What You Need to Know About Personal Taxes in Armenia Before Registering a Company

Armenia is becoming an increasingly attractive destination for foreign entrepreneurs and investors looking to establish businesses in the region. The country’s favorable tax environment, strategic location, and growing market opportunities have made it a top choice for individuals seeking to expand their business operations in the Caucasus and beyond.

However, before embarking on the journey of company formation in Armenia, it is important to understand the personal tax landscape. Understanding personal taxes not only affects your finances but also plays a key role in the overall business operations and sustainability.

In this article, we will explore the personal tax system in Armenia, key tax obligations, and how these taxes impact individuals starting and running businesses in the country.

The Armenian Tax System: An Overview

Armenia’s tax system is relatively straightforward, and the country has made significant strides in simplifying its tax regulations over the years. As part of Armenia’s broader economic reforms, the tax administration system is designed to be business-friendly while maintaining compliance with international standards. The tax system in Armenia consists of corporate taxes, individual income taxes, and other contributions, such as social security and VAT.

When it comes to personal taxes, business owners, directors, and employees must be aware of several important aspects that will directly impact their financial situation and their business’s compliance.

Types of Personal Taxes in Armenia

1. Personal Income Tax (PIT)

Personal income tax is one of the primary taxes individuals are liable for in Armenia. The rate is progressive, meaning the rate varies depending on the income level. As of 2024, the standard personal income tax rate is 23% for individuals earning over a certain threshold. For individuals earning below this threshold, there is a more favorable rate of 1% on their income. This progressive tax rate is important for entrepreneurs, as it impacts any income they derive from their businesses, such as salary, dividends, or other forms of compensation.

The tax applies to all types of income, including salary, freelance income, business profits, and any other personal earnings. For non-residents of Armenia, income sourced from Armenian entities or activities is also subject to taxation. Understanding the specific thresholds and applying for the correct tax treatment is crucial when it comes to ensuring full compliance with the tax authorities.

2. Social Security Contributions

Along with personal income tax, social security contributions play an important role in Armenia’s personal taxation framework. Armenia requires both employees and self-employed individuals to contribute to social security. Employers are obligated to make contributions to the state pension system on behalf of their employees. The social security contributions in Armenia are used to fund pensions, healthcare, and other social welfare programs. The total rate for social security contributions stands at 25%, of which the employer typically covers 21.5% and the employee contributes 3.5%.

Self-employed individuals are responsible for paying the entire social security contribution themselves. These contributions must be made to the relevant Armenian government bodies on a regular basis to avoid penalties and ensure continued access to the country’s social services.

3. Value Added Tax (VAT)

While VAT is a tax that primarily impacts businesses, understanding its implications is important for individuals who wish to start a company in Armenia. The standard VAT rate in Armenia is 20%, and it applies to most goods and services, including those provided by businesses. If you are starting a company that will be providing taxable goods or services, you will need to register for VAT with the Armenian tax authorities.

For businesses with taxable supplies exceeding 58 million AMD annually, registration for VAT is mandatory. However, small businesses and startups with revenue under this threshold can apply for VAT exemption. As a business owner, you must ensure that VAT is collected on applicable sales and properly remitted to the authorities.

4. Dividend Tax

For individuals who are business owners or shareholders of a company in Armenia, understanding the tax on dividends is essential. When a company distributes its profits to shareholders, the dividends are subject to a 10% withholding tax. This tax is deducted at the time of distribution, meaning that shareholders will receive their dividends net of the tax.

The rate for dividend taxation can be higher for non-residents of Armenia, depending on the terms of any double tax treaties Armenia has with the shareholder’s country of residence. It’s important to review any applicable tax treaties to avoid double taxation of dividend income.

5. Capital Gains Tax

Capital gains tax in Armenia is another consideration for individuals involved in company formation in Armenia. If an individual sells shares or assets of a business and realizes a profit, this gain is subject to 20% capital gains tax. However, there are exemptions and reductions available for certain types of transactions, such as long-term investments in Armenia-based companies.

For entrepreneurs and investors looking to sell or transfer ownership in their company, capital gains tax should be taken into account to determine the net value of the transaction.

Taxation of Foreign Nationals and Non-Residents

Foreign nationals who decide to start a company or live and work in Armenia will also be subject to personal income tax on their earnings within the country. If a foreign entrepreneur moves to Armenia with the intent of conducting business, their income earned within Armenia will be taxed at the same rates as local residents.

For tax purposes, an individual is considered a resident if they spend 183 days or more in Armenia within a 12-month period. Non-residents are typically taxed only on income derived from Armenian sources.

Armenia has signed several Double Taxation Treaties (DTTs) with countries around the world. These treaties are designed to prevent foreign nationals from being taxed on the same income by both Armenia and their home country. For example, if you are a U.S. citizen starting a business in Armenia, the DTT between Armenia and the United States could reduce or eliminate your tax obligations on certain income types.

The Tax Filing Process

Armenia’s tax filing system is centralized and relatively simple. Individuals are required to submit an annual tax return by April 15th for the previous calendar year. The tax return must detail income from all sources, including salary, business profits, dividends, and other types of earnings.

Business owners and self-employed individuals are responsible for filing their own taxes, while employees have taxes withheld from their paychecks by their employer. The Armenian tax authorities provide online portals for filing tax returns and paying taxes, making the process more accessible and streamlined.

The authorities may conduct audits to ensure compliance, and failure to file taxes or pay taxes owed can result in penalties and interest. Business owners should keep accurate records of all transactions and be prepared to provide documentation if requested by tax authorities.

Tax Incentives for Entrepreneurs

Armenia offers various tax incentives to attract and support entrepreneurs, particularly those who are involved in technology, innovation, and export-oriented activities. The government has introduced several tax exemptions and reduced rates in key sectors, including information technology, tourism, and agriculture. These incentives can significantly reduce the overall tax burden for business owners operating in Armenia.

For instance, Armenia’s High Tech Park offers tax exemptions to companies involved in IT and related industries. These companies are exempt from profit tax, VAT, and property tax for up to 10 years. Entrepreneurs in these sectors should consider the advantages of registering in such parks to take full advantage of these tax incentives.

Tax Planning and Professional Assistance

Before starting a company in Armenia, it is highly recommended to seek professional advice from accountants, tax advisors, or legal experts who are familiar with the local tax regulations. Understanding your personal tax obligations, as well as those of your company, is critical for managing finances effectively and ensuring compliance with Armenian tax laws.

By working with professionals who understand Armenia’s tax system, you can optimize your tax planning, take advantage of available tax incentives, and avoid unnecessary tax liabilities.

Company Formation in Armenia: The B2B Hub Advantage

When considering company formation in Armenia, it’s important to have a reliable partner to guide you through the process. B2B Hub offers comprehensive company formation and corporate services in any jurisdiction of your choice. Whether you’re establishing a startup, a small business, or a large corporation, B2B Hub provides end-to-end support in the registration process, tax planning, and compliance with local regulations.

For inquiries, please contact us at tel:+447700183107, visit our website at b2bhub.ltd, or send us an email at reg@b2bhub.ltd. With B2B Hub’s expertise and support, you can navigate the complexities of personal taxes and successfully establish your business in Armenia.