# Part 2. Turnover Tax 2025: Calculation, Costs, Documentation

- Link: https://fincore.am/turnover-tax-changes-2025-part-2/
- Published: 2026-03-21T22:29:29+04:00
- Author: FinCore Consulting

# Part 2. Turnover Tax 2025: Calculation, Costs, Documentation

 *   21.03.2026
 * Posted by: FinCore Consulting
 * Categories: Taxation, Legislation

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> _**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**](https://fincore.am/turnover-tax-changes-2025-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.

 1. Determine the tax base for the relevant reporting quarter, by activity or type 
    of income.
 2. Calculate the tax at the base rate.
 3. Calculate the amount deductible on the basis of costs, if such a mechanism is available
    for the relevant category.
 4. Compare the result with the minimum threshold and take the higher amount as the
    tax payable.

#### Practical Formula

Calculation logic

 Calculated tax Turnover × base rate

 Deductible amount Allowable costs × deductible percentage established by the Code

 Tax payable max(Calculated tax − deductible amount, Turnover × minimum threshold)

### 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

 1. Does the cost have a direct connection with the activity that generates the relevant
    income?
 2. Is there a complete documentary basis, including the calculation documents required
    by law?
 3. 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

 Turnover 15,000,000 AMD

 Allowable costs 13,000,000 AMD

---

 Calculated tax15,000,000 × 10% = 1,500,000 1,500,000 AMD

 Deductible amount13,000,000 × 9.5% = 1,235,000 1,235,000 AMD

 Balance1,500,000 − 1,235,000 = 265,000 265,000 AMD

 Minimum threshold15,000,000 × 1% = 150,000 150,000 AMD

 Tax payablemax(265,000, 150,000) = 265,000 265,000 AMD

#### Example 2. Manufacturing

 Turnover 12,000,000 AMD

 Allowable costs 6,000,000 AMD

---

 Calculated tax12,000,000 × 7% = 840,000 840,000 AMD

 Deductible amount6,000,000 × 5% = 300,000 300,000 AMD

 Balance840,000 − 300,000 = 540,000 540,000 AMD

 Minimum threshold12,000,000 × 3% = 360,000 360,000 AMD

 Tax payablemax(540,000, 360,000) = 540,000 540,000 AMD

#### Example 3. Public Catering

 Turnover 10,000,000 AMD

 Allowable costs 4,000,000 AMD

---

 Calculated tax10,000,000 × 12% = 1,200,000 1,200,000 AMD

 Deductible amount4,000,000 × 9% = 360,000 360,000 AMD

 Balance1,200,000 − 360,000 = 840,000 840,000 AMD

 Minimum threshold10,000,000 × 3.5% = 350,000 350,000 AMD

 Tax payablemax(840,000, 350,000) = 840,000 840,000 AMD

#### Example 4. Other Activity

 Turnover 4,000,000 AMD

 Allowable costs 1,700,000 AMD

---

 Calculated tax4,000,000 × 10% = 400,000 400,000 AMD

 Deductible amount1,700,000 × 6% = 102,000 102,000 AMD

 Balance400,000 − 102,000 = 298,000 298,000 AMD

 Minimum threshold4,000,000 × 4.5% = 180,000 180,000 AMD

 Tax payablemax(298,000, 180,000) = 298,000 298,000 AMD

### 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.

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