In 2019, Armenia's GDP grew by 7.6% - the highest rate in all of Europe. Foreign business owners and investors appreciate the pace of the economic reforms, Armenia's safety, freedom and openness. Many prefer to visit Armenia in person and register a business as a first step to enter the market.
A knowledgeable local lawyer can help you to minimize risks by ensuring compliance with tax, labor, immigration and other regulations, avoid pitfalls and take advantage of tax benefits and other government assistance programs, especially if you do not speak Armenian or plan to run your business remotely.
Overview of Tax Regulations
In Armenia medium and large businesses follow the general rules of taxation, while smaller businesses can take advantage of special tax regimes that reduce the tax burden and the paperwork.
General Tax Regime. Unless a company opts for a special tax regime it will be subject to 18% corporate income tax (CIT) and 20% value-added tax (VAT).
Turnover Tax. Turnover tax is a form of a sales tax, with tax rates normally in the range of 1,5% to 5% , replacing CIT and VAT. Only small businesses with annual sales of less than AMD 115 million (approximately, $240,000) can qualify for this tax regime.
- Patent Tax. Patent tax is a flat monthly fee that replaces CIT and VAT and is applicable to certain types of businesses, such as small restaurants, auto-shop and transportation services, beauty salons, game and entertainment facilities, dentist offices etc.
- Micro-businesses. Micro-businesses, defined as businesses with annual sales of less than AMD 24 million (approximately, $50,000) are exempt from CIT and VAT. However, there is a list of excepted businesses that cannot take advantage of this tax system, such as traders based in the capital city of Yerevan and the majority of service businesses.
Companies can opt for turnover tax or micro-business regimes within 20 calendar days following the registration of the company.
Employers are required to withhold personal income tax (PIT) and social security payments from income paid to their employees or individual contractors (salary, benefits, bonuses, temporary disability compensation, maternity leave compensation etc). Starting from January 1, 2020, personal income tax is applied at a single flat rate of 23%, irrespective of the amount of compensation. This rate will be gradually brought down to 20% over the next few years.
In addition to PIT, employers are required to withhold social security payments at the rate of 5% (income up to 500,000 drams or $1,030) or 10% (income in excess of 500,000 drams). However, the maximum amount of social security payments is capped at AMD 25,000 per month until July 1, 2020. Moreover, starting from July 2018, only 50% of that amount is contributed by the employee while the remaining 50% shall be paid by the government.
For example, as of the first and second quarters of 2020, an employee with a monthly salary of AMD 600,000 ($1,251) will pay 23% tax on its entire income, which results in income tax of 138,000 ($288). The employee will also pay 12,500 in social security payments (because of the temporary cap) and the flat military tax of AMD 1,000. The after-tax income will be 448,500 (600,000-138,000-12,500-1,000) or $935, which results in a total tax burden of 25.25%.
Taxation of IT Start-Up Companies
Starting from May 18, 2019, a newly registered business (company and private entrepreneur) working in the IT sector has the option to apply for an IT Start-Up certificate, a document that exempts the business from corporate income tax until Dec. 31, 2022. The certificate also reduces the payroll tax (personal income tax withheld by the employer) to 10% from the normally applicable 23-28%. The petition for obtaining the certificate must be filed within 90 days following the business registration. These tax benefits are not available to larger companies with 30 or more employees and to subsidiaries or branch offices of foreign companies. The IT Start-Up certificates are issued by the Ministry of High-Tech Industry.
The following businesses can take advantage of these tax benefits:
- Software development, including the creation, modification of software, testing and support services; creation of applications for clients; development of the structure and contents for systems software, applications, databases, websites, or the creation of machine commands necessary for such development or operation; transformation and adaptation of applications to the information environment of the customers;
- Consulting activities in the area of computer technology, including the development and design of computer technical means, software, and integrated computer systems in communication technologies; services in connection with educating the users;
- Computer system management activities, including network management and creation of computer systems for customers or maintenance of technical means for data processing, and other support services;
- Data processing, distribution of information in the network and related activities, including provision of infrastructures for website placement; data processing (complete processing of data provided by users or through application of original software; automated data processing; input services, including database management services) and related services; specialized services for placement of websites (hosting service), i.e. placement of websites in the Web (Web hosting), current transfer of data (undivided, according to plans) or placement of applications; operation (launching) of software and hardware resources; servicing users through a central (global) computer functioning in total time-sharing mode;
- Activities related to web-portals, including activities related to websites (use of search engines to create and maintain large-scale databases of information located on the Internet with the purpose of facilitating easy and accessible searches by addresses or content); activities related to other websites that operate as web-portals, such as, for example, news websites providing regularly updated information;
- Implementation of educational and research programs in the field of information technologies;
- Design, testing and production of electronic systems;
- Computer animation and modeling;
- Design and testing of integrated circuits.
Imported goods are generally subject to 20% VAT, although a number of goods are exempt from this tax. Moreover, VAT payments can be deferred by up to three years for goods imported under government-approved projects.
Armenia is a member of the Eurasian Economic Union (EAEU) together with Russia, Belarus, Kazakhstan and Kyrgyzstan. Goods imported from these countries are exempt from import duties, while goods imported from third countries are subject to import duties established by the EAEU Commission.
Depending on the nature of its activities, an Armenian company may also be subject to excise tax, environmental tax, road tax, real estate and vehicle property taxes.
Area: 29,700 SQ.KM.
Capital: YEREVAN (1,075,000)
LITERACY RATE: 99.6%
KNOWLEDGE OF ENGLISH: 40%
climate: summer 35c; winter 0c
Currency: Dram ($1 = 475 AMD)
average salary: $378
gdp growth: 7.6%
gdp per capita: $4,212
WB DB rank: 41
inflation (2018): 2.5%
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LL.M. Georgetown University
New York Bar | Armenian Chamber of Advocates
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You may be eligible to apply for Armenian citizenship after three years of residency. The decision is normally made in 6-8 months after you apply. The law does not require that you stay in Armenia for a certain number of days. On the other hand, you will have to take a test on the knowledge of the Armenian Constitution in Armenian language, which presumes that you will have to show at least an elementary knowledge of Armenian language. Also, you have to keep in mind that each applicant's case is examined separately and citizenship is not issued automatically.
Buy a ticket and fly to Armenia
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LL.M. Georgetown University
New York Bar | Armenia Chamber of Advocates
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