Tax Rates and Taxes on Profit in the Republic of Armenia
Type of direct tax, which is to be collected from companies and contractual investment funds, incorporated in the Republic of Armenia (residents), foreign companies registered outside of the Republic of Armenia and international organizations (non-residents).
Profit tax is one of the types of direct taxes, subject to payment to the state budget of the RA. This type of a tax must be paid by organizations founded and registered in the Republic of Armenia and contractual investment funds, except pension funds (residents); foreign organizations founded out of the Republic of Armenia and international organizations (non-residents).
The object of taxation for the residents is the taxable profit derived in the Republic of Armenia and outside, and for non-residents, the taxable profit derived from Armenian sources. The profit is calculated from the positive difference between a gross profit of a taxpayer and deductions, and for investment funds, from clear assets.
Gross income is the total of income derived by the taxpayer within the reporting tax year, irrespective of the source. Income is the in-flow, or growth of assets, or reduction of liabilities within the reporting tax year, which leads to the growth of taxpayer’s ownership capital. Ownership capital is the difference between the assets and liabilities of a taxpayer. Assets are any capital belonging to the taxpayer 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).
It is necessary to take into consideration, that the following elements are not considered as income:
- investments of the participants in the ownership capital;
- a positive difference between allocation price and a face value of shares;
- capital combined for joint activity shall not be considered income.
- a positive result of a 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 the Republic of Armenia 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 the production of goods, provision of services;
- progress in a 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 25th of the following year inclusive. At the same time, taxpayers must make advance payments for each quarter, three months in the amount of 18.75 percent of the actual profit tax amount paid in the previous year, prior to 15th day of the last month of the quarter.
Profit tax rate for residents is 20 (twenty) percent and for investment funds 0.01 percent with respect to net assets. Tax legislation of the RA establishes lower profit tax rates for big exporters of goods five percent and two 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 the Republic of Armenia or transported to the EAEU countries in customs regime “Export” or the price for services and work rendered to non-residents outside the Republic of Armenia is at least 40.000.000.000 drams. The rate of profit tax for the same group of taxpayers with the aggregate cost of deliveries in an amount of 50.000.000.000 drams is two 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 a 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;
- Pan Armenian Bank;
- producers of handmade carpets;
- participants of Free Economic Zones
- and so on.
A tax agent, at the source of income, shall do a collection of tax on profit derived in the Republic of Armenia by a non-resident. The following tax rates shall be applied for collection of profit tax from a non-resident at the source of income:
- five percent – for insurance fees, transportation incomes (freight);
- ten percent – dividends; royalties, income from the lease of property, an increase of the value of the property and other passive incomes (except incomes from transportation (freight)), as well as other income received from Armenian sources;
- twenty percent – other services, rendered by non-resident as well as incomes of non-resident derived outside the Republic of Armenia as a result of rendering services to a resident of the Republic of Armenia or a branch of non-resident registered in the Republic of Armenia.
Non-residents are exempt from the obligation of paying profit tax:
- when receiving dividends from Pan Armenian Bank;
- when receiving incomes from state currency bonds of the RA, alienation thereof and exchange for other securities and so on.