How does an Employer of Record (EOR) manage payroll taxes in Armenia
- Natia Gabarashvili
- Oct 10
- 11 min read
Table of contents:
TL;DR: Payroll Taxes and EOR in Armenia
Here’s the quick version for decision-makers:
Payroll taxes in Armenia: Employees pay a flat 20% personal income tax, plus pension contributions (5–10% depending on salary) and a military stamp duty (AMD 1,500–15,000 depending on salary). Employers have minimal or zero contributions.
EOR vs PEO: A PEO can administer payroll, but your company retains legal liability. An EOR becomes the legal employer, handling payroll, tax withholdings, filings, and compliance.
Monthly process: EORs calculate salaries, deduct taxes, remit payments, and file reports by the 15th of the following month.
Compliance benefits: Using an EOR reduces the risk of fines, audits, and misclassification, and eliminates the need for a local entity.
Bottom line: If you’re hiring in Armenia without a local entity or want full compliance with minimal risk, an EOR is the way to go.
Introduction
Hiring in Armenia is more than posting a job and transferring a salary. Between payroll taxes, social contributions, and labor law compliance, it can quickly become a headache for foreign companies.
That’s where an Employer of Record (EOR) comes in.
An EOR in Armenia acts as the legal employer for your local hires.
They handle employment contracts, payroll, tax withholding, and social contributions, while you retain control over the employee’s day-to-day work.
Essentially, the EOR ensures that your Armenian team is fully compliant with local labor law, while you avoid the pitfalls of setting up a legal entity.
The key benefit?
An EOR simplifies the complexity of Armenian payroll taxes and legal compliance, letting you hire quickly, stay compliant, and focus on growing your team.
Overview of payroll taxes in Armenia
Remote hiring in Armenia is straightforward, but only if you understand the local payroll tax system. Whether you're expanding into the region or managing remote teams, knowing how taxes work is, in simple terms, “budget-saving”. Here's a clear breakdown of Armenia's payroll tax landscape, including personal income tax, social security contributions, and other mandatory fees.
Personal income tax (PIT) in Armenia
Armenia applies a flat personal income tax rate of 20% on all employment income, regardless of the amount. This means:
Employees: Deducted directly from gross salary.
Employers: Act as tax agents, withholding and remitting the tax to the state.
This system simplifies payroll calculations and ensures compliance with Armenian tax laws.
Social security & pension contributions
Armenia's social security system centers on mandatory pension contributions, which employers must withhold from employee salaries. Understanding these requirements is essential for payroll compliance.
Who Must Contribute
The mandatory pension system applies to:
All employees born on or after January 1, 1974.
Both Armenian citizens and foreign nationals with Armenian residence permits.
Employees born before 1974 are exempt from these funded pension withholdings, as they remain under the old pay-as-you-go state pension system.
Contribution Rates
The pension contribution follows a two-tier formula with an upper limit:
For monthly salaries up to AMD 500,000: Contribution = 5% of gross salary.
For monthly salaries exceeding AMD 500,000: Contribution = 10% of gross salary minus AMD 25,000.
Maximum contribution cap: For salaries of AMD 1,125,000 and above, the contribution is capped at AMD 87,500 per month.
This formula effectively charges 5% on the first AMD 500,000 of salary and 10% on any amount above that, up to the maximum threshold.
Military stamp duty
A unique feature of the Armenian payroll system is the mandatory "military stamp duty" – a fixed contribution to support defense personnel and their families in case of injury or death while serving the country.
Who Must Pay
This contribution applies to:
All private sector employees (both citizens and foreigners with residence permits).
The duty is withheld alongside income tax and pension contributions.
Contribution Rates
Unlike income tax and pension, the military stamp duty is not a percentage but a fixed amount based on salary bands:
Gross Monthly Salary (AMD) | Stamp Duty (AMD) |
Up to 100,000 | 1,500 |
100,001 – 200,000 | 3,000 |
200,001 – 500,000 | 5,500 |
500,001 – 1,000,000 | 8,500 |
1,000,001 and above | 15,000 |
Employers must identify which band each employee falls into based on their gross monthly salary and withhold the corresponding fixed amount.
Payroll tax breakdown
Tax Type | Rate/Amount | Paid By |
Personal Income Tax | 20% of gross salary | Employee (withheld by employer) |
Pension Contribution | 5%–10% of gross salary (capped) | Employee (withheld by employer) |
Military Stamp Duty | Fixed amount based on salary band | Employee (withheld by employer) |
Compliance deadlines
Payment Deadline: Employers must remit all withheld taxes and contributions to the state by the 20th of the following month.
Filing Deadline: Monthly payroll tax declarations must be submitted by the 20th of the following month.
Missing these deadlines can result in penalties and interest, making timely payroll management essential.
How an EOR manages payroll tax withholdings and payments in Armenia
Hiring employees in Armenia without a local entity can quickly turn into a compliance headache. Enter the Employer of Record (EOR).
The EOR becomes the legal employer, taking responsibility for payroll taxes, statutory contributions, and filings, so you don’t have to.
Withholding personal income tax in Armenia
One of the EOR’s core responsibilities is to withhold personal income tax (PIT) at source from each employee’s salary. In Armenia, this is a flat rate of 20–21%, deducted from the employee’s gross salary and remitted to the Armenian tax authorities.
By handling this, the EOR ensures your employees remain compliant and your company avoids fines or audits.
Managing social security and pension contributions in Armenia
The EOR also manages employee social security and pension contributions, which are deducted from their salaries. These contributions are submitted directly to the relevant Armenian authorities.
Employee contributions: Typically 5–10% of gross salary, depending on the pension tier and salary cap.
Employer contributions: Minimal or even zero in most cases, which means the bulk of the payroll tax burden falls on the employee. The EOR ensures these are correctly calculated and paid, so your company isn’t exposed to accidental non-compliance.
Monthly payroll processing and tax remittance
Every month, the EOR handles:
Salary calculations for each employee, including PIT and contributions.
Withholding taxes and pension contributions at source.
Filing payroll tax declarations with Armenian authorities.
Remitting payments on time, typically by the statutory deadline of the 20th of the following month.
This end-to-end payroll management eliminates manual errors, reduces administrative burden, and ensures compliance with Armenian labor law.
Why using an EOR matters
By leveraging an EOR, foreign companies can hire employees without setting up a local entity in Armenia, avoid fines, and ensure that payroll taxes, social security, and pension contributions are managed correctly every month. It’s the easiest way to stay compliant while scaling your team efficiently.
Payroll tax calculation in Armenia
Hiring in Armenia sounds simple: agree on a salary, transfer funds, done, right? Not quite. Between personal income tax, social contributions, and military stamp duty, payroll calculations can get complicated fast. This section breaks down how to calculate employee taxes accurately, from gross salary to net pay, and why using an Employer of Record (EOR) simplifies the process.
1. Personal Income Tax (PIT)
Armenia applies a flat 20% income tax on gross wages for all employees—locals, foreigners, and stateless persons alike. There’s no tax-free threshold or progressive rates; the full gross salary is taxed at 20%.
Example:
Gross salary: AMD 500,000
Income tax: 500,000 × 20% = AMD 100,000
The EOR withholds this amount at source each month and remits it to the Armenian tax authorities.
2. Pension Contributions
Employees born on or after January 1, 1974, must contribute to the funded pension system.
This is calculated on a sliding scale:
5% of gross salary if ≤ AMD 500,000
10% minus 25,000 AMD if > AMD 500,000
Capped at 87,500 AMD for salaries ≥ AMD 1,125,000
Example:
Gross salary: AMD 600,000
Pension contribution: (10% × 600,000) – 25,000 = AMD 35,000
The EOR handles both calculation and remittance for all employees, ensuring compliance.
3. Military Stamp Duty
Armenia also requires a monthly fixed military stamp duty, deducted from the employee’s salary and paid to the defense fund:
Gross Salary (AMD) | Duty (AMD) |
Up to 100,000 | 1,500 |
100,001–200,000 | 3,000 |
200,001–500,000 | 5,500 |
500,001–1,000,000 | 8,500 |
1,000,001+ | 15,000 |
The EOR calculates the correct tier, deducts it, and remits it alongside income tax and pension contributions.
4. Gross-to-net salary calculation
Step-by-step:
Start with gross salary.
Deduct 20% PIT.
Deduct pension contribution per the formula above.
Deduct the appropriate military stamp duty.
The remainder is the employee’s net take-home pay.
Example:
Gross: AMD 600,000
PIT: 120,000
Pension: 35,000
Military: 8,500
Net salary: 600,000 – 163,500 = AMD 436,500
The EOR automates these calculations, ensuring accuracy and timeliness every month.
5. Reporting and Remittance
Employers in Armenia must:
File a monthly payroll tax report by the 20th of the following month
Remit PIT, pension, and military stamp duty by the same deadline
Maintain payroll records for audit purposes
Using an EOR ensures that all filings and payments are handled correctly, reducing compliance risk and freeing your HR and finance teams to focus on operations.
Payroll tax reporting and compliance
Handling payroll taxes in Armenia isn’t only about calculating deductions; you need to meet deadlines, fill reports, and stay audit-ready.
For foreign companies, this can feel like juggling flaming swords. Enter the Employer of Record (EOR), your legal and operational safety net.
Monthly filing deadlines in Armenia
EORs are responsible for ensuring all payroll tax filings are submitted on time. In Armenia, this means:
Monthly payroll tax declaration: Filed by the 15th of the following month
Tax remittance: Payment of income tax, pension contributions, and military stamp duty must occur by the same date
By handling these filings automatically, the EOR removes the risk of missed deadlines that can result in penalties or interest.
Regular payroll reporting and payment schedules in Armenia
An EOR provider in Armenia manages the full monthly cycle:
Calculate taxes and contributions for each employee
Withhold amounts from gross salaries
Remit payments to the Armenian Revenue Service and social security authorities
Report filings electronically through official portals
This structured process ensures that every employee’s tax obligations are accounted for, and the company remains fully compliant.
Fines and Penalties for Non-compliance in Armenia
Missing a filing or making an error in tax reporting can be costly:
Late payment penalties: 0.075% per day on the outstanding tax
Underpayment or misreporting fines: Additional fines are applied for incorrect filings
Audits: Errors can trigger tax audits, which can be time-consuming and expensive
An EOR mitigates these risks by maintaining accurate, compliant records and submitting filings on schedule.
Audit-ready compliance in Armenia
Beyond calculations and remittances, an EOR ensures your payroll is fully audit-ready:
All employee payroll data is documented and accessible
Records of tax calculations, deductions, and payments are maintained
Monthly filings and reports comply with Armenian labor and tax law
This means if the Armenian tax authorities decide to audit your company, everything is organized, accurate, and compliant.
Benefits of using an EOR for payroll taxes in Armenia
Hiring in Armenia comes with a series of hidden challenges: personal income tax, pension contributions, military stamp duty, monthly filings, and compliance with ever-changing labor laws. For foreign companies, managing all this without local expertise can quickly turn into a compliance nightmare.
This is where an Employer of Record (EOR) steps in.
Simplifies tax compliance
An EOR becomes the legal employer, taking care of all payroll calculations, tax withholdings, and filings. That means your team doesn’t need to learn the intricacies of Armenian income tax, pension contribution formulas, or military stamp duties—the EOR handles it all. This ensures accurate, timely compliance every month.
No local entity needed
Setting up a legal entity in Armenia is time-consuming, expensive, and often unnecessary for pilot teams or remote hires. Using an EOR allows you to hire employees without a local entity, streamlining operations and speeding up your market entry. For a detailed comparison, see our EOR vs Own Entity guide (EOR-06).
Reduces risk of misclassification and penalties
Payroll errors or misclassification of employees can result in fines, back-pay claims, and audits. An EOR mitigates these risks by ensuring all employees are correctly classified, all statutory contributions are made, and all filings meet Armenian tax law requirements. This protects your company from financial and legal exposure.
Access to local expertise
Tax and labor laws in Armenia evolve regularly. An EOR provides on-the-ground expertise, ensuring payroll processes are up-to-date with the latest regulations. From calculating pension contributions to applying correct military stamp duties, EORs combine local knowledge with robust payroll systems to keep your operations compliant and smooth.
Conclusion
Managing payroll taxes in Armenia is more complex than it looks. Between the 20% personal income tax, pension contributions, military stamp duties, and monthly filing obligations, the risk of errors and penalties is real, especially for foreign companies without a local entity.
Using an Employer of Record (EOR) ensures that all payroll calculations, tax withholdings, and remittances are handled correctly and on time. The EOR becomes the legal employer, protects your company from misclassification risks, and keeps you fully compliant with Armenian labor and tax law.
Partnering with a reputable EOR is the fastest, safest way to hire in Armenia. It allows you to focus on growing your team and business, while your EOR handles the administrative and legal complexities of payroll compliance.
Engage a trusted EOR provider like Team Up to streamline payroll, reduce risk, and ensure your Armenian hires are fully compliant from day one.
Frequently asked questions
How to record payroll tax expenses in Armenia?
Payroll tax expenses in Armenia should be recorded as part of your employment costs. This includes income tax withheld from employee salaries and mandatory social payments such as pension contributions. If you work with an EOR, these expenses are consolidated into a single monthly invoice, making your accounting process simpler.
What payroll taxes do employers pay in Armenia?
Employers in Armenia must contribute to the state pension system and cover other mandatory social security contributions. In addition, employers are responsible for withholding personal income tax from salaries at the applicable flat or progressive rate.
What is the difference between an EOR and an employee in Armenia?
An employee hired directly is legally tied to your company, meaning you handle payroll, contracts, and compliance obligations. An EOR acts as the legal employer for your staff in Armenia, taking care of contracts, payroll, and taxes, while the employees still report operationally to your company.
Do employers pay state and local payroll taxes in Armenia?
No. Armenia has a centralized national tax system, which means there are no additional regional or local payroll taxes. All obligations, including income tax and social contributions, are paid at the national level.
Which payroll taxes must an EOR withhold in Armenia?
An EOR in Armenia withholds:
Personal income tax (generally a flat 21% rate, gradually reducing in future years as per tax law reforms)
Employee pension contributions
Other statutory withholdings required by law The EOR also ensures employer contributions are correctly calculated and paid.
How does an EOR calculate employer contributions in Armenia?
Employer contributions are calculated based on an employee’s gross salary. This includes:
Mandatory pension contributions
Any other required social security payments The exact percentages may vary depending on updates in local legislation, which the EOR monitors closely.
What payroll reporting deadlines must an EOR meet in Armenia?
Payroll taxes and social contributions in Armenia are reported and paid monthly, generally by the 20th of the following month. An EOR ensures these deadlines are met to keep you compliant and avoid penalties.
Do EORs handle pension and social contributions for Armenian hires?
Yes. EORs manage all mandatory pension and social contributions on behalf of employers, ensuring accurate calculations and timely payments. This keeps your workforce fully compliant with Armenian labor and tax law.
How does using an EOR affect employee tax residency in Armenia?
An EOR does not change employee tax residency status. Employees remain subject to Armenian residency rules, typically based on the presence of 183 days or more in a 12-month period. The EOR ensures all tax withholdings are aligned with residency status and local regulations.
