Part 2. Turnover Tax 2025: Calculation, Costs, Documentation
- 21.03.2026
- Posted by: admin
- Categories: Taxation, Legislation
Note: This material is of a general informational nature and does not constitute individual tax or legal advice. In specific situations, a separate professional assessment is required on the basis of the relevant facts, the structure of the activity, and the available documentation.
The rate table, exceptions, threshold rules, and eligibility conditions are presented in Part 1. This article focuses on the practical side: how turnover tax is calculated, which costs may reduce the tax, how separate accounting should be organized, and what documentary support is needed to reduce tax risk.
Brief Summary
- From 2025, turnover tax is no longer calculated according to a single logic for all income and activities.
- For some types of income, the tax is calculated only by applying the relevant rate, while for trade, production, public catering, and certain cases of “income from other activities,” a more complex structure applies: base rate, cost-based reduction, and then a minimum threshold.
- Knowing only turnover and the nominal rate is not enough. A business must determine whether the relevant activity is entitled to a cost-based reduction, which costs qualify, how separate accounting should be organized, and what risk arises if documentation is incomplete.
- Within the turnover tax regime, the cost-reduction mechanism is narrower than the general profit-tax approach. The profit-tax logic cannot be transferred here automatically.
- Where several activities are carried on simultaneously, the correct calculation often depends not only on documenting the cost but also on attributing it correctly and, where necessary, allocating it by proportional weight.
First, Determine Your Calculation Regime
In practice, the calculation logic of turnover tax may be divided into two main groups. This division matters because it determines whether the tax is calculated only by rate or whether the combination of cost-based reduction and a minimum threshold also applies.
Group One: Direct Application of the Rate
In the first group, the tax is calculated by directly applying the relevant rate to the tax base, without any cost-based reduction. As a rule, this group includes rental payments, interest, royalties, certain special types of income, and certain cases of asset disposal.
Group Two: Base Rate + Cost-Based Reduction + Minimum Threshold
In the second group, the tax is calculated in the following structure: base rate → cost-based reduction → minimum threshold.
This group includes trading activity, manufacturing activity, activity carried out in the public catering sector, and the corresponding cases of “income from other activities” provided for by the Code. This structure follows from the special rules on the calculation of turnover tax and does not apply to all types of income in the same way.
Step-by-Step Calculation Logic
The general sequence of the calculation is as follows.
- Determine the tax base for the relevant reporting quarter, by activity or type of income.
- Calculate the tax at the base rate.
- Calculate the amount deductible on the basis of costs, if such a mechanism is available for the relevant category.
- Compare the result with the minimum threshold and take the higher amount as the tax payable.
Practical Formula
Calculation logic
Which Costs May Reduce the Tax
The cost-reduction mechanism does not mean that any expense incurred may reduce turnover tax. In practice, a cost may be treated as deductible only where several conditions are met at the same time.
- it is supported by legally acceptable documents;
- it is directly connected with the production of goods, performance of works, or provision of services;
- it is properly attributed to the relevant activity; and
- in the case of trading activity, it also includes the initial cost of goods acquired for resale.
For administrative and selling expenses, it is necessary to check separately whether the particular cost falls within the legally permitted scope of deduction for the relevant activity and whether proper allocation can be supported. In practice, the correct approach is to assess the cost in three stages:
(1) whether it is documented by the calculation documents required by law,
(2) whether it is directly connected with the activity generating the relevant income, and
(3) whether it has been attributed correctly to the activity in respect of which the reduction is applied.
Before Relying on Any Cost, Check These Three Questions
- Does the cost have a direct connection with the activity that generates the relevant income?
- Is there a complete documentary basis, including the calculation documents required by law?
- Has the cost been attributed correctly to the activity in respect of which the reduction is applied?
If the answer to any of these three questions is unclear, the cost already becomes disputable and, therefore, risky from the perspective of tax reduction.
Which Costs Do Not Reduce the Tax
The Code also specifies the costs that are not treated as deductible from the amount of turnover tax. These include, in particular:
- costs of acquiring, constructing, creating, or developing fixed assets and intangible assets;
- capital and current expenditures incurred in relation to fixed assets and intangible assets;
- depreciation or amortization charges on fixed assets and intangible assets;
- costs of their liquidation;
- costs relating to assets, works, and services received free of charge;
- business-trip expenses;
- representation expenses; and
- for taxpayers with special public catering status, certain costs related to the disposal of other assets that cannot reduce tax within that specific structure.
The practical meaning of this list is that, within the turnover tax system, the cost-reduction mechanism is narrower than the general profit-tax approach. Accordingly, the logic of profit-tax accounting cannot simply be transferred into the turnover-tax calculation.
Separate Accounting and the Method of Proportional Allocation
If a taxpayer performs several activities at the same time and different rules apply to them, separate accounting of costs is necessary for tax calculation purposes. This is especially important for activities in respect of which cost-based reduction is allowed: trade, manufacturing, public catering, and the relevant cases of “other activity.”
If separate accounting of administrative and selling expenses is not possible, those expenses are allocated using the proportional-weight method, based on the ratio of turnover attributable to the relevant activities. It is important to understand that this method applies specifically to the allocation of general administrative and selling expenses. It does not mean that any expense may be split arbitrarily at will.
Simple Illustrative Example
Assume the following:
- turnover from trade: AMD 12,000,000;
- turnover from services: AMD 8,000,000;
- total administrative expenses: AMD 2,000,000.
Under the proportional-weight logic:
- the share attributable to trade will be 60%, i.e., AMD 1,200,000;
- the share attributable to services will be 40%, i.e., AMD 800,000.
This is only an example of allocation. In the final tax calculation, it is still necessary to check whether the cost-reduction mechanism is applicable to the relevant activity at all. The proportional-weight method is a tool for allocating general administrative and selling expenses, not a basis for arbitrary reallocation of every cost.
Carryforward of Unused Reduction to the Next Reporting Period
If, during a given quarter, the cost-based reduction is not used in full—for example, because of the minimum threshold or because there is no relevant tax base in that quarter—the unused portion may be carried forward to later reporting periods within the same activity category and subject to the same rules.
This is particularly important for businesses with seasonal activity, uneven sales, or an imbalanced distribution of costs and income between quarters. Even here, however, the separation between types of activity must be preserved: an unused reduction from one category may not be freely applied against another category.
Treatment of the Unused Balance When Moving to the General Tax Regime
If a business moves from the turnover tax system to the general tax regime, the unused cost balance may affect the formation of the tax base already under the general regime. The general idea is that, under the transitional rules, this residual amount may in some cases be taken into account as a deduction from gross income in the reporting period that includes the date of transition, using the special coefficients established for the relevant activity.
In particular, the following multipliers apply:
- for trade and public catering: 10x;
- for manufacturing: 20x;
- for other activities: 15x.
This issue should be assessed with caution, because it is applicable only in specific cases of transition to the general regime and only within the framework of the transitional provisions. No automatic conclusion should be drawn without a separate assessment of the facts of the transition and the accounting history.
Special Risk Case: The 20% Rate for Public Catering
For turnover taxpayers in the public catering sector that have filed the special declaration, particular care is required with respect to non-core income. Under the logic of the Code, such taxpayers calculate turnover tax only by reference to the rates established for public catering and for the specific categories of other income connected with that special regime.
In practice, this means that the expression “other income” should not be interpreted too broadly or arbitrarily in this context. It is necessary to verify whether the relevant income or disposal of an asset actually falls within the special rule for public catering. This is one of the areas in which an excessively broad reading of “other income” may quickly lead to misclassification and tax risk.
Four Short Calculation Examples
The examples below are illustrative. They show the mechanism and do not represent the individual position of any specific taxpayer.
Example 1. Trade
Example 2. Manufacturing
Example 3. Public Catering
Example 4. Other Activity
Minimum Practical Documentation Package
In turnover tax calculations, the defensibility of costs depends not only on the nature of the cost but also on documentation. As a practical minimum, the documentation package should usually include, depending on the nature of the transaction:
- a contract or order, where applicable to the transaction;
- an invoice, tax invoice, or another acceptable source document;
- proof of payment;
- an acceptance document for works or services, where required;
- payroll and internal calculation documents, where the cost is connected with personnel; and
- a sufficient internal accounting link to the relevant activity or type of income.
If the documents are incomplete, contradictory, or fail to confirm the economic substance of the transaction, the cost becomes disputable in practice and therefore risky from the standpoint of tax reduction.
Additional Risk from Documentation Breaches
The documentation risk is not limited to challenging the cost itself. If a business acquires goods without the calculation documents required by law, the issue may concern not only the loss of the right to a tax reduction but also the risk of a fine. For that reason, the completeness of documentation should be viewed not only as a matter of accounting discipline but also as a matter of direct tax protection.
Quarter-End Practical Checklist
At the end of each quarter, it is advisable to verify the following:
- correct classification of income and activities;
- which cases allow cost-based reduction and which do not;
- the completeness of allowable costs and their documentary basis;
- the existence of separate accounting where several activities are carried on;
- where necessary, proportional allocation of administrative and selling expenses;
- mandatory verification of the minimum threshold;
- the balance of any unused reduction carried forward to later periods, if any; and
- the filing deadline for the calculation and the due date for payment of the tax.
Important Deadline
Under the currently applicable rules of the Code, the turnover tax calculation must be filed, and the tax payable must be paid, by the 20th day of the month following the reporting period, inclusive.
Risks if the Calculation Is Built Incorrectly
A poorly structured calculation usually creates the following risks for a business:
- application of the wrong rate;
- inclusion of non-deductible costs;
- loss of otherwise allowable costs because documentation is incomplete;
- failure to apply the minimum threshold;
- incorrect application of the special rules for public catering;
- mixed accounting of costs between different activities; and
the risk of later corrections, additional liabilities, or disputes.
Legal Basis and Note
Part 2 has been prepared on the basis of the provisions of the Tax Code of the Republic of Armenia relating to turnover tax, in particular Articles 258–262 and the directly related provisions, as applicable as of March 1, 2026.
Frequently Asked Questions
If I have substantial costs, is it possible not to pay turnover tax at all?
No. Even if allowable costs are high, the tax payable cannot be reduced below the minimum threshold established by law. For example, the minimum threshold is 1% for trade, 3% for manufacturing, and 3.5% for public catering.
Which costs cannot be deducted from turnover tax?
In particular, the costs of acquiring fixed assets, depreciation or amortization, business-trip expenses, and representation expenses cannot be deducted from turnover tax. This is one of the areas where the general profit-tax logic cannot be transferred automatically to turnover tax calculations.
What documentation is required for a cost to be defensible?
The cost must be supported by legally acceptable calculation documents, such as a tax invoice, invoice, or another appropriate source document, as well as proof of payment and, where necessary, proof of acceptance. In practice, the three key checks are: connection with the activity, proper documentation, and correct attribution to the relevant activity.
What happens if my costs in this quarter are higher than my turnover?
The unused cost-based reduction may be carried forward to later reporting periods within the framework of the same activity. However, the minimum threshold still applies, and an unused reduction from one category cannot be freely applied against another category.
If I both trade and provide services, how should I allocate general costs?
In that case, separate accounting should be maintained. If separate accounting of administrative and selling expenses is not possible, those expenses should be allocated by the proportional-weight method, based on the ratio of income derived from each activity.