Tax Guide for US Expats Living and Working in Armenia
Who Is Liable For Income Taxes in Armenia
Resident individuals are subject to income tax on their worldwide income. Nonresident individuals are subject to income tax on only income received from Armenian sources.
For tax purposes, an individual is considered resident if he or she satisfies either of the following conditions:
- He or she resides in Armenia for 183 or more cumulative days in any continuous 12-month period ending in the current tax year (same as a calendar year).
- His or her center of vital interests (the place of a person’s family or economic interests) is in Armenia.
For the purpose of determining the residency status, days spent abroad by an individual as a civil servant of the Republic of Armenia (RA) are considered as days spent in the RA.
Income subject to tax.
The taxation of various types of income is described below. For a table outlining the taxability of income items.
Employment income. Taxable income from employment consists of all types of compensation or benefits, whether received in cash or in any other form, subject to certain exemptions.
Self-employment and business income. Tax is levied on an individual entrepreneur’s annual income, which consists of gross income less expenses (except for nondeductible or partially nondeductible expenses) contributing to the generation of the income.
Directors’ fees. Directors’ fees are included in taxable income.
Investment income. A 10% withholding tax is imposed on interest income and other compensation received by individuals from loans. Interest derived from treasury bonds and other state securities is not taxable.
Exempt income. “Exempt income” represents part of the gross income of a taxpayer. However, it is also shown as a deduction from gross income. “Income that is not considered to be taxable income” does not represent part of gross income.
Income derived by individuals that is considered to be exempt income includes the following:
- Dividends
- Income of servicemen and similar persons received with respect to military service
- Compensation paid within the norms specified in the legislation of the RA, with the exception of compensation paid for unused leave days in the event of quitting work
- Property and cash received from individuals as inheritance or gifts
- Amount of monetary and in-kind assistance provided to individuals within the scope of charter activities of non-commercial organizations established in accordance with the procedures specified by the law of the RA and registered with the tax authorities
- Amount of financial assistance provided on the basis of decisions of the state administration and local government bodies of the RA, as well as financial assistance provided by foreign states and international (intergovernmental) organizations
- Grants received under procedures established by the law of the RA
- Proceeds from the sale of property to non-entrepreneur individuals, with the exception of amounts received from the sale of property within the scope of entrepreneurial activity
- Positive differences between the face value and the purchase price of privatization certificates in cases of acquisition and investment of privatization certificates according to the procedures established by the legislation of the RA
- Scholarships and stipends paid by the state to students and postgraduates of higher educational institutions, students of specialized-secondary and vocational schools and attendees of religious seminaries
- Insurance compensation with the exception of insurance compensation received under the voluntary accumulative pension insurance system
- Income derived from the sale of shares, treasury bonds and other state securities
- Amounts received as compensation for damages under the law, with the exception of compensation for lost income
- Amount of severance pay received in cases of dismissal under the law of the RA and lump-sum amounts paid on the death of an employee or his or her family members
- Prizes won at international competitions and contests by athletes and coaches participating for the national team of the RA, and state awards (prizes)
- Monetary and in-kind winnings of the participants in lotteries implemented according to the procedures and terms specified by the law of the RA
- Insurance payments up to AMD 10,000 (approximately US$27) per month per head made by the employers for health insurance of their employees
- Income derived from the sale of agricultural production, as well as income received from other activities by individuals involved in agricultural production, to the extent that the income from such activities does not exceed 10% of the income received from agricultural operations
Income that is not considered to be taxable income includes the following:
- State benefits paid under the legislation of the RA, with the exception of benefits for temporary work disability
- All types of pensions paid under the law of the RA with the exception of pensions received under the voluntary accumulative pension insurance system
- One-time compensation paid under the law of the RA to families of deceased or disabled servicemen
- Alimony paid according to the law of the RA
- Amounts received by individuals for donated blood, breast milk and other types of donorship
- Income received from securities that certify taxpayers’ participations in investment funds
Taxation of employer-provided stock options. Employer-provided stock options are taxable benefits.
Capital gains and losses. Capital gains are subject to regular income tax when they are realized. Unrealized capital gains are not subject to tax. Individual entrepreneurs may offset their capital losses against capital gains. If the capital loss cannot be offset in the year in which it is incurred, it can be carried forward to offset gross income in the following five years.
Deductions
Personal deductions and allowances. Gross income is reduced by AMD 32,500 (approximately US$87) for each month income is received. A tax agent (a legal entity, including a representative or branch office of a foreign entity, or an individual entrepreneur who is required by law to withhold tax at the source of payment and transfer it to the state budget) deducts this amount from gross income of an individual, regardless of whether similar deductions are made by other tax agents from other income received by the same individual. A tax agent does not make such deductions for payments made to foreign citizens.
Business deductions. Taxpayers may deduct all necessary and documented expenses incurred directly and exclusively for the purpose of generating taxable income (for example, expenditure for materials, depreciation allowances, lease payments, salaries and wages and interest paid), except for nondeductible or partially nondeductible expenses.
Nondeductible or partially nondeductible expenses include the following:
- Environmental pollution charges exceeding 0.5% of the gross income of the tax year
- Advertising, staff training, marketing and business trip expenses incurred abroad that exceed the norms established by the government of the RA
- Representative expenses exceeding 0.5 % of the gross income for the tax year
- Fines, penalties and other proprietary sanctions transferred to the state and municipal budgets, including those for the required social security payments
- Assets provided free of charge and remitted (forgiven) debts
- Expenses related to generation of income that is exempt from income tax
- Interest paid on loans and borrowings above the established limit of 24% per year
- Repair and maintenance expenses with respect to fixed assets in excess of 10% of the acquisition cost of the corresponding fixed asset
Depreciation allowances for fixed and intangible assets used in economic activities are deductible for tax purposes in accordance with the terms and conditions provided by the Law of the RA on “Profit Tax.” The annual value of depreciation allowances is calculated by dividing the acquisition cost or revalued cost (if the revaluation is carried out according to the procedure established by the law of the RA) of fixed assets by the depreciation period determined for the appropriate group of fixed assets or for intangible assets.
Land is not subject to depreciation.
For the purposes of determination of taxable income a taxpayer may choose a different depreciation period for fixed assets at his or her discretion, but it may not be less than one of the above-mentioned periods for the appropriate group.
Credits. The income tax liability of Armenian tax residents is reduced by the amount of tax payable by them abroad under foreign law, with the exception of the amount of foreign tax paid on income that is exempt from tax under the law of the RA. However, the foreign tax credit may not exceed the amount of tax that would be due in the RA on this income.
Relief for losses. Individual entrepreneurs may carry forward operating losses for up to five years. No carryback is allowed.
B. Other taxes
Inheritance and gift taxes. Armenia does not impose inheritance and gift taxes.
Wealth tax. Armenia does not impose wealth tax or net worth tax.
Property tax. For individuals and individual entrepreneurs, buildings and constructions and vehicles are subject to property tax. For purposes of the property tax, buildings and constructions include the following:
- Residential construction units
- Multi-flat dwelling buildings
- Nonresidential areas of residential buildings
- Separate constructions for the parking of vehicles that are built on plots
- Constructions for public use
- Constructions for production use
- Incomplete (semi-built) construction units
The tax base of buildings and constructions is considered to be the cadastral value assessed under procedures defined by the Law of the RA on Property Tax. The property tax rates for buildings and constructions range from 0% to 1%. For purposes of the property tax, vehicles include the following:
- Motor vehicles
- Watercrafts
- Snowmobiles
- Quattro cycles
- Motorcycles
Land tax. Landowners and permanent users of state-owned land are considered payers of land tax. The land tax rate for the agricultural lands (including land lots allotted for housing in settlements, and garden plots) is 15% of the net income determined by cadastral evaluation. The land tax rate for nonagricultural lands ranges from 0.5 to 1% of the value determined by cadastral evaluation.
C. Social security
Coverage. The social security system generally covers pension and disability (for example, sickness, maternity and work-related accidents) insurance. Participation in the social security system is mandatory for all citizens of the RA and noncitizen employees, employers, individual entrepreneurs and notary officers.
Contributions. Employers, employees, individual entrepreneurs and notary officers are subject to mandatory social security contributions.
Totalization agreements. Armenia has not entered into any international agreements regarding contributions to social funds.
To learn more about the history, culture, economy and other information about Armenia
We have been preparing US income tax returns for US Citizens and permanent residents living in Armenia for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Armenia and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the Armenia tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Armenia Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Armenia, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Armenia.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email