Until 1 January 2020 three tax brackets were applied to determine income tax rate in the Republic of Armenia. The lowest tier of 23% was applicable for those who received a salary of up to 150, 000AMD. Those who received from 150 000 AMD to 2 million AMD paid 28% for that part, and those who received more than 2 million paid 36% for that part. However, according to the law adopted by the RA National Assembly on 25 June 2019, a transition to a flat rate from 20 January 2020 was made. From 2020 to 2023 gradually the rate is reduced to the threshold of 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:
From 1 January 2022 to 31 December 2022 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 an flat rate of 21%.
Social payments have a peculiarity of application in the Republic of Armenia due to the fact that the funded pension system has been applied in Armenia since 2014.
Citizens born after 1 January 1974 must accumulate money from their salaries for their future pensions. This is done through 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. The social payment system operates in accordance with the RA Law on “Funded Pensions”. The transitional provisions of the mentioned law, part 8 of Article 81, set the maximum threshold for the calculation of social payments, which was AMD 500,000, and the social payment rate was 2.5%, but this transitional provision applied until 1 July 2020 . From 1 July according to Article 6, Part 6 of the RA Law on “Funded Pensions”, the maximum threshold is set at 15 times the minimum wage: 68,000 * 15 = 1,020,000 AMD (the amount of the minimum wage established by law in the Republic of Armenia at the time of writing this article is 68,000 AMD).
According to another law adopted by the National Assembly on 25 June 2019, from 1 January to 31 December 2022, the following rates are applied for social payment:
The social payment rate will be gradually increased until 2023, and from 2023 the following rates will be applied:
Starting from 2017 RA law on "Compensation Of Damages Caused To The Life Or Health Of Soldiers During The Defense Of The Republic Of Armenia" HO-245-N 15 December 2016 has been in force in the Republic of Armenia. According to the Law, the stamp fee is a mandatory payment to the state budget of the Republic of Armenia in the manner prescribed by law in order to ensure compensation for damages caused to the life and health of servicemen. The employer is responsible for calculating the stamp fee from the employee's salary and paying it to the state budget. The calculation and payment are performed in each reporting period (month). Until 1 January 2020 there was a fixed stamp fee of 1 000 AMD per month in the Republic of Armenia. From 1 January 2021 the different amounts of stamp fee were set for those receiving low, medium and high salaries.
The amount is calculated in the following rates:
The following calculation tables show the income tax and social payment calculations supplemented by the application of legal norms in force from 1 January, 2021 till 31 December 2021 and 1 January, 2022 till 31 December 2022.
Table 1. Calculation mechanism 1։ Applicable from 1 January, 2021 to 31 December 2021
Income tax rate: flat rate of 22%,
Social payment:
Stamp fee according to the rates described in the section III.
Table 2. Calculation mechanism 2։ Applicable from 1 January 2022 to 31 December 2022
Income tax rate: flat rate of 21%,
Social payment:
Stamp fee according to the rates described in the section III.
With the reduction of the real income tax rate for the mandatory participants of the funded pension system, the part they accumulate gradually increases, and the part co-financed by the state for their future pensions decreases.
Narine Nuroyan
n.nuroyan@bdoarmenia.am
Anahit Simonyan
a.simonyan@bdoarmenia.am