CORPORATE TAXATION

Residence and Scope

Under the law on Profit Tax both residents and nonresidents pay profit tax in Armenia. The legal entities are deemed to be residents if they have received state registration in Armenia. Non-residents are legal entities and enterprises without legal entity status, which have been registered in another country, including international organizations.
Residents are taxed on profit derived both in Armenia and abroad, while non-residents are taxed only on income within Armenia.
Non-residents operating through subdivisions in Armenia are taxed on profits earned from the activities of the subdivision. Income received by non-residents from other sources in Armenia, e.g. dividends (for enterprises only), interest income, royalties, rental income etc. is subject to a withholding at the source. Withholding may be reduced or eliminated by applying double tax treaties.
The tax year is the calendar year.

Rates

Annual profit tax rate is 20%. The Law may establish, for certain payers group of payers and types of activity, a fixed payment which substitutes for the profit tax.
For non-residents, for income from insurance compensations, reinsurance payments and incomes from freight the rate is 5%. For incomes received as dividends, interest, royalty, income from the lease of property, increase in the value of property and other passive incomes, as well as other income received from Armenian sources the rate is 10%.

Determination of Taxable Profit

The taxable profit is the positive difference between the gross income and the deductions allowed under the Profit Tax Law. Income and expenses shall be accounted for using the accrual method.
The following shall be considered as gross income:

• revenue derived from the sale of products and services;
• income derived from the sale of fixed and other assets;
  
• interest; leasing income; royalties; dividends;
  
• insurance compensation;
  
• income received from debt or trade financing;
  
• income received from futures, options and other similar transactions;
  
• gratis assets;
  
• income received from compensation for damage caused;
• income received in the form of penalties,
• fines and other proprietary sanctions;
• income received from transactions recognized as invalid;
• amounts of bad debts written off, etc.
  

The following shall be considered as expenses, particularly:

• material cost;
  
• labour cost;
  
• obligatory social security payments;
• depreciation;
• nsurance payments;
• non-refundable taxes, duties and other obligatory payments;
• interest on loans or other borrowings;
• payments for guarantees, guarantee letters, L/Cs and other banking services;
• advertising expenses;
• representation and business trip expenses;
• court expenses; auditing, legal, and other advisory information and administrative services expenses;
• current expenses made on fixed assets maintenance expenses;
• research and development expenses, etc.

Contributions made to religious, public and other nonprofit organizations (but not more 0,25% of gross income) are allowable deductions.
The Profit Tax law specifies that the following expenses are not deductible from gross revenue for the amount exceeding the limits specified by the government:

• payment for violation of pollution laws;
• expenses for advertisement outside Armenia;
• training of staff outside Armenia;
  
• expenses for special nutrition and uniforms for the employees;
  
• expenses for foreign trips, and per diem for local trips;
• representative expenses;
  
• expenses on the maintenance of public health institutions, rehabilitation camps, culture, education ands sport institutions, etc;
• gratis assets, remitted liabilities;
  
• expenses on services rendered by the taxpayer, which are not related to the production of goods, etc.
  

Depreciation

Assets depreciation deductions is allowed based on the useful life of the following assets:

Profit tax payers may apply other depreciation rates within the above rate limits. Depreciation is calculated on the initial cost of the assets on a straight-line basis.
The depreciation term of intangible assets is specified by the taxpayer on the basis of the possible period of effective use. In case of being unable to determine such period, the minimum depreciation period of intangible assets should be not less than 10 years.

Gratis Assets

Gratis assets are considered as an income only in the period when they are recognised as expense or loss. It does not apply to non-residents.

Dividends

Dividends received by residents are not taxed. Although they are recognized as income, they are allowed as a deduction for resident taxpayers. Dividends, received by non-residents are subject to the withholding tax, except for the cases when shares are owned for no less than 2 years, the non-resident during the previous 2 calendar years from the date of the payment of dividends owned no less than 25% of capital shares and the dividends are not subject to tax in the resident country.

Losses

The profit tax law allows for losses to be carried forward. An enterprise that incurs a loss in one accounting year may carry it forward to be offset against profits earned in subsequent years. This is allowed for the time period of 5 years, but does not apply to non-residents.
Exemptions
The tax payers involved in agricultural activities are exempt from profit tax on revenue received from selling agricultural products, as well as on revenue derived from the sale of fixed and other assets, if the weighted amount of latter does not exceed 10% of the gross revenue.

Returns and Payments

Profit tax is calculated by the taxpayer independently, using appropriate rates and tax privileges. Taxpayers must file a tax return and an annual report to the local authorities by 15th April following the end of the tax year. Profit tax must be paid to the state budget before 25th April of the following year.
Advance payments shall be made monthly, if the amount of profit tax paid by residents exceeded AMD 500,000 in the previous year. These payments are based on 1/16 of the actual profit tax paid during the previous year. Payments are made before the 25th day of the current month.
Non-residents shall submit a tax return on the annual income to the Tax Inspectorate prior to April 15th of the year following the reporting one. Within 10 days the taxpayer receives a payment notification about the final amount of the calculated profit tax which should be paid within one month after receiving the notification.
Non-residents must pay advance payments twice a year if the amount of profit tax paid during the previous year was greater than AMD 2 million. These payments are based on 1/4 of the actual profit tax paid for the previous year. Payments are made before 1 st July and 31st December of the reporting year.
Newly registered taxpayers do not have to make advance payments of the profit tax up to April 25 of the following year.

Profit of Non-Residents from Business Activity

A non-resident taxpayer who is carrying out a business activity in Armenia through a subdivision or place of business is taxed on income derived from Armenian sources connected with the subdivision or place of business. The tax is reduced by the amount of deductions established by the Profit Tax Law for resident taxpayers, except gratis assets, loss carryover and dividends received.
A subdivision of a non-resident is a separate subdivision registered in Armenia, while place of business is the actual place of business activity of a non-resident, which does not have a separate subdivision in Armenia.

Social Security

Under the law on obligatory payments of social security Armenian and foreign employers are required to withhold monthly social security contributions from their employees' salaries and wages at the following rates: