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Investment guide Armenia 1
Investment guide
Armenia
KPMG in Armenia
In association with:
Ministry of Economic
Development
and Investments
Republic of Armenia
September 2016
kpmg.am
© 2016 KPMG Armenia cjsc. All rights reserved.
2 Investment guide Armenia
Contents:
Armenia Profile 7
Favorable Environment for Investment 9
Investment Opportunities 12
Economic Drivers 16
Government Industrial Policy 19
Regulatory Framework 21
Financial Market 31
Country Rating 34
Membership to International Organizations 35
We are in Armenia! 37
Abbreviations and Glossaries 38
© 2016 KPMG Armenia cjsc. All rights reserved.
Investment guide Armenia 3
Dear Investor,
The Government of Armenia Moreover, investors and foreign
is carrying out deep and investment are fully protected by the
comprehensive reforms of the law.
business environment due to
I am confident that Investment
which today Armenia becomes
Guide – Armenia will arm you
an “open-door” destination with a
with the knowledge and the
various opportunities for beneficial
understanding of business
investment and business activities.
environment in Armenia and will
We believe that Armenia offers
encourage you for new businesses
plenty of investment opportunities,
and new investments.
in sectors that have traditionally
been strong contributors to the Welcome to Armenia!
country’s economy as well as
in niche sectors that have not
been developed or maybe even Sincerely yours,
discovered yet. Suren Karayan
Minister of Economic
You can use the opportunities of
Development and Investments
Armenia that serves a unique bridge
Republic of Armenia
between the member states of the
European Union and the Eurasian
Economic Union, Iran, as well as
Canada, Switzerland, Japan, Norway,
and the USA with which Armenia
has a preferential trade opportunities
and a proved track record of
cooperation.
© 2016 KPMG Armenia cjsc. All rights reserved.
4 Investment guide Armenia
including general information about Switzerland, and the United States.
the country, economy, culture, legal Since 2009, the country has also
and taxation requirements related been included in the list of countries
to investments, government plans granted GSP+ by the European
and priorities for the development of Union.
Armenia.
We believe that Armenia will
A number of sectors have shown continue its growth and become
significant growth during the last an increasingly attractive country
few years, including innovation and to invest in. Notwithstanding the
technologies, financial services, relations with some neighboring
agriculture, mining and hospitality. countries, Armenia continues to
In particular there has been a move forward towards growth and
significant increase in the IT sector prosperity.
with a total turnover of IT industry
comprising 559 million U.S. dollars.
We are pleased to introduce you the In 2015 the industry recorded an Sincerely yours,
new publication “Investment Guide - average annual growth of 21%. Tigran Gasparyan
Armenia” issued by KPMG Armenia Managing Partner
in cooperation with the Ministry of On January 2015 the Republic of
KPMG in Armenia
Economy of the Republic of Armenia Armenia became a member of
and Enterprise Incubator Foundation. Eurasian Economic Union (EEU),
The publication is mainly focused which specifies unified customs
on presenting Armenia’s Innovation territory providing free movement
sector and its notable developments of goods within the countries of
in the recent years. Our publication EEU. Armenia has signed free-
also includes basic information for trade agreements with Georgia and
foreign businesses and individuals most of the CIS countries. Armenia
who are thinking about or intend currently enjoys GSP beneficiary
to make an investment in Armenia, status with Canada, Japan, Norway,
© 2016 KPMG Armenia cjsc. All rights reserved.
Investment guide Armenia 5
R&D. The industry demonstrated Besides, in 2000, the Government
a sharp increase in the number of of Armenia has declared High
newly formed companies, both local tech as a priority sector and as
start ups and branches of most the primary constituent of the
prominent multinational country’s economic progress, and
corporations such as Microsoft, is currently supporting the sector
IBM, Oracle, Cisco, Synopsys, with various incentives, including tax
National Instruments, D-Link, privileges, support to infrastructure
VMware, Mentor Graphics, etc. development and innovation.
Due to its skilled and comparatively Recent developments in the
low cost labor force and world Armenian ICT sector, including major
class R&D capabilities, Armenia acquisitions and investment projects
continues to be the regional have positioned Armenia as a leading
leader in IT and high-tech industry. global technology hub with focus on
With the average annual productivity product development and creation of
ICT and high-tech sectors are one of of USD 48,000 per technical start-ups that are competitive in both
the growth drivers of the Armenian employee, the sector is considered international and local markets.
economy. In last 5 years with double- one of the most productive sectors.
We hope this Investment Guide
digit growth, the output of this sector During last years the number of
will provide you with better
increased 4.3 times, reaching to employees in the sector significantly
understanding about business
USD 450 mln and the number of increased, particularly, the number
opportunities and investment
companies in IT sub-sector increased of technical staff has almost been
environment in Armenia and will
about 2.4 times reaching to 429 at doubled.
allow to create solid grounds for
the end of 2015. From 2010-2015 IT
Armenian ICT sector goes in line the future mutually beneficial
industry is has grown at the CAGR
with the development trends of investments.
of 33.98%, becoming the fastest-
global economy and has become a
growing sector of the Armenian
regional innovation hub with many
economy.
organizations including Microsoft Sincerely yours,
These developments in the sector Innovation Center, Armenian National Bagrat Yengibaryan
showed transition from being an Engineering Labs, IBM Innovative Director
outsourcing industry to an R&D Solutions, and Technologies Enterprise Incubator Foundation
generating industry where about Center, Armenian-Indian Center for
50% of revenues of half of the Excellence in ICT, as well as Gyumri
companies is generated from own and Vanadzor technology centres.
© 2016 KPMG Armenia cjsc. All rights reserved.
6 Investment guide Armenia
© 2016 KPMG Armenia cjsc. All rights reserved.
Investment guide Armenia 7
Armenia Profile
Total area:
29,734 sq km
Borders with:
Georgia, Azerbaijan, Iran, Turkey
Vanadzor Ijevan
Population: Gyumri
2,998.6 thousand (as at 1
January, 2016)
Hrazdan
Capital: Ashtarak
Gavar
Yerevan (1,074.3 thousand) Yerevan
Armavir
Large cities: Artashat
Gyumri, Vanadzor
Yeghegnadzor
Government:
Presidential Republic
Monetary unit:
Armenian Dram (AMD)
Kapan
Climate:
Continental
© 2016 KPMG Armenia cjsc. All rights reserved.
8 Investment guide Armenia
© 2016 KPMG Armenia cjsc,. All rights reserved.
Investment guide Armenia 9
Favorable
environment
for investment
Current Investment Climate
Armenia has a positive and There are almost no restrictions
open attitude towards foreign concerning the sectors in which
investments. The reforms related a foreign investor may invest,
to the economy and infrastructure, except the territories where foreign
macroeconomic stabilization investments may be restricted
and economic growth have taking into account necessity of
contributed to the development and national defense. A prior approval
implementation of the country’s for making an investment is
foreign investment policy. generally not required, except for
the investments made in regulated
The main principles of the
establishments, such as banks,
investment policy may be
investment companies and certain
summarized as follows:
public utilities.
—— A liberal attitude towards
foreign investments and Open
Door policy
—— Protection of investors’ rights
—— Provision of equal conditions for
foreign and domestic investors.
© 2016 KPMG Armenia cjsc. All rights reserved.
10 Investment guide Armenia
Investment incentives
Foreign investors can benefit from the —— No screening and specific Convention of Investment Disputes
following investment incentives: authorization required for making (ICSID), CIS Multilateral Convention
investment on the Protection of Investor Rights.
—— 100% ownership permitted
—— No restrictions on remittances In addition, it has double taxation
—— Companies registered by a treaties with 41 countries as of 2016.
foreigner in Armenia have the —— No restrictions on staff
The benefits of these particular
right to buy land. Although foreign recruitment
treaties are easy to access by
citizens are not allowed to own —— No sector-specific or geographic providing supporting documentation
land in Armenia, they are offered restrictions on investments, of residency from foreign tax
long-term lease contracts except in certain national defense- authorities.
—— VAT payments postponement for related sectors
Since January 2015 Armenia is a
up to 3-year period for importing —— Customs duty exemption.
member of the Eurasian Economic
equipment and goods within the Materials and equipment/
Union (EEU), which creates the
scope of investment projects, technology imported from
following opportunities:
subject to the Government non-EEU country that cannot
approval be replaced by materials and —— Duty free import of raw materials
—— Free exchange of foreign equipment produced by EEU from EEU member states.
currencies country to implement investment —— No customs formalities during
project in the priority sector mutual trade between EEU
—— Free repatriation of profit
of economy of Armenia and member states, which leads to
—— In case of any changes in exceptionally in the territory of financial costs reduction and time-
legislation foreign investors can RA are exempted form customs consuming for business.
choose which law to use for duties.
up to a five-year term (five-year —— No non-tariff measures of trade
—— Tax exemptions in close to border and trade technical barriers
grandfather clause)
areas of Armenia between EEU member countries.
—— Free Economic Zones (no value
—— Tax exemptions in Tavush region —— Favorable import tariffs for about
added tax, no property tax, no
of Armenia (operations within the 750 products.
profit tax, no custom duties)
framework of investment projects
—— Profit tax privileges for large above 2 billion AMD (except Armenia has signed free-trade
exporters (exported goods and those in mining and chemical agreements with Georgia and most of
services for at least 40 billion production sectors) the CIS countries. Armenia currently
AMD (about 84 million USD), enjoys GSP beneficiary status with
except those in mining, jewelry, Armenia has signed bilateral Canada, Japan, Norway, Switzerland,
precious metals and stones treaties on reciprocal promotion and the United States. Since 2009,
processing, excisable goods and protection of investments Armenia has also been included in the
production) with 41 countries. Armenia is also list of countries granted GSP+ by the
a signatory of the International European Union.
—— No export duties and restrictions
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 11
Foreign investment legislation Investment Promotion and Support
The Law on “Foreign Investments” Ministry of Economic Development For more information regarding
sets forth the rights, guarantees and and Investments of Republic of investment climate, business
privileges for foreign investors. Armenia is responsible for investment opportunities as well as about
policy elaboration and business available investment projects
The law guarantees equal treatment
environment improvement. you can contact
of foreign and domestic investors,
Investment Policy Department
restricts the government’s ability Department of Investment Policy
investment@mineconomy.am,
to confiscate investors’ property, of the Ministry of Economic
tel. +374 11 597 125
ensures full compensation in case Development and Investments
of nationalization or confiscation by of Republic of Armenia is Development Foundation of Armenia
the government, provides access to responsible for the development serves as a central point of contact
Armenian and international courts to of investment policy, including for the investment process, free of
resolve commercial disputes, allows elaboration of legislation for free charge to the investor. The foundation
for full repatriation of profits and economic zones, improvement of helps companies from all parts of the
property. investment environment, monitoring world to start new business ventures
and assistance of public and in Armenia as well as expand existing
Foreign investments are allowed
private investment projects and operations.
in wide sectors of economy and
implementation of the investment
in various forms. Investments are /www.dfa.am/
policy.
protected for a period of five years
from adverse legislative changes.
© 2016 KPMG Armenia cjsc. All rights reserved.12 Investment guide Armenia
Investment
Opportunities
IT and High Tech
Armenia is an attractive technology (i.e. electricity and internet), the
market with tremendous potential, Armenian government’s favorable
competitive labor force, strategic policies towards outside investors,
location and business environment cultural compatibility, existence of
that offers great opportunities both for intellectual protection laws, and
established and start-up entrepreneurs geographic location.
and investors.
There are 429 IT companies that
As the Soviet Union’s main hub for operate in Armenia right now. Average
software development, industrial annual productivity amounts to USD
computing, electronics, and 48,000 per technical employee with
production of semiconductors, the total workforce employed by the
Armenia has kept its huge potential IT sector is 15,000 specialists. The
for technology development and total turnover of IT industry is 559
continues to be the regional leader in million U.S. dollars.
ICT and High-Tech industry.
Armenian IT companies specialize
Yerevan is at the top of the in mobile and cloud solutions,
competition pool alongside cities embedded software development and
such as Bangalore, Mumbai, Delhi, semiconductor design, customized
Chennai, Ottawa, Montreal, Tel software and outsourcing, financial
Aviv, Dublin, Kiev, Moscow, and software, multimedia, web design,
St. Petersburg. Investors choose information systems and system
Armenia for their investments due integration, etc.
to the availability of trained, well-
The recent developments in IT/
educated, English-speaking software
High-Tech sector in Armenia showed
programmers and engineers,
1
Source: EIF Armenia transition from being an outsourcing
affordable skilled professionals, low
industry to an R&D generating
production costs, strong infrastructure
© 2016 KPMG Armenia. All rights reserved.Investment guide Armenia 13
industry where about 50% of and increase the number of technical Applications Laboratory for ECA
revenues of half of the companies is graduates, and to expand support and (NOKIA) have been established to
generated from own R&D. Meantime, financing mechanisms for technology further promote and develop R&D
efforts are being undertaken to start-ups. potential in the country.
strengthen the engineering sector and
The technical workforce of Armenia Since 2000 when the Government of
improve cybersecurity of the country
creates a favorable investment Armenia declared the IT sector as one
via the implementation of relevant
climate for large ICT companies and of the priorities in the development
public private partnerships.
Multinationals, as well as private of the Armenian economy various
The Armenian labor market is equity and investment funds. In recent targeted actions have been
constantly supplied with skilled years the industry demonstrated undertaken to bring the decree to life.
workforce in high demand a sharp increase in the number of
One of the large undertakings for the
thanks to learning mechanisms newly formed companies, both
development of ICT sector in Armenia
that Armenian universities have local startups and branches of most
was the establishment of Enterprise
applied over the decades. The prominent multinational corporations
Incubator Foundation in 2002 within
educational methodologies used such as Microsoft, IBM, Oracle, Cisco,
the framework of the World Bank’s
by the universities are enhanced by Synopsys, National Instruments,
“Enterprise Incubator” project. Since
interactive sessions and are always DLink, VMware, Mentor Graphics, etc.
its establishment EIF has played a
being updated to stay on par with the
The high interest shown is mostly
quality of internationally acclaimed
due to the capabilities of local
institutions of higher education.
workforce to cater to the Research
Universities put great stress on
and Development needs of the large
training students in IT fundamentals
corporations together with the large
and in educating them to understand
potential in innovation creation.
the entire practical process. Today,
training methods applied by these Meantime the human capital in ICT
universities are enhanced with in the country is constantly being
new ideas and best traditions and upgraded and developed through
approaches of internationally known implementation of higher education
institutions of higher education. programs, trainings and support to
scientific researches to keep up with
In partnership with the private
the growing demand of specialists
sector, the Government of Armenia
in the area of ICT in the country and
focuses on and strongly supports
abroad.
the Information Technology industry
by implementing this industry Therefore, Armenian National
development strategy, adopted by Engineering Laboratory, Microsoft
the Government in 2008. The main Innovation Center, IBM Innovative
goals of this strategy are to develop Solutions and Technologies Center,
technology and business incubation Armenian-Indian Center for Excellence
infrastructure, improve the quality in ICT, mLab Regional Mobile
© 2016 KPMG Armenia cjsc. All rights reserved.14 Investment guide Armenia
major role in the development of ICT —— Gyumri Technology Center entertaining environment for
industry in the country, covering every —— Vanadzor Technology Center young people to improve their
aspect of the industry development – coder ranking through diverse
—— Kapan Mobile Solutions
from nationwide ICT related policy activities, including interactive
Laboratory
development and creation of national lessons, coding exercises,
representations in global markets, to The Centers are aimed at creating an peer-to-peer challenges, and
tailored services for startups, skills enabling environment of opportunities community Q & A. With over
development and research projects. and services that would promote 90% of its community coding on
job creation, will support talented mobile, more than 2M profiled
EIF acts as a cross-point for all entities
youth and provide incentives for coders, and 7M coding activities
in the sector - multinationals and
innovative business ideas and weekly, SoloLearn is a vibrant and
small startups, public institutions and
companies ultimately contributing receptive environment for early
international organizations, and brings
to the sustainable growth of the coders and professionals alike.
them all together to act jointly towards
the ultimate goal of ICT excellence.
region by involving and attracting new —— Shadowmatic – an iOS app
investments. developed by the Yerevan-based
Furthermore, multiple projects have Triada Studio which won the
To support the ICT industry, the
been designed and implemented prestigious Apple Design Award in
Government of RA has initiated the
for the development of ICT sector in 2015;
introduction of targeted tax privileges
Armenia, such as:
for startup IT companies (the law —— Joomag Company – providing
—— Granatus Ventures – Armenian was ratified by 2015). A simplified integrated solutions for
first Venture Fund procedure is set for creating start- publishing, distributing, tracking
—— Various grant programs, including ups, and the start-ups have to pay and monetizing publications
Deal Generation Matching Grants only 10% income tax and 0% profit online (creating digital interactive
(within the framework of World tax during the first three years of magazines, newsletters, blogs,
Bank’s EIC Project), operation. Among the recently catalogues, brochures, and
launched successful Armenian e-books) to more than 300,000
—— Establishment of Technology
startups are: worldwide publishers and many
Centers
more.
—— PicsArt – 75 million monthly active
The Government emphasizes the
users and 300 million installs, The first Armenian Venture Fund,
importance of regional development
PicsArt was named one of the top Granatus Ventures initiated in 2013 by
via creation of regional ICT centers.
5 “Hottest Startups of 2015” by co-investments from the Government
That will lead to more proportional
Forbes and Google Play ranked of Armenia aims at stipulating the
and balanced development of the ICT
PicsArt as one of the “Best Apps creation of new start-up companies
sector in the country enabling the
of 2015.” and the generation of the innovative
talented young professionals from the
—— SoloLearn –a global coding businesses. The main directions of the
regions to utilize their knowledge and
community, has grown in fund’s investments are: information
skills in their homeland. Among the
popularity among millennials and communication technology,
regional projects implemented in the
and students by providing an engineering, material science, clean
sector in recent years are:
technology and health care.
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 15 © 2016 KPMG Armenia cjsc. All rights reserved.
16 Investment guide Armenia
Economic Drivers
Key Economic Indicators:
Armenia has had a positive annual
2014 2015 real GDP growth rate during the last
Nominal GDP, USDm 11,644 10,562 5 years, keeping around 3-3.5% in
the last three years. The compound
Real GDP growth, % 3.5% 3% annual growth rate of real GDP for
the years 2011 to 2015 has been 1%.
Inflation (period average) 3% 3.7%
Nominal GDP decrease in USD terms
FDI, USDm 282 147 of about 9% in 2015 compared with
2014 was mainly due to the local
FDI growth 3.9% (43.5) currency devaluation against USD.
AMD/USD exchange rate (period average) 416 478 According to the IMF, the real GDP is
expected to grow by 2.5% in 2016 and
Source: NSS 2.8% in 2017. Later starting from 2018
to 2020 the IMF expects Armenia to
have 3-3.5% annual growth rate in real
GDP.
GDP (USD Billion) Overall the structure of GDP has
been stable during the last five
years Mainly the hotel, restaurant
8%
11
and entertainment sector has been
7% experiencing stable growth in recent
9 6% years. In 2015 GDP composition
USD billion
5% agriculture had the biggest share
7
4% compounding 17.3%, followed by
5 3% Manufacturing and Mining, and public
2% administration both compounding
3
1% 11.2% share each.
1 0%
2011 2012 2013 2014 2015
Nominal GDP
Real GDP growth rate (Right hand scale)
Source: NSS
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 17
Nominal GDP Structure
Other
100%
Public administration, health and social work,
90% еducation
80% Information and communication
70% Financial and insurance activities
Transport and warehouse economy
60% Real estate
50% Hotels, restaurants, art, entertainment
40% and recreation
Wholesale & retail trade, repair
30%
Construction
20% Electricity, gas and water supply
10% Manufacturing, ьining
0% Agriculture, hunting and forestry, fishing
2011 2012 2013 2014 2015 Taxes on products (minus subsidies)
Source: NSS
FDI FDI in Armenia decreased in 2013 and
was comparably stable in last 3 years.
700,000 Starting from 2011 FDI had a decrease
over the years and decreased to USD
600,000
271 million in 2013. During the first
500,000 three quarters of 2015 the level of FDI
increased by 0.4% compared to the
400,000
same period of 2014 and was USD
300,000 262 million.
200,000
100,000
0
2011 2012 2013 2014 2015
Source: NSS
© 2016 KPMG Armenia cjsc. All rights reserved.18 Investment guide Armenia
CPI The average annual inflation rate for
Armenia in 2011-2015 was 4.6%. The
9% average inflation rate in 2015 was
8% 3.7%. In recent years the inflation rate
has been within the CBA targeted
7%
inflation rate range.
6%
5%
4%
3%
2%
1%
0%
2011 2012 2013 2014 2015
Source: NSS
Foreign Trade In 2015 the import decreased
significantly. This is overall the impact
of the declining economy in the region
5,000 -
4,500
and particularly in Russia as a main
-500 trade partner. The main countries from
4,000
3,500 -1,000 where Armenia imports are Russia,
3,000 -1,500 Georgia, Iran, UAE and China. Armenia
USDm
USDm
2,500 mainly exports to Russia, China,
2,000 -2,000
Germany, Iraq and Georgia.
1,500 -2,500
1,000
-3,000
500
- -3,500
2011 2012 2013 2014 2015
Import Export Balance
Source: NSS
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 19
Government
Industrial Policy
The Government has declared building without any restrictions to international
a knowledge-based economy as its markets with more than 500 million
long-term strategic objective. On consumers.
this basis, the guiding vision for the
“Alliance” FEZ is the first Free
industrial policy will be to turn Armenia
Economic Zone in Armenia based on
into a country producing high-value
“RAO Mars” CJSC and “The Yerevan
and knowledge-intensive goods and
Computer R&D Institute” CJSC
services with creative human capital at
officially has launched on August 1,
its core. Achieving this vision requires
2013 with “Sytronics Armenia” CJSC
a phased approach that entails a
as an organizer.
gradual transition from resource-
intensive production to capacity and The establishment of FEZ in Armenia
skills, and subsequently knowledge- seeks to promote direct foreign
based production to play a dominant investments, increase exports, create
role in the longer term. new jobs, and generate prerequisites
for sustainable economic development
in Armenia.
Free Economic Zones
“Alliance” free economic zone has
“Alliance” Free Economic Zone about 56,000 square meters
of industrial area and 38,000 square
Free economic zones (FEZs) in
meters of office space. The zone is
Armenia offer a unique opportunity for
oriented to the production and exports
entrepreneurs to establish businesses
of high and innovative technologies
in strategic sectors of the economy
in the field of electronics,precision
and to process produce and export
engineering, pharmaceutics and
goods with a reduced tax burden.
biotechnologies, information
FEZs allow the export of goods
© 2016 KPMG Armenia cjsc. All rights reserved.20 Investment guide Armenia
technologies, alternative 10 operating companies are currently Steps to become FEZ resident:
energy, industrial design and present in the “Alliance” and
1. Submit business plan to the
telecommunications (elaboration “Meridian” free economic zones.
Governmental committee
and production of technological
Companies granted permission to
equipment, systems and materials 2. Get permission from the
operate in free economic zones can
for data/information transfer) as well Government
benefit from the following privileges:
as in the fields producing goods not
—— 0 % profit tax 3. Sign a contract with the FEZ
produced in Armenia..
—— 0% VAT organizer
The services offered by the state —— 0% property tax
bodies in the FEZ are implemented —— 0% customs duty
based on a simplified (“one stop
shop”) principle. They can take
advantage of tax benefits as well as
of absence of exchange restrictions,
free transfer of capital, profits and
dividends. The preferential terms are
supposed to reduce production cost
and enhance competitiveness.
“Meridian” Free Economic
Zone
«Meridian» FEZ is a unique platform
with cluster infrastructures for jewelry,
diamond cutting and watchmaking
manufacturing companies in the
center of Yerevan.
The free economic zone has
about 25,500 square meters of
manufacturing, service and office
area, 10,180 square meters of
exhibition halls, 6,000 square meters
of diamond manufacturing area and
around 10,000 square meters of
auxiliary area (parking, storage, safes)
14 operating companies are present
in the “Alliance” and “Meridian” free
economic zones as of September
2016.
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 21
Regulatory Framework
Legal forms for establishing state registration in the Republic The Law contains a grandfather
a business of Armenia. State registration clause, which allows foreign investors
includes also registration with the to apply the investment legislation,
There are certain legal options for tax authorities. The one-stop shop effective for a five-year period
establishing a business (commercial principle is applied in the process from the moment of making the
activities) in the Republic of Armenia: of state registration (including investment.
registration of the firm name, state
—— sole entrepreneurs; Investments made by foreigners shall
registration of the company itself and
—— business partnerships not be nationalized or confiscated.
registration with the tax authorities).
(full partnerships and trust Seizure of property can be applied as
The required documents can be
partnerships); an exclusive measure if authorized
submitted either in hard copies or
by a court and where a state of
—— limited liability companies; electronically.
emergency has been declared by the
—— supplementary liability companies; The registration of commercial entities Government.
—— joint-stock companies (open and is made immediately (if documents
Seizure of property is subject to full
closed); are submitted electronically or
compensation. Foreign investors
—— cooperatives; approved templates of the required
are also entitled to compensation of
documents are used) or within
—— branches. damages and losses (including lost
2 working days (in other cases).
profit) resulting from unlawful acts of
Representative offices of foreign State duty for the registration of a
state authorities or state officials or
companies can be established commercial legal entity is free of any
improper performance of their duties.
in Armenia for the purposes of fee, for branch and representative
representation and protection of the office is AMD 12,000 (approximately Goods (from the list established by the
rights of its founding company but are USD 25). Government), which are imported by
not entitled to perform commercial foreign investors with the purpose of
activities. paying up shares or the charter capital,
Foreign investment legislation
are exempt from customs duties.
However, if these goods are disposed
Incorporation of organizations The Law “On foreign investments”
within 3 years after their import, the
and sole entrepreneurs sets forth the rights, guarantees and
customs duties shall be paid.
privileges for foreign investors, who
Legal entities, their separate can make their investment in various
subdivisions (branches and forms, such as a joint venture or the
representative offices) and sole establishment of a wholly-owned
entrepreneurs are subject to subsidiary.
© 2016 KPMG Armenia cjsc. All rights reserved.22 Investment guide Armenia
Insurance of bank deposits The judicial system of the Taxation Overview2
Republic of Armenia
The bank deposits of individuals are In general, the following state and
insured in the Republic of Armenia. A three-tier judicial system currently municipal taxes are defined in the
The limit of an insured deposit exists in Armenia: Republic of Armenia:
amount in a bank is AMD 10 million
I. First Instance Courts State taxes: Profit Tax, Income Tax,
(approximately USD 20,000) for
a. Courts of general jurisdiction Excise Tax, Value Added Tax.
deposits only in Armenian currency
and AMD 5 million (approximately (hearing civil and criminal cases); The law may specify turnover tax,
USD 10,000) for deposits only in b. Administrative court (hearing presumptive payments or license
foreign currency. claims against administrative fees as a replacement to the above
bodies). mentioned taxes.
Insurance II. Courts of Appeal Municipal taxes:
a. Civil Court of Appeal; Property Tax, Land Tax.
There is one type of mandatory
b. Criminal Court of Appeal;
insurance in Armenia: motor vehicle
c. Administrative Court of Appeal.
liability insurance. Other types of Profit Tax
insurances are not mandatory. III. Cassation Court of the Republic
Tax payers: Profit Tax in Armenia
of Armenia
Anti-money-laundering and is payable both by residents
In the field of constitutional justice (organizations established in the RA)
terrorism financing legislation
the highest judicial power is the and non-residents (organizations
Constitutional Court of the Republic created outside the RA and their
Armenia has detailed regulations on
of Armenia. subdivisions registered in Armenia).
anti-money-laundering and to combat
against terrorism financing. The Note: The judicial precedent is applied Taxable profit: Profit Tax is calculated
Central Bank of Armenia exercises in Armenia. on the basis of the taxable profit
supervision on compliance with the representing the positive difference
legislation and imposes sanctions in Labor Market between the total income from the
the field to combat money laundering sale of goods, services, assets and
and terrorism financing. The Labor Code is the main Legal other property, less total expenses
Act regulating employment relations which are deductible by law.
Currency regulation in Armenia. The Code sets forth
Profit tax rate: For residents and
the main provisions related to
registered non-residents the general
As a general rule transactions in employment agreements, collective
rate of Profit Tax is currently 20%
Armenia have to be made in Armenian agreements, length of a working
of the taxable profit. For investment
drams. There are several cases day, rest time, duration of vacations,
funds 0.01% is applied to the net
(mainly, transactions between resident calculation of salaries and other
assets of the fund.
and non-resident legal entities and payments to employees, termination
sole entrepreneurs) where use of of employment relations, duration and
foreign currency is permitted. payment for special leave, etc. 2
Based on the legislation effective 1 March 2016 .
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 23
Reporting period: Taxpayers have to the reporting year. The reporting year The key Profit Tax implications for
submit their Profit Tax return to their end is 31 December for all companies. resident and non-resident registered
local tax authority before April 15 of When establishing the amount of entities are presented in the table
the year following the reporting year. the Profit Tax liability, the income and below.
The amount of the Profit Tax should expenditure are calculated on the
be transferred to the State Budget not accruals basis.
later than April 25 of the year following
Profit Tax Residents Non-residents registered in Armenia
Tax object Taxable profit received on the territory of The taxable profit derived only from Armenian
Armenia, as well as outside Armenia sources.
Tax methodology The taxable profit is the positive The taxable profit can be established:
difference between income recognized 1. as the positive difference between income
for taxation purposes and allowances recognized for taxation purposes and
established by law (expenses, losses, allowances established by law (expenses,
other allowances). other allowances); or
2. using one of the indirect methods defined by
legislation (proportion of revenue , proportion
of expenses, proportion of number of staff
of Armenian subdivision in overall revenue,
expenses, number of staff of non-resident)
Tax losses Tax losses that arose during the last 5 Losses are not deducted.
years are deducted when calculating the
taxable profit.
Dividends Dividends received are deducted from Dividends received are taxed.
received the gross income when calculating the
taxable profit.
Prepayments Prepayments are made on a quarterly Prepayments are made on a half-annual basis
basis in the amount of the 18.75% of the in the amount of 1/4 of the previous year actual
previous year actual Profit tax. Profit tax, if the previous year actual Profit tax
exceeded AMD 2 mln (USD 4,000).
© 2016 KPMG Armenia cjsc. All rights reserved.24 Investment guide Armenia
In case the non-resident company is not registered in Armenia, taxation of income derived from Armenian
sources is performed by a tax agent at the following rates:
Type of Income Amount of
the Profit Tax
Insurance compensation, reinsurance payments and income received from freight 5%
Dividends, interests, royalty, income from the lease of property, increase in the value of 10%
property and other passive income (with the exception of the income received from the
freight)
Income from other services provided by non-residents, as well as income from services 20%
provided by non-residents to Armenian residents outside Armenia, which include consulting,
legal, accounting, management services, expertise, marketing, advertising, translating,
engineering and other similar services.
Double Taxation Treaties: Currently Value Added Tax VAT rate: The rate of VAT is 20
Armenia has signed Double Tax percent of taxable turnover.
Treaties with the following countries: VAT payers: VAT payers are
individuals and legal entities that Privileges: The RA Law “On VAT”
Austria, Belarus, Belgium, Bulgaria,
carry out economic (entrepreneurial) specifies the types of transactions
Canada, China, Croatia, Cyprus,
activities and perform the VAT taxable that are not taxable by VAT (these
Czech Republic, Estonia, Finland,
transactions on the territory of the RA. trans¬actions are out of the scope
France, Georgia, Germany, Greece,
of VAT), the types of activities that
Hungary, India, Iran, Ireland, Italy,
are exempt from VAT (insurance,
Kazakhstan, Kuwait, Latvia, Lebanon, VAT taxable transactions: most banking and financial activities,
Lithuania, Luxembourg, Moldova, the
—— Delivery (supply) of goods for scientific and research works, sales
Netherlands, Poland, Qatar, Romania,
compensation; of newspapers and magazines,
Russia, Spain, Switzerland, Syria,
procurement and supply of goods
Slovenia, Thailand, Turkmenistan, —— Rendering of services for any form and provision of services arising from
Ukraine, the United Arab Emirates, of compensation; loans and grants made by international
the United Kingdom and Northern
—— Free (partially free) delivery of organizations for the realization of
Ireland.
goods or provision of services; programs in Armenia, etc.), as well
as transactions for which zero rate
—— Importation of goods under of VAT is applied. The zero rate of
the “Release for domestic VAT is, in general, applied to the
consumption” customs exportation of goods and services
procedure.
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 25
(works) from the territory of Armenia. not exceeding AMD 115.0 million Income Tax
The main difference between zero (approximately USD 230,000), with
rating and exemption is that in the some exceptions. Tax payers: In Armenia Income Tax is
case of exemption the VAT paid to the paid by RA resident and non-resident
The taxable object: The taxable individuals.
supplier is not compensated.
object is the turnover of goods
Reporting period: Every quarter (or delivered and services rendered for Residents are the persons who have
every month, if the taxable turnover the reporting period and other income spent 183 days or more in Armenia
of the previous year exceeded AMD received. For determining the taxable in any twelve month period starting
100mln (USD 200,000). VAT taxpayers object income is recognized by accrual or ending in a tax year, or whose
are obliged to submit VAT reports to method. vital interests are located in the RA
tax authorities and pay VAT by the (home, family, property and business),
Turnover tax rates: The turnover tax irrespective of the citizenship.
20th day of the month following the
rates are the following:
reporting period. Tax object: For RA residents the tax
Tax Invoices: VAT payers are obliged object is taxable income received
to issue tax invoices for goods in Armenia and outside of Armenia,
Type of Income Rate non-residents will have an Income
supplied and services rendered.
Tax invoices should be issued only Income from 5% Tax liability solely on income received
electronically. commercial/trade from Armenian sources.
activities Types of income which are subject
E-Reporting: Starting from January
1, 2012 the companies and individual to Income Tax: wages and salaries,
Income from operating 3.5%
entrepreneurs which by the results of interest, income from donations
activities
the previous reporting year have VAT and assistance (unless specifically
taxable turnover of more than AMD Rent income, interest, 10% exempt), royalties, rental income,
58.35 million (approximately USD royalties, income from benefits in kind, income from
116,000) must submit tax returns to sale of assets entrepreneurial activities received by
the tax authority electronically. soul entrepreneur, etc.
Income from notaries 20%
activities For most of the employees their
Turnover tax employer will withhold the income tax
Income from other 5% and pay to the tax authorities as tax
The turnover tax is a substitute of VAT activities agent.
and profit tax for legal entities and VAT Until December 1, 2018 turnover tax
for private entrepreneurs. Taxable income: The taxable income
on income from sale of secondary raw is the positive difference between the
Turnover tax payers: The turnover materials is calculated by the rate of gross income of the taxpayer and the
tax is applicable for taxpayers with 1.5% on taxable base. deductions made in accordance with
previous year revenues from the sale the provisions of the RA Law “On
of goods and provision of services Income Tax”.
© 2016 KPMG Armenia cjsc. All rights reserved.26 Investment guide Armenia
Income Tax rates:
I. The Income Tax rates on wages and salaries are:
Monthly Taxable Income Income Tax Rate
Up to AMD 120,000 24.4%
From AMD 120,000 to AMD 2,000,000 AMD 29,280 + 26% of the amount exceeding AMD 120,000
Over AMD 2,000,000 AMD 518,080 + 36% of the amount exceeding AMD 2,000,000
II. The income tax rates on income not taxed by tax agent are:
Annual Taxable Income Income Tax Rate
Up to AMD 1,440,000 24.4%
Over AMD 1,440,000 AMD 351,360 + 26% of the amount exceeding AMD 1,440,000
III. Tax rates on some types of income received by foreign citizens are:
Type of Income Rate
Dividends 0%
Insurance reimbursements and income from transportation (freight) 5%
Royalties, interests, lease payments, increase in the value of property and other passive income, as well 10%
as other income received from Armenian sources
IV. Tax rates on passive income are:
Type of Income Rate
Royalties, rental income, income from the sale of property, interest income (In case the annual income 10%
received from rent exceeds AMD 58.35 mln. the individuals are subject to additional 10 % income tax
on amount exceeding the threshold without considering any deductions, including taxes paid by the tax
agent.)
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 27
Individual obligations of Income Other Issues - Mandatory However, currently there is maximum
Tax reporting: The RA residents, per funded pension scheme threshold of basic salary established
the results of the tax year, have an by Law for applying the social
obligation of submitting electronically Starting from July 1, 2014, social payment rate. Thus up to 01 July 2020
the Income Calculation before April payments are due for employees the maximum monthly threshold
15 of the year following the reporting who were born on or after 1 January, of basic income is established
year with the exception (in particular) 1974 (including foreign citizens), who AMD 500,000. This means that up
of the following cases: receive basic income, i.e. who work to 01 July 2020 the monthly social
in an Armenian incorporated company payments calculated on gross salary
—— When income received is taxed by and receive income taxable by income exceeding AMD 500,000, shall be
tax agents; tax are subject to social payment. AMD 25,000 (500,000x5%).
—— When income received by the The base for calculation of the social
individual, consisted exclusively of The Employer, as a tax agent, is
payment is the basic income, which obliged to withhold the amount of
the non-taxable types of income
is salary and other payments equal social payment as well as submit
(deductible income).
thereto which are subject to taxation monthly personalized reports to the
Income Tax reporting by tax agents: under the RA Law “On Income Tax.” tax authorities on calculated income,
An income tax report is submitted by amounts of tax and social payments
Currently the social payment rate
tax agents (employers) electronically withheld from individuals within the
is 5% for gross salaries up to AMD
on a monthly basis. terms established by the RA Law “On
500,000 and 10% on amounts
exceeding AMD 500,000. Income Tax”.
© 2016 KPMG Armenia cjsc. All rights reserved.28 Investment guide Armenia
Tax Privileges for IT Companies Tax Privileges for Exporters If all above conditions are met:
—— 5% favorable rate applies to
Starting from 09.01.2015 Law Profit tax privileges the taxable profit, if the sum of
“On State support” entered into
Favorable profit tax rates are applied taxpayers revenue from provision
force and according to law, startup
to the taxable profit of resident of services abroad and custom
companies can apply for privileges,
taxpayers or group of involved value of exported goods for
particularly, the companies, and
in export programs approved by current year exceeds 40 billion
Individual entrepreneurs, falling under
Armenian Government. However AMD.
the criteria of the Law, do not pay
to benefit from favorable rate the —— 2% favorable rate applies to
corporate tax/profit tax on income
taxpayers should meet to certain the taxable profit, if the sum of
related to IT activity, also the income
conditions simultaneously: taxpayers revenue from provision
tax on these entities’ employees
salary is calculated at 10% rate. The of services abroad and custom
—— The taxpayers should not be
privilege is effective only for the value of exported goods for
involved in mining or processing
period of certificate provided by RA current year exceeds 50 billion
of metallic minerals, processing
Government. AMD.
and/or selling of precious stones,
precious metals and jewelry, 5% favorable rate is applied to the
Tax privileges are applicable to
producing or selling products taxable profit of taxpayers or group
companies for which the following
taxable by excise tax. of taxpayers involved in programs
criteria are met:
—— minimum 40 billion AMD has approved by Armenian Government,
—— were created to implement only been entered into bank accounts if taxpayers or group of taxpayers
activities provided by the law (in IT of taxpayers in the group from operate in the field of construction
sector), export program or installation exclusively outside the
—— were not created as a result of —— the taxpayers of the group does territory of the Republic of Armenia.
reorganization of other entity, not have any income from sale of
—— are not a subsidiary of another products, rendering of services Income tax privileges
company, in Armenia, except for interest
income received from non- The tax agents, who signed a working
—— number of employees does not
residents on loans provided. agreement with residents of RA and
exceed 30.
according to the agreement employee
—— the sum of taxpayers revenue
worked exclusively outside the
from provision of services abroad
territory of the Republic of Armenia,
and custom value of exported
within implementation of the program
goods for current year exceeds
according to Article 33 part 1.2 of RA
40 billion AMD. Moreover the
Law on “Profit Tax” calculates income
exports custom value for current
tax from employees’ wages and equal
year should exceed the threshold
payments by the 13% rate.
established by RA Government,
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 29
Eurasian Economic Union Accounting Requirements Where the company has a subsidiary,
it should prepare consolidated
On 02 January 2015 Republic of According to the Law of RA “On financial statements for the Group.
Armenia became member of Eurasian Accounting”, all legal entities
Directors of the company are
Economic Union, towards which registered in Armenia, as well as
responsible for preparing and signing
legislation changes were initiated in branches and representative offices
the financial statements. The financial
Armenian custom and tax legislation. of foreign legal entities must carry
statements are submitted to founders
Eurasian Economic Union specifies out financial accounting and prepare
or shareholders of the company and
unified customs territory which general purpose financial statements.
to appropriate state authorities (if such
provides free movement of goods
The Ministry of Finance adopted requirement is provided by founding
within the Eurasian Economic Union,
Accounting Standards of the Republic documents or by law) before 15 April
thus:
of Armenia (ASRA), which was based following the reporting year.
—— Customs duties are not applicable on IFRS effective as of the end of
All companies that have an annual
upon movement of Eurasian 2000, with minor changes. However,
turnover and/ all total assets over
Economic Union goods between from 2009 the transition to IFRS was
AMD 1 billion (USD 2,000,000) should
the member states, initiated. Mandatory IFRS reporting for
publish their financial statements
banks started from January 2009, for
—— Eurasian Economic Union goods before 1 July following the reporting
other financial institutions including
should be shipped between year.
credit, insurance and investment
Armenia and other member
companies started from January 2010, Banks should publish their quarterly
states without customs clearance
for the remaining organizations with financial statement before the 15th
formalities,
revenue exceeding AMD 100 million of the month following the reporting
—— Economic restrictions are not (approximately equivalent to USD period and their annual audited
applicable. 200,000) started from January 2011. financial statements within six months
following the reporting year.
© 2016 KPMG Armenia cjsc. All rights reserved.30 Investment guide Armenia
Auditors, audit requirements “route taxis” in major cities and also purposes within Armenia total 7,568
and standards a metro in Yerevan. Road and railroad km and there are connections with
communication exists between all the all neighboring states with which
Audit of the annual financial major regions of Armenia. Armenia has diplomatic relations,
statements carried out by an including Georgia and Iran.
Two international airports are in
independent audit company is operation: Zvartnots International The Armenian telecommunications
mandatory for certain companies, Airport in Yerevan and Shirak airport in network is currently operated by three
such as open joint-stock companies, Gyumri. The international terminal was mobile operators, ArmenTel (operating
banks and financial institutions, built in accordance with the newest under the trade mark Beeline), which
stock exchange participants, etc. international standards, with modern is fully owned by Russia’s VimpelCom,
Audit companies are licensed by the equipment and with high earthquake K-Telecom (operating under the
Ministry of Finance. In order to receive stability and was opened on 26 trademark VivaCell MTS), a subsidiary
a license the audit firm should have September 2011. The airport is able to of Russia’s MTS, Ucom – local
at least five qualified auditors, who accept any type of aircraft. company.
obtain a professional qualification from
the Ministry of Finance. Additionally, Several international airlines (such as Main competitors in 3G internet
the signatory of audit opinions on the Aeroflot, Air France, Austrian Airlines, services in Armenia are Ucom,
financial statements of commercial Siberia Airlines, LOT Polish Airlines, VivaCell MTS and Beeline. Armenia
banks and other financial organizations FlyDubai, Qatar Airlines, Ukraine is also the 10th country in the
regulated by the CBA is required to International Airlines, Air Arabia, world that launched the 4G Internet
satisfy several additional professional Mahan Air (Iranian), Aegean Airways, communication network also
requirements (e.g. to possess an Georgian Airways, Iraqi Airways, Al introduced by VivaCell MTS. Currently
international known qualification on Naser, Middle East airways ) provide a one of the main DSL highline internet
accountants and/or auditors), which number of flights to the largest cities suppliers in Armenia is Beeline.
are determined by the decision of the in the CIS, Europe, USA, Asia and Optical fiber network suppliers
Board of the Central Bank of the RA. Australia. Scheduled flights operate are Ucom telecom company and
to Amsterdam, Athens, Beirut, Dubai, Rostelecom Armenia. Ucom has also
Audits are performed in accordance Istanbul, Frankfurt, Kiev, London, built up the first FTTH (Fiber to the
with auditing standards of the RA, Moscow, Munich, Paris, Prague, home) Network in Armenia. After
approved by the Ministry of Finance, Rome, Tehran, Vienna, and other acquisition of Orange Armenia, Ucom
which are based on International major cities in the world. is planning to launch a LTE network
Standards on Auditing (ISA). There is across Armenia. The fiber-optic
also a Law on Audit, which regulates There are 703 km of railways of
cable (FOC) network of Rostelecom
this field. general purposes in Armenia. Of
Armenia now covers 80% of the
the three international railroad
territory of RA, spreading for over
connections via Georgia, Azerbaijan
Infrastructure 3,000km. Ucom and Rostelecom
and Turkey, only the connection
Armenia provide internet, IPTV
through Georgia to the Black Sea
Armenia has a relatively developed and Digital Phone services to both
ports (mainly Poti and Batumi) is in
public transportation system, which individuals and corporate clients.
use at present. Highways of general
includes buses, taxi services, vans or
© 2016 KPMG Armenia cjsc,. All rights reserved.Investment guide Armenia 31
Financial
Market
Since 1 January 2006 the CBA
has been acting as regulator and
supervisor of the Armenian Financial
Market, in addition to the banking
sector.
As of 30 June 2016, there were 20
commercial banks, which comprised
about 90% of the financial sector.
There are also credit organizations,
insurance companies, insurance
brokers, investment companies,
investment and pension fund
managers, NASDAQ OMX Armenia
and the Armenian Central depositary,
exchange offices and pawnshops etc.
The CBA is actually located in 2
locations: in Yerevan and in Dilijan city
(about 110 km from Yerevan). Based
on the Government plans, Dilijan
would become a financial center of
Armenia.
© 2016 KPMG Armenia cjsc. All rights reserved.You can also read
