High Tech Sector Advantages in 2025: What Companies Can Expect

Armenia has introduced a comprehensive legislative package aimed at promoting growth, innovation, and enhancing its global competitiveness which was adopted on December 4th. This legislation establishes substantial state support for individuals and organizations operating in high-tech sectors, including the IT industry. It is set to replace the current IT start-up certificate program, which provided significant tax benefits by reducing employees' personal income tax from 20% to 10%.

Starting from January 1, 2025, the following incentives are planned for entities operating in the high-technology sector:

1. From January 1, 2025, to December 31, 2025, the employer entities will be reimbursed 60% of the income tax paid on salaries of professional migrant workers. These migrant workers are considered to be foreign citizens or stateless persons legally employed in Armenia. 
2. Starting from January 1, 2026, to December 31, 2031, this 60% income tax reimbursement will be granted directly to the professional migrant workers themselves, rather than to their employer.
3. From January 1, 2025, to December 31, 2031, the employer entities will receive a 60% reimbursement of the income tax paid on salaries for newly hired employees. A newly employee is defined as a person who is entering the high-technology sector for the first time and performing professional work.
4. From January 1, 2025, to December 31, 2031, the employer entities will be reimbursed 50% of the income tax calculated on salaries for training and retraining professional workers engaged in necessary professional tasks. To benefit from this incentive, the training center must provide the appropriate documentation proving that the person has participated to the training.
5. From January 1, 2025, the government will implement a 1% turnover tax rate, down from the current 5%, for businesses in this sector, making Armenia one of the most tax-friendly environments for high-tech and IT companies in the region. It is worth noting that this turnover tax regime applies exclusively to companies with an annual turnover of less than AMD 115 million (approximately USD 298,000).

For the high-technology sector employer entity, the total amount of these incentives cannot exceed 50% of the calculated income tax across all employees.

Companies or private entrepreneurs (PE) may be recognized as high-tech sector entities, if they are residents of the Republic of Armenia and meet the following criterion: at least 90% of their total sales turnover, as declared in VAT and/or turnover tax filings for the relevant reporting period, must originate from activities within the high-tech sector.

Eligible entities for these state incentives include:

1. Armenian organizations operating within the general taxation system.
2. Armenian private entrepreneurs (PE) within the general taxation system.
3. Armenian organizations within the turnover tax system (it is noteworthy that these entities can continue to benefit from the incentives if they transition to the general taxation system after the completion of the third year following the year they initially started receiving the incentives).
4. Armenian private entrepreneurs (PE) within the turnover tax system (it is noteworthy that these entities can continue to benefit from the incentives if they transition to the general taxation system after the completion of the third year following the year they initially started receiving the incentives).

Applications for state incentives can be denied if:

1. The applicant does not meet the legal requirements.
2. An application will be denied if the shareholder, participant, or private entrepreneur who owns more than 51% of the applicant entity also owned more than 51% of another entity that was previously denied the right to receive state incentives.
3. The data provided for obtaining state incentives is inaccurate or does not meet legal requirements.
4. The applicant entity had outstanding tax liabilities exceeding 100,000 AMD on the day before the application was submitted.

State incentives can be discontinued if:

1. The applicant entity provided unreliable information to obtain the incentives.
2. In case of discontinuation, the applicant entity must return the amounts provided during the period of violation to the state budget of the Republic of Armenia within ten days after being notified about the discontinuation.
3. The right to receive incentives can be revoked if two or more violations that could lead to discontinuation are identified within one year period.

Applications aimed at receiving incentives will be submitted through an electronic platform, which must be operational no later than July 1, 2025. Until the platform is launched, applications from entities will be accepted in accordance with a procedure defined in separate document.

In addition to revisions in personal income tax, other significant tax modifications are also set for businesses in the high-tech sector. These amendments to the tax regulations will be incorporated into the Armenian Tax Code and are again scheduled to take effect on January 1, 2025.

Notably, revenues generated from high-tech activities for the companies who work under turnover tax regime, will incur a turnover tax of just 1 percent - making it the lowest rate among all business activities.

Furthermore, there is a substantial reduction in the personal income tax rate for salaries paid to individuals engaged in scientific research and experimental development within the high-tech sector. This rate will be halved from 20 percent to 10 percent. However, the specific professional activities in the sphere of scientific research and experimental development, eligible for this tax cut are yet to be defined by the Armenian Government.

Also, resident businesses within the high-tech sector, subject to corporate income tax, will benefit from the ability to significantly reduce their tax base. Specifically, if a business employs professionals performing relevant professional work in this sector, it can deduct an amount equivalent to 200 percent of the salaries paid to these employees from its gross income for tax purposes. It is crucial to note, however, that this deduction cannot exceed 50 percent of the business’ calculated tax base.

With the introduction of these comprehensive legislative measures, Armenia is set to fortify its position as a leading destination for high-tech investments in the region. These incentives not only simplify the tax landscape for tech companies but also offer substantial financial benefits aimed at attracting top talent and fostering innovation.