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On Calculation and Payment of Income Tax in Armenia

On December the 22nd 2010 National Assembly of the Republic of Armenia adopted the new Law “On income tax”. This law defined the new conditions, procedures, and rates for income tax in Armenia. It is a direct tax, which is subject to payment by taxpayers to the state budget of the Republic of Armenia.

Objects of taxation

Income tax shall be paid by individuals. Individuals are divided into residents and non-residents. The residents are individuals, who reside in the territory of the Republic of Armenia for at least 183 days during taxable period, or who has the center of vital interests in the Republic of Armenia as well as individuals who are state servants of the Republic of Armenia and work temporarily away from the territory of the Republic of Armenia. Non-residents are individuals who don’t comply with above-listed conditions. We may also note notaries and individual entrepreneurs as payers of income tax.

Taxable income is the difference between the taxpayer’s gross income and the deductions and the expenses for the reporting period. Reporting period lasts 12 months (from January 1st through December 31st). Income shall constitute the aggregate of all incomes to be received by the taxpayer under employment or civil-legal agreements or on any other grounds, as well as incomes subject to receipt in kind. Gross-income is the aggregate of all incomes to be received by the taxpayer during the reporting period.

Amounts of money which are not subject to taxation by income tax shall be deducted from the tax base in the Republic of Armenia. Here is the list of deductible incomes:

  • amounts of benefits (except benefits of temporary invalidity);
  • pensions;
  • insurance fees (except Contribution Pension System fees);
  • some types of incomes of militaries and individuals equated to them and related to rendered services, listed in the Law “On the social security of the military personnel and members of their families” as well as the positional rate of the servants of obligatory military service and monetary compensation for tobacco production;
  • single payments to members of families of perished military servants and payments owed to military servants became invalids;
  • honorable payments, monetary assistance, and benefits within the scope of the social security system;
  • alimony payments;
  • incomes derived from blood and breast milk donation and other types of the donation;
  • inheritance property;
  • property received free of charge on the grounds of the state and municipal bodies decisions;
  • amounts derived from the sales of the sales of their own property (except tax agents) with the exception of amounts derived from carrying out the entrepreneurial activity;
  • state scholarships;
  • compensation for damages;
  • borrowings and loans
  • and other deductions.

Income tax rate

Income tax rate varies and increases depending on the level of taxpayer’s income. So, Income tax rate without involving tax agent is 24.4 percent if annual income is not higher than 1.440.000 drams. In case if the income of the taxpayer is higher than 1.440.000 drams, progressive income tax shall be used.

When involving tax agent and monthly income equal to 120.000 drams, the tax rate is 24.4 percent. And again the progressive system of income tax is used if taxpayer’s income is higher than 120.000 drams. 

Tax agents must submit the conclusive calculation of income tax by the 20th day of the month, after assessing the income tax of taxpayers. Income tax shall be paid to the state budget not later than on the 20th day of the next month after assessing the incomes of an individual.

If taxpayers conduct entrepreneurial activity the tax base is also deducted by the amount which was spent on business operations (material expenses, labor expenses, life cycle cost, lease fees, insurance fees and so on). The order of payment of income tax for individual entrepreneurs is established by the Law of the Republic of Armenia “On profit tax”. 

Alongside with that certain categories of individuals must submit the annual calculation of income. Such a demand, for example, is not established for the taxpayers, calculating and paying income tax through tax agents. Annual calculation of income must be submitted to the tax body exclusively in an electronic format no later than on April 15th of the year following the reporting year in the Republic of Armenia.

Tax legislation of the Republic of Armenia strives to exclude double taxation. The amounts of income received by residents outside of the Republic of Armenia shall be included in the declared total annual income and taken into account when defining the size of the tax. The income tax paid by (levied from) residents of Republic of Armenia shall be deducted at the amount of the tax withheld in foreign states.