Where Should Your AI Research Happen, and Where Should Its IP Be Owned? Armenia vs Cyprus and Serbia

Armenia taxes the salaries of employees on an approved R&D project at 10% personal income tax, half the standard 20% rate, while Cyprus and Serbia exclude 80% of qualifying IP profit from corporate tax, which brings fully qualifying profit down to 3%. Armenia rewards the people doing the research; Cyprus and Serbia reward the company earning from the result, and only in proportion to what that company spent developing it.

Research location and IP ownership are separate decisions

The research decision is about people: where the engineers are employed, what their salaries cost after tax, and whether their work qualifies for state R&D incentives. The ownership decision is about which company licenses or sells the result and how that company’s IP income is taxed. A group can employ its researchers in one country and hold the IP in another.

Splitting them has a price. Under the OECD Transfer Pricing Guidelines (Chapter VI), legal ownership alone does not entitle a company to keep the return on IP. The return follows the company that performs and controls development, enhancement, maintenance, protection and exploitation (the DEMPE functions) and that controls and funds the risk. A holding company with no developers and no decision-makers keeps little, whatever its tax rate.

What Armenia offers for AI research

10% income tax on approved R&D salaries

Law HO-499-N added Article 150(1.1) to the Tax Code. From 1 January 2025 to 31 December 2031, the employer, as tax agent, calculates personal income tax at 10% on salary paid to eligible personnel for qualifying R&D, including R&D for the employer’s own needs. Every condition below must be met:

• the work meets the Government’s R&D criteria;
• the statutory professional commission has issued a positive conclusion, approved by the minister;
• the employee’s occupation is on the Government list of high-tech professional work;
• a foreign citizen or stateless person qualifies only with Armenian residence rights or status.

The relief covers the employees named in the approved project who exclusively perform the listed professional work, and only their pay for that work. The 10% rate carries no revenue-percentage test. It can also sit alongside the 1% turnover tax, because the provision addresses the employer as tax agent and does not require it to pay profit tax; no State Revenue Committee (SRC) ruling on that combination has been published, so this rests on the statutory wording. Our guide to the 10% R&D income tax rate covers the payroll mechanics.

How a project is approved

The application goes electronically to the Higher Education and Science Committee of the Ministry of Education, Science, Culture and Sports, in Armenian or English. It carries the R&D programme: classification, objectives, stages, timing, funding, jobs, and the named professional employees with their public service numbers. Under Annex 2 of Government Decision 195-N, as amended by Decision 248-N, the project must meet five cumulative criteria:

1. novelty: new applied knowledge, with standard processes excluded;
2. creativity: original and non-obvious work, with routine testing excluded;
3. uncertainty: the outcome cannot be fully predicted;
4. systematic organisation: planned objectives, methodology, resources and budget;
5. transferability or reproducibility: documented results that can be transferred or repeated.

Routine production, unsystematic experiments and undocumented one-off fixes fail the test, and applied research funded from the state budget is excluded. One of five scientific subcommissions assesses the project, the main commission concludes, and the minister approves; the order goes to the applicant and the SRC within 5 working days. The Ministry of High-Tech Industry published an explanation of the scheme on 6 March 2025.

The Committee must decide no later than the 365th day after filing, and it may postpone, so no fixed decision date applies. Relief runs from the first day of the month of application, never earlier than the month the work began, so every month of delay in filing is a month at 20%. The original rule of filing in the first month of each quarter was repealed by Decision 248-N; submission periods are now set by ministerial order, and the order currently in force could not be confirmed, so check the open window with the Committee before preparing the file. If an approval is annulled, the salaries are recalculated at the general rate.

Profit-tax deductions for R&D payroll

A company on the general regime pays 18% profit tax on taxable profit. Article 123(2) of the Tax Code gives it two additional deductions: 200% of qualifying salaries of high-tech professional staff, and 200% of salaries of staff working on approved R&D. Together these additional deductions normally cannot cut the tax base below 50% of what it would be without them. That cap does not apply where the company earns only from compliant R&D, or its other income is no more than 10% of annual gross income. Qualifying R&D expenses are also deductible in full in the year incurred.

These deductions reduce profit, so they give nothing to a company on the turnover tax. A separate programme under Law HO-498-N refunds 60% of income tax on qualifying new hires and labour migrants and 50% for retrained staff; it uses its own test of at least 90% of declared turnover from listed high-tech activities, and for employees taxed at 10% it is calculated on a notional 20%.

How an Armenian company’s IP income is taxed

Armenia has no rate for “IP income”. The tax depends on how each receipt is classified and on the company’s regime.

• Ընդհանուր ռեժիմ՝ 18% on taxable profit. The Tax Code’s definition of royalties expressly covers computer programs, and an outright sale of IP falls into ordinary profit.
• Շրջանառության հարկ՝ available where prior-year sales did not exceed AMD 115 million (about USD 318,000 at the house rate of AMD 361.36 per USD, CBA rate of 19 October 2026). Royalties sit on a 10% line. Income from activities on the Government Decision 142-N list is taxed at 1% until 31 December 2031 under Article 258(1)(8): the list includes software development (J62.01.0), other software publishing (J58.29.0), other IT activities (J62.09.0), database development (J63.11.1), specified online software services (J63.11.3) and R&D in technical sciences (M72.19.2).

Which of those two turnover-tax lines catches a software licence fee is unsettled: the rate table carries both, no published SRC interpretation chooses between them, and the answer turns on the rights granted and the activity under which the company is classified. Holding a patent, copyright or trained model does not by itself make the receipts income from a listed activity. Licensing model weights or API access has no AI-specific rule and could be treated as a royalty, a software service, an R&D service or the sale of an intangible.

Royalties an Armenian company pays to a foreign owner without a permanent establishment in Armenia carry 10% withholding tax, which a tax treaty may reduce. That cost lands on the Armenian research company whenever the IP sits abroad and is licensed back. Our ծրագրային ապահովման IP սեփականության աուդիտ covers how to confirm the Armenian company actually owns the code before any of this matters.

Cyprus and Serbia: 80% of qualifying IP profit excluded

cyprus

Cyprus deducts 80% of qualifying profit from qualifying IP. Corporate tax rose from 12.5% to 15% on 1 January 2026, so fully qualifying profit now bears 3%; the 2.5% figure still quoted in many guides is out of date. The relief is calculated on net IP profit, after expenses. Qualifying assets are patents, copyrighted software and patent-equivalent rights. A further category of certified non-obvious IP is open only to taxpayers with IP income up to EUR 7.5 million and group turnover up to EUR 50 million (five-year averages); those limits do not apply to software or patents. Trademarks and other marketing IP never qualify.

The qualifying share is net IP income multiplied by (qualifying expenditure + uplift) / overall expenditure. Qualifying expenditure is the owner’s own R&D plus R&D outsourced to unrelated parties. Acquisition costs and R&D bought from related companies count only in overall expenditure. The uplift is the lower of 30% of qualifying expenditure and those acquisition and related-party costs. An unrelated Armenian development firm therefore counts in full; the group’s own Armenian subsidiary counts only through the uplift.

The additional 20% R&D deduction for 2025 to 2030 expenditure cannot be claimed on spending for an asset that has used the IP box in any year. The IP box rules set no minimum headcount or office; the company must be tax resident (managed and controlled in Cyprus, or incorporated there unless a treaty says otherwise), keep income and expenditure records per asset, and price related-party dealings at arm’s length. Groups with revenue of EUR 750 million or more may owe a Pillar Two top-up on top of the 3%.

Սերբիա

A Serbian company can elect to exclude 80% of qualifying income from exploiting copyright (software included) deposited with the competent register, and from patent licences, including pending patent applications. With a 15% corporate rate, fully qualifying income bears 3%. Selling the entire copyright or patent outright does not qualify. The deposit or patent application must be made by the end of the first tax period of the claim, and each asset is calculated separately.

The Serbian nexus formula differs from Cyprus. Total development costs include R&D paid to any non-resident, related or unrelated, plus acquisition costs, and no 30% uplift was found. R&D bought from an Armenian team, even an unrelated one, dilutes the Serbian relief.

Serbia also rewards research payroll: employers are exempt from 70% of wage tax and from all pension and disability contributions for time spent directly on R&D, and qualifying Serbian R&D spending is deductible at 200%. The payroll reliefs ordinarily require at least 90% of the project’s R&D staff to work in Serbia, and exclude Serbian branches of foreign companies and contract R&D providers that do not acquire the resulting IP. Amendments published in 2026 apply mostly from 1 January 2027 and keep the IP regime. The Serbian position here comes from a single verification pass, and Serbian counsel should confirm it before you structure around it.

Choosing by stage

Before licensing revenue. An IP box gives nothing until there is IP profit, and payroll is most of the cost. Armenia’s 10% rate on approved R&D pay, combined with either the 1% turnover tax or the 200% deductions, acts on the spending a young AI company actually has.

Moving IP built in Armenia. If an Armenian company develops the model and later sells it to a Cypriot or Serbian affiliate, the purchase price sits in the buyer’s overall expenditure, so the nexus fraction starts low and may stay near zero. The sale itself is taxable in Armenia at a transfer price that must be defensible.

Foreign owner, Armenian contract R&D. A Cypriot owner paying its Armenian subsidiary for development counts that spend only through the uplift, and a Serbian owner counts none of it. Under DEMPE, the owner also needs people who direct and fund the development to keep the return. The structure works where the owner has its own development team or buys R&D from unrelated firms.

Comparing headline rates. Armenia’s 1% is charged on turnover and the 3% in Cyprus and Serbia on qualifying net profit after the nexus fraction, so the two figures cannot be ranked without the company’s margin and cost history. Map which company employs the developers, which owns each asset, and what each spends on development before choosing; on the Armenian side, that map decides R&D approval under Decision 195-N and the classification of licence income.

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