Types of Taxes in Armenia

Introduction

The financial contributions generated through the collection of taxes have played a crucial role in developing and maintaining public infrastructure, ensuring the upkeep of essential areas vital for the smooth functioning of society, and facilitating overall progress within the state. It is fascinating to note that the concept of "taxation" has been traced back to around 3000 BCE in ancient Egypt, where a portion of agricultural produce was collected as a form of tax, predating the use of currency. Since then, recognizing the pivotal role that tax policy plays in steering socio-economic progress, every state has consistently implemented proportional measures to improve and refine the tax system and its legal framework. This proactive approach underscores the dedication to creating an environment conducive to fostering economic growth and advancement.

In the modern era, it has become customary for all nations, regardless of their socio-economic standing or geographic position, to impose taxes on their populace. Nevertheless, there are instances where certain countries, propelled by their available resources or specific goals, opt to provide their citizens with exclusions from particular types of taxes. For example, as of 2024, a total of 17 countries, including the UAE, Somalia, Monaco, Saudi Arabia, and Kuwait, have made the decision to grant their citizens an exemption from paying income tax.

It is evident that the tax policy implemented by the state has a direct impact on the financial situations and operations of both individuals and legal entities who are obligated to pay taxes before it subsequently affects the socio-economic status of the state. It's important to highlight that individuals and legal entities may be liable for various types of taxes, including income tax, property tax, and corporate tax, each of which is determined based on their specific legal status and financial activities. In the meantime, as individuals are mandated to contribute a portion of their earnings to the government, it is clear that tax obligations can significantly affect a person's financial well-being. Consequently, it is imperative for each state to develop a tax system that not only gains acceptance from taxpayers but also meets the relevant societal needs.

Thus, in this article, we will delve into an in-depth analysis of the Armenian tax system. We will explore how the system is guided by principles such as simplicity, clarity, non-discrimination, modernity, and efficiency. This system not only provides opportunities for residents of Armenia but also for non-residents to save, invest, and develop new or existing businesses. Throughout the article, we will thoroughly address the following questions:

• What types of taxes does Armenia have?

• Taxpayers in Armenia,

• Tax Systems in Armenia.

What types of taxes does Armenia have?

Before delving into the various types of taxes in Armenia, it is important to underscore Armenia's comparative advantage over other regional countries with regard to the tax-to-GDP ratio. In the latest updates from 2024, it was revealed that the tax-to-GDP ratio in Armenia stands at 20.8%, while in Russia, it is 24.2%, in Georgia, it is 25.7%, and in Turkey, it is 24.9%. Notably, France has the highest ratio at 46.2%. This ratio serves as an essential indicator of the tax policies implemented in each country. A lower ratio generally signifies that the country has lower tax rates.

Now, let's delve into the two types of taxes in Armenia: state and municipal. The key distinction between the two lies in their destination, as state taxes are directed to the state budget, while municipal taxes contribute to the local budget. Consequently, state taxes are:

• Value-added tax (VAT),

• Excise tax,

• Profit tax,

• Income tax,

• Environmental tax,

• Road tax,

• Turnover tax.

The Municipal taxes are the following:

• Real estate tax,

• Vehicle property tax.

It is crucial to acknowledge that each type of tax has a unique impact on specific groups of individuals, despite the variety of taxes that exist.

Taxpayers in Armenia

When exploring the complexities of the tax system, it's crucial to delve into its far-reaching implications for a diverse array of taxpayers. The tax policies formulated by each state wield substantial influence over the functioning of entities that carry tax responsibilities. According to the tax legislation of the Republic of Armenia, both resident and non-resident organizations, as well as individuals, are encompassed within the taxpayer classification, necessitating a comprehensive understanding of their respective tax obligations.

Definitions of Different Taxpayers

Let’s address who is legally considered a taxpayer, specifically examining what defines resident and non-resident legal entities and individuals.

Armenian Resident Companies

The first entity mentioned is Armenia itself, including its state authorities and municipalities, the Central Bank of Armenia, legal entities officially registered in Armenia, and investment funds with managers registered in Armenia.

Armenian Non-Resident Companies

Entities that are registered in a foreign country, international organizations, and investment funds with managers registered outside of Armenia.

Armenian Resident Individuals

The following individuals are considered residents of Armenia for tax purposes: Armenian citizens, foreigners, and stateless persons, including notaries and private individuals, who have been physically present in the Republic of Armenia for 183 days or more during the tax year(calendar year). Additionally, individuals whose center of vital interests, such as family or economic interests, is in Armenia are also considered residents. This includes individuals in the state service in the Republic of Armenia who are temporarily working outside the country's territory.

Armenian Non-Resident Individuals

In the context of taxation in Armenia, non-resident individuals are defined as those who do not satisfy the conditions to be recognized as tax residents. In simpler terms, if an individual fails to meet the specified criteria for tax residency, they will be classified as non-resident individuals.

Tax Systems in Armenia

Having gained insight into the diverse taxpayers in Armenia, it is essential to delve into the landscape of the tax systems available. Specifically, it is crucial to understand the various types of taxation systems under which taxpayers can be taxed in Armenia. As such, we will explore the general and special taxation systems in Armenia and provide an in-depth discussion of their respective features.

General Tax System in Armenia

If a corporation or individual entrepreneur (IE) chooses to conduct business under the general tax system, they are obligated to remit

• Value-added tax (VAT) and/or

• Profit tax.

Special Tax System in Armenia

Discover the benefits of the special tax system, where taxpayers have the opportunity to run a business as a turnover taxpayer or as a micro business.

As turnover taxpayers should be paid:

• Turnover tax for corporations or

• Turnover tax and profit tax for individual entrepreneurs.

Micro Business in Armenia

In Armenia, the micro-enterprise system provides exemptions from VAT, profit tax, and turnover tax as per the Armenian Tax Code for both organizations and individuals. It is important to note that only resident commercial organizations and individual entrepreneurs whose sales turnover for all activities during the previous tax year did not exceed AMD 24 million are eligible to be classified as micro-entrepreneurs. Furthermore, individuals without a certificate of being individual entrepreneurs, whose sales turnover for all activities did not exceed 24 million drams in the last tax year, are also considered micro-entrepreneurs.

It's also important to clarify that turnover, in this context, refers to the business income received in monetary terms from the supply of goods, performance of works, and/or rendering of services. This definition excludes VAT, excise tax, and/or environmental tax amounts from the calculation.