DOING BUSINESS IN ARMENIA: ESSENTIAL LEGAL CONSIDERATION FOR FOREIGNERS

INTRODUCTION

Armenia, with its strategic location at the crossroads of Europe and Asia, offers a growing and attractive environment for foreign entrepreneurs. Its open economic policies, low taxes, and free-trade agreements with various regions make it an ideal destination for business expansion. However, foreign entrepreneurs should be well-versed in the local regulatory framework to ensure smooth entry into the Armenian market.

CHOOSING A BUSINESS STRUCTURE

Foreign entrepreneurs in Armenia can choose from various types of business structures, with the most common being:

• Limited Liability Company (“LLC”): The most popular form due to its simplicity and minimal capital requirement. An LLC requires at least one shareholder, and there is no minimum capital requirement.
• Joint-Stock Company (“JSC”): Suitable for larger businesses that may eventually go public. JSC’s can either be open (public) or closed (private).
• Sole Proprietorship: This is ideal for small business owners and individual entrepreneurs who want to operate on their own.

REGISTERING THE BUSINESS

To legally operate a business in Armenia, foreign entrepreneurs must register their company with the State Register of Legal Entities, a process overseen by the Ministry of Justice. Key steps include:

• Company Name Registration: Choosing a unique name for business and ensure that it complies with Armenian naming regulations. The company name must not be similar to existing entities or trademarked names.
• Articles of Association: Drafting and submission of Articles of Association, which outline the company’s goals, structure, share distribution, and operational guidelines. This document should be in Armenian, though translations may be used.
• Director and Shareholder Information: Provide the details of the directors and shareholders (can be non-residents), including passports and proof of address.
• Registration Fees: Paying the required registration fees. The cost is relatively low compared to other countries, making Armenia an affordable jurisdiction for business setup.

Once registered, the company will receive a registration certificate and a Taxpayer Identification Number (TIN).

TAXATION SYSTEM AND INCENTIVES

Armenia has a favourable tax regime that attracts foreign investment. Key taxes include:

• Corporate Income Tax (“CIT”): The standard CIT rate in Armenia is 18%. However, certain sectors and regions may benefit from tax incentives and reductions.
• Value Added Tax (“VAT”): The standard VAT rate is 20%. Some sectors may be exempt, such as those engaged in international transport and exports.
• Personal Income Tax: Individuals are subject to a flat income tax rate of 21% (as of 2024). Employers are responsible for withholding and remitting income taxes on behalf of their employees.
• Dividends: Dividends paid to foreign shareholders are generally subject to a 5% withholding tax unless a Double Taxation Treaty (DTT) provides otherwise.

LICENSING AND PERMITS

Licenses are issued by various government agencies, and businesses must comply with specific regulations in their respective sectors. It is important to check, whether your business falls under a regulated industry.

• Banking and Finance
• Telecommunications
• Energy and Mining
• Food and Beverage (for production or import/export of alcoholic products)

DISPUTE RESOLUTION AND LEGAL PROTECTION

Armenia’s legal framework provides robust protections for foreign entrepreneurs. The country is a signatory to international investment agreements, including the International Centre for Settlement of Investment Disputes (ICSID) and the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. This ensures that foreign entrepreneurs have access to international arbitration and other legal avenues in case of disputes.

Armenian courts also offer legal recourse, but many foreign investors prefer arbitration because of its speedy disposal nature and neutrality.

CONCLUSION

Armenia provides a favourable environment for foreign entrepreneurs, offering an open economy, attractive tax rates, and a strategic location for regional business. By following the necessary legal procedures, from registering a company to obtaining the relevant licenses and permits, foreigners can successfully launch and operate a business in Armenia. Understanding local regulations and employing proper legal counsel can help ensure compliance and minimize potential challenges along the way.