Armenia operates a unified tax system that includes obligations for both employers and employees related to employment income. Employers play a crucial role in this system by correctly calculating, withholding, and remitting various taxes and social contributions on behalf of their employees. Understanding these obligations is essential for compliant operation within the country.
The primary taxes and contributions related to employment in Armenia include income tax and social payments. Employers are responsible for ensuring these amounts are correctly handled for all individuals they employ, whether local residents or foreign nationals working in Armenia.
Employer Tax Obligations
Employers in Armenia are responsible for calculating and remitting social payments on behalf of their employees. These contributions are a percentage of the employee's gross salary.
The social payment rates applicable to employers and employees are as follows:
| Monthly Gross Salary (AMD) | Employee Social Payment Rate | Employer Social Payment Rate |
|---|---|---|
| Up to 500,000 | 4.5% | 4.5% |
| Above 500,000 | 10% (on amount exceeding 500,000) + 22,500 | 10% (on amount exceeding 500,000) + 22,500 |
| Maximum Contribution | Capped at 15,000,000 AMD annual gross salary (approx. 1,250,000 AMD monthly) | Capped at 15,000,000 AMD annual gross salary (approx. 1,250,000 AMD monthly) |
The social payment is calculated on the gross salary before income tax deduction. The maximum annual base for social payments is 15,000,000 AMD.
Income Tax Withholding
Employers are required to withhold income tax from the gross salary paid to employees and remit it to the state budget. Armenia currently applies a flat income tax rate.
The income tax rate for employment income is:
- 20% on gross salary.
This flat rate applies to all levels of employment income for tax residents. The employer calculates the income tax based on the employee's gross salary after deducting the employee's portion of social payments.
Calculation Example: If an employee's gross monthly salary is 600,000 AMD:
- Calculate employee social payment: (500,000 * 4.5%) + (100,000 * 10%) = 22,500 + 10,000 = 32,500 AMD
- Calculate taxable income: 600,000 (Gross Salary) - 32,500 (Employee Social Payment) = 567,500 AMD
- Calculate income tax: 567,500 * 20% = 113,500 AMD
- Net Salary: 600,000 - 32,500 - 113,500 = 454,000 AMD
The employer withholds 32,500 AMD for employee social payment and 113,500 AMD for income tax, remitting both amounts along with the employer's social payment portion (32,500 AMD in this example) to the relevant authorities.
Employee Tax Deductions and Allowances
While Armenia has a flat income tax rate, there are limited deductions and allowances available to employees that can affect their taxable income.
Key considerations include:
- Standard Deductions: Generally, there are no broad standard personal deductions from employment income.
- Specific Allowances: Certain specific payments or benefits might be treated differently, but the primary calculation is based on gross salary less mandatory employee social payments.
- Charitable Contributions: Donations to certain registered charitable organizations may be deductible, subject to specific limits and conditions.
- Mortgage Interest Deduction: Residents may be eligible for a deduction on interest paid on mortgage loans for purchasing or constructing residential property in Armenia, subject to specific criteria and limits. This is typically claimed by the individual through an annual tax declaration, not usually handled via payroll withholding.
Employees should be aware that most deductions require specific documentation and may need to be claimed through an annual tax declaration rather than automatically applied via payroll.
Tax Compliance and Reporting
Employers in Armenia have specific deadlines for reporting and remitting withheld taxes and social payments.
- Monthly Reporting: Employers must submit monthly reports detailing calculated income tax and social payments for each employee.
- Payment Deadline: The calculated and withheld amounts for both income tax and social payments must be remitted to the tax authorities by the 15th day of the month following the reporting month.
- Annual Reporting: Employers are also required to submit an annual report summarizing the total income paid, taxes withheld, and social payments made for each employee during the previous calendar year. This report is typically due by the April 15th of the following year.
Accurate and timely reporting and payment are crucial to avoid penalties and interest charges.
Special Considerations for Foreign Workers and Companies
Employing foreign workers or operating as a foreign company in Armenia involves specific tax considerations.
- Tax Residency: The tax obligations for foreign workers depend on their tax residency status in Armenia. An individual is generally considered a tax resident if they are present in Armenia for 183 days or more in any 12-month period ending in the current tax year. Residents are taxed on their worldwide income, while non-residents are taxed only on their Armenian-source income.
- Income Tax for Non-Residents: Non-resident employees working in Armenia are subject to income tax on their Armenian-source employment income at the same 20% flat rate. Employers must withhold this tax.
- Social Payments for Foreigners: Foreign employees working under an employment contract in Armenia are generally subject to mandatory social payments under the same rules as Armenian citizens. Exceptions may apply based on international social security agreements between Armenia and the employee's home country.
- Foreign Companies: Foreign companies employing individuals in Armenia, even without a registered legal entity (like a branch or subsidiary), may establish a taxable presence (Permanent Establishment) depending on the nature and duration of their activities. If a Permanent Establishment exists, the foreign company is subject to Armenian corporate taxes. Regardless of Permanent Establishment status, if they directly employ individuals in Armenia, they are typically required to register as a tax agent to fulfill employer withholding and reporting obligations for income tax and social payments.
Navigating these requirements for foreign workers and entities can be complex, making local expertise or an Employer of Record service valuable.
