Finally, after a long silence, the Republic of Armenia legally acknowledges that crypto-assets exist and is attempting to regulate relations in connection with the latter.

This is evidenced by the Law on Amendments to the RA Civil Code, already adopted in the first reading by the RA National Assembly on June 13 2024, which clearly stipulates that a crypto-asset is property that has value or certifies a right.

As part of the same legislative initiative, several other laws are being amended, in particular the RA Law ‘'On confiscation of property of Illegal origin’’, where the term “cryptocurrency” is being replaced by the term crypto-asset.

It is surprising, however, that within the framework of this initiative; the Tax Code of the Republic of Armenia (the “Code”) remains unchanged, despite the fact that tax policy has occupied a central place in the public life in Armenia in recent years, particularly concerning fair and equitable collections.

If there was no need to amend the Code, it presumably means that the provisions of the latter regarding the taxation of crypto-assets are comprehensive, clear, and predictable, reflecting the standards of countries with a democratic governance system.

Therefore, all we have to do is to apply the laws to find out what kind of value-added tax, profit tax, and income tax obligations arise for individuals and legal entities when dealing with crypto assets.

Our analysis begins with the immediate exclusion of the application of the Civil Code of the Republic of Armenia to clarify the terms within the Code, as Article 2 of the Code excludes the use of the RA Civil Code for this purpose. Therefore, the definition proposed by the new amendment is not applicable, and the Code should be considered a separate eco-system for interpretation and application.


Value Added Tax

According to Article 60 of the Code, transactions involving the supply of goods and provision of services are considered subject to value-added tax taxation. Moreover, the Code clearly states that the disposal of an intangible asset, as well as the provision of the use of an intangible asset, is considered a transaction for the provision of services.

It is difficult not to notice that according to Article 4 of the Code, the terms 'asset' and 'intangible asset' adopt the logic of the RA Civil Code, which defines an asset as any property, property right, and personal non-property right. However, based on the fact that the Code excludes the application of the RA Civil Code to determine the meaning of its terms, it is unclear how the concepts of 'property', 'property right', and 'personal non-property right' should be interpreted.

However, assuming that crypto-assets will at the very least be considered intangible assets within the meaning of the Code, it follows that any disposal or provision for their use will be subject to VAT. For example, if a legal entity operating a crypto-asset exchange trades AMD for crypto-assets, VAT must be added to the exchange price.

This approach, of course, contradicts first of all the primary purpose for which crypto-assets are used. More developed countries, such as the USA, have regulated this issue in favor of the fact that the exchange is an exchange of two equal values and does not cause tax consequences.


Income tax

It also turns out that, following the aforementioned logic, the legal entity receiving cryptocurrency and paying funds to an individual must act as a tax agent and pay 10 percent income tax to the RA budget from the transaction amount (Article 150.9 of the Code). Understandably this regulation is also problematic and contradicts the essence of operations involving crypto-assets. If the goal is to tax profits, then individuals should be allowed to deduct costs, and the institution of the tax agent should be abolished, instead, enabling individuals to pay income tax on the difference between the initial and final value of the crypto-asset.


Profit tax

The provisions on profit tax will likely yield a result where legal entities will pay taxes on their profits. However, questions related to the valuation and revaluation of crypto-assets and their obligations remain open, which again creates uncertainties regarding their tax base.


Conclusion

To conclude, the provisions of the Code with regard to taxation of crypto assets are very uncertain and such uncertainty shall be interpreted to the benefit of the taxpayers. It does not bring predictability in terms of how much resource will be spent by the economic agents to protect their rights of making use of the uncertainty but currently it’s the cost of doing business with cryptocurrencies in Armenia.


Author: Got Margaryan (Mr)

Managing Partner, Legelata Legal and Tax

LEGELATA LLC 17.06.2024