Armenia’s tax updates for 2024 bring forward measures designed to sustain growth in specific industries while maintaining a supportive environment for small businesses and entrepreneurs. These updates highlight Armenia’s ongoing commitment to economic development, creating favorable conditions for the growing IT sector and supporting various business sizes and models.
The government has also stepped up its enforcement of property and rental income tax compliance, signaling a broader effort to tighten tax administration across sectors. Non-resident entities conducting business in Armenia should be aware that they are liable for tax on their Armenian source income, unlike Armenian-resident entities that are taxed on their worldwide income. Understanding these tax requirements is essential for ensuring compliance and optimizing financial strategies. Taxable income is calculated by deducting allowable expenses from the gross income, which is crucial for adhering to tax regulations.
Continued Support for IT Businesses
The Armenian government’s dedication to fostering the IT sector continues in 2024. Recognizing the industry's importance to Armenia’s economy, the government has extended its supportive tax regime for IT businesses. Private entrepreneurs and LLCs operating in the IT sector can apply for the IT Start-Up certificate within 90 days from the registration date, which provides significant tax incentives and reductions applicable until the end of 2024. This certificate includes maintaining a favorable 10% payroll tax rate for IT companies through the end of 2024.
However, it is essential to note that while the reduced payroll tax remains, the 0% corporate income tax rate previously available to IT businesses will no longer be applicable as of January 1, 2024.
2024 Tax Rates Overview
For a clear understanding of the 2024 tax landscape, let’s break down the primary tax regimes that apply to various business types and income sources. Armenia’s tax system is organized to support micro-businesses, small businesses, and larger corporations with specific rates based on annual sales thresholds.
Corporate Tax Regimes
Armenia offers a range of corporate tax regimes, each tailored to different business types and income levels:
Micro-Businesses (Sales up to Approx. $60,000/Year)
Businesses classified as micro-businesses benefit from a 0% corporate tax rate. However, this status does not apply to companies in Yerevan, particularly those involved in trade or service-based industries, such as marketing, consulting, and engineering. This limitation aims to prevent high-volume businesses in the capital from receiving tax breaks intended for smaller ventures.
Small Trade and Service Businesses (Sales up to Approx. $290,000/Year)
Small businesses in trade and services, with annual sales below approximately $290,000, are subject to a turnover tax of 5%. This tax rate, calculated on gross income, replaces the need for both Corporate Income Tax (CIT) and Value-Added Tax (VAT), streamlining compliance for smaller operations. Deductible expenses are subtracted from gross income to determine taxable income, which is crucial for assessing the overall tax liability.
Larger Businesses (Sales Exceeding Approx. $290,000/Year)
Businesses with annual sales above the $290,000 threshold are subject to the standard corporate income tax rate of 18%. This rate aligns larger companies with Armenia’s general tax regime, ensuring that entities with significant revenue contribute proportionally to national tax revenue.
Companies registered in Armenia but failing to elect the micro-business or turnover tax regime within 20 days of registration will automatically fall under the general tax regime, emphasizing the importance of timely registration.
Value-Added Tax (VAT)
Armenia’s VAT rate is structured to support both local and export-focused businesses, with a standard VAT rate of 20% on imports and domestic sales for larger entities (those with sales exceeding $290,000/year). For exporters, the VAT rate is set at 0%, allowing businesses to claim refunds on input VAT. This exemption promotes Armenia's export sector by reducing the cost burden on goods and services sold internationally.
VAT compliance is essential for businesses, as non-compliance can lead to penalties and loss of favorable tax treatment.
Excise Tax
Excise tax is a type of indirect tax levied on the production, sale, or consumption of specific goods and services in Armenia. The excise tax rates vary depending on the type of goods or services.
The excise tax rates in Armenia are as follows:
- Ethyl Alcohol (excluding brandy alcohol): 6,300 AMD per liter
- Alcoholic Beverages: 3,800 AMD per liter
- Beer: 150 AMD per liter
- Wine:
- 165 AMD per liter
- 1,100 AMD per liter (specific categories)
- Tobacco Products (including industrial tobacco substitutes, cigars, and cigarillos):
- 16,100 AMD to 660,000 AMD per 1,000 units
- Gasoline: 43,600 AMD per tonne
- Diesel Fuel: 14,200 AMD per tonne
- Crude Oil: 29,450 AMD per tonne
- Petroleum Products: 1,100 AMD per tonne
- Other Natural Hydrocarbons (excluding non-compressed natural gas): 1,100 AMD per tonne
- Compressed Natural Gas: 37,100 AMD per tonne
Payroll Taxes
Payroll taxes in Armenia play a critical role in funding public services and social benefits. Employers are responsible for withholding these taxes on behalf of employees, calculated as a percentage of income:
Personal Income Tax
A flat rate of 20% applies to individual income paid, simplifying the calculation and withholding process for employers. Personal income tax rates for newly registered businesses and individual entrepreneurs can be reduced under specific programs, offering significant advantages within Armenia's tax regulations.
Pension Contributions
Mandatory pension contributions range from 5% to 10%, depending on income, and are capped at approximately $200 per month. These contributions fund Armenia’s retirement system, offering long-term financial security for residents.
Military Contributions
Monthly contributions range between $4 and $40, depending on the employee’s income, and contribute to Armenia’s defense budget.
Together, these payroll taxes ensure a balanced and straightforward approach to funding essential services, though the rates may vary based on employee earnings and specific employment terms.
Tax Exemptions
Armenia’s tax system includes several exemptions, providing relief for specific income types. For example:
- Capital Gains: Individuals are generally exempt from taxes on capital gains derived from the sale of securities, real estate, or other property, allowing investment gains to grow untaxed.
- Pension Income: Pensions are not subject to income tax, ensuring that retired individuals can maximize their retirement savings.
- Gifts and Inheritances: Armenia does not impose taxes on gifts or inheritances, making it financially simpler for families to transfer assets between generations without incurring additional tax burdens.
Property Tax and Rental Income Reporting
As of December 1, 2023, the Armenian government has intensified its enforcement on rental income reporting to ensure transparency and compliance within the real estate sector in the Republic of Armenia. Rental income must be declared, with non-compliance potentially resulting in fines of up to $1,250.
Rental income is subject to a tax rate of 10%, and Armenia offers a property tax calculator on the e-cadastre platform, which helps property owners accurately assess their tax liabilities. By enforcing these requirements, Armenia aims to promote fair tax practices and deter tax evasion within the rental property market. Income tax on dividends is refundable if reinvested in the same resident company within the same tax year they are received.
Import Taxes
Import taxes, also known as customs duties, are levied on goods imported into Armenia. The tax rates vary depending on the type of goods and their country of origin. Armenia is a member of the Eurasian Economic Union (EAEU), which means that goods imported from EAEU member countries are exempt from import duties.
The import tax rates in Armenia are as follows:
Goods from EAEU member countries: 0%
Goods from other countries: 0-20%
In summary, Armenia’s 2024 tax updates reflect the government’s commitment to fostering a dynamic, transparent, and supportive business environment. From continued support for the IT sector to enhanced compliance measures for rental and property income, these reforms are designed to sustain economic growth across industries while ensuring fairness and efficiency in tax administration. The clear delineation of tax regimes, incentives for micro and small businesses, and simplified payroll tax structures make Armenia an attractive destination for both local and foreign investors.
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Astghik Pepanyan
Client Acquisition