover-tax payer, the quarterly return. A month with high sales and a month with low sales carry equal weight, so the result can differ from the share of total turnover. Neither the law nor the procedure says how a quarter with no turnover is treated.

• Tax liabilities administered by the State Revenue Committee must not exceed AMD 100,000 (about USD 277 at the house rate of AMD 361.36 per USD, CBA rate of 19 October 2026) on the day before the application.
• The company must not have changed the activity classifiers declared in its returns for the claimed period, unless it already met the conditions before the change. Excess support is recovered after amended returns.
• From 2026, branches and representative offices of foreign companies registered in Armenia can apply.

How to apply

Applications are made each quarter, for the preceding quarter, at benefits.hightech.gov.am by the director or an authorised representative signing in with the national YesEm identification. Company and tax data load automatically. Approval leads to a contract with the ministry and payment to the stated bank account; late applications for a quarter are rejected. The window for the third quarter of 2026 runs from 21 October to 20 November 2026. The consolidated law still carries a cross-reference that, read literally after the 2026 amendments, would end new-employee support on 31 December 2025; the ministry is nonetheless accepting new-employee applications for 2026, and no official correction has been published.

Using both measures together

A company on the 1% rate can receive support. After the end of the third calendar year following the year in which support first began, continued support requires the company to be on the general tax system. A company first supported in 2026 can keep receiving support from 2030 only if it has moved to the general system by then. Because a branch of a foreign company can receive support but cannot use the 1% rate, a foreign group choosing between a branch and a subsidiary is choosing between these two outcomes. Hiring structures for Armenian teams are covered on our employer of record page.

Georgia: virtual-zone status

Virtual-zone status comes from the Law of Georgia on Information Technology Zones (No. 4064 of 15 December 2010, in force 1 January 2011), read with the Tax Code and Government Ordinance 49 of 26 January 2011. The status is held by a Georgian legal person and does not extend to an individual because they work in IT.

What qualifies

Information technology, for this purpose, means developing, designing, producing and introducing computer information systems where the result is a software product. Two territorial conditions apply together: the software must be created in Georgia and supplied outside Georgia. Foreign customers alone are not enough. Supply can take the form of services or a licence of software created in Georgia. Standalone consulting, help-desk work, hosting, marketing, hardware sales and resale of third-party software are not automatically covered.

The Revenue Service expects the company to use qualified IT staff hired in Georgia and to hold the assets needed to create the software there. Its current methodological guidance, Order 33544 of 29 December 2022, includes an example accepting a Georgian-resident founder who writes the software in Georgia with no employees and takes income only as dividends. The Revenue Service keeps its general power to recharacterise arrangements that lack substance.

How profit is taxed

• Profit from qualifying IT supplied outside Georgia is exempt from profit tax, including when it is distributed.
• Domestic supplies are permitted. Profit from them, and from any other non-qualifying activity, is taxed under the ordinary rules at 15% on distribution. No minimum export share is set.
• Mixed revenue must be separated. Expenses that cannot be attributed directly are allocated by the share of qualifying export revenue. In the Revenue Service example, a company with GEL 2 million of qualifying exports, GEL 500,000 of domestic sales and GEL 1 million of net profit has GEL 800,000 of exempt profit and GEL 200,000 taxable on distribution.
• Dividends paid to individual shareholders are subject to 5% withholding, subject to treaty relief. Salaries are taxed at 20% income tax.
• VAT is not levied on qualifying IT supplied outside Georgia, and no export duty applies. How a particular B2B, B2C, licensing or electronic supply is classified for VAT, and what input VAT can be recovered, depends on the transaction.

Applying, and statuses that cancel each other

The application is filed electronically with the LEPL Financial-Analytical Service, describing the IT activity and listing IT projects completed in the preceding three years, if any. A decision is due within 10 working days and the electronic certificate within two working days after that. No minimum capital, headcount or investment has been identified. Virtual-zone status cannot be held alongside two other Georgian statuses: obtaining innovative-startup status cancels it from the day of grant (Ordinance 422 of 24 September 2025), and obtaining International Company status cancels it from the start of that month (Ordinance 365 of 21 July 2021).

Georgia: International Company status

International Company status, under the Georgian Tax Code and Government Ordinance 619 of 8 October 2020 as amended, covers a wider range of IT work than the virtual zone. Permitted activities include software publishing (games included), programming, computer consultancy, systems management and related IT services, and specified digital-product, website, hosting, remote-maintenance, database-access, remote-administration, storage and software-delivery services. IT activities must be carried out as services under a service contract. There is no export-only customer condition.

• Experience: the applicant, or its foreign parent or controlling enterprise, must have two years of experience in the permitted activity.
• Substance: core income-generating activity in Georgia, with appropriately qualified staff and operating expenditure there (Ordinance 180 of 22 April 2021). No fixed minimum headcount or payroll has been identified.
• Incidental income: only income incidental to the permitted activity is allowed, capped at 2% of permitted-activity income (excluding VAT) per calendar year.
• Tax: 5% profit tax on distributions and other taxable payments, calculated as the payment divided by 0.95; 5% tax on employment income; no withholding on dividends, which are also excluded from the shareholder’s gross income; property tax exemption for property used in the activity, except land. There is no general VAT exemption.
• Procedure: the application goes through the Revenue Service and the Government grants the status.

Matsne’s English page for Ordinance 619 shows the original 2020 text. Later amendments, published in Georgian, changed the substance and incidental-income conditions, so the English page cannot be relied on as current. Separately, Ordinance 321 of 9 July 2026 changed Georgia’s work-authorisation rules for foreigners, including exclusions for some wholly offshore remote work; a founder’s right to work in Georgia has to be checked apart from the company’s tax status.

Side by side: the tests each regime applies

Profile 1: a five-person development team, all clients abroad

Annual sales of AMD 90 million (about USD 249,000 at the house rate of AMD 361.36 per USD, CBA rate of 19 October 2026), all from custom software development. In Armenia, the company is under the AMD 115 million ceiling and its work falls under J62.01.0, so it pays 1% on that income once it has elected on time; if all five staff are new hires on employment contracts and the quarterly average of declared listed turnover is at least 90%, it can also claim 60% of their income tax. In Georgia, the same team qualifies for the virtual zone if the software is written in Georgia; a newly formed company cannot use International Company status until it, or a foreign parent, has two years of experience.

Profile 2: software plus hardware resale and local clients

Sixty per cent of sales from software, forty per cent from reselling hardware to local buyers. In Armenia, the software income is still taxed at 1% and the resale income at its own turnover-tax rate, but the company fails the 90% test and cannot claim support. In Georgia, resale and domestic sales fall outside the virtual-zone exemption and are taxed at 15% on distribution; under International Company status, resale would breach the 2% incidental-income cap.

Profile 3: a company growing past AMD 115 million

Once prior-year sales exceed AMD 115 million (about USD 318,000 at the house rate of AMD 361.36 per USD, CBA rate of 19 October 2026), the Armenian company leaves the turnover-tax system and the 1% rate with it, and becomes a VAT payer on the general system. Support can continue there. No turnover ceiling has been identified for either Georgian status, which is the main reason a growing company with export revenue may find Georgia the better fit. Our hiring-cost comparison compares the payroll side for larger teams.

Profile 4: a foreign group adding a regional office

In Armenia, a branch can claim support for its new hires but cannot use the 1% rate; a subsidiary can use both if it meets the conditions. In Georgia, the foreign parent’s two years of experience can satisfy the International Company requirement for a new subsidiary. A wider comparison of the two countries, beyond software tax, is on our Armenia vs Georgia page, and the Armenian tax system generally is covered under taxes in Armenia.

Before choosing, map each revenue stream to a GD 142-N code or to the Georgian activity definitions, project prior-year sales against the AMD 115 million ceiling, and fix the Armenian election date or the Georgian application date before the first invoice is issued.

Frequently asked questions

Last updated: 27 October 2026