Investment climate in Armenia

With its strategic location linking Europe and Asia, Armenia's economic rise has attracted considerable attention in recent years. The country has successfully positioned itself as one of the world's fastest-growing economies and a promising destination for foreign investment.

The main goal of Armenia’s investment policy is to create a favorable investment and business environment, increase the transparency of the regulatory environment, reveal the country’s competitive advantages, increase the size of investments, develop market infrastructure, create high-quality and high-paying jobs, develop human capital and, based on all this, ensure sustainable economic growth and well-being of the population.

Armenia has one of the most open investment regimes among emerging market economies. Due to the government’s commitment to the “open door” policy, there are virtually no restrictions on investment activity.

Why Armenia

1. Macroeconomic indicators.

Armenia has made progress in improving its macroeconomic conditions in recent years, with a focus on economic diversification and strengthening the private sector. The country has also undertaken structural reforms to promote fiscal sustainability and reduce poverty.

2. State Support Programs.

Armenia has implemented various state support programs to promote economic development, investment, innovation, entrepreneurship and social welfare. The goal of these programs is to provide financial assistance, incentives and resources to individuals, businesses and sectors in need.

3. Highly Skilled Workforce.

Armenia is known for its talented workforce, especially in sectors such as technology and engineering. The country places great emphasis on education, with a well-developed system that includes universities and vocational schools.

4. Open Market.

Armenia has a multi-vector foreign trade policy, with the government consistently working to diversify export destinations. Although Armenia’s domestic market may seem limited with a population of 3 million consumers, the country serves as a gateway to significant markets. It has access to a consumer market of 1 billion people with 0% or reduced customs duties.

Armenia can become a unique bridge between the member states of the European Union and the Eurasian Economic Union: given the membership in the Eurasian Economic Union and the opportunities that come with it, on the one hand, and the possibility of economic cooperation with the European Union, including preferential trade GSP+, on the other hand, the country enjoys preferential trade regime GSP with Canada, Switzerland, Japan, Norway and the United States.

Armenia's focus on economic diversification, innovation and structural reforms has created a solid foundation for growth in many sectors. From IT and tourism to agriculture and manufacturing, the local economy offers enormous business opportunities for foreign and domestic investors.

Investment Legislation

The Constitution of Armenia protects all forms of ownership and stipulates that everyone has the right to own, use and dispose of legally acquired property at their own discretion. According to the provisions of the Law on Foreign Investments, enterprises with foreign investments have the right to engage in any economic activity. There are no restrictions or prohibitions established by Armenian legislation, except where national security requirements apply.

Armenia’s commitment to providing a safe and predictable investment environment is evident through its robust legal framework, participation in international agreements and access to ISDS mechanisms. The Law on Foreign Investments of the Republic of Armenia sets out the basic principles for regulating foreign direct investment (FDI) and contains general provisions governing the rules of entry, establishment procedures, investment regime, protection and access to benefits. This legislation provides investors with high standards of protection and guarantees. Foreign investments in Armenia are protected from expropriation except in exceptional circumstances. The government prohibits nationalization and arbitrary expropriation of foreign investments, guaranteeing full compensation in exceptional cases of nationalization or expropriation.

Investors in Armenia have access to investor-state dispute settlement (ISDS) mechanisms through both domestic and international arbitration. The Foreign Investment Law allows investors to file claims in domestic courts for ISDS, and international arbitration is also available when investments are protected by international investment treaties (IIAs). Armenia demonstrates its commitment to protecting investments by being a party to various international agreements.

The country is a member of the International Centre for Settlement of Investment Disputes (ICSID) Convention and has ratified the United Nations Commission on International Trade Law (UNCITRAL) Convention on the Recognition and Enforcement of Foreign Arbitral Awards (New York Convention of 1958). In addition, Armenia is a party to seven treaties with investment provisions and two regional TYPs - the Treaty on the Eurasian Economic Union and the Commonwealth of Independent States Convention on the Protection of Investors' Rights. The former includes substantive investor protection and ISDS, while the latter includes investment protection linked to domestic law and optional arbitration obligations. Armenia is also a party to the Energy Charter Treaty, which provides detailed investor protection and access to ISDS.

Legislation on Foreign Direct Investment

Law of the Republic of Armenia "On Foreign Direct Investment" covers several key areas that ensure effective regulation and implementation of investment projects:

• Foreigners are allowed 100% ownership of resident legal entities
• Unlimited access to virtually any sector and geographic location in the country
• Companies registered by a foreign citizen in Armenia have the right to own land and have long-term lease agreements
• Equal treatment of both domestic and foreign investors

Law on Public-Private Partnership

The Republic of Armenia took a significant step towards the development of public-private cooperation by adopting the Law on Public-Private Partnership on June 28, 2019. Since its entry into force on January 1, 2020, this law has established clear rules and procedures governing the development and implementation of PPP projects, ensuring transparency and accountability. The law also allows for unsolicited proposals in various sectors. It encourages private entities to propose innovative solutions, facilitating the implementation of sustainable projects that meet pressing societal needs.

Investment Incentives

Incentives for Exporters

Armenia offers incentives to exporters (e.g., no export duty, VAT refunds on exported goods and services) and foreign investors (e.g., income tax holidays, the ability to carry forward losses for an indefinite period, deferral of VAT payment, and exemption from customs duties for investment projects).

Starting in 2018, the Armenian government began exempting investment-related imports from VAT at the border. In 2015, the Armenian government began exempting investment-related imports of equipment and raw materials from non-EAEU countries from customs duties. VAT and customs duty exemptions are implemented by government decisions taken on a case-by-case basis.

In addition, under the Foreign Investment Law, several special incentives may be agreed upon on a case-by-case basis for investments that target specific economic sectors or are of strategic interest.

Licensing

In 2021, amendments were made to the Licensing Law to simplify licensing requirements for foreign companies engaged in 13 types of business activities in Armenia, including security/cash collection and postal services, railway and taxi services, urban development and design, and technical supervision of construction.

State Support Programs

Armenia has implemented various state support programs to promote economic development, investment, innovation, entrepreneurship, and social security. The goal of these programs is to providing financial assistance, incentives and resources to individuals, businesses and sectors in need.

Infrastructure for Investment

The objective of this program is to encourage investment by providing financial support for infrastructure development. The state offers assistance in the form of infrastructure financing, with 10% support available for investments up to 500 million drams. If the investment exceeds 500 million drams, the support increases to 20%. The funds can be used for various infrastructure works, such as the construction of roads, water supply systems, drainage systems, gas supply systems, electricity supply systems and telecommunications.

Attracting highly qualified specialists

The program provides for the possibility of reimbursing a portion of the salaries paid to newly hired highly qualified foreign specialists in the amount of 20%. Newly hired foreign specialists with a PhD degree are reimbursed 50% and 70% in the case of their teaching activities.

Modernization of economic capacities

The program offers businesses valuable opportunities to improve their operations through access to a nearly interest-free loan of up to 10 billion drams. This loan can be used to purchase equipment, including new equipment, devices and their components. The program provides subsidized lending options with competitive interest rates such as 8% in dram and 6% in foreign currency. In addition, subsidized leasing options are available at rates of 10% in AMD and 8% in foreign currency.

Production of Complex Economic Products

The purpose of this program is to support the creation or development of economic complex products in Armenia. Beneficiaries of this state support program can be companies with capital investments of at least 1 billion AMD. Under the program, companies can receive up to 35% compensation of real assets of capital investments. The facilitation process includes 3 stages.

Foreign Trade Zones / Free Ports / Trade Facilitation

In 2011, Armenia adopted the Law on Free Economic Zones (FEZ), amended in 2018, and developed several key provisions to attract foreign investment in the FEZ: exemption from VAT, income tax, customs duties and property tax.

Performance and Data Localization Requirements

There are no investment performance requirements in terms of mandatory employment of local residents. The processes for obtaining visas, residence permits or work permits are simple. There are no government-imposed conditions for investment permission.

Armenia does not have a policy that forces foreign investors to use domestic content in goods and technologies. There are no requirements for foreign IT providers to hand over source code or provide encryption keys. There is no requirement to store data within the country.

Tax incentives to encourage investment and boost business growth

Tax exemptions for activities in border and other populated areas

A number of tax incentives are provided to stimulate economic activity in border communities. These include exemptions from value added tax (VAT), income tax and turnover tax. In addition, for investment projects exceeding 2 billion drams (approximately 5 million US dollars), additional benefits are provided for both VAT and income tax in the framework of activities in the Dilijan community and adjacent areas of the Tavush region of Armenia.

Tax incentives for the IT sector

Special tax incentives are provided to ensure the continuous development of the IT sector, in particular, a 10% reduction in income tax on employee salaries. These benefits allow IT startups to reinvest a significant portion of their revenues into expanding and growing the company.

Tax Incentives for the Medical Sector

The medical sector receives significant tax benefits to support its operations and provide affordable healthcare services. These benefits include exemption from value added tax (VAT) on the sale and provision of prosthetic and orthotic supplies, medical equipment, medical devices, and medical care services. By exempting these essential medical goods and services from VAT, the government aims to reduce costs and make them more affordable to the public.