In Armenia, employers are not typically required to make direct contributions to social security funds for their employees. However, there are specific payroll-related taxes that employers must account for.

Corporate Income Tax

Armenia has a flat corporate income tax rate of 18%. This tax applies to a company's profits after allowable deductions.

Withholding Tax on Dividends

A standard 5% withholding tax is applied to dividends paid to resident and non-resident shareholders.

Social Contributions (Specific Circumstances)

While social security payments are generally the employee's responsibility, there are a few scenarios where the employer might bear a portion of the social contribution:

• Voluntary Pension Contributions: If an employer chooses to contribute to their employees' voluntary pension plans, those contributions may be tax deductible.
• Exceeding the income threshold: Under the current tax legislation, if an employee's monthly gross salary surpasses AMD 500,000, the employer must handle the calculation and withholding of a portion of the social contribution.

Additional Considerations

Typically, Armenian companies operate on a monthly payroll cycle. Many companies in Armenia choose to outsource payroll management to specialized firms or accountants to ensure compliance with evolving tax regulations.

In Armenia, the income tax is a flat rate of 20%, meaning all taxable income, regardless of the amount, is taxed at this rate. While there aren't broad personal exemptions, certain types of income are exempt, such as state pensions and specific social benefits.

Social Contributions

Armenian employees are generally responsible for paying their own social contributions. These typically include:

Pension Contributions

Employees are required to contribute to their pension funds at a specific percentage of their salary. The current breakdown is:

• 5% of the monthly gross salary if it is less than AMD 500,000,
• 10% of the monthly gross salary (but not more than the maximum threshold, which is currently around AMD 87,500 ) minus AMD 25,000 if the monthly gross salary is more than AMD 500,000.

Pension calculations can be complex, and it's wise for an employee to consult with their pension fund for a more precise calculation.

Other Deductions

Mandatory Health Insurance Payments

In certain circumstances, employees may also be subject to mandatory health insurance contributions.

Trade Union Fees

If an employee is a member of a trade union, membership fees might be deducted from their salary.

Armenia applies a standard VAT rate of 20% to the supply of most goods and services within its territory. Services provided to customers located outside of Armenia are generally zero-rated for VAT purposes. This includes various services like consulting, marketing, design, legal, and accounting services. It's important to maintain evidence proving the non-resident status of your customer.

VAT Registration

Businesses providing taxable services in Armenia that exceed a turnover threshold of AMD 58.35 million in the previous calendar year must register for VAT. Businesses may choose to register for VAT voluntarily even if they don't meet the threshold.

Place of Supply for Services

The place of supply for services is crucial in determining VAT liability in Armenia. The general rule is:

• Business-to-Business (B2B): The place of supply is considered to be where the customer is established or has their permanent address.
• Business-to-Consumer (B2C): The place of supply is considered to be Armenia if the supplier is established in Armenia.

VAT on Electronic Services

Non-resident businesses supplying electronic services to Armenian customers (both businesses and individuals) may have VAT obligations. Armenia offers streamlined VAT registration for non-resident providers of electronic services through the website of the State Revenue Committee.

VAT Compliance

VAT-registered businesses must:

• Charge VAT on their supplies of goods and services at the appropriate rate.
• Issue VAT invoices to their customers.
• File VAT returns periodically (monthly or quarterly, depending on circumstances).
• Pay the VAT due to the tax authorities.

Businesses operating in designated Free Economic Zones (FEZs) in Armenia may be eligible for significant tax breaks. These include exemptions from corporate income tax, VAT, property tax, and customs duties. Activities that can qualify for operating within FEZs include industrial production, information technology, product processing, and various services.

Tax Incentives in the IT Sector

IT startups certified by the Armenian government can benefit from a full exemption from corporate income tax. Additionally, employees of certified IT startups are subject to a reduced personal income tax rate of 10%, instead of the standard 20%.

Other Tax Incentives

Taxpayers engaged in agricultural production are generally exempt from corporate income tax. Projects in specific locations and sectors designated by the Armenian government might be eligible for a reduced corporate income tax rate of 5%. Furthermore, taxpayers engaged in the production of hand-made carpets are exempt from corporate income tax on that income.

Important Considerations

Each incentive has specific requirements and qualifications that a business must meet to benefit. Businesses typically need to apply for and receive approval to claim available tax incentives. It's also important to note that tax laws and incentives in Armenia can be subject to change.