ARMENIA Law and Practice Contributed by: Varoujan Avedikian, Tamara Martirosyan, Sofya Sargsyan and Larisa Gevorgyan, Andersen Legal
Cross-Licensing or Similar Arrangements An Armenian operating entity pays a royalty fee to a foreign IP owner for the right to use the intangible asset. This royalty payment is considered a deductible expense for the Armenian company. Use of Net Operating Losses To Offset Future Income Armenian tax legislation allows taxpayers to deduct tax losses from their gross income over the five tax years following the year in which the losses were incurred, subject to certain limitations and specific rules. 9.4 Tax on Sale or Other Dispositions of FDI Capital gains paid by Armenian companies to non- resident or foreign investors are generally subject to WHT. Specifically, capital gains – excluding gains from the sale of securities – are subject to a 10% WHT rate, while capital gains from the sale of securities are exempt and subject to a 0% WHT rate. In general, income is considered to be sourced from Armenia if, for example, it arises from the sale of shares in Armenian companies or from the sale of movable property located in Armenia. As noted in the foregoing, Armenia has entered into DTAAs with various countries. These agreements may reduce the WHT on certain types of income, including capital gains, or exempt such income from taxation at the source altogether. Foreign investors using a “blocker” corporation can potentially reduce WHTs on dividends, interest, royalties and capital gains through applicable DTAAs. 9.5 Anti-Evasion Regimes Armenian tax legislation does not impose specific anti-avoidance rules on certain types of FDI or cross- border transactions. However, transactions between foreign investors and Armenian resident companies are subject to the country’s transfer pricing regula - tions, which came into effect on 1 January 2020. These transfer pricing rules apply to taxpayers whose total value of controlled transactions exceeds AMD200 million (about USD520,000) in any reporting year. For the purposes of these regulations, a transac -
tion is considered controlled if it involves the supply of goods, disposal of intangible assets, granting or receiving rights to use intangible assets, provision or receipt of loans, assignment or transfer of monetary claims, disposal or acquisition of financial assets, per - formance of works and/or the provision of services, provided that the transaction is conducted between residents and non-resident parties that are classified as related (interconnected) under the transfer pricing rules. The regulations require that transactions between related resident and non-resident parties be priced using the arm’s length principle. Any deviations from this principle must be properly documented and reported to the Armenian tax service. 10. Employment and Labour 10.1 Employment and Labour Framework The legal and regulatory regime for employment in Armenia is primarily governed by the Armenian Labor Code (the code). The code is generally protective of employee rights and establishes the fundamental framework for all employment relationships. Key reg - ulations include the mandatory requirement for writ - ten employment contracts, rules on working hours, overtime compensation, minimum wage and statutory benefits. For a foreign investor, certain critical regulations appli - cable under Armenia’s employment landscape should be highlighted. All employment relationships must be formalised through mandatory written contracts that comply with the code, and the companies must follow the established application process to secure work permits for any foreign nationals they wish to hire. Perhaps the most significant aspect for an employer is that employment relations termination is strictly regu - lated; an employer cannot dismiss an employee with - out a specific legal basis defined in the Labor Code, a process that demands careful documentation and procedural adherence. Furthermore, during transactions such as an acquisi - tion, existing collective agreements are legally pro -
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