12

Article 1. The object taxable on profit tax is the balance profit calculated by enterprises and organizations according to the order established by the legislation of the Republic of Armenia, taking into account its increase (reduction) according to the provisions of this Law and the other legislation acts of the Republic of Armenia.

Profit tax in the Republic of Armenia is paid by:

the enterprises and organizations, considerable as legal person by the legislation of the Republic of Armenia, with respect to the profit derived in territory and outside of the Republic of Armenia, and international associations and organizations, other foreign legal persons, as well as their branches, permanent establishments and other similar subdivisions (hereinafter foreign legal persons) with respect to the profit derived from carrying out business activity in the Republic of Armenia.

The enterprises, organizations and foreign legal persons indicated in this Article, hereinafter will be named enterprises /Amendments of December 19, 1994, effective from January 1, 1995/.

Article 2. The taxable profit is calculated on the basis of balance profit, which is the sum of the profit derived from realization of products (work, services), intangible assets, fixed assets, and other tangible values and income derived from non- realization transactions (less expenses for this transactions) /Amendments of June 14, 1994, effective from July 1, 1994/.

The profit derived from realization of products (work, services) is calculated as difference between revenue derived from realization of products (work, services), (without value added tax and excise tax) and expenses included in cost price of its production and realization /Amendments of June 19, 1992, effective from July 1, 1992/.

The profit derived from realization of intangible assets, fixed assets, as well as other tangible values is calculated by the order established by the Government of the Republic of Armenia /Amendments of June 14, 1994, effective from July 1, 1994/.

13

a) income derived from lease of property;
b) income derived from the share holding and securities, if they are not taxed before in cases, provided for by the legislation of the Republic of Armenia. The calculation and payment of profit tax from income derived from the share holding and securities is executed according to the order established by the legislation of the Republic of Armenia /Amendments of June 14, 1994, effective from July 1, 1994/.
c) other income (expenses) derived from transactions, which not connected directly with the production and realization of products (work, services), including the amounts derived and paid as the penalties, sanctions and lost income, as well as amounts of compensation of damages;
d) the amounts granted from the other enterprises and organizations, if they do not carry out joint activity (except the amount transferred by founders to charter fund of enterprises and organization according to the order provided for by the legislation of the Republic of Armenia /Amendments of June 14, 1994, effective from July 1, 1994/.

Article 3. During the calculation of the amount of profit tax, payable by enterprises received in-kind income against their products (work, services), these in-kind products are valued by applying the appropriate prices according to the order established by the Government of the Republic of Armenia.

Article 4. The following is included in the cost price of products (work, services) during the calculation of profit:

a) the material expenses;
b) the contributions on full renewal of fixed production assets;
c) labour costs;
d) rental payment;
e) contributions for compulsory insurance of property;
f) contributions for state social insurance and medical insurance;
g) interest against on short-term credits (except overdue and deferred credits) /Amendments of December 19, 1994, effective from January 1, 1995/;
h) other expenses related to production and realization of products (including expenses for any kind of reparation of fixed production assets).

14

Article 6. The peculiarities of the composition of income derived from the production and realization of products (work, services) and expenses connected with them in separate sectors of the economy as well as in different spheres of economic and other commercial activity are determined by the order established by the Government of Republic of Armenia /Amendments of June 14, 1994, effective from July 1, 1994/.

Article 7. In the case, when the calculation of derived profit is impossible, it is allowed to calculate the profit based on the gross income or incurred expenses, according to the order established by the Government of the Republic of Armenia, proceeding from respective norms of profitability defined by the Government of the Republic of Armenia and confirmed by Supreme Council of the Republic of Armenia for individual taxpayers /Amendments of June 14, 1994, effective from July 1, 1994/.

Article 8. For the purpose of calculation of the taxable profit the balance profit (taking into account its increase in cases provided for by the legislation of the Republic of the Armenia) is decreased at /Amendments of June 14, 1994, and December 19, 1994, effective from January 1, 1995/:

a) the amount of tax levied from the owners of constructions and land tax;
b) the amount of tax levied from the owners of transport;
c) the amount of payable from profit other taxes and payments established by the legislation of the Republic of Armenia /Amendments of June 14, 1994, effective from July 1, 1994/.

15

Article 9. The taxable profit is calculated as the difference between gross income defined by the Article 10 of this Law and expenses connected with the deriving of this income.

Article 10. The gross income is the income derived from all kind of the economic and other commercial activity, and includes the following:

a) the revenue derived from realization of products (work, services);
b) the income derived from realization of property owned to the enterprise less the depreciable value of this ownership and the expenses connected with its realization;
c) the interests received against accommodated loans;
d) rental payment received from leased ownership,
e) income received from securities, except the stockholding dividends if the profit, from which these dividends are paid, was taxed by profit tax before;
f) the dividends received from share holding (including economic partnerships), if the profit from which the dividends are paid was not taxed by profit tax before;
g) income received from other forms of management of property provided by the legislation of the Republic of Armenia;
h) amounts received as the economic sanctions, penalties and lost income, as well as amounts of compensation of damages.

Article 11. For the calculation of the profit from the gross income the value added tax and excise tax are preliminary deducted, then the following expenses made with the purpose of deriving the gross income are deducted as well /Amendments of June 19, 1992, effective from July 1, 1992/:

a) the material expenses, that is, expenses for acquisition of raw, materials, semi-finished products, goods, fuel, energy, equipment;
b) labour costs, including in-kind,
c) amortization contributions on expenses for reparation and full renewal of fixed production assets /Amendments of June 19, 1992, effective from July 1, 1992/;
d) rental payments;
e) the expenses connected with work or services of productive character provided by other enterprises, organizations or citizens except capital investment and expenses on repairing of fixed assets;
f) business trip, office and communication means usage expenses;
g) marketing expenses - market research, advertising, R&D and test-design expenses, selling and design of products;
h) fees for usage of natural resources,
i) insurance contributions;
j) interest against on short-term credits (except overdue and deferred credits);
k) contributions for state social insurance and medical insurance.

16

Article 13. When the enterprises derived in-kind income, then during the calculation of the amount of profit tax these in-kind products are evaluated by applying the appropriate prices according to the order established by the Government of the Republic of Armenia.

Article 14. During the calculating of profit the peculiarities of the calculation of income derived from the various forms of activity and made expenses are determined by the Government of the Republic of Armenia.

For the purpose of calculation of the taxable profit the balance profit (taking into account its increase in cases provided by the legislation of the Republic of the Armenia) is reduced at:

a) the amount of tax levied from the owners of constructions and land tax;
b) the amount of tax levied from the owners of transport;
c) the amount of payable from profit other taxes and payments established by the legislation of the Republic of Armenia.

Article 15. During the calculating the taxable profit is decreased at:

a) the amount of damages incurred as a result of selling or exchange of the ownership (determining as difference between depreciable costs and selling or exchange cost);
b) the amount of tax levied from the owners of constructions and land tax;
c) the amount of tax levied from the owners of transport;
d) the amount of taxes and payments established by the legislation of the Republic of Armenia.

17

Article 17. The profit tax is levied at following rates:

Annual amount of taxable profit	The profit tax rate
Up to 360 drams	12 %
From 361 up to 720 drams	43,2 drams plus 18 % from the amount over 360 drams
From 721 up to 1080 drams	108 drams plus 25 % from the amount over 720 drams
From 1081 drams and above	198 drams plus 30% from the amount over 1080 drams

/Amendments of December 30, 1992, effective from January 1, 1993/.

Article 18. The banks, other financial-credit, as well as insurance organizations pay the profit tax at rate of 30%.

The profit tax from the profit derived from organization and the carrying out lotteries and gaining games (including carried out in casino), is paid at rate of 70%.

The Government of the Republic of Armenia by consent of the Permanent Commission on Economy, Finance and Budget of the National Assembly of the Republic of Armenia, can establish other rates and limits on profit tax, fixed payments, procedure of their calculation and payment as well as privileges for individual payers or group of payers.

The enterprises and organizations which carrying out are several kinds of economic and other commercial activities (including activity which is subject to taxation as fixed payments) pay the profit tax at established rate separately for each kind of activity, according to the order established by the legislation. For this purpose, the taxpayer must keep the accounting on separate kind of activity.

If the accounting of profit on separate kind of activity is absent, the whole profit (notwithstanding the amount of fixed payment payable to budget) is taxed at the highest profit tax rate established by the legislation for these kinds of activity /Amendments of June 14, 1994, effective from July 1, 1994, and in part of the profit tax rate for the banks, other financial-credit, as well as insurance organizations - Amendments of May 5, 1995, effective from January 1, 1996 /.

18

Article 20. The distribution of profit tax between republic and local budgets is executed according to the order established by the legislation of the Republic of Armenia.

Article 21. /Excluded from January 1, 1995/.

Article 22. The following items are exempted from the profit tax payment:

a) the enterprises and organizations, with respect to agricultural activity (production of agricultural products), except agricultural enterprises of industrial character (greenhouse and animal breeding industries, cattle-breeding complexes, agricultural factories, poultry-keeping factories etc.), the list of which is confirmed by the Government of the Republic of Armenia, by consent of the Permanent Commission on Economy, Finance and Budget of the National Assembly of the Republic of Armenia.

Land tax levied from taxpayers with respect to agricultural activity. The taxpayers, who derive more than 25% of their revenue (income) from non-agricultural activity, are not exempted from profit tax, with respect to this activity. For this purpose, the taxpayers must keep the separate accounting of cost of production and circulation, as well as realization with respect to agricultural and non-agricultural activity;

b) newly created enterprises, during the first two years following the date of their state registration /Amendments of December 19, 1994, effective from January 1, 1995/.

The privilege, indicated in sub-paragraph (b) of the first part of this Article /Amendments of December 19, 1994, effective from January 1, 1995/, is not granted to state enterprises, recognized, including privatized enterprises, to enterprises created on the basis of liquidated enterprises, their divisions, branches and representations /Amendments of June 14, 1994, effective from July 1, 1994/ as well as to enterprises, which carried out separate kinds of activity, provided in the list established by the Government of the Republic of Armenia, by consent of the Permanent Commission on Economy, Finance and Budget of the National Assembly of the Republic of Armenia /Amendments of June 19, 1992, effective from July 1, 1992/.

In case of liquidation of an enterprise before the end of three year period the tax amount is calculated fully for whole period of its activity.

The privilege, provided by Article 24 of this Law, granted to the joint ventures and enterprises with foreign investments, which carried out separate kinds of activity, provided in the indicated list, during the first two years, following the date of state registration /Amendments of December 19, 1994, effective from January 1, 1995/.

19

a) for subsidiaries of public organizations, including charity, religious and non-profit organizations, provided in the list established by the Government of the Republic of Armenia, by consent of the Permanent Commission on Economy, Finance and Budget of the National Assembly of the Republic of Armenia, at the amount of the part of profit which is granted to these organizations for carried out their statutory activity /Amendments of December 19, 1994, effective from January 1, 1995/;

b) /Excluded from January 1, 1995/.

c) at the amount of capital investments of enterprises for technical renovation and reconstruction, expansion of production, acquisition of new products and technologies /Amendments of December 19, 1994, effective from January 1, 1995/;

d) /Excluded from January 1, 1995/.

e) /Excluded from January 1, 1995/.

f) /Excluded from January 1, 1995/.

g) at the amount of profit transferred to charity and other funds, as well as cultural, educational, scientific, public health service, physical culture and sport, social insurance and other enterprises, institutions and organizations, but no more than 10% of taxable profit defined according to this Law.

The list of indicated funds, enterprises, institutions and organizations, is established by the Government of the Republic of Armenia, by consent of the Permanent Commission on Economy, Finance and Budget of the National Assembly of the Republic of Armenia /Amendments of June 19, 1992, effective from July 1, 1992/;

h) at the whole amount of profit of enterprises whose workforce comprises at least 50% disabled persons, or 50% of profit amount, if workforce comprises 30%-50% disabled persons /Amendments of June 19, 1992, effective from July 1, 1992/;

i) at the amount of profit contributed by enterprises and organizations to reserve or other similar funds, formed according to the order established by the legislation of the Republic of Armenia, until these funds will reach to the amount defined by foundation documents, but not more than 25% of actually formed charter fund /Amendments of December 19, 1994, effective from January 1, 1995/;

j) at the amount of income received from state bonds and other state securities /Amendments of December 19, 1994, effective from January 1, 1995/.

k) /Excluded from January 1, 1995/.

l) at the amount of the difference between the nominal value of privatization certificates and the historical (balance) cost at the acquisition of privatization certificates by the enterprises and organizations and their investment according to the order established by the legislation /Amendments of March 23, 1996, effective from March 23, 1996/.

20

In case of termination of the activity of above mentioned enterprises before the end of five year period, the profit tax amount is calculated fully beginning from the third year after the date of state registration /Amendments of December 19, 1994, effective from January 1, 1995/.

Article 25 /Excluded from January 1, 1995/.

Article 26. Reduction of the profit tax paid to the budget due to granted privileges, must not exceed 60%, except cases provided by the Article 22, as well as cases provided by sub- paragraphs "a" and "h" of the Article 23 /Amendments of December 30, 1992, effective from January 1, 1993/.

21

Article 27. The profit tax amount is calculated by taxpayers independently proceeding from taxable profit amount taking into account granted privileges and tax rates.

The Government of the Republic of Armenia, by consent of the Permanent Commission on Economy, Finance and Budget of the National Assembly of the Republic of Armenia can establish the list of those ministries, state departments, associations, enterprises and organizations, the supervised enterprises and organizations of which is allowed to pay the profit tax, submit the calculations and reports on profit tax in a centralized manner or by specifically established for them order /Amendments of June 14, 1994, effective from July 1, 1994/.

Article 28. During the quarter taxpayers make the profit tax advances, except those that listed in the Article 29 of this Law, as well as by taxpayers whose profit tax amount for preceding quarter does not exceed 250 fold amount of the minimal salary established in the Republic of Armenia.

The profit tax advances to the budget during the quarter are made 6 times, at one sixth amount of the actual profit tax amount for preceding quarter, in equal parts, no later than on 15th and 28th of each month. And before the calculation of actual profit tax amounts for preceding quarter within the terms indicated in the Article 31 of this Law, the enterprise define amount of the profit tax advances independently proceeding from their financial results of current year. During the first advance payment, following the submission of accounting reports and calculation of profit tax, the correction of advance amounts is made according to sum accumulated from the beginning of quarter and amounts indicated in this Article /Amendments of December 19, 1994, effective from January 1, 1995/.

After the end of the first quarter, six months, nine months and a year the taxpayer calculate the tax amount at the accumulated sum proceeding from actually received amount of taxable profit.

22

Article 30. The joint ventures, created in the territory of the Republic of Armenia with the participation of domestic and foreign legal persons and individuals, as well as foreign legal persons, during the year make quarterly profit tax advances no later than on 15th of the last month in each quarter. The profit tax advance for the current year is determined by the enterprise proceeding from the financial results of current year /Amendments of June 14, 1994, effective from July 1, 1994/.

Article 31. All taxpayers (except listed in the Article 30 of this Law) submit to local tax bodies, at their location, quarterly and annual accounting reports and the calculations of profit tax. In addition to this:

a) quarterly accounting reports and calculations of profit tax are submitted by the enterprises and organizations before 25th of the month following the reporting quarter, and by the ministries, state departments, associations, enterprises and organizations determined according to 2 part of the Article 27 of this Law, before 15th of the second month following the reporting quarter;

b) annual accounting reports and the calculations of profit tax are submitted by the enterprises and organizations before February 25 of the year following the reporting year, and by the ministries, state departments, associations, enterprises and organizations determined according to 2 part of the Article 27 of this Law, before March 15 of the year following the reporting year /Amendments of June 14, 1994, effective from July 1, 1994/.

23

Joint ventures, created in the territory of the Republic of Armenia with the participation of domestic and foreign legal persons and individuals, submit the annual accounting reports, balance sheets and the calculations of profit tax before March 15 of the year following the reporting year /Amendments of June 14, 1994, effective from July 1, 1994/.

Article 32. The payment of tax by quarterly calculations is made within five days after the day established for submission of accounting reports (balance sheets), and by annual calculations is made within ten days after the day established for submission of annual accounting report (balance sheet).

Article 33. The enterprises pay the profit tax by cashless settlement in currency officially circulated in the Republic of Armenia, or in foreign currency, by taxpayer request, proceeding from the currency course of the day of payment as established by the Central Bank of the Republic of Armenia /Amendments of June 14, 1994, effective from July 1, 1994/.

Taxpayers submit to the bank the payment order of profit tax payable to the budget before the end of payment term.

Article 34. The profit tax amounts, overpaid due to miscalculation or violation of the established order of the levy of profit tax by authorized state bodies, are subject to reimbursement or, by taxpayer request, set-off, at account of the other payable amounts, within the month beginning from the day it was discovered, but no more, than for three years following the day of overpayment on payer's written application.

The application for reimbursement of overpaid profit tax amounts submitted to tax inspection bodies suspends the course of time indicated in the first part of this Article /Amendments of June 14, 1994, effective from July 1, 1994/.

24

Article 35. /Excluded from July 1, 1994/.

Article 36. The peculiarities of profit formation for foreign legal persons in the Republic of Armenia and composition of expenses which are taken into account at their calculation are determined in the order established by the Government of the Republic of Armenia /Amendments of June 19, 1992, effective from July 1, 1992/.

Article 37. The profit of foreign legal persons operating on the territory of the Republic of Armenia is taxed in the general order established by this Law /Amendments of June 19, 1992, and December 19, 1994, effective from January 1, 1995/.

Article 38. The foreign legal persons enjoy privileges established by this Law for joint ventures. When for joint ventures, depending on the share of foreign participant, several privileges are established, then most advantageous privilege is applied to the foreign enterprises.

Article 39. Foreign legal person submits to the tax body a report on its activity, as well as, in cases, provided by the legislation of the Republic of Armenia, the income tax return no later than March 15 of the year following the reporting year.

In case of termination of the foreign legal person's activity before the end of calendar year the indicated documents must be submitted within the month beginning from the day of the termination of activity according to the order, provided by the legislation of the Republic of Armenia /Amendments of December 19, 1994, effective from January 1, 1995/.

The payment notification about the calculated tax amount is given to taxpayer according to the order, provided by the legislation of the Republic of Armenia /Amendments of December 19, 1994, effective from January 1, 1995/.

The profit tax is paid within the terms indicated in payment notification, by cashless settlement in currency officially circulated in the Republic of Armenia, or in foreign currency.

25

Article 41. Taxpayers and their officials bear responsibility for the violation of this Law according to the legislation of the Republic of Armenia /Amendments of December 19, 1994, effective from January 1, 1995/.

Article 42. In case of concealment of a taxable object or of the presentation of its reduced value, the taxpayer is to be levied the amount of the whole concealed or value-reduced object, plus a penalty equal to this amount. In case of a repeated similar violation within one year, after tax audit the penalty will be doubled /Amendments of December 19, 1994, effective from January 1, 1995/.

Article 43. The instructions for implementation of this Law are worked out and published by the State Tax Inspectorate of the Republic of Armenia by consent of the Ministry of Finance and Ministry of Justice of the Republic of Armenia /Amendments of June 14, 1994, effective from July 1, 1994/.

[previous page]GO TO PREVIOUS PAGE
[next page]GO TO NEXT PAGE