In this article, we will consider an innovation in Armenia that provides for exemption from sales tax for individuals operating under the framework of micro entrepreneurship. The concept was introduced in 2020 and it envisages tax incentives and a significant reduction in the cost of business operations. We will also consider which individual entrepreneurs are eligible to operate under this taxation regime and who can position themselves as microentrepreneurs.
This is a topic of special interest, as in fact, in the conditions of developed e-commerce, within just a year small companies can literally become full-fledged large companies with an extensive network of branches and representative offices. That said, micro entrepreneurship by nature is, literally speaking, the origination of business, which has every chance to quickly grow into a global corporation.
If you need to register as a microentrepreneur in Armenia, please do not hesitate to contact our lawyers. The cost of the service is 1 000 EUR. Next, we will consider the features of the registration of this type of business in Armenia, its underlying benefits and other important aspects.
Registration of a company in Armenia as a ” micro-entrepreneur ” – the main provisions of the new law 2020
The 2020 edition of the Armenian Tax Code defines the concept of a micro-enterprise in which case the company or sole owner doing business in this form, is exempt from paying sales tax. Who are eligible to be considered as micro-enterprises, what tax benefits do they get, what are the restrictions when the micro-entrepreneurship cannot apply, and what taxes do the micro-entrepreneurs pay?
The micro-enterprise business setup can take the form of legal entities, individual entrepreneurs (IE), as well as individuals who cannot have employees and can carry out specified narrow range of activities.
Sequence of steps to becoming a micro-entrepreneur:
- Within the period from January 1 to February 20 of the current tax year, an existing individual entrepreneur or legal entity, submits an application to the tax authority stating its nature of business as micro-enterprise; for this purpose it should be borne in mind that the key requirement for micro-entrepreneurship is that the sales turnover of the organization or person for the previous year must not exceed 24 mln AMD (about 46 200 EUR ).
- If a company or individual entrepreneur is registered (established) during the current year, then on the 20th day after the date of registration in the State Register of Armenia, the entrepreneur submits an application to the tax office to affirm its status as a micro-enterprise.
- If in the current tax year a company or individual entrepreneur had suspended its activities, it can still submit an application to the tax office up to the 20th day after the date of the resumption of activities inclusively, to affirm its status as a micro-enterprise.
It is worth noting that the main advantage of the new organizational and legal form of the company in Armenia, along with the simplified nature of registration and tax accounting, is that this form of business is eligible to tax exemption. Let us consider this issue in more detail.
Registration of a company in Armenia as a “microentrepreneur” – preferential taxation
The main privilege in the form of preferential tax rates provides for the exemption of companies in Armenia from:
- sales tax;
- profits tax;
- turnover tax.
At the same time, there are no legislative restrictions on the number of employees of the company, however affiliation/family ties are not allowed, as is the case with a family business. AMD 5000 (about EUR 9.6) is withheld from the salary of each employee as income tax (regardless of the size of the salary).
A microentrepreneur in Armenia has also been exempted from the following obligations:
- from the obligation as a tax agent to calculate, withhold and transfer tax to the state budget, with the exception, of course, of the 5000 AMD income tax, mentioned above;
- from the obligation to make advances on income tax.
Registration of a company in Armenia as a “micro-entrepreneur” – what taxes apply?
Considering that Armenia is hardly a country with the lowest taxes in the world, the new form of “microentrepreneur” can be very instrumental in terms of significant savings on operational costs for local enterprises. Truth to be told – Armenia among Europeans and residents of Western countries is still considered a suitable tax haven, where it is possible to become eligible and enjoy preferential taxation regime.
Additionally, it is worth noting the fundamental and extensive efforts of the country’s government, aimed at reducing the tax burden and promoting Armenia in terms of international tax planning. The introduction of the concept of “microentrepreneurship” opens up completely new opportunities for foreign investors and businessmen who take precautions before making investments and prefer to know the country’s legal and regulatory framework in better detail, before planning further expansion of business.
Registration of a company in Armenia as a “microentrepreneur” implies that the business will be obliged to pay the following taxes:
- when importing goods – import taxes apply: VAT, excise tax and customs duties;
- when producing goods – excise tax applies;
- environmental tax;
- road tax (if the law provides for the payment of such taxes for a certain type of activity of a company or individual entrepreneur).
See also how to register a company in Armenia as a limited liability company.
Registration of a company in Armenia as a “microentrepreneur” – who is eligible?
Microentrepreneurship as a form of business is accessible to entities in Armenia
- which are engaged in any kind of production;
- service companies – hairdressers, tailors, etc .;
- companies providing sports services;
- operator services companies;
- postal services;
- car services;
- Armenian companies providing services in the field of tourism;
- Armenian companies providing services in the field of private education;
- repair shops.
Registration of a company in Armenia as a “microentrepreneur” is convenient and beneficial for citizens planning to channel their own savings and assets into expansion of the new business. The key advantages of the Armenian jurisdiction are the simplicity and speed of processing the necessary documents, including remotely. By contacting our lawyers, you will benefit from a fast turnaround of registration as a microentrepreneur in Armenia; our experts will also help you open a bank account for servicing a business, and, if necessary, issue a residence permit followed by obtaining RA citizenship.
Registration of a company in Armenia as a “micro-entrepreneur” – who will not be eligible?
The 2020 Tax Code clearly defines the categories of persons that do not fall into this category. Namely:
- wholesalers and wholesale organizations;
- retailers selling on trading floors, fairs, shopping centers. Note: Retailers outside Yerevan (shops, kiosks) can be microentrepreneurs.
- those who work in the catering industry. The exception is those who provide catering services (breakfast, lunch, etc.) directly related to the hotel services provided by the tourist houses.
- companies providing consulting services;
- companies providing legal services;
- accounting service companies;
- companies providing audit services;
- engineering service companies;
- design service companies;
- translation services company;
- companies providing consulting services in the field of information processing, including in the field of collection, generalization, transmission of information;
- providers of research, development, experimental and technological services;
- dental and health care providers;
- foreign exchange dealers, companies providing dealer and brokerage services;
- organizers of casinos, gambling;
- lottery organizers;
- organizers of interregional, intra-regional and intracity transportation;
- organizers of passenger transportation by car;
- organizers of food trade through vending machines that accept coins and / or paper banknotes;
- organizers of gambling by means of coin-accepting machines;
- companies and individual entrepreneurs that committed the third violation of the rules for operating cash registers during the tax year;
- affiliated companies and individuals.
When considering the registration of a company in Armenia as a micro-entrepreneur, it is important to take into account that the concept of a family business is also allowed here. This is a good way for the Armenian authorities to attract small investors who, within a short time, can expand their scope of activity far beyond the borders of Armenia.
Registration of a company in Armenia as a “microentrepreneur” – in which industries is it better to start a business?
A small business in Armenia is, one might say, a good start for initial familiarization with the country and a starting point for a phased implementation of large-scale plans. Considering the most suitable industries for starting a business, it is worth noting street trading – in Armenia, tourists and travelers love to try national dishes from stalls right on the street.
Another interesting niche is the production of homemade wine from exclusive grape varieties, which grows only in Armenia. However, it should be borne in mind that the production and sale of such products are subject to special permits.
Here are some interesting and profitable micro-business ideas which can be implemented in Armenia and become profitable in short time (with an average payback period):
- carving on wood (3 months);
- organization of a conversation club and board games (3 months);
- toastmaster, organizers of children’s parties (3 months);
- breeding mini-pigs (4 months);
- molding school (1 month)
- photo studio (3 months);
- service delivery (2 months);
- growing vegetables, fruits, berries (3-4 months);
- breeding of thoroughbred animals (3-4 months), etc.
In principle, registration of a company in Armenia as a microentrepreneur can open doors to a fairly wide range of business ideas, including in the sphere of agriculture and food production.
According to experts, this approach will significantly increase the country’s GDP through the creation of new jobs. Earlier, the size of tax deductions to the state budget remained negligible, which prompted the Armenian authorities to completely exempt micro-businesses from payments to the state budget. However, here it is necessary to carefully monitor the entities, which are obliged to move to the standard tax field when expanding the company and increasing profits.
Who qualifies as a microentrepreneur in Armenia?
Entities engaged in various types of production, whose income does not exceed 24 million Armenian drams (about 46.2 thousand EUR ), are qualified to become micro-entrepreneurs. The microentrepreneurship concept also covers car servicing and postal services, operators and sport service companies. This also includes travel companies and those employed in the field of private teaching, repair centers, hairdressers, tailors, etc. Under this taxation regime, a business is completely exempt from sales, profit and turnover taxes, pays a fixed amount of tax in the amount of AMD 5,000 on the income of each employee.
Which companies are not qualified to become microentrepreneurs in Armenia?
Particularly, Notaries, lawyers, wholesale companies, retailers, consulting firms, pawnshops, foreign exchange dealers, casinos and lotteries cannot be microentrepreneurs in Armenia. Also, companies engaged in the field of accounting, consulting services, legal and auditing services do not fall under this definition. Retailers (with the exception of outlets outside Yerevan), catering establishments, if they are related to the hotel business and tourism, dentistry and medicine, cannot be registered as a microentrepreneur in Armenia. Also, this category is not available if a business entity in Armenia has an annual income above 46.2 thousand EUR .
What obligations is a micro-entrepreneur exempt from in Armenia?
A legal entity or individual registered as a micro-entrepreneur of Armenia does not pay any taxes to the state budget, other than personal income tax in the amount of AMD 5,000 for each employee. The number of employees is unlimited. This form of business has been introduced in Armenia since 1.01.2020, and provides for full exemption from advances on income tax. A tax agent is also not obliged to withhold and transfer taxes to the state budget (except for 5 thousand AMD of personal income tax). At the same time, a micro-entrepreneur must pay VAT and duties on the import of goods, and excise on the production of excisable goods. Road and environmental taxes may apply for certain activities.