Individuals are liable to Armenian personal income tax either on their Armenian-sourced income or on their worldwide income, depending on their tax residence status. The tax due is determined based on the gross income.
The Armenian tax legislation specifies that Armenian-sourced income consists of income directly paid by Armenian entities as well as income resulting from activities performed in Armenia.
The Republic of Armenia (RA) Tax Code (hereinafter Tax Code) was adopted by RA National Assembly on 4 October 2016 and entered into force on 1 January 2018, except for some of articles which came into force on 1 January 2020. Some provisions of RA Tax code came into force in 2017 January 1. The Tax Code replaced the laws on different types of taxes including Law “On income tax” existing before.
At the same time there is a funded pension scheme in Armenia, which has voluntary and mandatory components. The mandatory part became effective starting from 2014 and is mandatory for individuals born in/after 1974.
Income tax payers are resident and non-resident individuals of RA.
For the purposes of the Tax Code, an individual that, during tax year (from 1 January to 31 December inclusive) has been residing in the RA for a total duration of 183 days or more, or whose center of vital interests is in the RA, as well as an individual in the civil service of the RA who is temporarily working outside the territory of the RA, shall be considered a resident.
The center of a person’s vital interests is the place where a person’s family or economic interests are located. Interests of a person shall be deemed, in particular, to be located in the RA, provided the house or apartment where the person’s family resides is therein, or the principal personal or family property, as well as the principal place of implementation of the economic (professional) activity is located therein.
For residents, taxable income received within or outside the territory of the RA is considered the object of taxation. For a non-resident, taxable income received from Armenian sources is considered the object of taxation.
The Armenian tax legislation places no minimum threshold with respect to when the individuals begin to have tax obligations in the country/jurisdiction. Thus, from an Armenian perspective, personal income tax is levied from the first day during which work is performed in Armenia. In the case of income received from tax agents, it is taxed at the source of payment. For residents receiving income from non-tax agents, income tax is paid annually based on declaration.
Generally, all types of income (monetary and/or nonmonetary) are subject to personal income tax in Armenia unless specifically exempted. In view of this the following categories of income will be treated as taxable:
Wages and salaries
From 1 January 2020, a FLAT RATE of income tax on salaries was established, which will gradually decrease to 20 percent by 2023:
|Period||Income tax rate|
|From 1 January 2020||23%|
|From 1 January 2021||22%|
|From 1 January 2022||21%|
|From 1 January 2023||20%|
The income tax on interests shall be calculated at a 10 percent rate.
Starting 1 January 2017 dividends received by foreign citizens are subject to 10 percent Income tax (applicable to dividends generated after 1 January 2017 and before 31 December 2019 ) and for Armenian citizens dividends received are subjected to 5 percent income tax starting 1 January 2018 (applicable to dividends generated after 1 January 2018).
Starting 1 January 2020 dividends received from Armenian sources both by foreign citizens and by Armenian citizens are subject to 5 percent Income tax (applicable to dividends generated after 1 January 2020).
At the same time the Tax Code provides an opportunity to refund from the state budget tax amounts paid to the state budget from dividends, in case during the year these dividends are received they are invested according to the procedure established by the legislation in the charter or share capital of the same RA resident entity that pays dividends.
The income tax on royalties shall be calculated at a 10 percent.
Capital gains from the sale of property
Incomes received from the tax agents as a result of the sale of the property are subject to 10 percent Income tax, except for income from the alienation of a building, its apartments or other areas by a developer, when income tax is calculated at a 20 percent rate.
Income received from individuals (not tax agents) from sale of car within 365 days after purchase is subject to 1 percent income tax, but not less than 150 Armenian Dram (AMD) for each horsepower of an engine. If engine power is expressed in kilowatts, a coefficient of 1.36 is applied to corresponding power.
The income received from the alienation of the land after 1 January 2020 are not subject to income tax.
The income tax on rentals shall be calculated at a 10 percent. In case the total amount of the rentals received during the tax year exceeds AMD60 million, an additional income tax at a 10 percent rate shall be calculated for the exceeding part.
Social payments are made by eligible employees.
The base for calculation of the social payment is the basic income, which is salary and other payments equal thereto which are subject to taxation by income tax.
The Employer, as a tax agent, is obliged to withhold the amount of social payment as well as submit monthly personalized reports to the tax authorities on calculated income, amounts of tax and social payments withheld from individuals within the terms established by the RA Tax Code.
The social payment rates are as follows:
|Period||Basic monthly Income*||Social payment|
|2020||Up to AMD500,000||2.5 %|
|More than AMD500,000||10 % - AMD37,500|
|2021||Up to AMD500,000||3.5 %|
|More than AMD500,000||10 % - AMD32,500|
|2022||Up to AMD500,000||4.5 %|
|More than AMD500,000||10 % - AMD27,500|
|2023||Up to AMD500,000||5 %|
|More than AMD500,000||10 % - AMD25,000|
Till 01.07.2020 the maximum monthly threshold of the calculation basis for social payment is AMD500,000 .This means that the maximum amount of the Social Payment till 01.07.20 is capped at AMD12,500.
Starting 01.07.2020 the maximum monthly threshold of the calculation basis for social payment is AMD1,020,000. This means that the maximum amount of the Social Payment will be capped at AMD64,500.
The resident individuals receiving income from sources other than Armenian legal entities (tax agents) shall pay the income tax through self-declaration and submit an Annual Income Tax Declaration by 20 April of the following year.
No reporting obligations for employees related to income received from tax agents.
Employers are required to calculate and withhold income tax and social payments on a monthly basis from their employees’ salaries and transfer these amounts to the state budget, no later than the 20th day of the month following the month of calculation.
Employers submit reports on income tax exclusively electronically on a monthly basis.
For individuals who received only passive income or who have not residence permit in RA, tax agents shall submit to the tax authorities personal data (except for bank or insurance secrets) about such income paid and income tax calculated and withheld during previous tax year, by 20 April of the tax year following each tax year.
According to the RA Law “On compensation for fallen or damaged servicemen during the defines of the Republic of Armenia” RA resident individuals who work on the RA territory or outside the RA territory and non RA residents who work on the RA territory shall pay to the state budget a stamp fee of AMD1,000 for each month starting 1 January 2017. The stamp fee is withheld by employer/tax agent on a monthly basis from their employees’ salaries and transferred to the specified bank account.
Armenia has entered into double tax treaties with 47 countries/jurisdictions to prevent double taxation and allow cooperation between Armenian and other tax authorities in enforcing their respective tax laws.
According to the Armenian Tax Code, a permanent establishment (PE) of the non-resident company in the RA is considered to be any of the places of performing activities in the RA and registered with the tax authorities, through which the non-resident company carries out entrepreneurial activities in the RA, regardless the period of performance of the activities.
Particularly, branch’s or rep office’s place of activity is considered as a PE.
In other cases a PE is regarded the place where the work is performed and (or) services are provided by the employees and (or) other staff hired by the non-resident company, if these activities last for 183 or more calendar days in the tax year in the RA, starting from the date of commencement of entrepreneurial activities, within the scope of a single project or more than one interconnected projects.
Value-added tax (VAT) is applicable at 20 percent for taxable turnover.
Armenian transfer pricing rules entered into force from January 2020 with the other regulations of Armenian Tax Code. They are generally based on the Organisation for Economic Co-operation and Development (OECD) Guidelines, but have certain differences. For example, while there are five basic transfer pricing methods (as in the OECD Guidelines), under the Armenian transfer pricing rules, the Comparable Uncontrolled Price (CUP) method has priority over other methods.
Transfer pricing regulations shall be applied to taxpayers in case the total sum of all controlled transactions conducted by the taxpayer during the tax year exceeds AMD200 million.
The Armenian tax authorities may control prices not only in cross-border transactions with related parties (the party could be considered as related regardless its share in capital – see details below), but also in transactions with unrelated companies located in offshore jurisdictions. Furthermore, domestic transactions between related parties are subject to the transfer pricing rules, if one of the party of the transaction is a) a mineral royalty taxpayer; b) enjoys tax privileges for profit tax, VAT and (or) mining royalties; or c) is an operator of a free economic zone.
For the purposes of transfer pricing rules taxpayers are considered to be related in case:
Arm’s length principle
In case a taxpayer conducts a controlled transaction the tax bases of following taxes should be determined based on the prices or other financial indicators estimated according to the arm’s length principle in accordance with transfer pricing method.
Notification on controlled transactions
If during the tax year the total sum of all controlled transactions of the taxpayer exceeds the limit of AMD200 million (excluding indirect taxes) the taxpayer shall submit to the tax authorities a notification on the controlled transactions which shall include information about transactions.
The taxpayer shall complete the notification on the controlled transactions and submit it to the tax authorities by 20 April inclusive of the tax year following each tax year.
Documentation of transfer pricing
Transfer pricing documentation shows the compliance of the taxpayer’s controlled transactions with the provision of arm’s length principle.
Transfer pricing documentation should be prepared for each controlled transaction or group of comparable controlled transactions.
Taxpayers should submit transfer pricing documentation to the tax authorities:
As a general rule, a visa is required for visiting Armenia. There is a quite large list of countries/jurisdictions, which Armenia has a non-visa regime with on a basis of bilateral or multilateral agreements. Citizens of foreign countries/jurisdictions for whom a visa-free regime is set can stay on the territory of the Republic of Armenia for no more than 180 days during 1 year if no other term is defined by the international agreements of the Republic of Armenia.
Where a visa is required, it must be applied for before the individual enters Armenia (in consulate bodies or electronically), or on the crossing points of the Armenian border (e.g. airport). The lists of the countries/jurisdictions whose nationals can obtain visa on the crossing points is available in the official website of the Ministry of Foreign Affairs of Armenia (www.mfa.am). Documents required for a visa and the type of visa depend on the individual’s country/jurisdiction of citizenship and the purpose of the individual’s entry into Armenia. Entry visas entitle the person to stay in Armenia for 120 days with the option to extend its term for 60 days. To stay in Armenia for longer periods, a residence permit should be obtained.
Currently work permits is required for foreign citizens to work in Armenia. This legislation requirement is valid starting 1 Jan 2019.
Armenia has data privacy legislation. As a general rule, processing of the personal data of an individual is permitted only on the basis of the consent of the subject of personal data.
Armenia does not restrict the flow of Armenian or foreign currency into or out of the country/jurisdiction. Certain reporting obligations are imposed, however, to control money laundering. Certain limitations on the amount of importing and exporting of cash without customs declaration are applied (for both – the limit is equivalent to 10,000 US dollars (USD) (approximately 9,000 Euros (EUR)).
Armenia does not provide for any personal allowances or deductions. Work related expenses, commuting costs and moving expenses are not deductible.
All information contained in this publication is summarized by KPMG Armenia LLC, the Armenian member firm of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Republic of Armenia (RA) Tax Code of 4 October 2016 and subsequent amendments; RA Law “On compensation for fallen or damaged servicemen during the defines of RA” of 15 December 2016, RA Law “On funded pension” of 22 December 2010 and subsequent amendments, RA Law “On Foreigners” of 25 December 2006 and subsequent amendments, RA Law “On Currency Regulation and Currency Control” of 24 November 2004 and subsequent amendments.