ON SIMPLIFIED TAX
Non official translation
This law regulates relations regarding determination and payment of simplified tax and defines the simplified taxpayers, tax rate, calculation and payment procedures.
Article 2. Concept of Simplified Tax
1. Simplified tax is the tax substituting Value Added Tax (VAT) and/or profit tax (income tax) paid to the State Budget for entrepreneurial activities by rates and within deadlines defined by law.
2. For commercial (trade) organizations simplified tax substitutes VAT and/or profit tax.
3. For individual entrepreneurs and notaries simplified tax substitutes VAT and/or income tax.
Article 3. Termination of Tax Privileges
In terms of relations regulated by this law, tax privileges for VAT and profit tax defined by legislation shall be terminated for simplified taxpayers. During determination of taxable profit or income, deductions from gross income as well as the threshold for becoming a VAT payer shall not be effective either.
Article 4. Simplified Taxpayers
1. Simplified taxpayers are commercial (trade) organizations, individual entrepreneurs and notaries (except for the ones defined in clause 3 of this article) qualifying for conditions specified in clause 2 of this article who have filed declarations to state tax agencies of their registration area within deadlines and by order defined by this law.
2. Legal entities and individual entrepreneurs shall be considered to be simplified taxpayers if during previous reporting year total amount of turnover of sale of goods supplied and services rendered by taxpayers (exclusive VAT) have not exceeded 50 million drams. Restriction mentioned in this clause shall not apply to the notary activities.
3. The following taxpayers shall not be considered as simplified taxpayers:
a) Presumptive taxpayers in terms of the given type of activities according to law "On Presumptive Payments";
b) Producers of goods subject to excise tax;
c) Taxpayers, the residue of goods imported by "for free circulation" customs regime, non VAT taxable at the moment of import and not sold within the previous year of which exceeds 1 million drams;
d) Taxpayers owing outstanding liabilities (including fines and penalties envisaged by Tax legislation) exceeding 100 thousand drams as of January 1 of the given year;
e) Banks, pawnshops, loan and insurance companies, investment funds, specialized parties of stock market, organizers of casinos, cash winning games or lotteries, legal consultants, accounting and audit specialists, as well as marketing and management consultants (excluding notaries rendering consulting services);
f) Those entities which ceased to be considered as that prior to December 31 inclusive of that year;
g) Producers of agricultural products.
4. Regardless of the time limit provided by article 5, clause 2 of this law, newly established (registered) commercial organizations and individual entrepreneurs (with exception of the ones referred to in clause 3 of this article) are considered simplified taxpayers from the moment they get state registration provided they submit a written declaration, as envisaged in clause 1 of article 5, to their territorial tax agency within one month's time after getting registration (but no later than the last day of the quarter during which the taxpayers obtained the registration).
4.1. Regardless of the time limit provided by article 5, clause 2 of this law, notaries appointed according to procedure specified by RA legislation (with the exception of those referred to in clause 3 of this article) shall be considered simplified taxpayers from the moment of their appointment if by the 1st of the month following the quarter of being appointed as a notary they have not submitted a written application specified in clause 1(a) of article 6 on passing to general system of taxation, registration and reports, to their residential tax agency. Individual who submit the mentioned application within the mentioned term shall be considered as VAT payers from the day of their appointment as a notary.
Article 5. Declaration Filing for Becoming a Simplified Taxpayer
1. For becoming simplified taxpayers, legal entities and individual entrepreneurs qualifying for conditions defined in article 4 of this law shall file declarations defined by State Revenue Ministry of the RA to tax entities of their registration area.
2. For becoming a simplified taxpayer during the given year the declaration should be filed to tax entities starting from January 1 to 25 (inclusive) of the given year.
Article 6. Ceasing of the Effect of Simplified Tax
1. The taxpayer ceases to be considered as simplified taxpayer in the following cases:
a) If the taxpayer has submitted a written application to the tax entity of his/her registration area on passing to regular taxation, registration and declaration filing system;
b) If during the period of being a simplified taxpayer he/she has had two or more cases of violation of articles 1707, 1708 or 1709 of the RA code on "Administrative Violations" regarding procedures of labeling excisable goods;
c) If the threshold of outstanding tax liabilities defined in clause 3(d) of article 4 of this law has been exceeded;
d) If he/she carries out activities defined in points "b" or "e" of clause 3, article 4 of this law (excluding notaries rendering consulting services);
e) If during the quarter he/she imports goods by “for free turnover” Customs regime and not VAT taxable at the moment of import, with volume exceeding 250 thousand drams.
2. In cases mentioned in clause 1, points "a", "b" and "c" of this article the taxpayer ceases to be considered as simplified taxpayer starting from the 1st day of the month following the quarter when the fact defined in the above points is recorded. In cases mentioned in points "d" and "e" - the termination starts from the moment when the fact defined in the above point is recorded.
Article 7. Taxable Object
1. Simplified taxable object is considered to be the sale turnover of goods supplied and services rendered by taxpayers during reporting quarter.
During rental and borrowing transactions sales turnover of the lessor and creditor is the payment for the mentioned transactions, i.e. charges and interest payments. Royalties are also included in the sales turnover.
Article 8. Rates of simplified tax and Tax calculation
1. For trading activity through shops and kiosks the tax for is calculated in the amount of 3.5 per cent of the sales turnover and in case of leasing the amount is 10 per cent of the sales turnover.
2. For business activity not mentioned in the clause 1 of this article the simplified tax payers calculate the tax for taxable object determined for current year by the following of turnover sale:
a) 7 percent for amount under 30 mln. dram
b) 12 percent for amount over 30 mln. dram.
c) 20 percent for notary activities.
3. Reporting period for simplified tax shall be considered to be a quarter.
4. Taxpayers calculate simplified tax amounts themselves for quarterly results by rates defined in the clauses 1 and 2 of this article, taking into consideration provisions stipulated by article 9 of this law.
5. VAT amount makes 60 percent within the total amount of simplified tax.
Article 9. Reduction of Simplified Tax Amount
1. With the exception of commercial activities carried out at shops and kiosks, during the reporting period the calculated tax amount is reduced in the amount of 5 per cent.
2. In case if according to this article after reduction the amount of simplified tax for the given time period is less than 3.5 percent, then simplified tax shall be paid at the rate of 3.5. And the not-reduced part of the tax shall be deducted from tax amount calculated for the following reporting period.
Article 10. Calculation Method of Gross Income and Expenses
During determination of taxable objects registration of incomes and expenses shall be done by accruals method (the taxpayer carries out registration of incomes and expenses based on the moment of getting the right of receiving those incomes or recognizing those expenses, irrespective of the time when incomes were actually received or payments were made).
Article 11. Declaration Filing Procedures and Deadlines
Simplified taxpayers shall file declarations on simplified tax with the tax entity of their registration area by the 25th of the month following reporting period in compliance with order defined by the RA State Revenues Ministry.
In case of finding errors in the declarations of simplified tax submitted for previous reporting periods themselves, the simplified taxpayers may file to the Regional Tax Inspectorates adjustment forms specified by the MSR based on which the tax liabilities for those periods shall be recalculated.
Article 12. Simplified Tax Payment Procedures and Deadlines
1. Simplified Taxpayers shall pay simplified tax amounts to State budget by the 25th of the month following reporting period.
2. Taxpayers shall not make profit tax (income tax) advance payments for activities taxable by simplified tax.
Article 13. Payment of Other Taxes by Simplified Taxpayers
1. The procedures of property and land tax payment, calculation, collection and payment of taxes for job as well as equal incomes (including as a tax agent), calculation and payment of VAT, excise tax charged on customs border, as well as other obligatory payments for cases defined by legislation shall be effective for simplified taxpayers.
2. Simplified taxpayers shall add VAT amounts paid to suppliers of goods and services (as well as to customs entities during import of goods) to procurements cost (expenses) of these goods and services.
3. In terms of issues regulated by this law simplified taxpayers shall be exempt from liabilities defined for tax agents in clause 1(a), article 21 of the RA law "On Income Tax".
Notaries shall be exempt of income tax withheld at the source in terms of income received for services rendered to organizations and individual entrepreneurs.
Provisions of article 24 and clauses 1 and 2 of article 37 of RA law on Income Tax shall apply to notaries in terms of income paid to individuals, aimed at ensuring notary activities
4. In case of filing income tax declarations individual entrepreneur - simplified taxpayers shall not include incomes gained from entrepreneurial activities, as well as expenses made to gain them during the period when being simplified taxpayers, except for the case defined in clause 4 of article 15.
5. Taxpayers, as employers, in terms of compulsory social insurance payments subject to payment shall pay for hired workers each (individual entrepreneur), as employees, fixed monthly payment in the amount equal to 6,000 dram; the latter shall substitute payments made in the order and in the amount envisaged in law on compulsory social insurance payments.
Article 14. Issuing Payment Documents by Simplified Taxpayers
1. Simplified taxpayers shall issue payment documents to their customers for goods shipped, provided, sold and services rendered by order defined by legislation.
2. Simplified taxpayer shall not make any notes on VAT rate or amount in payment documents issued (shall not issue tax invoices) including the period for submitting application defined in clauses 2 of article 5 of this law.
Article 15. Procedures of Passing from Regular Taxation System to Simplified taxation System
1. Simplified taxpayers shall add residues of VAT amounts exceeding the VAT amounts calculated for sale turnover for the period preceding the moment of passing to simplified taxation and separated in tax invoices of suppliers as well as paid (subject to payment) to Customs authorities, to expenses.
2. VAT amounts separated in tax invoices of suppliers during the period of simplified taxation may not be credited from VAT amounts calculated for sale turnover starting from the moment of passing to regular VAT taxation system.
3. Passing from simplified taxation system to regular one, taxpayers should calculate profit tax advance payments based on tax amount determined by proportions of profit tax (income tax) and/or profit tax (income tax) included in simplified amount as defined in article 8 of this law.
4. According to clause 2 of article 6 of this law, starting from the moment of ceasing simplified tax payments and for the rest of the reporting year taxpayers should calculate and pay profit tax (income tax) including advance payments and VAT according to defined order.
5. In cases when the entity is considered a simplified taxpayer for some period of the reporting year, when passing to regular taxation system, the profit tax (income tax) rate is determined by profit (income) scale defined by laws of the RA "On Profit Tax" or "On Income Tax" in accordance to tax amount determined by proportion of profit tax (income tax) within the tax amount calculated during the period when being simplified taxpayer as designed by article 8 of this law.
6. Starting from the moment of passing from simplified to regular taxation system taxpayer may deduct the loss of previous reporting years from gross income gained from business activities, while loss of simplified taxation period is not subject to deduction.
7. Those expenditures (against which tax amount deduction has already been implemented following to the article 9 of this law) of simplified tax payers for acquisition of goods and services within the period of being simplified taxpayer as well as for salaries affirmation by necessary documents, shall not be deducted from incomes gained upon passing from simplified to regular taxation system.
8. Simplified taxpayers should carry out registration of incomes and expenses as well as keep the record of issues regarding tax legislation by order defined by the Government of the RA.
9. Besides the accounting defined by this law, the simplified taxpayers may conduct no other accounting for taxation purposes.
Article 16. Taxpayers' Responsibility for Violation of This Law
1. Violation of this law is punished by order defined by legislation unless otherwise stipulated in this law.
2. In case of making notes on VAT rate and amount in payment documents issued, the taxpayers should pay VAT amount specified in payment documents within the deadlines of simplified payment for the given quarter - without deducting VAT amounts paid to suppliers of those goods and services.
3. In case if taxpayers complete declaration designed by clause 1 of article 5 of this law:
a) with wrong information on threshold designed by clause 2 of article 4 - are subject to penalty by amount of 20 percent of the portion exceeding the threshold;
b) with wrong information on non-conducting activities defined in clause 3(b) and (e) of article 4 - are subject to penalty by the amount of 100 thousand drams;
c) wrong information on import volume of goods taxable with zero rated customs duty defined in clause 3 (c) of article 4 - are subject to penalty by the amount of 50 percent of the part exceeding the import volume defined.
5. In case of concealing the taxable object (sales turnover) or understating it the simplified tax amount for the concealed or understated taxable object shall be calculated in due procedure of law, as well as a fine equal to that amount is imposed.
Article 17. Normative Acts on Law
Normative acts on application of this law are adopted by State Revenue Ministry of the RA by agreeing them with the Ministry of Finance and Economy of the RA and with the RA social insurance State foundation for the compulsory social insurance payments.
Article 18. Invalid
Article 19. Enactment of This Law
This law is in effect starting from July 1, 2000.
President of the Republic of Armenia
19 June 2000