• ARMENIA

    Global Employer Services Newsletter January 2021

Changes in income tax and social payment rates as from 1 January 2021

Income tax rate changes

Up to 1 January 2020 three tax brackets were applied to determine income tax rates in the Republic of Armenia. The lowest tier applicable was 23% for those who received a salary of up to AMD 150,000. 28% for those who received a salary ranging between AMD 150 000 AMD to AMD 2 million, and those who received more than AMD 2 million there was a rate of 36%.  

A transitional flat rate was introduced from 1 January 2020, gradually reducing to 20%.

Thus the income tax from salaries and other equivalent fees, as well as from the incomes received under a civil (work) contract, shall be:

  • 23%-starting 1 January 2020,
  • 22%-starting 1 January 2021,
  • 21%-starting 1 January 2022,
  • 20%-starting 1 January 2023.

From 1 January 2021 to 31 December 2021 the income tax from salaries and other equivalent fees, as well as from the incomes received under a civil (work) contract, shall be calculated at a flat rate of 22%.

Social payment

Social payments have a peculiarity of application in the Republic of Armenia due to the fact that the funded pension system was applied in Armenia in 2014.

Citizens born after 1 January 1974 must accumulate money from their salaries for their future pensions. This is via the employer in the form of social security payments. The state co-finances the participants of the mandatory funded system for their future pensions from the state budget. In parallel, the state pension system (Pay As You Go) continues to operate, but it will become less and less important, aiming to provide a certain subsistence minimum. 

Up to 1 July 2020, transitional provisions set the maximum threshold for the calculation of social payments at AMD 500,000, and the social payment rate at 2.5%.  From 1 July 2020 the maximum threshold is set at 15 times the minimum wage: AMD 1,020,000.

1 January to 31 December 2021, the following rates apply for social payments:

  • For income up to AMD 500,000 3.5 % rate is applied,
  • For income exceeding AMD 500,000, the difference of 10% and 32,500 AMD is charged.

Moreover, the social payment rate will be gradually increased until 2023, and from 2023 the following rates will be applied: 

  • For income up to AMD 500,000 5 % rate is applied,
  • For income exceeding AMD 500,000, the difference of 10% and AMD 25,500 is charged.

The following calculation tables show the income tax and social payment calculations supplemented by the application of legal norms in force from 1 July 2020 to 31 December 2020 and 1 January 2021 to 31 December 2021.

Table 1. Calculation mechanism 1։ Applicable from July 1st, 2020 to December 31, 2020

 

Gross salary

Income tax

Social payment

Stamp fee

Net salary

230 000

52 900

5750

1 000

170 350

900 000

207 000

52 500

1 000

639 500

1 020 000

234 600

64 500

1 000

719 900

1 500 000

345 000

64 500

1 000

1 089 500


Income tax rate: flat rate of 23%,

Social payment:

  • For income up to AMD 500,000 - 10%, from which 2.5%, but no more than AMD 12,500 per participant, 7.5%, but no more than AMD 37,500 for the state,
  • For income AMD 500,000 and greater, the participant pays the difference of 10% and AMD 37,500, while the state pays only AMD 37,500.
  • For income exceeding  AMD 1,020,000, social payments are not paid for the difference.

Stamp fee - AMD 1,000 - fixed fee. Note: The stamp fee is a fixed monthly amount of 1,000 AMD. It is withheld  by the employer. The money is directed to the “Insurance Foundation for Servicemen”.

Table 2. Calculation mechanism 2։ Applicable from 1 January  2021 to 31 December 2021

Gross salary

Income tax

Social payment

Stamp fee

Net salary

230 000

50 600

8050

1 000

170 350

900 000

198 000

57500

1 000

643 500

1 020 000

224 400

69 500

1 000

725 100

1 500 000

330 000

69 500

1 000

1 099 500

Income tax rate: flat rate of 22%   

Social payment:

  • For income up to 500,000 AMD - 10%, from which 3.5%, but no more than AMD 17,500 per participant, 7.5%, but no more than AMD 32,500 from the state,
  • For income from AMD 500,000 to 1,020,000 (maximum threshold), the participant pays the difference of 10% and AMD 32,500, while the state pays only AMD 32 500.

Stamp fee - AMD 1000 - fixed fee.

General summary

With the reduction of the real income tax rate for mandatory participants of the funded pension system, the portion they accumulate is gradually increasing and the portion co-financed by the state for their future pensions is reducing.

Aharon Chilingaryan                                    
[email protected]                    

Anahit Simonyan
[email protected]