Expenses incurred in the furtherance of a taxpayer’s business activities generally are deductible, unless a specific provision in the Tax Code provides otherwise. Expenses that are not supported by relevant documentation are not deductible.
Depreciation and amortisation
Fixed assets owned (leased) by the taxpayer and ready for use should be depreciated using the straight-line method. The minimum periods for depreciation (to be applied on the initial value) for depreciating fixed assets are:
|Asset||Minimum depreciation period (years)|
|Industrial and commercial buildings, engineering constructions, and transmission devices||20|
|Hotels, resorts, rest houses, educational institutions||10|
|Robot equipment and assembly lines||3|
|Calculating devices and computers||1|
|Other fixed assets (including labour livestock, perennial plantings, and capital investments for land improvement)||8|
Fixed assets with value up to AMD 50,000 are depreciated during the current tax year.
Intangible assets may be depreciated using the straight-line method over the lesser of the asset's useful economic life or ten years.
Land may not be depreciated. Capital investments for land improvement are depreciated over eight years.
Payments with respect to goodwill and impairment losses of goodwill are not deductible in Armenia.
Start-up expenses are fully deductible, provided they are properly documented.
As a general rule, interest is deductible if the related debt is used to fund business activities of the taxpayer. However, the following items are not deductible from gross income:
- Part of interest on loan and credits (including interest amounts calculated within the framework of financial lease contracts) exceeding the amount of twice the settlement rate set by the Central Bank of Armenia on 31 December of the tax year.
- Part of yearly interest on loans attracted from non-bank and non-credit entities that, according to fiscal year results, is above:
- the two-fold positive amount of the equity of the taxpayer (excluding banks and credit organisations) on the last day of the fiscal year, and
- the nine-fold positive amount of the equity of the taxpayer, which is a bank or credit organisation, on the last day of the fiscal year.
Equity is the difference between assets and liabilities calculated for tax purposes.
In the event of a negative amount of equity on the last day of the fiscal year, interest on loans attracted from non-bank and non-credit organisations should not be deducted from the gross income.
The above provisions do not apply to interest on loans received from international development institutions included in the list specified by the Armenian government, as well as on interest on borrowing attracted from placement of debt securities through public offerings.
- Interest on loans received by non-bank and non-credit organisations if the amounts of these loans are provided to other taxpayers on an interest-free basis.
- The part of interest on loans received by non-bank and non-credit organisations that is above interest received on sub-lending of those loans to other taxpayers.
Lease payments are generally deductible, except for the following cases:
- Lease payments on fixed assets and/or intangible assets leased by the taxpayer are not deductible if they are provided to other taxpayers for free use.
- The part of lease payments on fixed assets and/or intangible assets leased by the taxpayer that is above lease payments received on sub-lease on those assets to other taxpayers.
A taxpayer is entitled to deduct bad debts if the taxpayer creates a reserve and allocates the amount of bad debt in the following proportions:
- Up to 90 days from the due date: 0%.
- From 91 to 180 days from the due date: 25%.
- From 181 to 270 days from the due date: 50%.
- From 271 to 365 days from the due date: 75%.
Beyond 365 days, bad debts of less than AMD 100,000 may be deducted. For larger debts, the company would need to have pursued the debt through the courts before a deduction may be taken.
Expenses on aid, food organisation for individuals, as well as organisation of social-cultural events for them, are deductible in amounts of up to 0.25% of gross income.
Cost of assets, works, and services provided to non-commercial organisations, libraries, museums, public schools, boarding-houses, nursing homes, orphanages, and hospitals are deductible in amounts of up to 0.25% of gross income.
Fines and penalties
Commercial fines and penalty expenses are deductible for CIT purposes. Fines and penalties paid to the state or municipal budgets are not deductible.
Non-refundable (non-credited) taxes (e.g. property tax, land tax, expensed VAT), duties, and other obligatory payments are deductible for CIT purposes.
Other significant items
The deductibility of the following common items is limited for CIT purposes:
- Expenses for business trips outside Armenia are limited to 5% of the gross income of the reporting year (for the tax year that includes the date of the registration of the taxpayer, the deductibility limit is not applied). However, up to 80% of sales turnover for execution of works and/or delivery of services indicated in the contract signed with the customer or provided separately in the settlement document endorsed by the customer can be deducted in the event of execution of works and/or delivery of services outside the territory of Armenia.
- Representative expenses are limited to the lesser of 0.5% of the gross income of the reporting year or AMD 5 million.
- Expenses on management services received from non-resident companies or individuals are limited to 2% of the gross income of the reporting year. For the management services incurred during the tax year of the state registration, if 2% of the gross income is less than AMD 2 million, it is allowed to deduct the management service expenses up to AMD 2 million.
- Funded contributions made within the framework of the voluntary funded pension scheme are limited to 7.5% of the salary of the employee.
Net operating losses
Companies are entitled to carry forward losses to the five subsequent income years. Armenian law does not allow the carryback of losses.