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
Business Tax Options
In Armenia, medium and large businesses pay taxes at normal rates, 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). The VAT rate is 0% if the goods or services are exported. CIT returns are filed annually while VAT returns are filed monthly.
- 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. Turnover tax returns are filed on a quarterly basis.
- 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 many 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.). As of 2022, personal income tax is applied at a single flat rate of 21%, irrespective of the amount of compensation. This rate will be brought down to 20% in 2023.
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 salary subject to social security payments is currently capped at AMD 1,020,000 AMD per month (15 times minimum monthly wage of AMD 68,000 AMD). Moreover, in 2022, the social security payment rate is reduced to 4.5% for salaries of up to 500,000 drams.
Military taxes (contributions to the insurance foundation of servicemen) are withheld in the following manner:
- 1,500 drams ($3) for salaries of up to 100,000 drams ($208)
- 3,000 drams ($6) for salaries of 100,000-200,000 drams ($417)
- 5,500 drams ($11) for salaries of 200,000-500,000 drams ($1,041)
- 8,500 drams ($18) for salaries of 500,000-1,000,000 drams ($2,083)
- 15,000 drams ($31) for salaries in excess of 1,000,000 drams ($2,083)
Please note that social security payments and military taxes are applicable only to Armenian citizens and residents (i.e. holders of residence permits). In general, those born before 1974 are exempted from social security payments.
For example, in 2022, an employee with a monthly salary of AMD 600,000 ($1,250) will pay 21% tax on its entire income, which results in income tax of 126,000 ($263). The employee will also pay 32,500 ($68) in social security payments (because of the temporarily reduced rate) and a military tax of 8,500 ($18). The after-tax income will be AMD 433,000 (600,000-126,000-32,500-8,500) or $902, which results in a total tax burden of around 28%.
Taxation of IT Companies
In March 2022, the Armenian government announced a new program for IT companies that provides for a refund of 50% of the personal income tax withheld from employees until February 2023.
Here are the requirements:
- At least 90% of the company's revenues are generated from the following business activities:
- Production of electronic components (26.1);
- Production of computer and peripheral equipment (26.2);
- Production of communication equipment (26.3)
- Production of airplanes, spacecraft, and other aircraft (30.3)
- Publishing of computer programs (58.2)
- Software development, consulting, and related activities in the field of computer technology (62.0)
- Data processing, distribution of information on the network and related activities, and activities related to web portals (63.1)
- The number of employees has increased at least by 10 compared to the number of employees as of March 1, 2022 (or at least 10 jobs were created if the company was created after March 2022).
- The employees in question did not work in Armenia (as employees or contractors) during the 6-month period preceding March 2022 (that is, after September 2021)
- The company does not have tax liabilities exceeding AMD 100,000 at the time of applying for a refund.
The company shall file a refund claim with the Ministry of High Tech Industry by May 1, 2023.
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 21%. 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 = 480 AMD)
average salary: $414
gdp growth: 6․1%
gdp per capita: $4,267
WB DB rank: 47
inflation (2021): 6․9%
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LL.M. Georgetown University
New York Bar | Armenian Chamber of Advocates
We are a team of licensed lawyers based in Armenia. Our primary commitment is to provide quality service to clients at a compelling value that helps manage risk, overcome regulatory issues and advance their personal and business goals.
LL.M. Georgetown University
New York Bar | Armenia Chamber of Advocates
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