In June 2019, the National Assembly adopted the draft law on “Making Amendments and Addenda to the Tax Code of the RA”, which envisaged a number of important amendments. Some of these amendments will enter into force since January 1, 2020 and will have a significant influence on both the businessmen and on the state budget.

Leveling of Income Tax

B efore the amendments to Tax Code, a three-level progressive income tax was set: those who received salary of up to 150,000 AMD paid 23% income tax, those who received between 150,000 AMD and 2,000,000 AMD, paid 28% and those receiving more than 2,000,000 AMD, paid 36%. As a result of the amendment to Tax Code, the income tax will be leveled to 23% since January 1, 2020 and by 2023, it will be reduced by 1% every year on January 1, by making up 20% in 2023.

According to the Ministry of Finance, 65% of the hired employees in Armenia receive up to 150,000 AMD, 34.7% receive up to 2 mil. AMD and 0.3% receive more than 2 mil. AMD salary.



By making amendments to the law on “a cumulative pension” in 2018, the Government made the mandatory funded contributions 2.5% from 5% before making income tax amendments to Tax Code, that is, the state’s payment made 7.5% from 5%.  In 2020, the state will continue paying 7.5% mandatory funded contribution, though will pay 6.5% in 2021, 5.5% in 2022 and 5% in 2023. Since January 1, 2020, people will pay 23% income tax, 2.5% pension payment and a stamp payment of 1000 AMD. The pension payment paid by the individual will gradually increase to 5% by 2023.

Let’s see how the payments of the salaries will be changed as a result of the leveling for people born after 1974.

As we see, the taxes paid by those who receive salary of up to 150,000 AMD won’t change in 2020, in 2021 and in 2022, moreover, will even decrease in 2023. The taxes paid by those who receive more than 150,000 AMD will decrease since 2020.

It turns out that as a result of income tax leveling people receiving salary of up to 150,000 AMD do not suffer and those receiving more than 150,000 AMD, who often avoided showing their real wages so as not to be taxed at a high income tax rate may now not hide them, by often presenting it as a profit and be taxed at an appropriate rate of profit tax. Therefore, we can state, that the shadow will be significantly reduced in the labor market as a result of the income tax equalization.

Introduction of Micro-Enterprise System

A s a result of the amendments to Tax Code, the patent tax system will be abolished,

and a unified micro-enterprise taxation system will be introduced instead of the self-employed persons taxation system and the family enterprise system, which can be used both by legal entities and individual entrepreneurs, as well as by individuals who are not sole proprietors and if their annual turnover does not exceed 24 mil. AMD. That is, the aforementioned people will not pay turnover tax (except in a few cases).

Financial and advisory service providers, those carrying out activity in the field of public catering within the administrative boundaries of Yerevan, organizations and sole proprietors engaged in commercial activities within the administrative boundaries of Yerevan and people engaged in commercial activities in trade centers and fairs, those engaged in private cars trading or e-commerce trading and a few engaged in other activities outside the administrative boundaries of Yerevan cannot be called micro-entrepreneurship entities.

Micro-entrepreneurship entities are free from most of the previously paid taxes but have some import duties. Unlimited number of employees can be involved in micro-enterprise and the income tax paid for them will be 5000 AMD.

Let’s take the example of a hairdresser’s operating in Yerevan. It has 3 employees and pays a monthly salary of 95,480 AMD per employee. According to the current Tax Code, the hairdresser’s is taxed by patent tax: it pays 15,000 AMD patent tax and an appropriate amount of income tax for each employee. 

Taxes paid (monthly)	Current Tax Code	After January 1, 2020
Tax paid for the number of employees	45.000	0
Income tax paid for employees	65.880	15.000
Pension payment paid for the employees	7.161	7.161
Stamp payment paid for the employees	3.000	3.000
S/P activity payment	5.000	0
Total	126.041	25.161

As a result of the amendments to Tax Code, the hairdresser’s will pass from the patent tax regime to micro-enterprise taxation, since paying 80% less tax.

Here is another example: S/P engaged in trading, whose annual turnover is 22 mil. AMD (1 mil. 800 thous. AMD per month). Based on the current Tax Code, he is taxed by turnover tax. As a result of amendments to the Tax Code, person engaged in trading will pass into micro-enterprise taxation regime. If this S/P has 5 employees, to whom he pays a minimum monthly salary, then:

Taxes paid (monthly)	Current Tax Code	After January 1, 2020
Turnover tax	90.000	0
Income tax paid for employees	86.450	25.000
Pension payment paid for the employees	9.400	9.400
Stamp payment paid for the employees	5.000	5.000
S/P activity payment	5.000	0
Total	195.850	39.400

It turns out that as a result of amendments to Tax Code, the aforementioned S/P will pay 150,450 AMD less tax, which will allow him to increase the salaries of the employees without an additional financial burden (to increase the minimum salary from 55,000 to 68,000 AMD).   

VAT Threshold Increase to 115 mil. AMD

S ince January 1, 2019, the VAT (value added tax) threshold was set at 58.35 mil. AMD. That is, those having more than 58.35 mil. AMD annual turnover, including small and medium-sized enterprises, have to pay 20% VAT. As a result of the amendments to Tax Code, the VAT threshold will be set at 115 mil. AMD, that is, those with annual turnover of up to 115 mil. AMD will be taxed not by 20% VAT, but by turnover tax, which rate is incomparably lower:

Type of income	Rate
Commercial revenues (except in a few cases)	5%
Income generated from trading of secondary raw materials included in the RA Government list	1.5%
Revenues from newspaper alienation by editorial staff	1.5%
Income from productive activities	3.5%
Revenues from lease payment, interest, royalty, alienation of real estate and vehicles	10%
Proceeds from notary business	10%
Proceeds from organizing lotteries	25%
Revenues from other activities	5%

For instance, if an organization conducting a commercial activity, had an annual turnover of 80 mil. AMD, it should pay 16 mil. AMD VAT according to the present Tax Code, and should pay turnover tax of 4 mil. AMD instead of 16 mil. AMD according to the amended Tax Code.

Profit Tax Reduction of up to 18%

A ccording to the data of 2018, profit tax is the third largest tax type in Armenia, which forms 14% of all the collected taxes. Profit tax is taxed on gross income received from sole proprietors, resident organizations and notaries registered in the RA, sources from the RA and outside the RA, except for personal income. The current Tax Code defines a 20% profit tax rate (except in a few cases). Owing to the amendments to Tax Code, if an organization, whose gross income was 100 mil. AMD during the reporting period, paid 20 mil. AMD profit tax, will pay 18 mil. AMD after the amendments to Tax Code.

As a result of the amendments, foreign citizens’ dividends made from the RA sources will be taxed at 5% instead of the previous 10%. By this step, the Armenian Government has set a goal to make Armenia more attractive to foreign investors.

Other Amendments

A ccording to the amendments to Tax Code, the rates of excise taxes for ethyl alcohol, vodka (excluding vodka made from fruit and berry, beer and IQOS cigarette products. Moreover, according to Tax Code, the fixed rates of excise taxes will increase by 3% annually. The rates of state duty paid for organizing lotteries and gambling, as well as the rates of state duty paid by financial and credit organizations (such as banks, credit organizations, insurance companies, pawnshops, currency exchange points) will increase by 20%. Road tax and state duty rates will also pass some changes.

Taxes in Armenia

T he Ministry of Finance of the RA estimated, that the state budget will suffer an annual loss of 27.5 bil. AMD as a result of tax amendments. If we observe the tax structure in Armenia in 2018, we will get the following results:

VAT has the largest share in taxes, which is about 35% of total taxes. The income tax is the second largest, which is about 28% of total tax receipts.

To get the idea of how the tax structure will be changed in Armenia in 2020, let’s observe the two largest tax changes in Armenia, the VAT and income tax.

If we look at the VAT paid by 1000 major taxpayers in 2018, which is 413 bil. AMD and the collected total VAT of 438 bil. AMD in 2018, we can say, that the VAT paid by 1000 major taxpayers makes 94% of total paid VAT.  And as the annual turnover of the 1000 major taxpayers is more than 115 bil. AMD, we can say, that raising VAT threshold will have a little impact on state budget revenues, but will greatly contribute to the development of small and middle-sized enterprises.

Referring to the reduction of income tax rate, we can state, that it will have a major impact on the state budget (35% of the working population will pay less income tax), however, it will be partially compensated with the new income tax streams due to shadow reduction in the labor market.  

Although the state budget revenues will decrease as a result of amendments to Tax Code, the tax burden will be significantly reduced for a number of taxpayers, a favorable environment will be created for business development and investment attraction and the labor market shadow will also decrease. Referring to the negative reviews about the increase of taxes on some goods, we can state that the tax rates on products which are harmful to health and on luxury products will increase, instead of those on the essential commodities.