Territoriality and Residence
Individuals are classified into two categories for income tax purposes:
- Residents are liable for tax on their worldwide income. The standard rate is applicable for most types of income, including salary, dividends, royalties and investment income
- Non-residents are liable for tax only on their Armenian source income.
Individuals are deemed to be residents for tax purposes in Armenia if:
- they are physically present for 183 days or more for any consecutive twelve-month period commencing or ending during the tax year,
- their center of vital interests is in Armenia, or
- they are employed in the civil service of Armenia.
Individuals who do not meet these conditions are non-residents.
Income from royalties, interest (if not exempt), sale of property (if not exempt) and lease of property is subject to a 10% tax. If paid on behalf on an individual taxpayer by a tax agent, tax should be withheld at the source. Tax agents include Armenian legal entities, individual entrepreneurs and branches or representative offices of a foreign company. Other income paid by a tax agent is subject to final withholding on a monthly basis and the following rules apply:
- the first AMD 80,000 per month of taxable income is taxed at 10%,
- additional income up to AMD 2 million is taxed at 20%,
- a 25% rate applies on income in excess of AMD 2 million.
Other income not received from tax agents is taxed on an annual basis:
- the first AMD 960,000 (approximately USD 2,460) per year of taxable income is taxed at 10%, and
- additional income is taxed at 20%.
As a general rule, the taxable income for individuals registered as private entrepreneurs is calculated as the difference between gross income and the documented expenses connected to the business activity.
Under the general tax regime, entrepreneurs may deduct business expenses and depreciation charges subject to the rules established by the law “On Profit Tax”.
Resident taxpayers are required to pay tax on any income received or credited in Armenia or abroad during the reporting period, except for items specifically exempted from tax under the law.
All income received or credited from employment in monetary form or in kind during a calendar year is subject to personal income tax. Usually income tax is withheld by a tax agent.
Income from Independent Activities
Income from independent activities is subject to the standard rate, unless the individual is covered by the presumptive tax rules.
Gross revenues from property leases are subject to a 10% tax.
Income from Prizes and Winnings
Income in the form of prizes (other than cash prizes from the state lottery) and winnings in excess of AMD 10,000 per payment are taxed at the standard tax rate.
Gains from the sale or exchange of shares or securities are exempt from tax. Dividends are exempt from tax. Interest income is exempt if received from state securities. In other cases, a 10% rate applies. Gross royalties are subject to a 10% tax.
Disposal of Real Estate and Movable Property
The tax treatment of disposal of property depends on the tax status of the purchaser. If the purchaser is a legal entity or an individual entrepreneur, a 10% tax should be withheld from the gross sale price. Otherwise, the income is exempt from tax.
In addition to the exemptions indicated in the discussion on gross income, exempt income includes state benefits (with the exception of benefits for temporary work disability and for the care of a sick family member), pensions, alimony, property and cash received as an inheritance, and insurance compensation.
Documented expenses incurred directly and exclusively for the purpose of generating business income are deductible.
A taxpayer may deduct contributions to religious, public and other non-profit organizations, up to a maximum of 5% of taxable income. An individual is also entitled to a personal allowance deduction of AMD 32,500 (equal to the current minimum salary in Armenia) for each month’s income received.
Social Security Contributions
Taxable income is reduced by the amount of mandatory employee contributions for social security.
Foreign Tax Credits
Residents are allowed to credit foreign taxes paid on income received abroad against their Armenian tax liabilities. The amount of foreign tax credit is limited to the amount of Armenian tax that would have arisen from the equivalent income in Armenia.
Taxation of Non-Residents
Non-residents are subject to Armenian tax only on income that originates in Armenia.
For individuals, any income received from Armenian labour contracts, business activities performed in Armenia, or capital employed or property used in Armenia is defined as Armenian-sourced income.
Obligations of Withholding Agents
Any income payment by a tax agent to an individual is subject to withholding, unless the payment is to a sole entrepreneur and the parties have signed a contract that indicates the individual’s TIN, passport data, domicile in Armenia and the number of the state registration certificate issued when business activity commenced. If this requirement is not met, payments from commercial, non-commercial organizations and private entrepreneurs are subject to an 11% withholding tax. Withholding tax from payments to individuals must be transferred to the State Budget not later than the 20th day of the month following when income was paid or salary was accrued.
Tax Returns for Individuals
Armenian residents who receive income that has not been subject to Armenian tax at the source are required to file a personal tax return by 15 April of the following year. Tax obligations must be paid by May 1st.
*Acknowledgement – this content is provided from Investment Guide Armenia 2013 upon approval. – Full report here