During 2017-2018, the Human Rights Defender received complaints with regard to demands on paying income tax by natural persons when alienating property of a personal use.
The issue is that the RA Tax Code stipulated the following acts as alienation of a property which is considered as an object of entrepreneurial activity:
- the alienation of a property of personal, family and domestic use of the same type two or more times in a year, if they take place within a year;
- the alienation of a property of industrial, other commercial and public purpose, including buildings (including unfinished, semi-constructed), alienation of lands of industrial, entrails-use and of other manufacturing purpose or ownership of a share in property.
The purpose of the aforementioned regulation was establishing tax liability for all persons who were not obliged to pay taxes in accordance with the law, but were in fact engaged in profit pursuing activity. However, it has affected persons who alienated their property out of personal need and were engaged in non-profit activity.
The Human Rights Defender addressed this issue in his 2018 Annual Report. Particularly, the Defender presented the following recommendation:
- to reformulate the definition of “entrepreneurial activity” stipulated by the Tax Code and to qualify the alienation of property of the same type which is of personal, family and domestic use as an “entrepreneurial activity” only in cases when it has a periodic nature.
- to exclude the differentiated approach of taxation based on property type (industrial, other commercial and public purpose property, including buildings (including unfinished, semi-constructed building), lands or property of industrial, entrails-use and of other manufacturing purpose).
The aforementioned recommendations were also sent to the Office of the Prime Minister of Armenia.
The Defender welcomes the fact that the necessary regulations were included in the package of amendments to the RA Tax Code presented by the Government to the Parliament, which was later on adopted by the Parliament.
From this moment on, the alienation of a property, as well as lands (irrespective of land purpose) of natural persons will not be considered as an “alienation of a property as an object of entrepreneurial activity” and the received income indicated by natural persons will be deducted while determining the tax base of an income tax.
The incomes received from the alienation of lands will be deducted for the transactions completed after January 1, 2020.