Construction field in Armenia had evolved during 2000-2008 when a stable and dynamic growth was registered. The pick of growth was achieved in 2008 when the volume of construction works amounted to 858.7 billion Armenian drams. However, following to the world financial crisis in 2008, this sector has been diminishing, as a result total investments in Armenia’s construction were amounting to 442.3 billion drams in 2013. Meanwhile, construction lending by international financial organizations (World Bank, EBRD, ADB, KfW) amounted to about 34.1 billion drams or 7.1%. At the beginning of 2014 the share of construction and real estate in GDP approximately totalled to 13%.
Tax and accounting peculiarities
Purchase, rent and construction of a property is a complex business and wich is related to range of tax and accounting issues.
IAS 11 “Construction contracts” defines a construction contract as a contract which is specifically negotiated for the construction of an asset, or combination of assets, including contracts for the rendering of services directly related to the construction of the asset (such as project managers and architects services). Such contracts are typically fixed-price or cost-plus contracts. Revenue and expenses on construction contracts are recognized using the percentage-of-completion method. This means that revenue, expenses and therefore profit are recognized gradually as contract activity occurs rather than when completing the construction.
When the outcome of the contract cannot be estimated reliably, revenue is recognized only to the extent of costs incurred that it is probable will be recovered; contract costs are recognized as an expense as incurred. When it is probable that total contract costs will exceed total contract revenue, the expected loss is recognized as an expense immediately.
IFRIC 15 “Agreements for construction of real estate” clarifies which standard (IAS 18 “Revenue’ or IAS 11 “Construction contracts’) should be applied to particular transactions.
It is especially important where it is difficult to distinguish whether the contract is for selling an item of real estate (to be constructed) or for carrying out construction work on real estate.
How AN Audit can help you
As experienced professionals in the construction and real estate field, we understand that construction and property management companies need flexible accounting systems, effective internal control systems, cash-flow projections and tax optimization, as well as expert advice on legal and regulation compliance. In addition to our core services, we offer the following to you:
- Advise on construction industry tax issues
- Advise on deductible/non-deductible expenses in profits tax perspective (capitalized or expensed)
- Advise on VAT on property transactions
- HR solutions and due diligence
- Advise on application of IAS 11
- Development of internal control systems associated with cost control