On 4 October, 2016 Armenian National Assembly has adopted Armenia’s Tax Code, which came in force from January 1 2018, resulting in significant changes in tax legislation.

Grant Thornton Armenia’s tax experts have studied the legislative amendments and provided Banks.am with the main provisions of tax reform.

Tax newsletter includes changes in income tax, depreciation allocations, profit tax and transfer pricing.

The main change in income tax relates to the application of the rates, more specifically income tax minimum rate for salaries and other equivalent payments is reduced to 23% for employees earning monthly below AMD 150,000 while increased for middle range earnings from 26% to 28% for monthly incomes between AMD 150,000 and 2m. Marginal income tax rate kicks off in 36% for incomes above AMD 2m per month. There have been also several changes in terms of reporting deadlines and introduction of new type of annual report.

Another significant change in Tax Code relates to depreciation allocations and from January 2018 taxpayers shall turn-back to straight line method of depreciation calculation. It is worth mentioning that straight line method was applicable until 2013 then from 2014 “Pooling” method was adopted.

One of the important changes in the Tax Code is the introduction of a new taxation mechanism for dividends of non-resident legal entities, in particular the liability for tax agent to calculate and withhold profit tax from dividends payable to non-resident profit tax payers arise, consequently, for the latter’s right to receive income in the form of dividends shall be deemed to be obtained at the date the decision on dividend distribution is made by shareholders meeting.

It is worth mentioning that this provision is applicable for the dividends received by non-resident companies attributable to the periods after January 1, 2017.

Quarterly profit tax advance payments from 2018 shall be made at the rate of 20% of the profit tax amount of the previous fiscal year before the 20th (inclusively) of the last month of the respective quarter unless alternative method of advance payments is chosen. For comparison, it should be noted that in accordance with the provisions of the Armenian Law “On Profit Tax” in force until January 1, 2018, the profit tax advance payments should have been done before the 15th of the last month of respective quarter at the rate of 18.75% of the profit tax amount of the previous fiscal year․

Transfer pricing (TP) concerns mostly businesses engaged in international transactions. In Armenia transfer pricing rules became effective with the adoption of the Tax Code from January 1 2018 and constitute a part of the new Armenian Tax Code. The new regulations define the scope of TP control, introduce the arm’s length principle and TP methods, define sources of information for analyzing TP, determine TP documentation requirements and establish other important provisions. Armenia is a member of the Organization for Economic Co-operation and Development (OECD), and the new transfer pricing regulation is largely based on the principles stipulated by the OECD Guidelines. The new rules significantly increase the documentation burden for Armenian companies that are engaged in controlled transactions during the fiscal year exceeding AMD 200m.

“Grant Thornton’s tax team spares no effort in comprehensive study of the complexities of legislation provisions, changes and amendments made within it and how this can impact the business of economic entities in the meantime introducing the ways enabling them to leverage opportunities and minimize risks arising from changes in tax legislation,” the company noted.

Find out more by visiting Grant Thornton’s website.