|
DOING BUSINESS IN KARABAKH |
|
|
1.1 Profit Tax:
If the total amount of investment in the statutory capital of a resident company with foreign investments (except banks), after 1 January 2000 constitutes at least AMD 25 million, the amount of Profit Tax for the resident company shall be reduced:
|
Amount of investment in the statutory capital of a resident (AMD in million)
|
The amount of deductions of the Profit Tax for each year
|
|
|
|
100% |
50% |
|
25 - 50 |
first 1 year |
following 2 years |
|
50 – 100 |
first 1 year |
following 3 years |
|
100 – 200 |
first 2 years |
following 3 years |
|
200 – 300 |
first 3 years |
following 3 years |
|
300 and over |
first 4 years |
following 3 years |
The
profit before tax shall be reduced in the amount of losses incurred in the
course of previous years.
The net profit shall be reduced in the amount of dividends received by the
resident company.
The profit before tax shall be reduced in the total amount of expenses from
scientific research, experimental and designing activities within the year of
incurring such expenses, in the amount of expenses incurred on preparatory,
drafting and research activities, geological research for the extraction of
natural resources.
1.2 Law on Foreign Investment
In the event of any changes in the
foreign investment legislation, the investor can apply the legislation that was
in force at the date of investment, for a period of 5 years from the date on
which the laws were changed (“grandfather clause”).
Foreign investors and employees are guaranteed the right to freely export their
property and income.
Property imported by a foreign investor as a contribution to a statutory capital
is exempted from custom duties.
2. RESTRICTIONS ON FOREIGN INVESTMENTS
A foreign shareholder can hold up to 100% of shares in an
Karabakh’s company.
Foreigners cannot acquire land in the territory of Karabakh.
A license may be required for investments in certain sectors.
Only Karabakh’s resident companies can carry out banking, financial services and
insurance activities.
Sales of goods and services can be billed from abroad and paid in foreign
currencies. Dividends can also be repatriated in foreign currencies.
3.1 Import restrictions
There is no quota for imports. There are no import licenses.
3.2 Customs duties
A uniform rate of 10 % applies to the majority imports. Some essential goods as foodstuffs, raw materials, fuels are exempted from customs duties. There are no customs duties on export.
3.3 Value Added Tax
An importer is liable to pay VAT on imported goods at the
border of Nagorno-Karabakh Republic, irrespective of their origin, including
goods cleared for free circulation and reimported goods. VAT on imported goods
is charged at a custom value and Excise Tax. Custom value is an amount, which
has been paid for purchasing and transportation of goods (with the exception of
indirect taxes paid abroad) up to Karabakh’s border.
VAT on imported goods must be paid within 10 days from the date of import.
Imported goods are exempted from VAT if they are subject to 0 % customs duties
and are not subject to the Excise Tax or goods imported for humanitarian
assistance and charity, are imported by individuals (goods for personal
consumption), will be reexported after processing on the Karabakh’s territory,
are imported under special customs regimes, and if turnover of imported goods
are exempt from VAT (sales of medicines, medical technique and items, goods
imported within the framework of humanitarian aid and charity).
3.4 Excise Tax
Excise tax is charged on the import of diesel fuel (10%),
spirits (125%), beer (200%), wine (50%), domestic wine (25%), tobacco-based
products (100%), petrol (35%), etc. Object of taxation of import excise tax is a
custom value.
Excise Tax of the imported goods shall be paid within 10 days from the date of
import.
Imported goods are exempted from Excise Tax if they are imported by diplomatic
organisations, individuals (goods for personal consumption), etc.
3.5 Local representation
Foreign corporations that intend to import directly into the
Karabakh’s market may employ a local agent.
A subdivision of a foreign company can import into Nagorno-Karabakh Republic as
the agent of its parent company.
A foreign corporation can appoint a resident individual as its agent or
representative.
4.1 Types of partnerships
There are two types of partnerships:
- full partnership,
- limited partnership.
Full partnership
A full partnership
consists only of full partners who are entirely liable for the obligations of
the partnership. Both domestic and foreign individuals and legal persons (except
for governmental bodies) may be partners in a full partnership. However, a
person may be a full partner only in one full partnership. Rights & duties are
regulated by the legislation and founders' contract. Full partnership is managed
by all partners.
There is no minimum share capital and shares value fixed by the Law. There is no
legal time limit to pay in the share capital.
The partnership is created on the basis of founders' contract, which identifies
names and the list of activities of organization, the partners, their respective
property or labor contributions and their share in the profits of the
partnership.
The partnership must be registered in the State Register. Application for
registration must contain names and addresses of the partners, name and address
of the registered office of the legal entity and the list of activities.
Limited Partnership
A limited partnership
must have at least one full and one limited partner. Generally, the liability of
the limited partner for the obligations of the partnership is restricted to the
amount of his contribution in the partnership. A limited partner may, however,
accept responsibility for obligations, which exceed his contribution in the
partnership. A person may be a full partner only in one limited partnership;
partner of a limited partnership may not be a full partner in another limited
partnership; full partner of a limited partnership may not be a partner of a
full partnership. Limited partnership is managed only by full partners. Rights &
duties are regulated by the legislation and founders' contract.
There is no minimum share capital and shares value fixed by the law. There is no
legal time limit to pay in the share capital.
The partnership is created on the basis of founders' contract, which identifies
names and list of activities of organization, the partners, their respective
property or labor contributions and their share in the profits of the
partnership.
The limited partnership must be registered in the State Register. Application
for registration must contain the same information as for the general
partnership.
Liquidation of partnerships
Liquidation of partnerships may occur in accordance with the decision of partners, court order, in case of bankruptcy, changing of partners, etc.
4.2 Companies
Types of companies
There are following types of companies:
- joint-stock company,
- limited liability company,
- additional liability company.
Joint - Stock Company
What is a joint-stock company?
A joint-stock company is an enterprise with legal entity
whose capital is divided into shares. There are two kinds of joint-stock
company, open and closed. Open companies may issue shares to members of the
public, and such shares may be traded without restriction. On the other hand
shares of a closed company are issued only for the company’s founders and their
transfer is restricted.
How is the joint-stock company managed?
The highest managerial body of the joint-stock company is the
Shareholder’s General Meeting. Operational management may be delegated to the
Chairman (President) or Board of Directors. Companies must also have a
Supervisory Board and Independent Auditor.
Is there a minimum number of members of the
general meeting?
The minimum number is 3.
What is the procedure for dismissal of officers?
Managers, members of the Board of Directors or members of the
Supervisory Board may be dismissed by a vote of the General Meeting of the
Shareholders representing working majority.
Must shares have a minimum nominal value?
Shares must have a minimum nominal value and the total
nominal value of these shares must correspond to the amount of the registered
capital.
What minimum amount of statutory capital is required?
The minimum statutory capital requirements is 100 times of
the minimum monthly wage for a closed company and 1000 times of the minimum
monthly wage for an open company, although the foundation documents may provide
for a greater amount.
Are there special requirements for in kind
contributions?
In kind contributions must be valued by an independent
auditor.
What is the minimum number of shareholders required?
A joint-stock company may be established by domestic and
foreign individuals and legal persons. A joint-stock company may be established
by one person, if he takes up all shares of the company.
Are Board members required to be Karabakh’s citizens or residents?
Board members, members of the Board of Directors or the
Supervisory Boards, Chairman of the Board of Directors are not required to be
Karabakh’s citizens or residents.
Are there any shareholder or management qualification rules for the Board?
Members of
the Board of Directors may be shareholders.
What are the registration requirements for establishing a joint-stock company?
The foundation documents must record, inter alia, the
enterprises’ name and activities, names, addresses and capital contributions of
its founders, the amount of statutory capital, rights and duties of founders,
management structure, its by-laws, and the procedure for making distributions.
Any subsequent changes to the foundation documents must be recorded in the State
Register.
Registration is carried out through a local office of the State Register.
Initial registration requires submission of a registration application (names
and addresses of the partners, name and address of the registered office of a
legal person, list of activity), the foundation documents, any necessary
licenses, and any other documents required in specific cases, together with a
registration fee. Once registered, a company is assigned a state registration
number and a registration certificate.
What is the duration time necessary to register?
For the registration the average duration is 5 days.
Liquidation
Voluntary liquidation may occur in accordance with a decision
of the shareholders, or if a company is transformed in a way which cannot be
achieved without its liquidation. Mandatory liquidation, carried out in
accordance with the court order, occurs in case a company is declared bankrupt
or fails to meet its legal obligations.
A liquidation commission appointed by the shareholders or the court order
performs the liquidation process. Decision about creation of liquidation
commission must be registered in the State Register.
Limited Liability Company
A limited liability company is a legal entity with capital
divided into shares. The liability of its owners is limited to the nominal value
of their shares.
The management structure of a limited liability company is essentially the same
as that of a joint-stock company.
Registration procedures are the same as for joint-stock companies.
The liquidation for limited liability company is the same as for joint-stock
companies.
Additional Liability Company
An additional liability company is a legal company founded by
one or several persons whose charter capital divided into ownership shares of
amounts determined by the charter. The participants jointly and separately bear
subsidiary liability for its obligations with their property in a multiple of
the value of their contributions, which multiple is identical for all of them
and is determined by the charter of the company. Upon bankruptcy of one of the
participants, its liability for the obligations of the company shall be
distributed among the remaining participants in proportion to their
contributions, unless another procedure for distributing liability is provided
by the charter of the company.
The management structure of an additional liability company is essentially the
same as that of a joint-stock company.
Registration procedures are the same as for joint-stock companies.
The liquidation for additional liability company is the same as for joint-stock
companies.
4.3 Cooperatives
What is a cooperative?
Cooperative is a voluntary union of legal persons and
citizens created to meet material and other requirements of its members.
There are two kinds of cooperatives, commercial and non-commercial.
The highest body of management is the Members' Meeting. Operational management
may be delegated to a Manager or a Board of Directors. Cooperatives may also
have a Supervisory Board.
The foundation documents must record the organizations' name and activity, the
capital contributions of its members, its management structure, responsibilities
of members, etc.
Liquidation may occur in accordance with a decision of members or when the
organization is transformed.
4.4 Branch
Are there any advantages in forming a branch rather than
company?
In Karabakh it is easier, more simple and less costly to
establish a branch than a subsidiary.
There is no locked-up capital as a result of creating a branch.
There is no special branch tax in Karabakh.
What are the registration requirements for opening a branch?
The company must register the establishment of the branch
with the State Register. The company must provide a letter proving the decision
of the foreign company to open a branch and a letter proving that the company is
legally incorporated in its home-country.
What are the accounting and tax obligations for branches?
Same rules apply to branches as to corporate entities in
terms of accounting obligations.
For Profit Tax purposes, a branch can register if it wishes to do so. However,
the rules for the calculation of the tax differ from general rules applying to
corporations.
How can a branch be managed?
The branch is managed by a manager appointed by a legal
person and complies with the letter of attorney of the company.
What additional notifications are required to start a business?
A branch is registered
within 5 days. Within 30 days after the registration of the branch in the State
Register the branch must be registered in Tax Authorities.
5.
LABOUR
RELATIONS AND SOCIAL SECURITY
5.1 Employment Legislation
What are the formal requirements for employment
contracts?
An employment contract has to be in written form and contain
the following elements:
- Description of functions;
- Place of employment;
- Date of the beginning of employment;
- Monthly salary.
Types of employment contracts
The most important types are:
Employment contract for an indefinite period
of time.
This means that there is no precise term indicated in the agreement. It is the
most usual type of contract.
Employment contract for definite (3 years)
period of time.
The term is
defined in the contract.
Employment contract for implementation of a
certain work.
5.2 Minimum wage applicable in Karabakh
The minimum wage set by the Law in Nagorno-Karabakh Republic is AMD 10,000. However most companies may quote a higher minimum wage.
5.3 Employee's representation in the company
In accordance with Collective Agreement, concluded between
the Trade Union and administration, the employees may be involved in the
management of the company.
There are no further legal requirements regarding the involvement of employees
in the management process.
5.4 Legislation concerning foreign workers
There are not any legal restrictions for the employment of a foreign worker in Karabakh.
5.5 Working conditions
The following description concerns usual working conditions as defined by the Labour Code. Conditions may be amended by a specific corporate Collective Agreement.
What is the normal working week?
The normal working week is
40.6 hours long at most.
Is overtime allowed?
In general, overtime is allowed for 8 hours during the normal
working week.
What are the legal holidays?
The legal holidays are 1, 2 and 6 January, 7 April, 9 May, 2
September.
How long are paid vacations?
Under the Labour Code, employees are entitled to 24 days of
paid vacation.
As a general rule, the employer pays the employee his vacation indemnity at the
time when his regular salary is paid.
5.6 Social protection of the employees
What are the conditions for the affiliation to
Karabakh’s social security?
According to the Labour Code all employees who work for an
employer in Nagorno-Karabakh Republic and have their employment contract must be
affiliated with the Karabakh’s social security system.
How is the contribution being calculated?
The employers shall pay social security contributions to the
Social Security Fund every month at the rate 15% of the payroll fund, but no
less. The employers shall also pay social security payments at the rate of 3% of
the wage or salary of each employee.
What is to be done in case of employee illness or accident?
Whenever an employee is a
victim of a work-related or a non-work-related accident or illness, employer
must recover expenditure related with accident or illness.
What is the retirement age?
|
Men |
65 years |
|
Women |
60 years |
What are possibilities for the termination of employment?
Employment
contract may be terminated in the following cases:
- by mutual agreement of parties;
- if defined period of time of employment contract has
expired;
- if employee is to serve in the army;
- by reasons stipulated in the Labour Code, e.g. criminal
record, misconduct, court decision, etc.
What is the discrimination legislation in Karabakh?
An employer
is obliged to refrain from discriminating in any way against the employee on the
basis of race, language, sex, age, religion, nationality or activity in a union
or political structure.
6. AUDIT REQUIREMENTS AND PRACTICES
6.1 Auditing of annual financial
statements
For joint-stock companies, banks and insurance companies,
annual financial statements have to be audited by an independent auditor.
For other companies, it is not required that financial statements be audited by
an auditor.
6.2 Review of books and records of an organisation
by other entities than the directors and auditors
The annual
financial statement of companies which have to be audited by an auditor, may be
published in press to be available to the public.
6.3 Auditing of extraordinary financial statements
In case of:
- mergers;
- splitting;
- legal transformation,
extraordinary financial statements have to be audited by an independent auditor.
7. ACCOUNTING PRINCIPLES AND PRACTICES
Accounting principles are set out by the Karabakh’s legislation.
7.1 What business records must be maintained according to the legislation?
Accounting records
- General Ledger
- Cash book
These books must be kept for five years by the company in their original form.
Annual financial statements
- Balance sheet
- Report on financial results
- Cash flow statement
- Equity flow statement
- Notes to the financial statements
The annual financial statements must be kept for five years.
7.2 How often should the
financial statements be prepared
Financial statements should be prepared annually, at the
financial year closing date (31 December).
Interim financial statements are to be prepared at the dates mentioned in the
Tax legislation.
7.3 Preparation of contents of financial statements
Financial statements are prepared on the basis of accounting
records which have to be performed in accordance with the Chart of Accounts in
compliance with the relevant instructions from the Ministry of Finance and
Economy.
7.4 Date for accounting year-end
The Karabakh’sn legislation has determined 31 December as mandatory closing date of financial year (and fiscal) for all businesses.
7.5 Language and currency of financial records
Accounting records and books must be kept in Armenian
language for all companies carrying out activities in Nagorno-Karabakh Republic.
Records of the Karabakh’s branches of foreign companies have to be kept in
Armenian language, as well.
Moreover, all accounting records must be in Armenian drams.
7.6 Language and currency of financial statements
Financial statements may not be presented in a foreign
currency. The amounts recorded in those statements must be in Armenian drams.
Official financial statements are to be prepared in thousands of Armenian drams.
All official financial statements must be kept in Armenian language.
7.7 Accounting and reporting requirements of branches
As mentioned above, there are no special regulations concerning branches; the accounting and reporting requirements are the same as for companies (residents) with exemption of audit obligations.
The main taxes in the Nagorno-Karabakh Republic are Profit Tax (Corporate Income Tax), Income Tax (Personal Income Tax), Value Added Tax, Excise Tax, Property Tax and Land Tax.
8.1 Legislative taxation framework
The tax system is based mainly on the
legislation of European countries, designed to assist the development of market
economy.
Under the Profit Tax Law and Income Tax Law, treatment of resident and
non-resident companies is identical, with a single rate of Profit Tax and Income
Tax.
8.2 Case law
The Karabakh’s legislation does not use
the concept of binding precedents and there are no published judgments on which
to base with certitude the interpretation of tax legislation.
Karabakh’s tax legislation consists of the Law on Taxes, Laws on different types
of taxes, Governmental Decrees and state administrations Acts.
8.3 Anti-avoidance
The Karabakh’s tax legislation includes
anti-avoidance rule. The arm's length principle generally applies to
transactions between related parties. Such transactions shall be performed at
market value.
8.4 Clearance procedures
There are no formal clearance procedures.
8.5 Capital taxation
The owners of real estate and vehicle are
subject to annual Property Tax based on the value of buildings and the power of
a traction-engine. The landlords, permanent and temporary users of the state
property land are subject to annual Land Tax based on the cadastral value of
land.
There are no other taxes on the capital or net worth of companies in Karabakh.
There is no individual wealth tax in Karabakh.
All new legal entities and subdivisions of non-resident companies must be registered with the Tax Authorities within 30 days of registration in the State Register.
9.1 Tax returns
All companies and subdivisions must file
an annual tax return by:
- 25 February (VAT and Property Tax),
- 15 April (Profit Tax),
following the end of the calendar year.
Tax return of Land Tax must be filed by companies by 1 September of the calendar
year.
Individuals must file Income tax return by 1 March of the following year.
9.2 Assessments
Tax Authorities will assess the amount of
Profit Tax, on an annual basis, following the receipt of the annual tax return.
Additional assessments can also be raised if it is believed that the amount of
tax originally assessed is rather low.
Same rule applies for individuals.
9.3 Payment
and collection
Taxpayers whose prior-year Profit Tax has
exceeded AMD 500,000 must pay their annual Profit Tax liability monthly, in
advance, equal to the 1/16 of the actual amount of the Profit Tax for the
previous year (prior to the calculation of the actual amount of the Profit Tax
for the previous year, taxpayer shall make monthly advance payments in the
amount constituting not less than the last advance payment of the previous
year). Each advance payment of Profit Tax is payable on the 25th day
of the current month. The final annual liability must be settled by 25 April
following the end of the calendar year.
Taxpayers whose prior-year Profit Tax did not exceed AMD 500,000 or he did not
have taxable profit in the previous year are exempted from the liability to pay
monthly advance payments of Profit Tax. Newly established taxpayers may not make
advance payments till 25 April of the following year.
Subdivisions of non-resident companies are required to make advance payments of
Profit Tax every 6 months, if the amount of the Profit Tax of the previous year
has exceeded AMD 2 million. Advance payment is payable by 1 July and 31 December
of the reporting year, equal to the 1/4 of the actual amount of Profit Tax for
the previous year. The final annual liability must be settled within 30 days
after submitting of the annual tax return.
9.4 Withholding taxes
The tax agent (income payer) is obliged to
withhold tax on the day the payment is made or transferred to non-resident.
The tax agent is obliged to pay the withholding tax to the State budget within 3
banking days after the day of withholding.
9.5 Tax inspections
Returns made by the entities may be subject to inspections at the discretion of Tax Authorities.
Penalties
The basic penalty is 0.2 % per day on the tax outstanding, from the day it is
due until it is paid. This applies to the 365 days of delay.
9.6 Statute of limitations
Tax can be assessed in respect of a fiscal year for up to three years following the end of the year in which the liability arose.
9.7 Withholdings concerning
individuals
Income Tax must be withheld by the
employer from the employee's income in the following cases:
- Employees of an Karabakh’s company.
- Employees of an Karabakh’s subdivision of a non-resident company.
- Employees of a non-resident company who are assigned to work in the
Karabakh’s subdivision of that non-resident company.
The employer must deduct tax from the gross wage or salary at rates specified by
the Law on Income Tax.
9.8 Advance payments
concerning individuals
Taxpayers who derive income from a
business activity and whose prior-year Income Tax has exceeded AMD 50,000 must
pay their annual Income Tax liability quarterly, in advance, 1/6 of the actual
amount of the Income Tax for the previous year (prior to the calculation of the
actual amount of the Income Tax for the previous year, taxpayer shall make first
advance payment in the amount constituting not less than the last advance
payment of the previous year). Each advance payment of Income Tax is payable by
the 15th day of the last month of each quarter. The final annual
liability must be settled by 1 May following the end of the calendar year.
Taxpayers whose prior-year Income Tax did not exceed AMD 50,000 or who has
incurred losses in the previous year are exempted from the liability to pay
advance payments of Income Tax. Newly established taxpayers may not make advance
payments up to 15 June of the following year.
Withheld taxes
Income, excluding the income received by non-residents from Karabakh’s sources
or from business activity within the territory of the Nagorno-Karabakh Republic,
that are taxed at source within the Nagorno-Karabakh Republic have to be
accounted for on an individual's tax return.
Tax inspections
Individual tax returns may be subject to a compliance inspections in the same
way as for corporate taxpayers.
Penalties
Penalties will be imposed for late or non-filing of tax returns, late or
non-payment of taxes, and where income is significantly under declared.
The penalties are the same as noted for corporate taxpayers above.
9.9 Statue of limitations for
individuals
The same rule applies as for corporate entities.
10.1 Taxes
Profit
From 1 January 2001 a Profit Tax is levied at 10% on taxable profit and from 1
January 2002 a rate will be further reduced to 5%.
A special rate of 70 % applies to income derived from organization and carrying
out lotteries and games with reward.
Legal entities created in foreign countries (non-resident) shall be liable to
pay the tax only on income derived from sources in the territory of the
Nagorno-Karabakh Republic.
Taxable profit is the positive difference between gross income (worldwide
income) and deductions.
Deductions are the expenses, losses and other deductions incurred by taxpayer
for the receiving of income within the taxable period (calendar year).
Capital gains
There is no capital gains tax in Karabakh.
Capital gains are included in the gross income and taxed as ordinary Profit Tax.
10.2 Tax incentives or
privileges
By the Law on Profit Tax, following Profit Tax privileges are granted:
|
-
|
Income derived from the sales of agricultural production is exempt from the Profit Tax. |
|
-
|
Public, religious and other non-profit organizations are exempted from the Profit Tax. |
|
-
|
Gross income of the taxpayer is reduced in the amount of 150 % of salaries and wages paid to every disabled person employed by the taxpayer. |
|
- |
Deferred payment of the Profit Tax. |
Specific incentives granted to foreign investments (see Section 2).
10.3
Available loss relief
Losses can be carried forward without
limitation of period.
Losses cannot be carried back.
10.4 Group tax consolidation
There is no group tax consolidation.
10.5 Double taxation relief
Dividends received from profits taxed by Profit Tax are reduced from the beneficiary's gross income, excluding dividends received by the subdivisions of non-resident companies.
10.6 Import/export duties
There are no export duties in Karabakh.
All imports (with the exception of cases when the custom duty rate of imported
goods is set at 0% and which is not subject to the Excise Tax or goods imported
for humanitarian assistance and charity) of goods are subject to VAT (15.1).
Import duties are determined on an itemized basis.
10.7 Other taxes
|
- |
Excise Tax (diesel fuel, oil, spirits, wine, beer, tobacco products), |
|
- |
Property Tax, |
|
- |
Land Tax. |
10.8 Transfer tax
There is no transfer tax in Karabakh.
11.TAXATION OF FOREIGN CORPORATIONS
The insurance compensation, reinsurance payments, income received from the freight, dividends, royalties, income from the lease of property, capital gains and other income derived by non-residents from Karabakh’s sources are subject to a 5% withholding tax:
12.1 Taxation of income of individuals
Individuals, regardless of their
citizenship, that are considered Karabakh’s tax residents (i.e. spending more
than 183 days of 12 months period starting or ending in a calendar year, or
whose center of vital interests is in Nagorno-Karabakh Republic) are paying
Income Tax at a single rate of 5% of taxable income.
Non-residents are taxed on Karabakh’s source income only.
Taxpayers are liable to Income Tax on:
- income from employment,
- income from entrepreneurial activity,
- royalty,
- leasing income,
- other incomes.
The main exemptions relate to the following income:
- income from the sale of own property,
- dividends,
- interests,
- inheritance or gift,
- insurance compensation,
- other incomes.
Salaries and wages received in cash or in kind are taxable, except the
following:
- compensation income as provided by the legislation,
- food and drinks at the work place provided by the employer,
- scholarships and stipends paid by the state or registered NGO-s,
- income derived from the sale of agricultural products.
The basic personal allowance is AMD 10,000.
12.2 Special regulation on
Income Tax for Karabakh’s resident non-citizens
Income, excluding income from
entrepreneurial activity, received by non-nationals must be withheld at 5 %
(insurance benefits received from insurance and income received from freight) or
15 % (royalties, lease payments, increase in the value of property and other
passive income).
Income from salaries and wages is taxed at 5% single rate, without making
personal allowances. Amount of tax withheld at this rates shall be considered as
the final amount of the income tax, with the exemption of cases when the
non-national is a resident or implements entrepreneurial activity in Karabakh.
In those cases the non-citizens must apply to the Tax Authorities and file tax
return.
12.3 Withheld taxes
Personal income tax on salaries and wages
is withheld by employers.
12.4 Other taxes payable by an individual
Property Tax and Land tax.
The Karabakh’s tax system is mostly an imputation system.
13.1 Dividends
Dividends paid from profit which has been subject to Karabakh’s Profit Tax are not taxable from domestic corporations and individuals.
13.2 Capital gains
There is no capital gains tax in Karabakh.
Capital gains on shares held by corporate shareholders are included in their
taxable income.
Capital gains on private property of individuals are not taxable. Gains received
from the entrepreneurial activity are taxed.
13.3 Foreign subsidiaries
Dividends
Dividends paid by a resident are subject to withholding tax at the rate 5%.
Capital gainsµ
Capital gains are taxed as business income (profit).
13.4 Reorganizations
The current tax system does not include
specific provisions in respect of reorganizations.
Profits arising from the liquidation are reduced in the amount of the positive
difference between the amount of residual property received from the shares of
the taxpayer and balance sheet value of the shares.
13.5 Acquisitions
A foreign investor can acquire an interest in a domestic company or business through acquisition of shares or assets as part of the privatization process of the domestic enterprise or by purchasing from the owners after privatization.
14.1 Value Added Tax
Supply of goods and services rendered by
taxable persons whose turnover exceeds AMD 4 million during four quarters
directly preceding the current quarter are generally taxed at the rate 20 %.
Import of goods are generally taxed by VAT on the border of Nagorno-Karabakh
Republic (VAT calculated and imposed by the customs bodies) at 20 % too.
VAT shall be recognized at the time the supply takes place i.e.
- goods: the date stated in the sales contract and in other cases, the
delivery date or payment date,
- services: the day they have been rendered or paid for.
Taxable turnover of:
- delivery of goods and services is the monetary equivalent of the
value of goods and services (including all fees and payments made), without VAT,
paid by the purchaser to the seller as an indemnity;
- imported goods is the custom value and excise tax;
- imported goods, which have been earlier exported for the purposes of
processing, or repair, is the price of processing, or repair due to foreign
enterprises as indemnity;
- mediation services is the amount of fee, paid for these services on
VAT exclusive basis;
- provisions of goods and services on free or partially free
consumption basis is their current reliable market value (price) on VAT
exclusive basis; etc.
In case when Karabakh’s VAT payers participate in delivery of goods and services
performed by foreign companies or individuals, that are not registered in
Karabakh, and in case of acting on behalf of or at the expense of foreigners,
the mentioned VAT payers are considered suppliers of these goods and services
and therefore, payers of the tax.
VAT is payable on a quarterly basis by the 25th day of the following
month. Payments for a fiscal year shall be made prior to 25 February of the
following year. VAT on imported goods must be paid within 10 days from the date
of importation.
Export of goods or services are zero-rated.
Export of services means export of services directly related with:
- export of goods,
- transportation of passengers, baggage, loads and post, implemented
outside the territory of Karabakh,
- processing and assembly of products from the raw material and
materials of foreign entities on the territory of the Republic of Armenia
exported outside the territory of Nagorno-Karabakh Republic, etc.
Main exemptions from tax liability are:
- financial and insurance services,
- training and education,
- scientific and research works,
- radio and television broadcasting,
- postal services,
- sales of newspapers and magazines,
- sales of agricultural products produced in Karabakh,
- insurance and social insurance services.
14.2 Other taxes
See Analysis in Sections 9 and 10.