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Armenia has approved the draft law on “Amendments to the Tax Code” that will make possible to tax some international tech companies in Armenia. This is an attempt to capture a slice of the foreign tech giants’ revenues from Armenia, such as Google, Facebook and Netflix.

First of all, the Law gives wide definition of electronic services, in accordance with the Treaty on Eurasian Economic Union:

• e-services are the provision of services through the information and telecommunication network, including the Internet,
• the provision of e-services is impossible without the use of information technology,
• the list of e-services is defined by the Government.

Secondly, the Law specifies when the service is considered to be provided in Armenia, both for companies and for individuals.

For the companies:

• when the e-service is received by the company located in Armenia,
• when the e-service is received by the permanent establishment of the non-resident company in Armenia,
• when the e-service is received by the permanent establishment of the executive body of the non-resident company in Armenia, which carries out business activities.

For the individuals:

• place of residence,
• place of the bank, used for e-service payments,
• network address,
• international code of the phone number, used for receiving e-services or making payments for it.

If the criteria indicate the different states, for example the place of residence is Armenia, but the bank is located in Cyprus, we need to find which country matches to more conditions. If the number is equal, the e-service provider decides where is the service delivery location.

The non-resident companies, who provide e-services in Armenia, have to take into consideration the following conditions:

For providing e-services in Armenia, there is no need to have a permanent establishment. However, companies must register in a special electronic platform.

Companies have to calculate the amount of VAT for each operation of the provision of e-services. The cost of e-services in foreign currency should be converted into Armenian drams at the exchange rate of the Central Bank of the Armenia on the last day of the quarter in which the payment was received.

Companies must pay VAT to the Armenian budget no later than on the 20^th day of the month following the reporting quarter.

Companies must quarterly submit VAT declaration, no later than on the 20^th day of the month following the reporting quarter.

Advantages

1. The new law creates a competitive environment for resident and non-resident IT companies, while previously only resident IT companies were paying VAT.
2. The law limits the fraudulent behavior of users, as now VAT applies to e-services provided to both legal entities and individuals, while previously it was applicable to only legal entities.
3. The simplified registration platform enables companies to operate without permanent establishment.

Disadvantages

1. There is no regulation on the special registration platform yet and its’ future is uncertain.
2. VAT is generally paid by end users, so maybe the cost of the services will arise.
3. Even if the product is paid in foreign currency, the VAT is calculated in Armenian drams, so there is a risk of exchange rate variation.