In this article, we would like to address the tax obligations arising from the most common transactions in Armenia concluded by both legal entities and individuals. We have chosen the following transactions as the most common transactions:
- real estate alienation agreement,
- real estate lease and gratuitous use agreement,
- vehicle alienation agreement,
- agreement on alienation of securities (hereinafter referred to as “Shares”) evidencing participation or other investment in the share capital of the organization.Contents
Real estate alienation agreement by a natural person
According to article 147 (1) (16) of the RA Tax Code, the income received by a natural person from the alienation of the real estate is considered deductible income. In other words, this income is not included for income tax calculation.
The same article provides an exception when a natural person who is considered a real estate developer sells a building, its apartments, or other constructions, including unfinished or half-built, to another natural person who is not a sole proprietor and a notary. In other words, such transaction will be taxed with income tax at the rate of 20% according to the article 150 (11) of the RA Tax code. Moreover, article 145(1)(1) provides a specificity of such income tax calculation. In particular:
- If the purchase and sale agreement stipulates the price of real estate, for example 20,000,000 AMD, then the income tax will be calculated based on that price. In other words, the income tax will be 20 percent of 20,000,000 AMD.
- If the purchase and sale agreement does not provide for the real estate alienation price, or if it is less than the value accepted when calculating the real estate tax (the tax base), then the income tax will be calculated in the amount of 80 percent of the tax base for real estate In other words, if the tax base for real estate tax is 20,000,000 AMD, then the income tax will be calculated on 80 percent of 20,000,000 AMD and the income tax will be 20 percent of 1,600,000 AMD.
At the same time, it should be noted that, from the point of view of income tax calculation, the investment of real estate in the share capital of the organization or in the contractual investment fund is not considered as alienation.
MB Legal’s team will be happy to assist you with matters regarding these and any other transactions and tax obligations arising from them.
Real estate alienation agreement by a legal entity
With regards to the income received by the legal entity from the alienation of real estate, it is considered an element of the company’s gross income and is included in the calculation of the profit tax. In this case too, the price specified in the sales agreement is taken as the amount of income, however in the absence of the price, the amount of income is considered to be equal to 80 percent of the tax base for the real estate tax.
It is noteworthy, that the transaction of real estate alienation by the investment fund to the person participating in the given investment fund, who has invested the given real estate in exchange for a share in the investment fund will be exempted from VAT.
Real estate lease agreement by a natural person
According to article 150 (7) the RA Tax Code, rental payments are taxed by income tax at the rate of 10 percent. Moreover, if the total amount of rental payments received by an individual during one tax year exceeds 60 million AMD, then an additional income tax is calculated at the rate of 10 percent on the exceeding part.
Real estate lease and gratuitous use agreement by a legal entity
In case of leasing of real estate owned by a legal entity, the income received is considered an element of gross income and is included in the calculation of profit tax. For a legal entity, the use of a real estate based on a gratuitous use contract is also considered income, the amount of which is determined in accordance with the RA Tax Code.
If the legal entity operates in the general taxation system, then the real estate lease agreement will also be subject to VAT.
Vehicle alienation agreement by a natural person
Income received from the sale of a vehicle by a natural person is not considered as an element of gross income and is not included in the calculation of income tax.
Vehicle alienation agreement by a legal entity
The income from the alienation of a vehicle, as from any other property, is included in the calculation of profit tax.
RA Tax Code establishes a general rule regarding the income received from the sale of shares by individuals: such income is not included in the formation of the tax base (gross income) for income tax calculation. However, there is an exception to this general rule։ the income will not be deducted from the gross income and will be taxed by income tax at the rate of 10% if it resulted from the alienation of shares during the tax year including the date of their acquisition or during the three tax years following it, and if those shares were acquired by investing a real estate in the share capital of the company.
Regarding the income received from the alienation of shares by a legal entity, it will be included in the calculation of profit tax if the transaction of alienation of shares takes place during the two tax years following the tax year that includes the date of acquisition of the shares.
MB Legal’s team will be happy to assist you with matters regarding these and any other transactions and tax obligations arising from them.
