Armenia intends to extend tax exemptions for IT industry

31/07/18

Armenia intends to extend tax exemptions for IT industry

IT industry in Armenia has seen a dramatic growth for the last few years. The industry size in 2017 has reached 765,1 million USD versus 559,1 million USD in 2015 which represents around 37% growth like for like (National Statistical Service of Armenia 2015, 2016, 2017).

While the industry experts, among other factors herald the presence of highly educated and very affordable workforce (see inter alia Investment Climate Statement 2017 from US Department of State), the low cost of doing business in the country, everyone agrees that the tax incentives have played a major role in the development of the industry.

Parliament of Armenia has passed a law on provision of tax exemptions to the IT industry which entered into force in 2015. In accordance with the law, the IT industry has been afforded the privilage of 0% corporate tax (usual rate being 20%) and 10% only income tax for employees irrespective of the amount of the salary (usual rate up to 37% depending on the amount of salary) for a period of three years. The exemption applies to start-ups involved in software development and related services. The effect of such law has been dramatic which can be judged from the number of companies established after such extension (140 companies only established in 2015 and 2016).

The Government of Armenia has presented a draft law for circulation intending to extend the privelages of taxation indefinitely. While the draft has passed the preliminary discussion phase, it is still not presented to the Parliament for vote by the Government probably due to change of power in April 2018.

In accordance with the survey of Legelata (2018) around 80% of the clients of Legelata in IT industry would expand the business in Armenia significantly if the tax privelages would be extended. Moreover, around 32% of the clients would consider shrinking the business if the favourable treatment is not extended.

Be that as it may, Legelata continues to provide a one stop shop for its IT clients for advising on the taxation, IP and other related matters and conducting legel management for IT clients to reach the most efficient legal, tax and regulatory structure and business compliance.