On Income Tax - Artsakh Invest

1. Income tax and income tax payers

Income tax is a direct tax paid to the state budget of the Republic of Artsakh (hereinafter referred to as the budget), which is levied from physical persons for the taxable income within the reporting period.

A physical person – a citizen of the Republic of Artsakh, a foreign citizen, a person with a ‘non-citizen’ status, including a sole proprietor/private entrepreneur – pays income tax to the Republic of Artsakh if he / she:

is a resident of the Republic of Artsakh, has been in the Republic of Artsakh for a total of 183 days and more in any 12-month period beginning or ending within the tax year (from January 1 to December 31), or whose center of vital interests^[1] is located in the Republic of Artsakh (in particular if in the Republic of Artsakh it is located the house or apartment, where his / her family lives and his/her personal or family property/assets are, or the place of main economic (professional) activities), or
who, employed as a public servant under state service for the Republic of Artsakh, works temporarily outside the territory of the Republic of Artsakh, has received any taxable income outside the territory of the Republic of Artsakh,
is a non-resident and receives taxable income from Artsakh sources/means.

2. Taxable income

Taxable income is the positive difference of the gross income of the reporting period and the deductions defined by the Law on Income Tax (hereinafter referred to as the Law) (unless otherwise is not provided by the Law in terms of determining the taxable object).

Deductions defined by the Law are:

– Deductible incomes,

– costs:

3. Gross Income and Deductible Incomes

Gross income is the sum of all incomes received (to be received) by the taxpayer during the reporting period. Income is the amount received from an entrepreneurial activity, assets/property to be received within the framework of employment contracts, within the framework of civil law contracts (also called services’ provision contracts) or on any other basis (monetary, natural (non-monetary) incomes). However, some types of income, including gross income, are deducted from that income at the same time, for example:

Benefits paid in accordance with the legislation (except temporary disability benefits and maternity benefits set for employees, employees with self-employment/private entrepreneurs, defined by the NKR Law on ‘Temporary Disability and Maternity Benefits’).
All types of pensions paid in accordance with the legislation (except for pensions paid within the framework of membership/participation in the voluntary funded pension system).
According to the legislation of the Republic of Artsakh, honorariums, financial aid and aid are paid within the framework of the social protection system.
Compensation payments related to performance of work (provision of services) within the framework of norms (amounts) defined by the legislation of the Republic of Artsakh (except for compensation for unused annual leave in case of dismissal).
In accordance with the legislation of the Republic of Artsakh, property and monetary means received from individuals through inheritance (or) donations.
Amounts received from individuals who are not tax agents from the sale of property owned by them (except for amounts receivable from the sale of property through business activities). Sale (sale) is not considered the investment of property owned by a physical person in the statutory capital of commercial organizations.
Amounts of loans (received (except for the waiver of the loan or loan amount by the creditor or the agreement with the creditor not to repay the amount in any other way (including at the expiration of the statute of limitations).
Lump sum assistance in the event of the death of an employee or any member of the employee’s family;
Interest paid or other compensation accrued for targeted time deposits opened in the name of individuals at the expense of the state budget of the Republic of Artsakh.
Awards (prizes) of athletes and coaches who have won international competitions as a member of the Artsakh team.
Cash awards of the participants of the advertised lotteries carried out in accordance with the procedure defined by the legislation of the Republic of Artsakh, in the amount not exceeding AMD 50,000 for each win, monetary-cash prizes of the participants of the combination lotteries.
The value of monetary prizes (awards) received in tenders (competitions) in the amount not exceeding 50,000 AMD for each payment.
Reimbursement of 10% of the annual tuition fee of the student body studying within the paid amount provided by the Government of the Republic of Artsakh to the higher education institution.
State awards (prizes).
Revenues from the sale of handmade carpets by taxpayers engaged in the production of handmade carpets.
Employers’ insurance premiums for the health insurance of their employees – up to 10.0 thousand AMD per month of income for each employee. in the amount of AMD. 10.0 thousand of insurance premiums accrued by employers for the health insurance of their employees on a monthly basis. Amounts exceeding AMD are taxed in general, plus the calculated salary for the given month.
Amounts of compensation paid to beneficiaries on the basis of the Law of the Republic of Artsakh “On Compensation for Damages Caused to the Life or Health of Servicemen during the Defense of the Artsakh Republic”.
Dividends and income from securities.
Income (subject to receipt) of the taxpayer engaged in agricultural production (subject to receipt), as the amount of income from other activities, if the latter’s share in the total income from other agricultural activities does not exceed 10%, etc.

The full list of deductible income from gross income can be found in Articles 6, 7 and 8 of the Law on Income Tax .

4. Income tax calculation and payment

The natural person/physical person pays the income tax.

through an income-paying organization, a sole proprietor/private entrepreneur (hereinafter referred to as the tax agent), who, when paying statutory incomes to a physical/natural person who is not a sole proprietor/private entrepreneur (calculating, in case of salary and other equivalent payments), in case of each payment (calculation), bear the obligation to calculate, withhold and transfer the income tax to the budget;
on an annual income basis, when the income received by an individual (including a sole proprietor) has not been taxed through tax agents. Employees who are exempt from the duties of a tax agent in the cases defined by the legislation also fulfill the income tax liability independently by calculating the “Simplified Monthly Income Tax”.

Income tax calculation formula

Through a tax agent from monthly taxable income

Income tax = monthly taxable income х 15%
Monthly Taxable Income = Monthly Gross Income – Decreasing/deductible Income

Attention: In cases defined by the legislation, employees of employers exempted from the duties of a tax agent meet the income tax liability at a rate of 15% of the monthly taxable income. The tax agent, who is exclusively engaged in the production of agricultural products, calculates the income tax at a rate of 3% from the salary and the equivalent incomes paid to the employees.

The tax agent calculates the income tax at a separate rate of 6% from the royalties of individuals who are not sole proprietors/private entrepreneurs, from the income, from renting property, from the income paid for the purchase of property from individuals, and from foreign citizens’ insurance compensations and incomes from transportation (freight) at a rate of 5% without any deduction.
In case of sale of a building, its apartments or other areas to physical/natural persons (not considered as sole proprietors) by a physical/natural person a (developer of multi-apartment (including multifunctional) building, subdivision building, residential houses in residential districts or complexes), who is not considered a sole proprietor as well, 10% of the total area of the building (without non-residential areas considered as common share property), but not more than 500 square meters, and the income from the sale of the premises (hereinafter referred to as non-taxable threshold) exceeding the number of four individual residential houses in the residential districts (or complexes) are calculated at a rate of 6%, not taking into account the deductions provided by law. Moreover, the non-taxable threshold is applied to the extent of a multi-apartment (including multifunctional) building, subdivision building area or residential houses in residential districts (complexes) only once, regardless of the dates of sale of different apartments or individual residential houses, from the number of shareholders.
Income tax on interest is calculated at the rate of 5%, without taking into account the deductions provided by law.
In case of one-time receipt of the funds accumulated within the framework of the voluntary funded pension scheme in accordance with the legislation of the Republic of Artsakh, in case of one-time receipt by an individual, the income tax is calculated at a rate of 20%, not taking into account the deductions defined by law.
In the framework of the voluntary funded pension scheme established by the legislation of the Republic of Artsakh, the income tax from the pensions received by the taxpayer for himself (or) for the taxpayer at the expense of voluntary funded contributions of a third party (including the employer) is calculated at 6%, not taking into account the law deductions.
In case the tax agent pays income to an individual without concluding a written contract (with mandatory data required by law) (except for income from work, payment of services), the income tax is calculated and withholding at a rate of 10% on income paid without taking into account the deductions provided by this law, except in cases when the income paid to the taxpayer was based on cash register receipts or short invoices.

Tax agents calculate the income tax at a rate of 15% each month, deducting from it the amount calculated for hired workers (citizens of Republic of Artsakh and foreigners) and amount from temporary disability benefits (temporary disability benefits are considered deducted from the 20th of the month following the month of deduction) actually paid to the state budget in a given month.

For the types of activities included in the general taxation system, individual/private entrepreneurs calculate and pay the income tax from the annual taxable income:

Income tax = annual taxable income х 13%, but not less than 60 thousand AMD
Annual taxable income = Annual gross income – Reduced income – Expenses

For the types of trade activities that are taxable, defined by the statutory payments under the Law on ‘Presumptive Payments’ and (or) the types of trade activities, that are taxable, defined by the Law on ‘Trade Tax’, individual/private entrepreneurs calculate and pay the income tax from the annual taxable income.

Annual taxable income x 10%, but not less than 60 thousand AMD

Attention: For the types of activities, included in the general tax system, that are subject to fixed payments and (or) trade tax objects, individual entrepreneurs/private entrepreneurs pay a minimum income tax of AMD 5,000 per month for each month until the 20th of the following month (inclusive).

According to the Law on ‘Patent Fees’, individuals (including sole proprietors/private entrepreneurs) who pay patent fees do not calculate or pay income tax on the types of activities subject to patent fees.

Individual entrepreneurs/private entrepreneurs calculate the income tax on interest income and royalties received as such at an annual rate.

Attention: Income received from tax agents of a natural person (except for foreign national residents, persons with ‘non-citizen’ status) during the year, from which the tax agents are responsible for calculating and paying income tax, are not included in the calculation of annual income.

Attention:

Individual entrepreneurs/private entrepreneurs are exempt from income tax on business income for the reporting years up to and including 31 December 2022. Individual entrepreneurs/private entrepreneurs may waive the above privilege if they submit an application for waiver of the privilege to the tax authority of their place of registration with a vote approved by the head of the superior tax authority. The application for waiver of the privilege for the reporting years defined by this Article shall be submitted every year until January 20, inclusive of the given year, except for the reporting years 2020-2021, for which they are submitted until February 20, 2021 inclusive. Newly created (registered) sole proprietors/private entrepreneurs shall submit the application for waiver of the privilege provided for in part 2 of this Article to the tax authority of the place of registration by the 1st of the month following the month of registration inclusive.

5. Terms on Income tax payments and submission of income tax returns exclusively electronically

Presenter and type of the report		Submission date:	Tax payment period
tax agent	Application for registration of personal data of a hired employee, a natural/physical person receiving contractual income	No later than the submission of the summary calculation of the income tax for the reporting month to the tax authorities, including the day of registration of the employee or natural/physical person receiving contractual income,
tax agent	New employee registration application	after hiring a new employee, but not later than the end of the day preceding the day the employee actually starts work
tax agent	Monthly summary calculation of income tax: from income paid (calculated) to individuals in the reporting month, transferred to income tax	no later than the 20th of the following month of the reporting month	salary and calculation of equivalent payments, no later than the 20th of the month followed by the month of payment of the remaining income
Employees of employers who are exempt of the responsibilities of tax agents	Simplified monthly calculation of income tax on income and accrued and paid income tax	no later than the 20th of the following month of the reporting month	salary and calculation of equivalent payments, no later than the 20th of the month following the month of payment of the remaining income
Individual, sole proprietor/private entrepreneur	Annual income calculation	no later than April 20 of the year following the tax year	until May 1 of the year following the tax year

Attention: In order to access the website of the electronic reporting system (hereinafter referred to as the EMS), in order to submit registration applications for employees, the employer (or the person authorized by the employer) must be an EMS user (have an electronic signature, username and password).

Tax agents are obliged to submit to the tax authority of their place of residence (registration) exclusively electronically by the 20th of the month following each month:

Application for registration of a new employee (including a paid/hired employee- employee working based on employment contract or services’ provision contract), which includes personal information (name, surname, patronymic, place of residence (registration), public services’ number or reference letter about absence of public services’ number (social security card number or proof on absence of social security card number).
Summary calculation of income tax and accumulative payment, which includes:
- Personal information on accrued income (and in case of paid contractual income for the employees receiving income from the given tax agent in the reporting month, personal tax withheld from that income.
- Individual information on individuals who received passive income from the given tax agent in the reporting month, foreign citizens or stateless persons who do not have the right of residence (residence status) in the Artsakh Republic, their incomes, the amount of income tax calculated and withheld from those incomes.

Employees of tax-exempt employers calculate income tax at a rate of 15% each month, for each month, until the 20th of the month following that month, submitting a simplified income tax calculation to the local tax authority exclusively at their place of residence (registration). from employers in the reporting month:

Information on accrued income (and in case of contractual income received) for employees receiving income, tax independently calculated from the sum of those incomes, and in case of being included in the accumulative pension system, information on self-calculated accumulated contributions paid;
Information on passive income and Information on the tax calculated independently from the sum of those incomes.

Annual income statement is required to be submitted electronically by individuals only on income received from non-tax agents not later than April 20 of the year following the tax year, as well as on income from entrepreneurial activities by sole proprietors.

A calculation may not be submitted if received.

Reduced income defined by Articles 6, 7 and 8 of the Law on Income Tax.
Taxable income through a tax agent.

The calculation of annual income of an individual includes the actual income not taxed through tax agents during the tax year and the actual expenses incurred on them, i.e. the calculation is completed in that part by f “cash payment”.

The sole proprietor shall use the accounting method of “balance accounting” for his or her business activities from the moment he or she acquires the right to receive that income or recognizes those expenses for that purpose, regardless of the actual receipt of income or payment.

Individuals submitting annual income calculations and Individual entrepreneurs may reduce the annual gross income by the amount of expenses substantiated by the documents required for obtaining income from a civil law contract. The requirements for the documents substantiating the expenses are defined in the NKR Government Decree of December 26, 2000, by the decision N 254. Expenses incurred by a sole proprietor (including electricity, communications այլ other utility costs) are considered to be documented expenses for business activities, if they were incurred as a sole proprietor.

Attention: If the result of the business activity is negative, it is transferred as a loss from the business activity of the reporting year, 3 years after the year of receiving the loss, it can be deducted only from the income from the business activity in the following years.

6. Making income tax prepayments

The sole proprietor/private entrepreneur who receives income from business/entrepreneurial activities during the reporting year is obliged to make quarterly income tax prepayments until the 20th of the last month of each quarter. In case of non-payment of quarterly tax payments by the sole proprietor/private entrepreneur within the established terms, the tax authorities shall submit claims on those amounts and the penalties accrued on them in accordance with the procedure defined by law.

Quarterly prepayments are calculated at the rate of 18.75% of the amount of tax calculated on the activities carried out as a sole proprietor/private entrepreneur during the previous year, plus the positive difference with the amount of minimum income tax calculated for each month of the given quarter.

In case of lower taxable income of the current year compared to the previous year, the taxpayer decides the amount of the quarterly advance independently, no later than June 1 of the current year, submitting a declaration to the tax authorities approved by the superior tax authority bodies. If the annual sum of prepayment and minimum income tax is less than 75% of the actual income tax for the given year (including the amount of the minimum income tax) the taxpayer pays the difference between following amounts:
– 18.75% of the actual income tax (excluding the minimum income tax amount) and -the actual prepayment for the given quarter (excluding the minimum income tax amount) from the date defined in part 2 of this article until the day the actual income tax amount becomes known to the tax authorities (submission of the annual income calculation/annual tax record).
In case of submission of a statement on non-activity (termination of activity/otherwise called zero activity) to the tax authorities, due to inactivity for non-calculated prepayments within quarter(s) no penalties will be applied.7. Liability on breaching the requirements and regulation stated by the NKR Law on “Income Tax ”

In accordance with timeframe and the obligation to pay the fines in the prescribed manner and amount under Article 23 of the Law, in case of the situation when the income tax is not withheld or withheld partially, for non-payment of the tax to the state budget within the defined terms shall be liable the tax agent. The amount of tax not withheld (or less withheld) from the accrued (paid) income of individuals by the tax agent may be withheld from individuals in the manner prescribed by the legislation of the Republic of Artsakh for not more than the last 3 months. 50%.

Failure to register the employee’s employment in the manner prescribed by the legislation of the Republic of Artsakh (i.e. absence of adopting an individual legal act of an employee or written contract), and (or) when in accordance with the procedure specified by the Government of the Republic of Artsakh the authorized body establishes the fact of failure to submit the registration application for a new employee within the defined period, the employer (including those, who are not registered in accordance NKR legislation, and considered to be non-patent payers in the manner prescribed by the legislation of the Republic of Artsakh)(who is) shall pay a fine for each unregistered employee (or) for an employee without submitted registration application in the amount specified in the table below :

Number of unregistered and (or) unregistered employees	The amount of the fine for each unregistered employee
1 to 3	60,0 thousand AMD:
4 to 6	150,0 thousand AMD:
7 to 9	300,0 thousand AMD:
10 and more	600,0 thousand AMD:

In case of showing more than the loss, derived from the calculation of the income tax submitted to the tax body in the manner prescribed by law, a fine shall be levied on the sole proprietor/private entrepreneur with amount of 20% of the excess damage.

^[1] In this law centre of vital interests refers to personal and economic relations. Consideration is given to a person’s family and social relations, his occupation, his political and cultural activities, and the person’s place of business and the place from which the person’s property is managed.