Specifics of application of Double Taxation Treaties in Armenia

Specifics of application of Double Taxation Treaties in Armenia

1) Which principal Double Tax Treaties (DTTs) are currently in force in Armenia?

 Armenia currently has over 50 double taxation treaties in force, including bilateral agreements with: 

•Austria • Belarus • Belgium • Bulgaria • Croatia • Cyprus • Czech Republic • Estonia • Finland • France • Germany • Greece • Hungary • Ireland • Italy • Latvia • Lithuania • Luxembourg • Moldova • Netherlands • Poland • Romania • Serbia • Slovakia • Slovenia • Spain • Sweden • Switzerland • United Kingdom •China (P.R.C.) • India • Indonesia • Iran • Israel • Jordan (unsure—check) • Kazakhstan • Kuwait • Lebanon • Qatar • Syria • Tajikistan • Thailand • Turkmenistan • United Arab Emirates •Canada •Russia • Ukraine •Singapore •Malta.

2) What types of income are covered by Double Taxation Treaties?

Double Taxation Treaties generally follow the OECD Model Tax Convention or UN Model Convention, and aim to allocate taxing rights between two countries to avoid double taxation. Nearly all treaties cover a common set of income types, though details can vary.

Most Common Types of Income Covered by DTTs are: 

  • Income from Immovable Property (Real Estate);
  • Business Profits;
  • Dividends;
  • Interest;
  • Royalties;
  • Capital Gains;
  • Employment Income (Salaries & Wages);
  • Director’s Fees;
  • Artistes and Sportspersons.

3) How is tax residency determined for DTT purposes in Armenia?

According to the RA Tax Code, an individual is considered a tax resident of Armenia if any of the following conditions are met:

1. 183-Day Rule:

  • The individual is physically present in Armenia for 183 days or more during any 12-month period starting or ending in the relevant tax year.

2. Center of Vital Interests:

  • If not physically present for 183 days, the person may still be deemed a tax resident if their center of vital interests is in Armenia. This includes:
    • Permanent home in Armenia;
    • Personal and economic ties (family, property, business).

3. Nationality as Tiebreaker:

  • If residency is unclear under the above tests, Armenian citizenship may be considered as a final tiebreaker, though in DTT cases, the tiebreaker rules in the treaty apply.

A legal entity (company, organization, etc.) is considered a resident of Armenia if:

  • It is incorporated or registered in Armenia; or
  • Its place of effective management is in Armenia (i.e., key decisions about the business are made in Armenia).

4) How to properly prove tax residency status to apply treaty benefits?

To apply treaty benefits under a Double Taxation Treaty (DTT), a company/individual must prove its tax residency to the source country’s tax authorities (the one where the income is earned). For Armenia, this involves a Tax Residency Certificate and potentially additional documentation depending on the treaty and income type.

5) How to determine which Double Taxation Treaty applies to a specific transaction?

To determine which Double Taxation Treaty (DTT) applies to a specific transaction, companies/individuals need to follow a structured approach based on the countries involved, the type of income, and the residency status of the parties.

6) Do the provisions of the DTT take precedence over domestic tax law?

Yes -  in Armenia, the provisions of a Double Taxation Treaty (DTT) take precedence over domestic tax law where they conflict.

7) What tax obligations does a resident have when receiving income from abroad under a DTT?

Armenian tax residents are taxed on their worldwide income.

Residents must report foreign income in their Armenian tax return, including:

  • Salaries;
  • Dividends;
  • Interest;
  • Royalties;
  • Capital gains;
  • Rental income;
  • Pensions, etc.

8) How are tax rates on dividends, interest, and royalties applied under a DTT?

Rates can vary under a DTT, but in general rates are the following:

1. Dividends

  • Domestic Armenian withholding tax on dividends: 5%.
  • Under most DTTs, maximum rates range from 5% to 15%, depending on shareholding.

2. Interest

  • Domestic Armenian tax: 10% withholding on outbound interest.
  • Most DTTs limit interest withholding tax to 5%–10%.

3. Royalties

  • Domestic Armenian tax: 10% on royalties paid to non-residents.
  • Most DTTs limit royalty tax to 5%–10%, sometimes lower for technical services.

9) What are the mechanisms for eliminating double taxation?

To eliminate double taxation, countries use mechanisms that are typically built into Double Taxation Treaties (DTTs) and/or domestic tax laws. These mechanisms ensure that income is not taxed twice -  once in the source country (where income is earned) and again in the residence country (where the taxpayer lives or is based).

10) What is the dispute resolution process and Mutual Agreement Procedure (MAP) under a DTT?

The dispute resolution and Mutual Agreement Procedure (MAP) under Double Taxation Treaties (DTTs) are primarily conducted through negotiations between the competent tax authorities of the respective countries.

Author: Syuzanna Harutyunyan

Armenia
Tax
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