Investment incentives
Investment incentives
The promotion of investment is one of the key foci of Armenian economic policy. The key objectives are to provide incentives to foreign investors with the goals of increasing the country’s exports and stimulating employment, creating a favorable investment and business environment, increasing the transparency of the regulatory framework, and ensuring sustainable economic growth in Armenia. Armenia has declared an “open door” investment policy, which is defned in the law “On Foreign Investments” and in the Investment Policy of Armenia. The Republic of Armenia has one of the most open investment regimes among emerging market countries.
The law “On Foreign Investments” protects foreign investors against nationalization or expropriation of property, except in extreme cases of natural or state emergency, determined in accordance with a judicial decision, and with full and mandatory compensation. The Armenian constitution goes as far as to require that the compensation for expropriated property be paid in advance, before the property is taken from the owner. Foreign investors are also entitled to compensation for damages and losses (including lost proft) resulting from unlawful acts of State authorities or State offcials or improper performance of their duties.
The law “On Foreign Investments” provides guarantees for national treatment and non-discrimination for foreign investors. The laws applied to foreign investments cannot be less favorable than the laws governing the property rights and investment activities of citizens and legal entities of Armenia. There are no restrictions on the participation of foreign investors in any economic activity in Armenia or on the percentage of ownership of a local business that foreign investors can acquire. The only exception is that foreign citizens and persons without citizenship have no right to own land in Armenia. However, foreigners are allowed to use land through long-term lease contracts. Furthermore, foreigners have the right to own structures built on Armenian land, and to exploit renewable and non-renewable natural resources through concession contracts granted by the Government.
The law “On Foreign Investments” contains a “grandfathering” clause. In case of any change in the legislation on foreign investment, the law in force at the time the investment was made can, upon the request of a foreign investor, continue to be applied for a maximum of fve years from the date of the investment.The law also stipulates that investment–related disputes in which the State is a party shall be settled in Armenian courts. All other disputes to which the State is not a party can be considered by the Armenian courts or any other bodies resolving economic disputes or, upon the agreement of the parties, in arbitration tribunals. Armenia is a signatory to the International Convention on Investment Disputes, which allows dispute resolution by the International Centre for the Settlement of Investment Disputes (ICSID).
Under current legislation there are no restrictions on the conversion and transfer of money or the repatriation of capital, earnings, dividends, interest, royalties, or management or technical service fees. Foreign investors and employees are guaranteed the right to freely repatriate their property, profts or other assets that result from their investment after payment of all due taxes.
Armenia has a liberal exchange system, and in general, there are no restrictions on converting or transferring funds associated with an investment into freely usable currency, and at a legal, market-clearing rate. Foreign exchange is widely available, and the local currency, the Armenian dram (AMD), is freely convertible. Maintaining foreign currency accounts in Armenia is also permitted.
Surveys suggest that Armenia is a relatively easy country in which to do business. The World Bank study, Doing Business 2012, ranked Armenia as the 55th (compared to 61st in 2011) easiest country to do business out of 183 countries surveyed.
Armenia’s cumulative rating according to the Heritage Foundation “Index of Economic Freedom” is 68.8, “Moderately Free”, making its economy the 39th freest economy in the 2012 index. Armenia is ranked 19th freest among the 43 countries in Europe, and its score puts it above the world average.
According to the United Nations Development Programme’s annual report on “Human Potential Development Index” for 2011, Armenia is classifed among countries with a “high level” of human development potential.
Investment incentives
Foreign investors can beneft from the following investment incentives:
1. Ownership: 100% ownership permitted.
2. Admission: There is no screening and no specifc authorization required for making an investment.
3. Land ownership: Companies registered by a foreigner in Armenia have the right to buy land. Although foreign citizens are not allowed to own land in Armenia, they are offered long-term lease contracts.
4. Import: For investment projects, VAT payments for imported goods exceeding 300 million AMD are deferred for three years.
5. Export duties and restrictions: None.
6. Export VAT. Zero rating in Armenia applies to goods and services exported under “Free Turnover” and “Re-exportation” customs regimes.
7. Investment guarantees. In case of any changes in legislation foreign investors can choose which law to use for up to a fve-year term (fve-year grandfather clause)
8. Free Economic Zones. Companies operating in free economic zones are fully relieved from income tax, property tax, proft tax, and custom duties, as well as VAT for services delivered to the organizer and operator and products in the territory of the free economic zone. In determining the taxable income of a taxpayer who is a free economic zone operator for a full year, aggregate income is reduced by the amount of income received from activities conducted in the free economic zone.
9. Exchange Control. Free exchange of foreign currencies.
10. Remittance. No restrictions on remittances.
11. Proft. Free repatriation of proft.
12. Staff Recruitment. No restrictions.
13. Location. No sector-specifc or geographic restrictions on investments.In addition to the specifc investment incentives described above, the following factors make Armenia attractive for Foreign Direct Investment:
A. Stable macroeconomic situation
Armenia has a prudent macroeconomic policy framework in place and is characterized by a stable overall macroeconomic environment, as recognized by major international organizations. Economic legislation and regulations comply with international standards and WTO requirements.
B. Sustainable banking system in line with international standards
Armenia’s banking system operates in accordance with core Basel II standards. Free operation of foreign currency accounts is available. No restrictions on remittances exist. The organizer of the stock market is NASDAQ OMX Armenia OJSC, which is part of the NASDAQ OMX Group, Inc. international group. NASDAQ OMX Armenia is a member of the Federation of Euro-Asian Stock Exchanges (FEAS) and the International Association of Exchanges of the Commonwealth of Independent States (IAEx of CIS).
C. High experienced, creative, cost efficient and well educated workforces
The quality of Armenia’s highly trained and skilled workforce is widely recognized by established foreign investors. The local workforce is relatively inexpensive and provides a clear comparative and competitive advantage for Armenia.
D. Armenian diaspora
Armenia has a very sizeable Diaspora living abroad of about 6 million – primarily in the Middle East, the United States, the Russian Federation and Western Europe – which forms a vibrant potential pool of investors looking for opportunities to invest capital in their home country.
E. Hospitality and safety
Armenia is a country with a strong tradition of hospitality and is a very safe country to visit and travel in.
Foreign direct investment and Free Economic Zones
Foreign direct investment
Armenia, a country that largely depends on foreign trade, is making signifcant efforts to attract foreign direct investment. The Government has adopted an “open door” policy, with Most Favored Nation (MFN) and National Treatment regimes in place, and thorough-going legal protection to promote foreign investment. The law “On Foreign Investments” ensures a highly favorable business environment for foreign investors. It also allows unlimited participation of foreign capital in Armenian enterprises and ensures its protection.
Foreign investors are entitled to implement investments through:
- Establishment of a fully foreign-owned company (including representatives, affliates and branches), or the purchase of an existing company;
- Establishment of a new joint venture company with the participation of Armenian companies or citizens, or the purchase of shares in an existing company;
- Purchase of different types of securities;
- Procurement of permits to use the land, or a concession agreement for the use of Armenian natural resources with participation of Armenian companies or citizens; or
- Procurement of other property rights. According to the National Statistical Service of Armenia, foreign direct investment in Armenia rocketed from $70 million USD in 2001 to $1 billion USD in 2008. Although a decline in investments was observed immediately subsequent to the international fnancial crisis in 2009-2010, the infow of foreign investments in 2011 increased to $816m USD, of which $631m USD represented foreign direct investments.
FIGURE 9. FOREIGN DIRECT INVESTMENT BY SECTORS (AS OF THE END OF 2011)
Major sources of investment in the Armenian economy include the Russian Federation ($3,170 million USD), followed by France ($727 million USD), Greece ($479 million USD), United States ($378 million USD), Lebanon ($365 million USD), Germany ($357 million USD) and Argentina ($334 million USD). Russia, France and the United States were the three biggest investors in Armenia in 2011. The three most important sectors where foreign investments were directed in 2011 included the processing industry ($246 million USD), telecommunications ($231 million USD), and electricity and gas ($101 million USD). The information technology sector has major investment potential as well.
Free Economic Zones
Free economic zones (FEZs) in Armenia offer a unique opportunity for entrepreneurs to establish businesses in strategic sectors of the economy and to process, produce and export goods with a reduced tax burden. FEZs allow the export of goods without any restrictions to international markets with more than 500 million consumers. The law “On Free Economic Zones” and tax legislation grant exemptions from proft tax, income tax, property taxes, VAT and customs duty payment obligations to companies operating within FEZs.
The law on FEZs grants the following incentives to FEZ operators and organizers:
- NO VAT for delivering services and supplying goods in FEZ territory;
- Tax-free proft to legal entities and NO income tax for sole proprietor acting as operators or organizers of FEZs;
- NO property taxes on public and industrial buildings and structures owned or leased within FEZs;
- NO customs charges and non-tariff regulation measures applied to the export of goods released under the customs regime “Imports into Free Economic Zones”, or to other goods produced due to the use of such goods within the territory of FEZs;
- Freely convertible currency is ALLOWED as a medium of exchange while trading within FEZs, unlike the entire territory of the Republic of Armenia, where trade is allowed only through use of the national currency.
The services rendered by the State bodies in FEZs are implemented on a simplifed, “one stop shop” basis.
Two FEZs will soon be operational in Armenia. One of them will be in the agricultural sector, in the area adjacent to “Zvartnots” International Airport. This FEZ will focus on the storage, grading, deep freezing and packaging of fresh fruit and vegetables. The second FEZ, which is established in the territory of RAO Mars Closed Joint-Stock Company and Yerevan Research Institute of Mathematical Machines, will specialize in the production and export of innovative technologies in the areas of electronics, precision engineering, pharmaceuticals and biotechnology, information technologies, alternative energy, industrial design and telecommunication (design and production of technological equipment, systems and materials for data/information transfer).
