Corporate tax in Armenia

At a glance

Corporate Income Tax Rate (%) 20
Capital Gains Tax Rate (%) 20
Permanent Establishment Tax Rate (%) 20
Withholding Tax (%)
Dividends 10
Interest 10
Royalties 10
Insurance Compensation, Reinsurance Payments and Income Received from Freight 5
Income from the Lease of Property, Capital Gains on Property and Other Passive Income 10
Income from Rendering of Services 20
Net Operating Losses (Years)
Carryback 0
Carryforward 5

Taxes on corporate income and gains

Corporate income tax. Resident and nonresident entities pay cor­porate income tax in Armenia. Resident entities are entities and investment funds established in Armenia except for pension funds and separate subdivisions (branches or representation offices) of foreign organizations. Nonresident entities are entities establish­ed in foreign countries, international organizations and organiza­tions established by them outside Armenia. Resident entities are taxed on their worldwide income, which consists of income received from sources in and outside Armenia. Nonresident enti­ties are taxed on Armenian-source income only.

Income earned through a permanent establishment in Armenia, net of tax-deductible expenses, is taxed at the regular corporate income tax rate of 20%. A permanent establishment is defined as a fixed place of business activities in Armenia recognized by the tax authorities through which the enterprise wholly or partly car­ries on its business. It generally includes organizations or natural persons who represent foreign legal entities conducting commer­cial activities in Armenia. Domestic tax law and double tax treaties list activities that do not result in a taxable permanent es tab-lishment. Foreign legal entities deriving income from the source in Armenia without a permanent establishment there are subject to withholding tax on their Armenian-source income at a rate of 5%, 10% or 20% (see the withholding tax rates in Section A).

Armenian law allows foreign investment in various forms, includ­ing investment through wholly or partially foreign-owned sub­sidiaries, share participations in joint stock companies and joint ven tures with Armenian legal entities and citizens, permanent establishments and other types of presence.

Tax rates. The regular corporate income tax rate is 20%. For in­vestment funds, the corporate income tax rate is 0.01% of net assets.

The profits of resident taxpayers and/or groups of resident tax­payers that are implementing a government-approved exportation program are taxed at a rate of 5% or 2%, if the turnover of goods exported, services provided and works performed for nonresi­dents outside Armenia exceeds AMD40 billion or AMD50 bil­lion, respectively, during the reporting year and if the following additional conditions are met:

  • None of taxpayers from the group is engaged in the extraction of metallic mineral resources and/or the processing thereof, the processing and/or realization of precious stones, the manufac­turing and/or realization of jewelry and precious metals, or the production and/or realization of goods that are subject to excise tax.
  • Taxpayers of the group have received foreign currency equiva­lent to at least AMD40 billion in their bank accounts in Arme­nian resident banks from their operations in the exportation program during the reporting year.
  • Taxpayers of the group have not received any income from the delivery of goods, performing of works or provision of services in Armenia during the reporting year.

Profits of resident taxpayers and/or groups of resident taxpayers that are implementing a government-approved program are taxed at a rate of 5% if they carry out an activity in the field of con­struction or installation exclusively outside Armenia.

Capital gains. No separate capital gains tax is imposed in Armenia. Realized capital gains are included in taxable income and are subject to tax at the regular corporate income tax rate.

Realized capital losses can be carried forward together with other losses and be offset against taxable income of future tax years.

Administration. The tax year is the calendar year.

Both Armenian and foreign legal entities conducting business activities in Armenia through a permanent establishment must make advance payments of corporate income tax during the year. Armenian legal entities must make quarterly advance payments, in the amount of 18.75% of the actual amount of the corporate income tax for the preceding year, by the 15th day of the last month of the quarter. Permanent establishments of foreign legal entities must make half-yearly advance payments in equal parts, in the amount of 1/4 of the corporate income tax for the preceding year, by 1 July and 31 Decem ber of the tax year.

Permanent establishments of foreign legal entities are not required to make ad vance payments if their corporate income tax for the preceding year was less than AMD2 million.

If the total sum of advance payments exceeds the tax due for the tax year, the excess shall be refunded to the taxpayer according to the Law of Armenia “On Taxes” if the taxpayer applies for a refund. However, in practice, refunds are rare, and accordingly taxpayers apply overpayments against future tax liabilities.

The annual corporate income tax calculation must be filed and submitted to the Tax Inspectorate by 15 April of the year follow­ing the tax year. The corporate income tax must be paid to the state budget by 25 April of the year following the tax year.

Fines are charged on late tax payments at a rate of 0.15% of the tax due for each day of delay, up to a maximum of 365 days. If the taxpayer fails to submit the corporate income tax declaration to the Tax Inspectorate by the due date, a penalty equal to 5% of the total amount of calculated tax is imposed on the taxpayer for each 15-day period. The total amount of the penalties cannot exceed the total amount of the principal tax liability. For the underreporting of taxable income, a penalty equal to 50% of the underreported amount is assessed to the taxpayer. For the overreporting of losses in the corporate income tax calculation filed with the Tax Inspectorate, the taxpayer is subject to a penalty equal to 20% of the overreported loss. If a taxpayer fails to keep accounts or incor­rectly prepares accounting reports, calculations, returns, and other documents and information stipulated by the tax law, a penalty equal to 10% of the amount of the reduction in calculated tax resulting from these violations is imposed on the taxpayer.

Dividends. Dividend withholding tax at a rate of 10% is imposed on dividends paid from Armenian sources to nonresident legal entities. Dividends paid to individuals and resident legal entities are not subject to withholding tax. Dividends received by resident taxpayers from participations in the equity of other legal entities or enterprises that do not have the status of a legal entity are not subject to tax.

Interest. Interest withholding tax at a rate of 10% is imposed on interest paid from Armenian sources to individuals and nonresi­dent legal entities. Armenian legal entities receiving interest pay­ments include such payments in their taxable income and are subject to tax on these payments at the normal corporate income tax rate.

Foreign tax relief. The amount of corporate income tax withheld from Armenian residents in foreign countries in accordance with the laws of the foreign countries is credited against the corporate in come tax payable in Armenia. However, the amount of the credit may not exceed the amount of the corporate income tax payable in Armenia on the income received in the foreign coun­try. If the amount of the credit exceeds the corporate income tax liability for the tax year, the excess amount may be credited against the corporate income tax in subsequent tax years.

Determination of taxable income

General. Taxable income is defined as a positive difference between gross income of the taxpayer and all deductions allowed by the law.

Gross income comprises all revenues of the taxpayer received in the reporting year, except for revenues that are not treated as income according to the law. Gross income includes the following:

  • Trading income
  • Capital gains
  • Income from financial activities
  • Gratuitously received assets and income from discounts or remis­sions of liabilities
  • Other items of income

Income received in foreign currency is converted into drams at the daily exchange rate determined by the Central Bank of Armenia for the date of receipt of the income.

Deductible expenses include all necessary and documentary sup­ported expenses that are exclusively and directly related to the conducting of business and the receiving of income. However, certain expenses are nondeductible or partially nondeductible for tax purposes.

Nondeductible expenses include the following:

  • Fines, penalties and other proprietary sanctions transferred to the state and municipal budgets
  • Assets provided free of charge and remitted debts
  • Allocations provided for unions and other structures of non-state administration
  • Expenses for the maintenance of servicing units (free provision of buildings and the settling of fees for utilities of public cater­ing enterprises)
  • Expenses for services that are not related to the production of goods (for example, planning activities for towns and other populated areas and promotion of agricultural activities)
  • Expenses related to the obtaining of income that is deductible from gross income
  • For taxpayers other than banks, credit organizations, insurance companies and investment funds, interest paid on loans and bor­rowings if such borrowings or loans are provided by the taxpay­ers to third parties free of interest
  • Payments made by taxpayers for leased assets if the assets are provided by them to third parties for free-of-charge use

Partially nondeductible expenses include the following:

  • Payments levied by the state for pollution of the environment that exceed 0.5% of gross income for the tax year.
  • Expenses for advertisements outside Armenia that exceed 3% of the gross income for the tax year or 20% of the value of goods and services exported by the taxpayer during the tax year.
  • Expenses for the training of staff outside Armenia that exceed 4% (but not more than AMD3 million per employee) of the gross income for the tax year.
  • Expenses for additional training of staff outside Armenia that exceed 1% (but not more than AMD1 million per employee) of the gross income for the tax year.
  • Expenses for marketing outside Armenia that exceed 2% of the gross income for the reporting year, 15% of the value of ser­vices and goods exported by the taxpayer during the tax year or 5% of the value of goods imported by the taxpayer during the tax year.
  • Expenses for business trips outside Armenia that exceed 5% of the gross income for the tax year.
  • Representative expenses exceeding 0.5% (but not more than AMD5 million) of the gross income for the tax year.
  • Fees paid by the taxpayer for management services received from nonresident companies, foreign citizens and stateless per­sons, exceeding 2% of the taxpayer’s gross income for the report­ing year. This measure does not apply to management services rendered to resident companies by their nonresident founders if the companies are engaged in innovative activities in the infor­mation technology and computer technique fields, as well as management services rendered to resident companies within the framework of international credit agreements.
  • Payments made by the employer for an employee that are with in the terms of voluntary pension insurance in accordance with the legislation and that exceed 5% of the employee’s remuneration.
  • Other expenses exceeding the rates established by the govern­ment of Armenia (daily expenses for local trips, expenses for sponsorship and management services, expenses for special nutrition, uniforms and other equipment for employees as well as other types of compensation defined by the law and expenses for the maintenance of public health institutions, nursing homes for the aged and disabled, nurseries, rehabilitation camps, cul­tural, educational and sports institutions and objects of the hous­ing fund).
  • Interest paid on loans and borrowings to the extent that it exceeds twice the bank interest rate defined by the Central Bank of Armenia (currently the deduction is limited to a rate of 24%).
  • Current repair expenses for fixed assets that exceed 10% of the initial (purchase) cost of the correspond ing fixed asset. Any excess is subject to capitalization and is included in the base for depreciation purposes.
  • For taxpayers other than banks and credit organizations, the amount of interest payable on borrowings from entities other than banks and credit organizations in excess of twice the net assets.
  • For banks and credit organizations, the amount of interest pay­able on borrowings from entities other than banks and credit organizations in excess of nine times the net assets.

To calculate taxable income, the taxpayer must account for in­come and expenses on an accrual basis. Income and expenses are accounted for, respectively, from the moment of the acquisition of the right to receive such income or to recognize the expenses, regardless of the actual period of the deriving of such income or the making of such payments.

Inventories. Inventories are valued at acquisition cost. Costs for storage and transportation must be included in the value of inven­tory. The first-in, first-out (FIFO) method may be used to value inventory.

Provisions. Bad debts are deductible in accordance with the pro­cedure established by the government of Armenia. Banks, lending organizations, investment companies and insurance companies may deduct bad debts in accordance with the procedure establish­ed jointly by the authorized body of the government of Armenia and the Central Bank of Armenia.

In addition, the gross income of banks, lending organizations, stock funds, investment companies or insurance companies may be reduced by a reserve for possible losses in accordance with the procedure established jointly by the authorized body of the gov­ernment of Armenia and the Central Bank of Armenia.

Tax depreciation. Depreciation allowances for fixed and intangi­ble assets are deductible for tax purposes in accordance with the terms and conditions provided by the corporate income tax law of Armenia.

Fixed and intangible assets acquired before 1 January 2014. The annual amount of depreciation allowances of fixed assets ac­quired before 1 January 2014 is calculated by dividing the initial cost or revalued cost (the revaluation is carried out according to the procedure established by the law) by the number of years in the depreciation period for the appropriate group of fixed assets or for intangible assets. The following are the minimum deprecia­tion periods.

Minimum depreciation

Group Assets Period (years)
1 Buildings and constructions of
hotels, boarding houses, rest
homes, sanitariums and educational
Institutions
10
2 Other buildings, constructions and
Transmission devices
20
3 Robot equipment and assembly lines 3
4 Calculating devices and computers 1
5 Other fixed assets, including
growing cattle, perennial plants,
and investments intended for
Improving the land
5

For purposes of the determination of taxable income, taxpayers may choose a depreciation period for fixed assets other than the periods mentioned in the above table, but the chosen period may not be less than one of the above-mentioned periods for the appro­priate group.

The minimum depreciation period for the buildings, constructions and transmission devices located in a disaster area is one year.

The minimum depreciation period for fixed assets with a value of less than AMD50,000 is one year.

Intangible assets acquired before 1 January 2014 are amortized over their useful economic lives. If it is impossible to determine the useful life of an intangible asset, the minimum amortization period for the asset is set at 10 years, but it may not exceed the period of the taxpayer’s activity.

Under the law, land cannot be depreciated.

Fixed and intangible assets acquired on or after 1 January 2014. The annual amount of depreciation allowances of fixed assets acquired after 1 January 2014 is calculated by multiplying the net book (residual) value (as at the last day of reporting period) of each group of fixed assets by the annual depreciation rate for the appropriate group of fixed assets The following are the annual maximum depreciation rates for each group of fixed assets.

Maximum annual depreciation

Group Assets Rate (%)
1 Buildings and constructions of
hotels, boarding houses, rest
homes, sanitariums and educational
Institutions
15
2 Other buildings, constructions and
Transmission devices
7.5
3 Robot equipment and assembly lines 50
4 Calculating devices and computers 100
5 Other fixed assets, including
growing cattle, perennial plants,
and investments intended for
Improving the land
30

For purposes of the determination of taxable income, taxpayers may choose an annual depreciation rate for fixed assets other than the rates mentioned in the above table, but the chosen rates may not exceed one of the above-mentioned rates for the appropriate group.

The maximum annual depreciation rate for buildings, construc­tions and transmission devices located in a disaster area is 100%.

The maximum annual depreciation rate for a group of fixed assets with a book (residual) value of less than AMD50,000 (as of the last day of reporting period) is 100%.

Intangible assets are amortized over their useful economic lives. If it is impossible to determine the useful life of a group of intan­gible asset, the maximum annual amortization rate is set 20%, but it may not be less than the rate calculated based on the period of the taxpayer’s activity.

Relief for losses. Enterprises may carry forward a loss incurred in a tax year to the following five years. Losses may not be carried back.

Groups of companies. Armenian law does not contain any mea­sures allowing members of a group to offset profits and losses.

Other significant taxes

The following table summarizes other significant taxes.

Nature of tax Rate (%)
Value-added tax (VAT); imposed on
the delivery of goods and rendering of
services, free or partially free consumption
and the importation of goods through the
“Importing for Free Turnover” customs
regime, with the exception of cases specified
by law; reverse-charge VAT is imposed on
entrepreneurial activities subject to VAT that
are performed in Armenia by foreign entities
(including the import of goods to be used by
Such entities)
0 / 20
Excise tax; imposed on certain goods (tobacco
products, alcoholic beverages, petrol, diesel
fuel and motor oils imported or produced in
Armenia, as well as passenger vehicles that
have more than AMD25 million customs
value or that are two years old and have a
4.5-liter engine capacity); the tax is calculated
as a specified amount per unit or as a certain
percentage of the price of goods subject to
excise tax
Various
Property tax; generally imposed at local
(municipal) level
Buildings and constructions; tax base is
Cadastral value
0.1 to 1
Vehicles; tax base is traction-motor power Various

 

Land tax is also generally imposed at the local level in Armenia. Hotel tax, which will be imposed at the local level, will become effective after parliament enacts the relevant law.

Foreign-exchange controls

The Armenian currency is the dram (AMD). The dram is a non-convertible currency outside Armenia. Enterprises may buy or sell foreign currencies through specialized entities in Armenia (banks, branches of foreign banks operating in Armenia, credit organiza­tions, payment and settlement organizations, foreign-currency dealers and brokers licensed by the Central Bank of Armenia, foreign-currency exchange offices and foreign-currency auction organizers).

Armenia does not impose restrictive currency-control regulations. Individuals and enterprises may open bank accounts abroad with­out any restriction if they declare such accounts with the tax au­thorities. In general, all transactions performed in Armenia be­tween resident legal entities or individuals must be performed in Armenian drams. Transactions between resident legal entities or private entrepreneurs and nonresident legal entities or private entrepreneurs may be conducted in other currencies.

Treaty withholding tax rates

Armenia has entered into tax treaties with 41 countries. The fol­lowing table lists the withholding tax rates under these treaties. In general, if the withholding tax rate provided in a treaty exceeds the rate provided by the Law of Armenia on “Corporate income tax,” the domestic rate applies.

 

Dividends

%

Interest (1)

%

Royalties

%

Austria 5/15 (a) 0/10 (v) 5
Belarus 10/15 (b) 10 10
Belgium 5/15 (a) 0/10 (v) 8
Bulgaria 5/10 (c) 10 10
Canada 5/15 (d) 10 10
Czech Republic 10 5/10 (e) 5/10 (f)
China 5/10 (g) 10 10
Croatia 0/10 (h) 10 5
Cyprus 0/5 (x) 5 5
Estonia 5/15 (i) 10 10
Finland 5/15 (i) 5 5/10 (j)
France 5/15 (k) 0/10 (v) 5/10 (l)
Georgia 5/10 (g) 10 5
Germany 15 5 0
Greece 10 10 5
Hungary 5/10 (g) 10 5
India 10 10 10
Iran 10/15 (m) 10 5
Ireland 0/5/15 (bb) 5/10 (cc) 5
Italy 5/10 (n) 0/10 (w) 7
Kazakhstan 10 10 10
Kuwait 5 5 10
Latvia 5/15 (i) 10 10
Lebanon 5/10 (g) 8 5
Lithuania 5/15 (i) 10 10
Luxembourg 5/15 (a) 10 5
Moldova 5/15 (o) 10 10
Netherlands 5/10 (p) 0/5 (v) 5
Poland 10 5 10
Qatar 5/10 (q) 5 5
Romania 5/10 (r) 10 10
Russian Federation 5/10 (s) 0 0
Slovenia 5/10 (g) 10 5
Spain 0/10 (y) 5 5/10 (z)
Switzerland 5/15 (t) 0/10 (v) 5
Syria 10 10 12
Thailand 10 10 10
Turkmenistan 5/15 (u) 10 10
Ukraine 5/15 (u) 10 0
United Arab
Emirates 3 0 5
United Kingdom 0/5/10/15 (aa) 5 5
Non-treaty countries 10 10 10

(1)   In several treaties, a 0% rate applies to interest paid to governmental entities, political or administrative-territorial subdivisions, local authorities, central banks or financial institutions owned or controlled by the government. This provision is not reflected in the rates shown in the table.

a) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 10% of the capital of the com­pany paying the dividends. The 15% rate applies in all other cases.

b) The 10% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 30% of the capital of the com­pany paying the dividends. The 15% rate applies in all other cases.

c) The 5% rate applies if the actual owner of the dividends is a company that has invested in the payer more than USD40,000 (or the equivalent amount in Armenian currency). The 10% rate applies in all other cases.

d) The 5% rate applies if the beneficial owner of the dividends is a company that holds directly at least 25% of the capital of the company paying the dividends and if the capital invested by the beneficial owner exceeds USD100,000 (or the equivalent amount in Armenian currency) on the date of declaration of the dividends. The 15% rate applies in all other cases.

e) The 5% rate applies to interest on loans or credits granted by banks.

f) The 5% rate applies to royalties for the use of, or the right of use, literary, artistic or scientific works, including television or radio content (films and compact discs). The 10% rate applies in all other cases.

g) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 25% of the capital (assets) of the company paying the dividends. The 10% rate applies in all other cases.

h) The 0% rate applies if the actual owner of the dividends is a company that directly or indirectly holds at least 25% of the capital of the company paying the dividends for a minimum period of two years before the payment of the dividends and if the dividends are not subject to tax in Croatia. The 10% rate applies in all other cases.

i) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 25% of the assets of the com­pany paying the dividends. The 15% rate applies in all other cases.

j) The 5% rate applies to the royalties for the use of, or the right of use, com­puter software, patents, trademarks, designs or models, plans or secret formu­las or processes, or for information concerning industrial, commercial or scientific experience (know-how). The 10% rate applies in all other cases.

k) The 5% rate applies if the actual owner of the dividends is a company that directly or indirectly holds at least 10% of the assets of the company paying the dividends. The 15% rate applies in all other cases.

l) The 5% rate applies to the royalties for the use of, or the right to use, copy­rights. The 10% rate applies in all other cases.

m) The 10% rate applies if the actual owner of the dividends is a company (other than a partnership) that owns at least 25% of the assets of the company paying the dividends. The 15% rate applies in all other cases.

n) The 5% rate applies if the actual owner of the dividends is a company that directly holds at least 10% of the capital of the company paying the dividends for a minimum period of 12 months before the date of declaration of the dividends and if the capital invested by the beneficial owner exceeds USD100,000 or the equivalent amount in Armenian currency. The 10% rate applies in all other cases.

o) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that holds at least 25% of the capital of the company pay­ing the dividends. The 15% rate applies in all other cases.

p) The 5% rate applies if the actual owner of the dividends is a company (other than a partnership) that directly holds at least 10% of the capital of the com­pany paying the dividends. The 15% rate applies to dividends in all other cases.

q) The 5% rate applies if the capital invested by the actual owner of the divi­dends exceeds USD100,000. The 10% rate applies in all other cases.

r) The 5% rate applies if the actual owner of the dividends is a company that directly holds at least 25% of the assets of the company paying the dividends. The 10% rate applies in all other cases.

s) The 5% rate applies if the actual owner of the dividends is a company that directly holds at least 25% of the share capital of the company paying the dividends. The 10% rate applies in all other cases.

t) The 5% rate applies if the actual owner is a company (other than a partner­ship) that directly holds at least 25% of the capital of the company paying the dividends and if the capital invested by the beneficial owner exceeds CHF200,000 (or the equivalent amount in Armenian currency) on the date of receipt of the dividends. The 15% rate applies in all other cases.

u) The 5% rate applies if the actual owner of the dividends is a company that owns at least 25% of the capital of the company paying the dividends. The 15% rate applies in all other cases.

v) The 0% rate applies to interest connected to sales on credit of industrial, commercial or scientific equipment or business assets, and to interest on loans granted by banking enterprises.

w) The 0% rate applies to the interest on loans granted by banking enterprises.

x) The 0% rate applies if the capital invested by the actual owner of the divi­dends exceeds EUR150,000. The 5% rate applies in all other cases.

y) The 0% rate applies if all of the following conditions are satisfied:

  • The beneficial owner of the dividends is a resident of the other contracting state.
  • The beneficial owner of the dividends has held, directly or indirectly, at least 25% of the capital of the company paying the dividends for at least two years before the date of such payment.
  • Such dividends are not liable to profit tax in the other contracting state.

z) The 5% rate applies to royalties paid for the use of, or the right to use, copy‑rights of literary, artistic or scientific works, including cinematographic films or films or tapes used for radio or television broadcasting. The 10% rate applies in all other cases.

(aa) The 0% rate applies if the beneficial owner of the dividends is a pension scheme. The 5% rate applies if the beneficial owner of the dividends satis­fies all of the following conditions:

  • It is a company that is a resident of the other contracting state.
  • It holds, directly or indirectly, at least 25% of the share capital of the com­pany paying the dividends at the date of payment of the dividends.
  • It has invested at least GBP1 million (or the equivalent amount in any other currency) in the share capital of the company paying the dividends at the date of payment of the dividends.

The 15% rate applies if dividends are paid out of income (including gains) derived directly or indirectly from immovable property within the meaning of Article 6 by an investment vehicle that distributes most of this income annually and if such vehicle’s income from this immovable property is ex­empted from tax. The 10% rate applies in all other cases.

(bb) The 0% rate applies if the beneficial owner is a company (other than a partnership) that satisfies the following conditions:

  • It holds directly at least 25% of the capital of the company paying the dividends.
  • It owned the holding for a period of at least two years before it made the claim for the 0% rate.
  • In the contracting state in which the company is resident, the company is relieved from tax on dividends by an exemption or would, but for this measure in the tax treaty, be entirely relieved by a credit for tax paid with respect to dividends paid by the company paying the dividends. The 5% rate applies if the beneficial owner is a company (other than a partnership) that holds directly at least 10% of the capital of the company paying the dividends. The 15% rate applies in all other cases.

(cc) The 5% rate applies if interest is paid with respect to loans granted by bank­ing enterprises. The 10% rate applies in all other cases.