ArmInfo.Taxing dividends of commercial bank shareholders carries distinct risks, as banks established in Armenia may consider re-registering their organizations abroad. Daniel Azatyan, Chairman of the Union of Banks of Armenia, expressed this opinion at a press conference on August 4.
In this regard, he noted that the new regulations will not apply to certain non-residents, since Armenia's international double taxation avoidance agreements generally provide for a dividend tax rate not exceeding 5%. "This creates unequal conditions within the banking system," Azatyan noted, adding that out of the country's 17 operating banks, 8 have non-resident shareholders. He added that the government justifies the need for such changes by citing the fact that the vast majority of financial transactions and operations carried out by banks are currently exempt from VAT, which is an internationally accepted practice. However, various countries compensate for the absence of VAT through other tax mechanisms. One such solution is raising the dividend tax rate for bank shareholders. Furthermore, given that the new regulation will not apply to shareholders holding less than 1% of shares, the authorities believe this should encourage banks to convert to open joint-stock companies. However, according to Azatyan, in practice, this measure could have the opposite effect. As the head of the UBA noted, decisions to convert to OJSC are made by major shareholders, and a significant portion of banks that could have chosen this path have already done so.
He also noted that in the five OJSCs operating in Armenia, the number of shareholders amounts to hundreds and thousands. "For example, out of a thousand shareholders, 990 small shareholders will be in a more advantageous position from a tax perspective, while large shareholders will bear a higher tax burden," Azatyan said. In his opinion, this could reduce the incentive for other banks to convert to open joint-stock companies.
"If profits are not distributed, then tax liabilities on dividends do not arise. Therefore, in the coming years, banks may find it more expedient to retain profits within the bank, and the expected tax effect will not occur," he emphasized.
