Profit Tax Payers and Rates in Armenia

Profit tax is one of the types of direct taxes, subject to paid to the state budget of the Republic of Armenia. This type of a tax must be paid by organizations founded and registered in Armenia and contractual investment funds, except pension funds (residents); foreign organizations founded out of Armenia and international organizations (non-residents).

Object of taxation for the residents is the taxable profit derived in Armenia and outside, and for non-residents – taxable profit derived from Armenian sources. The profit is calculated from the positive difference between gross profit of a taxpayer and deductions, and for investment funds – clear assets.

Gross income is the total of income derived by the taxpayer within the reporting year, irrespective of the source. Income is the in-flow, or growth of assets, or reduction of liabilities within the reporting year, which leads to the growth of taxpayer's ownership capital. Ownership capital is the difference between the assets and liabilities of taxpayer. Assets are any capital belonging to the tax payer by a proprietary right, including property, proprietary rights and personal non-property rights related with proprietary rights, foreign exchange, securities, indebtedness, and other property, and the liability is the current debt of taxpayer (loan, indebtedness, tax liability).

But it is necessary to take into consideration, that the following elements are not considered as income:

-Investments of the participants in the ownership capital;

-positive difference between allocation price and face value of shares;

-capital combined for joint activity shall not be considered income.

-positive result of reevaluation of assets and of liabilities in exchange and foreign exchange;

-amount of assets saved due to tax privileges, privileges on payments to the state and municipal budgets and other obligatory fees and duties;

-other assets established by the Law.

In accordance with Armenian tax legislation, profit tax is not imposed on necessary expenses and losses, and gross profit must be reduced to those amounts. Expenses must be confirmed by appropriate documents. Expenses are the outflows, or decrease of assets, or growth of liabilities within the reporting year which leads to a decrease of ownership capital. Expenses are subject to deduction if:

-expenses deemed necessary exclusively and directly for production of goods, provision of services;

-progress in market and (or) realization of goods and services;

-provision of consolatory and legal services;

-accompanying, elimination of shortcomings found during operation and guarantee control, start-up of production;

-maintenance of property;

-training of staff;

-life cycle cost;

-other expenses established by the law.

Taxable period of the profit tax is 1 year. A taxpayer shall pay profit tax to the state budget prior to April 25-th of the following year inclusive. At the same time taxpayers must make advance payments for each quarter (3 months) in the amount of 18.75 percent of the actual profit tax amount paid in the previous year, prior to 15-th day of the last month of the quarter.

Profit tax rate for residents is 20 percent and for investment funds – 0.01 percent with respect to net assets. Tax legislation of Armenia establishes lower profit tax rates for big exporters of goods – 5 percent and 2 percent.

The rate of profit tax in the amount of 5 percent is imposed on some groups of taxpayers, if aggregate cost of goods exported from Armenia or transported to the EAEU countries in customs regime “Export” or the price for services and work rendered to non-residents outside Armenia is at least 40.000.000.000 drams. The rate of profit tax for the same group of taxpayers with aggregate cost of deliveries in amount of 50.000.000.000 drams is 2 percent. And at the same time this group of taxpayers must comply some other terms established by the law.

The law establishes tax privileges in some spheres of activity. The following taxpayers shall be exempt from profit tax:

-producers of agricultural production (to the extent of income from realization of agricultural production, and income derived from the realization of fixed assets and other assets, if the income does not exceed 10% of gross income);

-funds which guarantee compensation of bank deposits;

-PanArmenian Bank;

-producers of handmade carpets;

-participants of Free Economic Zones

-and so on.

A tax agent, at the source of income shall do collection of tax on profit derived in Armenia by a non-resident. The following tax rates shall be applied for the collection of profit tax from a non-resident at the source of income:

-5 percent – for insurance fees, transportation incomes (freight);

-10 percent – dividends; royalties, income from lease of property, increase of value of property and other passive incomes (except incomes from transportation (freight), as well as other income received from Armenian sources;

-20 percent – other services, rendered by non-resident as well as incomes of non-resident derived outside Armenia as a result of rendering services to a resident of Armenia or a branch of non-resident registered in Armenia.

Non-residents are exempt from the obligation on paying profit tax:

-when deriving dividends from PanArmenian Bank;

-when deriving incomes from state currency bonds of the RA, alienation thereof and exchange for other securities and so on.