Mundo's freedom rating is essentially a freedom index whereby our team of specialists rates a combination of freedoms which include freedom from violence and personal attacks, financial freedom from high taxes and other government levies, business freedom from government interference and investment potential.

Political Stability: 7

Ever since gaining independence from the Soviet Union in 1991, Armenia has gone through several phases over the last three decades. Like many of the former Soviet states, the 1990’s were characterized by a wave of free-market reforms with mixed results. As the 2000’s rolled in, cronyism and corruption were pervasive throughout the country with wealthy and politically connected business elites controlling many of the country’s industries. However, that began to change in 2018 when Armenians fed up with the corruption and authoritarianism of Serzh Sargysyan took to the streets to demand change.

After a wave of protests, he was forced to step down and Nikol Pashinyan took office with a pledge to combat corruption, implement market-friendly reforms, and attract FDI. Since then, he has made considerable progress in both areas and Armenia gets high ranks on several key business indicators and is considered one of the best places to do business in the Caucuses. 

While Armenia has been one of the most stable and better performing countries in the region, it has not come without challenges.

With corruption being one of the government’s priorities,

instances of corruption are very rare nowadays.

Long standing tensions with Turkey and Azerbaijan, including several wars with letter as recently as 2020 remain an issue to this day. With land borders closed to the above countries, all trade by land must pass through Georgia or Iran, thus complicating logistics. 

With a homogenous population, Armenia has largely avoided the conflicts that have consumed its neighbors. Like most of the world during 2020, the economy contracted although it is slowly beginning to recover. Looking ahead, it will be a few years for economic activity to reach pre-pandemic levels although the tech sector is expected to lead growth; This has been the fastest growing industry the last few years. Likewise, Armenia will continue to be one of the business centers for the Caucuses thanks to its well-developed and stable financial system.

Personal Safety: 9

This is an area where Armenia gets high marks. In fact, it is regarded as one of the safest of the former Soviet states and the safest country in the Caucuses for travelers. Assaults and homicides are rare in Yerevan, the country’s capital and crimes targeting foreigners are practically unheard of. The most common problems are break-ins and larcenies, nothing unusual in the world’s richest countries. 

With that said, Armenians are regarded as being warm, friendly, and welcoming of guests. It should be no surprise that Armenia is a popular tourist destination and more recently, home to a growing expat community. This is especially true as the Covid-19 pandemic has changed the workplace and more people are working remotely. Even prior to the pandemic, many Russian and European professionals had been relocating to Armenia due to the low cost of living and high living standards.

Taxation: 8

Armenia offers some benefits when it comes to taxation. While not a tax haven by any means, the standard corporate tax rate is 18% with a VAT of 20%. Smaller businesses with sales less than approximately $250,000 USD are exempt from the above. Going down the line to micro businesses (defined as having sales of less than $50,000 USD a year), they are exempt from the corporate tax and VAT. Typically, businesses making between $50K to 250K are subject to 1.5%-5% turnover taxes, whereas small businesses with sales of less than $50K are exempted from taxes. 

As to employee’s salaries and wages. They are taxed at 22% + social security tax. The total tax burden is around 27% on average for salaried employees. 

For individuals, non-residents do not have to pay taxes on earnings abroad. However, residents (or for income derived from sources in Armenia) there is a flat tax rate of 22% (20% starting in 2023). However, this rate is applicable to business income/salaries. 

Passive income is taxed at lower rates (e.g. 10% on interest income, 5% on dividends). Also, most forms of capital gains, insurance and pension payments are exempt from taxes. That rate is applicable to business income/salaries. 

This has advantages and disadvantages although for high earners, 22% is considerably lower than many European countries or the US where the upper brackets can reach 40%. With that said, it should be no surprise that Armenia has become a popular second home for many. 

Investment Potential: 9

Despite being a landlocked country, Armenia has an advantage in the region when it comes to the IT and tech sectors. In fact, it was the tech hub of the former Soviet Union, and it still leads the region in these industries today. As a result, many European and Russian tech companies have opened offices in the country to take advantage of the well-educated and low-cost workforce. Over the last five years, the IT and tech industry have been the fastest growing sectors in Armenia. 

Aside from IT, there are opportunities for investment in tourism and winemaking thanks to the mountainous terrain that offers an unprecedented view with fertile land for growing grapes. 

As the Armenian government has adopted a pro-business approach the last few years, they have offered some tax incentives with the goal of attracting FDI. Below are three of the most popular programs: the Free-Economic Zones (FEZ’s), Micro-entrepreneur, and the IT startup certificate. 

Free-Economic Zones

Businesses operating in the FEZ’s can benefit from the following:

-No VAT for goods and services produced in the FEZ area. 

-Tax-free profits.

-No import duties on goods and materials imported into the FEZ.

-Access to the European, Russian, and Asian markets. 

-Exemptions from the VAT, sales, profit, and turnover taxes.

IT Startup Certificate

With the IT industry being the fastest growing sector in Armenia, the government has implemented an incentive program for start-ups. In order to qualify, a business can have no more than 30 employees and it must operate in the following areas: information technology, information systems, data processing, or other tech-related areas. 

Here are the main benefits of the IT Startup Certificate: 

-No corporate income taxes until January 2023.

-Reduced payroll tax.

Micro-Entrepreneur

As of 2020 there is a new option for investors with limited capital called the micro-entrepreneur. This opportunity is ideal for anyone interested in relocating to Armenia and is interested in starting a small business.

The requirements and benefits for a micro-entrepreneur: 

-Requirements: Be involved in production or manufacturing of most service sectors, tourism, and private education. In addition, sales cannot exceed 24 million AMD (approximately 46,000 Euro a year).

-Benefits: Exemptions from the VAT, sales, profit, and turnover taxes.

With that said, these are the three most popular tax incentive programs for investment in Armenia. When combined with the ease of starting and registering a business, not to mention the equal treatment of foreign and domestic firms under the law, Armenia is one of the best CIS countries for investing. Then add in a stable and well-developed banking sector, it is easy to see why Armenia is often regarded as the gem of the Caucuses.

Mundo’s Armenia Freedom Rating: 33/40

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