ArmeniaTax Obligations Detailed

In Armenia, employers have various tax obligations related to payroll, income tax, and social security contributions.

Income Tax

• Rate: A flat rate of 20% applies to all employee income.
• Withholding: Employers withhold income tax monthly from employee salaries.
• Payment Deadline: The withheld tax must be transferred to the state budget by the 20th of the following month.
• High-Tech Sector Incentives (2025-2031):
  • 50% reimbursement of income tax for training and retraining professional workers.
  • 60% reimbursement of income tax for salaries of professional migrant workers (paid to the employer in 2025, directly to the worker from 2026 onwards).
  • 60% reimbursement of income tax for newly hired employees in the sector.
  • Total incentives capped at 50% of the calculated income tax across all employees.
• Turnover Tax for High-Tech Sector (from 2025): Reduced rate of 1% for businesses with annual turnover below AMD 115 million.

Social Security Contributions

• Eligibility: Mandatory for Armenian citizens and foreign residents born after January 1, 1974.
• Rates (as of 2024):
  • 5% for monthly income up to AMD 500,000.
  • 10% for income exceeding AMD 500,000 (minus AMD 25,000). Maximum threshold is AMD 1,125,000
• Contribution to Insurance Foundation for Servicemen A monthly stamp fee, withheld by the employer, varies based on income, ranging from AMD 1,500 to AMD 15,000.

Additional Employer Responsibilities

• Employers must calculate, withhold, and transfer all taxes and social security contributions to the state budget.
• Monthly electronic reporting for income tax is required.
• Additional reporting requirements apply for passive income earners and non-residents.

Important Considerations

• All monetary amounts are denominated in Armenian Dram (AMD).
• The tax year aligns with the calendar year (January 1 - December 31).

It's important to note that this information is current as of February 5, 2025, and may be subject to change. Always verify current regulations with official Armenian government resources or consult a tax advisor for the most up-to-date details.

In Armenia, employers deduct various taxes from employee salaries, primarily income tax and social security contributions.

Income Tax

• Rate: Flat rate of 20% on all forms of compensation.
• Scope: Applies to salaries, benefits, bonuses, and other compensations.
• Specific Cases: Employees of certified IT companies engaged in R&D may benefit from a reduced 10% income tax rate. Certain high-tech companies may receive a 60% reimbursement on income tax paid for new hires (including labor migrants in 2025) and employees undergoing professional training, subject to specific conditions. This reimbursement is applicable until December 31, 2031, with support for new hires provided for three years from their first professional employment date.

Social Security Contributions

• Rates & Tiers: 5% of monthly gross salary up to AMD 500,000. For salaries above AMD 500,000, the contribution is 10% of the excess amount, minus AMD 25,000, with a maximum contribution capped at AMD 87,500.
• Maximum Threshold: Social security contributions are capped at 15 times the minimum monthly wage (currently AMD 75,000), meaning the maximum monthly salary subject to social security is AMD 1,125,000.

Other Deductions

• Deductions may include paid benefits and pension contributions, although certain exceptions apply as outlined in Armenia's tax legislation. Voluntary cumulative pension contributions (including employer contributions) are deductible up to 5% of an employee's gross income.

Additional Information

It's important to note that specific tax benefits and deductions may apply based on individual circumstances, the industry, or company-specific regulations. The information above is current as of February 5, 2025, and might be subject to change based on legislative updates. For specific and up-to-date details regarding employee tax deductions, consulting with a tax professional or referring to the latest official tax regulations in Armenia is recommended.

In Armenia, the Value Added Tax (VAT) is a consumption tax levied on most goods and services.

VAT Rates

• Standard Rate: 20% (As of February 5, 2025. This information is time-dependent and may change). If the VAT is included in the price, it is calculated as 16.67% of the total price.
• Zero Rate: Applies to exports, certain international services (like transportation and toll manufacturing), and services provided to non-residents (advertising, consulting, engineering, legal, accounting, translation, data processing, banking, financial, and insurance services if the non-resident's place of business is outside Armenia).

VAT Registration

• Threshold: AMD 115 million (approximately $297,000 USD as of February 5, 2025). Businesses exceeding this threshold in the previous calendar year are required to register for VAT. Businesses below the threshold can register voluntarily. This threshold applies to total sales/turnover in Armenia during any 12-month period, past or future.
• Registration Process: Businesses must submit a VAT registration application along with supporting documents (certificate of incorporation, tax ID, proof of business activity, proof of address, etc.) to the Armenian State Revenue Committee (SRC), either in person or online.

VAT Filing and Payment

• General Filing: Monthly for businesses with sales exceeding AMD 100 million in the previous calendar year. Quarterly filing for other businesses and non-resident e-service providers. Starting from October 2021, non-resident e-service providers' reporting changed from monthly to quarterly.
• Deadline: 20th day of the month following the reporting period.
• E-invoicing: Mandatory for VAT-registered taxpayers. Tax invoices must be issued and verified electronically.
• Returns: Submitted electronically through the e-VAT system. Reporting may be in Russian or English.

VAT Exemptions

Specific goods and services are exempt from VAT. Some common exemptions include:

• Most financial transactions conducted by financial institutions
• Educational services provided by secondary, professional, and higher education institutions, and educational materials.
• Newspapers and magazines.
• Transfer of ownership rights in a business or entity.
• Transactions related to business reorganization.

Reverse Charge Mechanism

Applies when a VAT-registered business in Armenia receives services from a non-resident without a PE in Armenia, if the services' place of supply is Armenia. The Armenian business is responsible for accounting and paying the VAT. This also applies if a foreign entity without a PE in Armenia supplies goods/services, the recipient must account for VAT.

Record Keeping

Businesses must retain records for at least five years, encompassing sales and purchases, VAT returns, financials, and related documentation like contracts and payment proofs.

Turnover Tax

The turnover tax is a simplified regime that generally replaces VAT for small and medium-sized enterprises (SMEs) with annual turnover below the VAT threshold. However, note that the government plans to gradually phase out the turnover tax between 2022 and 2025, transitioning businesses to the general VAT system. As of January 2025, certain sectors (legal and notary services) are excluded from the turnover tax system, while other sectors are excluded from the micro-enterprise tax system and must transition to the turnover or VAT systems. Additional sectors were added for exclusion in July 2025. As of January 2025, the turnover tax rate is expected to increase to 10%. (This information is time-dependent, and subject to change.)

Electronic Services (B2C)

• Non-resident providers of electronic services to consumers (B2C) in Armenia are generally required to register for VAT, regardless of the revenue threshold.
• Determining Place of Supply: Several factors are used (customer's address, payment method address, IP address, telephone country code, etc.) to determine if VAT applies.
• VAT ID: Providing a valid VAT ID to platforms like Upwork exempts businesses from VAT charges.

Starting from January 2025, the high-tech sector in Armenia will benefit from new tax incentives. These will affect corporate income taxpayers and turnover taxpayers in high-tech activities as defined by the government. The incentives will be valid until December 31, 2031. (This information is time-dependent, and may be subject to change).

Armenia's tax incentives for 2025 focus on boosting the high-tech sector and stimulating economic growth.

High-Tech Sector Incentives

As of January 1, 2025, several tax incentives are available for businesses operating within the high-technology sector in Armenia:

• Turnover Tax Reduction: The turnover tax rate for high-tech companies has been reduced from 5% to 1%.
• Income Tax Return for New Hires: A 60% income tax reimbursement is available for salaries paid to newly hired employees until December 31, 2031.
• Income Tax Benefits for Hiring and Training: A 60% income tax reimbursement on salaries paid to professional migrant workers is available in 2025. Starting in 2026, this benefit shifts to the workers themselves. Additionally, companies will be reimbursed 50% of the income tax paid on salaries for training and retraining professional workers until December 31, 2031.
• Profit Tax Deductions: Salaries of professional staff can reduce gross income for profit tax purposes by up to 200%, capped at 50% of the taxable base. Greater allowances may exist for research-intensive companies.
• R&D Incentives: Accelerated depreciation is allowed for fixed assets used in R&D.

General Tax Incentives

Several other tax incentives and benefits are also applicable in Armenia:

• Free Economic Zones: Four Free Economic Zones offer 0% profit tax, VAT, and property taxes.
• Micro-businesses: Micro-businesses with annual sales under approximately $298,000 benefit from simplified taxation with reduced sales (turnover) tax ranging from 1.5% to 10%. Some micro-businesses may qualify for zero-tax status.
• Businesses in Border Communities: Incentives like tax exemptions are provided for businesses operating in certain border towns and villages.
• Exporters: Resident taxpayers engaging exclusively in exporting activities may be eligible for a reduced profit tax rate of 5% or 2% based on export volume.
• Capital Gains: Armenia generally follows a lenient tax policy concerning individual capital gains.
• Tax Exemptions: Certain income types like insurance and pension payments, gifts, inheritances, and net worth are exempt from taxation.

Tax Treaties

Armenia has tax treaties with several countries to avoid double taxation.

Please note: This information is current as of February 5, 2025, and may be subject to change. Consulting with a tax professional is recommended for personalized advice and up-to-date information.