New assistance programme for IT companies planned

ArmInfo. The Ministry of High-Tech Industry (MHI) of Armenia is initiating new assistance  programs in the form of tax preferences for organizations and individual entrepreneurs operating in the ICT sector.

In particular, as the head of the department Mkhitar Hayrapetyan  stated on November 11 at a meeting of the parliamentary committee on  economic issues, the ministry proposes to provide IT companies with a  tax benefit in the amount of 50% of income tax on salaries and  equivalent income, when hiring a labor migrant (relocant) carrying  out the relevant professional activity.

The state will also assist small businesses in staffing. Thus,  companies with up to 30 employees (per quarter) will be provided with  100% compensation for income tax on salaries and equivalent income of  an employee. This mainly concerns startups, the minister emphasized.  The authorities are also ready to compensate for their travel  expenses incurred for the purpose of training and retraining  professional personnel (in the amount of no more than 2 million  drams).

Companies with more than 31 employees will be able to apply for a 50%  income tax refund. For them, the amount of compensation for expenses  on improving the professional skills of employees will be 25% of the  income tax.

For companies that are involved in research and development, the  amount of income tax refund will be 10% instead of 20%.

The IWP also proposes to more than halve the turnover tax rate for  these companies - 2% against the current 5% (from 2025, the rates in  the turnover tax system for other areas in the RA will be doubled -  ed.) and provide an additional opportunity to reduce the tax base.

Compensation and tax preferences will be valid for three calendar  years from the date of hiring a new employee. At the same time, the  amount of compensation under the above assistance programs for a  quarter cannot exceed half of the income tax paid by the company for  a given period.  State assistance programs have been developed for  companies and publishing houses operating in the general tax field  and in the turnover tax system. If approved, it will come into force  on January 1, 2025 and will be valid until January 2032. It should be  noted that according to the latest data, 50 thousand specialists work  in the information technology sector of Armenia. In 2023, the ICT  sector of Armenia generated revenue of 883.2 billion drams (over $2.2  billion), which is 54.8% higher than the same period last year.   According to the data of the Statistical Committee of the Republic of  Armenia, the dominant segment in ICT is traditionally services - with  a share of 68.6% (versus 77.7% in 2022) or 606.2 billion drams, with  an increase of 36.7% over the year. The lion's share of services  falls on the information technology (IT) sector - 449.1 billion  drams, which is 52.4% higher than the figure for the previous year.  Revenue from services in the telecommunications sector amounted to  148.3 billion drams, with an annual growth of 5.5%. At the same time,  the share of the ICT production segment decreased over the year from  0.5% to 0.1%, and revenue decreased by 63.8% - to 972.1 million  drams.

At the end of February in Paris, Prime Minister Nikol Pashinyan, at a  meeting with the heads of a number of French companies at the Elite  Club of Political Dialogue in Paris, said that the financial  authorities are also working to improve the legal regulation of the  IT sector in order to make the country more attractive for  representatives of this sector. On May 8, the Armenian government  decided to allocate funds from the Ministry of High-Tech Industry to  provide state support to commercial organizations and individual  entrepreneurs in the IT sector in 2024 within the framework of the  decision of December 28, 2023 (implies significant tax benefits, in  particular, halving the income tax if certain conditions are met).  According to preliminary estimates, state support is planned to be  provided to 55 organizations in the amount of 5 billion drams, and in  2025 - in the amount of 2 billion drams. The explanatory note to the  document noted that state support was provided to 47 organizations, a  total of 7,857,245,293 drams were paid, of which 46 organizations  received 5,283,234,974 drams in 2023. As a result, about 5,854 jobs  were created.

In August of this year, former Minister of Economy Vahan Kerobyan  reported that in the first half of 2024, the IT sector of Armenia  shrank by about 13%. The main reason is the missed opportunities, he  believes.  According to statistics, the service sector in  January-September 2024 significantly slowed down in annual growth -  from 13.4% to 5.9%, providing a volume of 2.4 trillion drams ($6.2  billion). In September alone, the volume of services provided  decreased by 2.5% to 298.5 billion drams. The second place in terms  of the volume of services is occupied by the information and  communication sector - 430.6 billion drams (17.6% of the total  volume), with the main burden falling on the telecommunications  segment.