From Now On, Income Tax Must Be Calculated and Withheld When Purchasing from Individuals, Says Badassian

The government’s decision establishes a special documentation procedure requiring individuals who make purchases from private individuals to maintain specific records through an electronic system. This was announced today during a government meeting by the Chairman of the State Revenue Committee, Rustam Badassian, who presented a draft law regarding the "Regulations on the Issuance of Documents Not Considered a Calculation Document, as Defined by Legislation."

“Current regulations exempt taxpayers who pay turnover tax from the obligation of a tax intermediary when they make purchases from individuals and do not withhold income tax. This has led to numerous abuses, and shadow turnover in this taxation system has increased significantly over the years. We have implemented a regulation whereby turnover taxpayers will now have the obligations of a tax intermediary; that is, they will be required to calculate and withhold income tax at the prescribed rate when purchasing from individuals,” Badassian stated.

“We are now introducing a special documentation procedure, whereby individuals must maintain specific records through an electronic system when making purchases from private individuals, providing various information. In particular, it is proposed to regulate the cases of issuing these documents, as well as the procedures and timelines,” he noted.

The draft law states: “The document for purchasing from an individual is electronically issued in cases defined by Article 126, Part 1, Clause 1 of the code: 1) when purchasing agricultural products from an individual who is not a sole proprietor or notary and is engaged in agricultural production; 2) when purchasing products from an individual who is not a sole proprietor or notary; 3) when making in-kind contributions to the charter (share capital) of an entity by an individual who is not a sole proprietor or notary.”

The document for purchasing from an individual will be issued electronically through the tax authority's electronic invoicing system as defined by the government decision dated October 5, 2017, and will involve real-time purchasing through internet connectivity by the buying organization or individual entrepreneur.

The electronically issued document for purchasing from an individual will require mandatory completion of specific details about the issuer, including name (first and last), taxpayer identification number (TIN), and address, filled in through the tax authority's system using existing database information. The electronic purchase document from an individual will be issued and authenticated with an electronic signature in real-time.

“The document for purchasing from an individual must contain a unique and properly generated series and number, which serves as the main identification condition for that document. Furthermore, the document must be validated (confirmed) electronically by an individual who has signed a contract with the tax authority for electronic calculations and obtained an electronic signature and password from the tax authority,” Badassian added.

He noted that the project would come into force on January 1, 2025, stating, “This decision will help reduce shadow activities within the turnover tax system.”