EY Armenia Tax alert on Tax Code Amendments in Armenia: Benefits for the High-Tech Sector

Facts

On 4 December 2024, the National Assembly of the Republic of Armenia passed the law (the “Law”) that introduced amendments and supplements to the Tax Code, providing several benefits for taxpayers operating in the high-tech sector. Specifically, it is established that:

1. The special-purpose monetary funds received by corporate income taxpayers engaged in activities included in the list of high-tech sector activities defined by the Government (IT activities) and declaring an average annual number of up to 50 (inclusive) employees (including those working under civil law contracts) during the tax year, are considered income in the same tax year in which these funds or the assets acquired, constructed, created, or developed using such funds are recognized as expenses or losses, regardless of whether these expenses or losses are deductible from gross income.
   
   
2. Resident corporate income taxpayers engaged in scientific research and experimental development activities (R&D activities) that meet the criteria set by the Government and have received a positive conclusion from the professional commission, set the minimum depreciation period for fixed assets (excluding real estate) imported or acquired (constructed, developed) within the scope of R&D activities at their discretion; however, such minimum period cannot be less than one year. The Government defines the operational procedures and composition of the professional commission, as well as the procedure for qualifying operations as R&D activities.
   
   
3. To determine the corporate income tax base, the gross income of a corporate income taxpayer is reduced by the expenses incurred on R&D activities that meet the criteria set by the Government and are carried out directly by the corporate income taxpayer or by their order, fully within the tax year in which these expenses are incurred.
   
   
4. To determine the corporate income tax base, the gross income of a resident corporate taxpayer operating in the high-tech sector is reduced by 200% of the salaries and payments equivalent thereto calculated for the professional work of the staff (excluding foreign nationals and persons without citizenship who do not have a right to reside (residence status) in Armenia) engaged in the high-tech sector activities defined by the Government. This reduction is applied regardless of whether the salaries and payments equivalent thereto are deductible from gross income for determining the corporate income tax base.
   
   
5. The personal income tax on salaries and payments equivalent thereto is calculated at a rate of 10% for the IT staff engaged in R&D activities (including for employer's own needs) that meet the criteria set by the Government and have received a positive conclusion from the professional commission.
   
   
6. When determining the corporate income tax base, expenses incurred for goods, services, and work received from turnover taxpayers in relation to the IT activities are not deductible from gross income.
   
   
7. For turnover taxpayers, income from IT activities will be taxed at a rate of 1%.

The Law comes into force on 1 January 2025 and will remain in force until 31 December 2031. Certain provisions of point 4 above are applicable from 1 January 2024.

Who’s affected:

•  Corporate Income Taxpayers engaged in Government-defined high-tech activities
•  Turnover taxpayers engaged in in Government-defined high-tech activities

How EY can help?

• Provision of tax advisory and tax compliance services
• Preparation and filing of tax returns
• Qualification assessment of the taxpayers under the new criteria

*Disclaimer: This material is provided for informational purposes only and may not encompass all major and significant points related to the application. It is not intended to be construed as advice or a comprehensive guide. For thorough understanding and proper application of the information, we strongly advise you to contact us directly. 

Contacts

For additional information, please contact:

Kamo Karapetyan | Partner | Head of Tax Practice at EY in Armenia
EY Armenia
Vazgen Sargsyan 2, Kamar Business Center, 0010, Yerevan, Armenia
Office: +374 (60) 50 7777
Mobile: +374 (99) 88 67 00
Kamo.Karapetyan@am.ey.com

Mikayel Arzumanyan | Manager | Tax & Law
EY Armenia
Vazgen Sargsyan 2, Kamar Business Center, 0010, Yerevan, Armenia
Office: +374 (60) 50 7777
Mobile: +374 (44) 80 80 05
Mikayel.Arzumanyan@am.ey.com