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Fair tax regime is an important element of the regulatory environment for SMEs. Yearly property taxes are high mainly in the capital and especially if a commercial property is located in the central business district. Property tax is fixed for 1 sq meter (calculated by State Cadastral Committee) on a yearly basis but it is paid to the local authority quarterly. The overall tax rate for small businesses is not excessive although many consider it high.
As the property tax is a local tax and goes to a municipal budget, according to the Law on Property Tax the local governmental bodies can give discounts for property tax up to 10 percent of the annual amount collected. This principle is applicable to all businesses regardless of size. However, in practice is has been used to alleviate the plight of the poor who cannot afford to pay property tax rather than to encourage the growth of new and sustainable businesses.
Regarding the regulation and practice of professional real estate services, the majority of entrepreneurs consider most real estate agents and other service providers knowledgeable but not always honest.
Goal – A comprehensive regulatory regime that is transparent, efficient, simple in its implementation and that leads to accurate reporting of property values and prudent protection from market risks
Core Question: Do market participants feel the overall tax rate is fair and participate in formal transactions? Strong – with respect to property transfer tax. Overall tax rates are not excessive by international standards but administrative burden has led to low collection rates and almost all interviewed SMEs stressed problems with taxation.
6.1.1 What is the total property transfer tax including all duties and payments? Very Strong – 0.3%
6.1.2 What is the overall tax rate on entrepreneurs (as a percentage of profits)? 40.9% – Ranking – 153rd out of 183, Very Weak – Trend ↑, bureaucratic procedures are burdensome (500 hours per year to file)
Source: 2012 Doing Business – Paying Taxes & Registering Property, World Bank www.doingbusiness.org/data/exploreeconomies/armenia
SQ 24: What is the tax on profits for foreign investors when divesting property? 10% – Very Strong
Source: Armenian Development Agency – Law on Profit Tax, Article 57 www.ada.am/files/71/laws/Law_on_Profit_Tax.pdf
Core Question: Are the professional services necessary for efficient and transparent property markets available and appropriately regulated and supervised? No – Weak, improvements have been made in the last decade but have not kept up with the rapid growth.
SQ 25: Are property valuers licensed and/or certified by the government? Yes – Weak, companies, but not individuals, are licensed by the Real Estate Cadastre Committee.
SQ 26: How effective are mechanisms in place to discipline valuers who engage in misconduct? Unknown
Brokers & Agents
SQ 27: Are real estate brokers and agents licensed and/or certified by the government? No – Weak, companies are licensed, but most individuals are not.
SQ 28: How effective are mechanisms in place to discipline brokers or agents who engage in misconduct? Very Weak – none in place
SQ 29: Are mortgage professionals licensed and/or certified by the government? No – Very Weak, National Mortgage Company started in July 2009.
SQ 30: How effective are mechanisms in place to discipline mortgage professionals who engage in misconduct? Very Weak – none in place
Core Question: Are capital markets well regulated and diversified enough to provide financial resources to private sector entrepreneurs and innovators? No – Weak, capital markets and insurance are not fully developed.
6.3.1 What are the business impacts of rules on Foreign Direct Investment? Significant – Weak – Ranking 95th out of 142; Score 4.25 out of 7
6.3.2 Is the regulation of securities exchanges transparent, effective and free of influence from government and industry? No – Very Weak, Ranking 110th out of 142; Score 3.6 out of 7 Trend↑
Source: The Global Competitiveness Report 2011-2012, World Economic Forum
6.3.3 What is the depth of asset-backed securities, mortgage-backed securities, high-yield bonds and highly leveraged loans? Weak – Securitization Law adopted in October 2007.
FQ26: What is the level of taxation for small businesses? Are any of those taxes an excessive burden on small businesses? Are any tax discounts provided for small businesses?
The property taxes are high mainly in the capital city and especially if the commercial property is located in the central business district. Property tax is a fixed tax for 1 sq meter (calculated by State Cadastral Committee) on a yearly basis but is paid to the local authority quarterly.In the opinion of some experts, property transfer tax rates and notary payments are not very high and are not an excessive burden especially in comparison with the costs of the transactions. Other experts consider that these taxes are rather high for small businesses and are a burden.Since property tax is local and goes to a municipal budget, according to the Law on Property Tax the local governmental bodies can give discounts for property tax up to 10 % of the local annual amount collected. This principle is applicable to all businesses regardless of size.
FQ27: What is the experience of small businesses in dealing with professional property market service providers such as real estate agents, brokers and valuers?
The majority of entrepreneurs consider most real estate agents and other service providers knowledgeable but not always honest.