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Turnover Tax as an Alternative to VAT and Profit Tax in the RA

How to become turnover taxpayer

Once a year commercial organizations and individual entrepreneurs, registered in the Republic of Armenia, as well as notaries, have a right to transit from profit tax or VAT to turnover tax, if they submit the application to the territorial tax body until February 20th of the same year. Legal entities, individual entrepreneurs, and notaries may become turnover taxpayers from the moment of registration or appointment if they submit an application to the territorial tax body within twenty days of the registration or appointment.

The Law of the Republic of Armenia “On Turnover Tax” came into force on January 1st, 2013. That law has created a new type of tax and made some changes in the order of tax payment procedure. Turnover tax is paid by commercial organizations, individual entrepreneurs, and public notaries, which are residents of the Republic of Armenia. It is established that turnover tax is paid if the whole size of turnover is less than 115.000.000 drams. It’s important that this type of tax is provided to replace value added tax and profit tax. Turnover tax replaces VAT and (or) profit tax in case of commercial organizations, and in case of individual entrepreneurs and public notaries – value added tax. 

The quarter (three months) is a reporting period for this type of tax. Computation of tax payments is made by taxpayers at the end of every quarter. Taxpayers must provide the tax agency at the place of their registration with tax computation of turnover tax before the 20th calendar day of the first month following the reporting quarter. The object of a taxation is earnings from supplied goods and services and other profits.

The following participants of turnover may not be the payers of turnover tax:

  • persons paying fixed and/or licensed payments (due to these types of activities)
  • persons that produce and import the goods, for which they must pay excise taxes
  • banks, credit companies, insurance companies, investment companies, professional participants of securities market, pawnshops, currency dealers, investment funds, heads of funds, payroll organizations, gambling establishments and organizations involved in the organization and conduct of gambling and lotteries, the persons involved in the production of agricultural economic production, audit companies, organizations, providing accounting services.
  • Persons, who are the parties to the contract for implementation of joint activities, commission agreement on supplying of goods, the party of the agency agreement

The legislation establishes certain cases, when commercial organizations, public notaries, and individual entrepreneurs cannot be payers of turnover tax. Turnover taxpayers stop being considered as such if the size of their earnings from sales of goods and services is over than 115.000.000 drams during 1 year. A person may not act as a payer of turnover tax, if he produces or imports the excised goods to the territory of the Republic of Armenia or if he carries out some types of specific activities noted in point three. 

There are following tax rates depending on the types of activities:

  • Purchasing and selling of the goods (trading activities) – 5 %
  • Producing activities – 3.5 %
  • Leasing and transfer of property (including real estate) – 10 %
  • Notarial activities – 20 %
  • Other types of activities – 5 %

Turnover taxpayers take the obligation on payment of property tax, tax on land, VAT, charged on the customs border etc. In some cases, the law may specify otherwise.

If taxpayer tries to hide or minimize the real size of the taxation base, amount owing and penalties will be recovered in compulsory order. You should turn to professional in the sphere of tax law in order to reduce and prevent the threat of such kind of liability.