Despite being a small country of three million people, Armenia is an attractive place to operate a business. It gets excellent marks in the World Bank’s Ease of Doing Business Index in several important areas, most notably starting and registering a business, and enforcing contracts. Prior to the Covid-19 pandemic, Armenia had been one of the fastest growing economies in Europe, with growth averaging 7% a year. Part of that growth has been driven by the IT sector thanks to the government adopting business-friendly policies along with a highly skilled and low-cost workforce. It should be no surprise that Armenia is often referred to as the “Tiger of the Caucuses”. 

Registering a Business 

When we say it is easy to register a business in Armenia, we were not joking. Thanks to the “one-stop shop” window, the entire process takes no more than three days (in some cases even or one day). Even better is how little it costs, free for most types of businesses and minimal fees for branches of foreign firms. In addition, the application does not have to be submitted in person, it can be done online or through an appointed representative.

Cost: Free. 50,000 AMD ($25) for a branch of a foreign firm. 

Required documents: copies of passports for all owners (or shareholders), corporate documents, and articles of incorporation. All foreign documents must be apostilled (or legalized) and translated to Armenian.

Rules on ownership: There are no restrictions on citizenship or residency. Foreigners may own (or invest) in a firm and are not required to reside in the country. There are no local partnership requirements. 

Physical presence: A registered business must have a legal address. This can be a residence or provided by a lawyer.

Primary Business Structures

Sole Proprietor 

A sole proprietor is just that, a business with a single owner and the rules are similar to those in many western countries. It is the easiest business entity to set up and operate although there are some disadvantages, namely incurred debt by the business can extend to the proprietor’s personal assets. As such, this structure is best suited for small or individually run businesses.

-Advantages: Easy to set up and operate, no taxes on dividends, simplified accounting, and some tax benefits.

-Disadvantages: Business liabilities can extend to the owner’s personal assets.

Partnership (General and Limited)

A partnership is similar to a sole proprietorship with the exception the ownership is shared between two or more individuals. Likewise, liabilities can extend to the partners’ personal assets. The main advantage to this business structure is flexibility and like a proprietorship, they are subject to fewer legal requirements than corporate entities.

Limited partnerships operate in a similar manner except there are general and minority partners. The main difference is liability, where the limited partner is only liable for the amount they have invested in the business.

Advantages: More flexibility and subject to fewer legal requirements than an LLC or JSC.

Disadvantages: Can be more difficult to manage, liabilities can extend to personal assets for general partners.

Limited Liability Company (LLC)

This is the most common business structure in Armenia, and it offers a few benefits over a sole proprietorship. The most obvious is liability as shareholders are only liable for the amount they have invested in the company. Likewise, thanks to the business-friendly approach taken by the Armenian government, an LLC is fairly easy and inexpensive to maintain and operate. 

Other benefits are the director does not have to reside in Armenia and the creation of an executive board is optional. Shareholders may sell their investment at any time and claim a refund that is equal to the value of their shares.

-Advantages: Limited liability, no residency requirement for the director and shareholders, internal auditors are not required if there are fewer than 21 shareholders, board of directors is optional.

-Disadvantages: May not have more than 49 shareholders and subject to more legal formalities than a sole proprietorship.

Joint Stock Corporation (Open and Closed)

This business structure is ideal for medium to large enterprises with multiple shareholders. Like an LLC, investors are only liable up to the amount they have invested in the company. However, a JSC offers an additional advantage over an LLC, namely privacy. The shareholder registry of a JSC is not made public and can only be revealed under a court order. 

Another benefit of a JSC is additional means of raising capital. Likewise, they can issue different types of shares such as preferred, common, voting and non-voting. JSC can also be run by a single director if there are no more than 50 shareholders. However, having an internal auditor or audit committee is required.

Note: The main difference between an open and closed joint stock corporation has to do with the sale of shares. In the latter, shareholders have the preemptive right to purchase shares as opposed to the former they do not have that right.

-Advantages: Ideal for larger enterprises with multiple investors, more options to raise capital, shareholder registry is not made public.

-Disadvantages: Subject to audit requirements and more legal formalities than an LLC, board of directors is mandatory if there are more than 50 shareholders.

Ask for more information

Taxes

Armenia has a simplified, standard corporate tax rate of 18% and a VAT of 20%. However, depending on the size of the business and the sector it operates in, there are several tax incentives programs that may apply.

Small businesses with annual sales of less than 115 million AMD (appx. $240,000) USD qualify for a turnover tax ranging between 1.5% to 5% of sales. They do not have to pay the corporate tax or VAT.

Micro businesses with annual sales of less than 24 million AMD (appx. $50,000 USD) are exempt from the corporate tax and VAT. However, businesses must meet certain criteria to qualify for this category.

Businesses in the above categories are required to withhold payroll taxes from employees based on the following scale.

-Income tax: 22% flat rate (20% as of 2023)

-Social Security: 3.5% for monthly salaries up to 500,000 AMD(appx. $1000)/month and 10% for salaries between 500,000 and 1,020,000 AMD(appx. $2000)/month. The maximum salary amount for social security is capped at 1,020,000 AMD/month.

-Military taxes (contributions to insurance fund for service members): Between 1,500 and 15,000 AMD/month ($3-31 USD) depending on the employee’s salary.

Special Tax Incentive Programs

The Armenian government also has tax incentives for businesses operating in the IT sector and the Free Economic Zones (FEZ’s).

IT Start-Up Certificate

This program applies to startup businesses in the IT sector and there are several criteria that must be met. 

-Requirements: Must operate in the tech sector and related industries (programming, data processing, consulting, data management). Firms cannot have more than 30 employees and may not be a branch or subsidiary of a foreign firm.

-Benefits: Exempt from corporate taxes until January 2023, payroll taxes are reduced to 10% instead of 22%.

Free Economic Zones (FEZ’s)

-Benefits: No VAT for goods and services provided in the FEZ, tax-free profits, no property taxes on buildings that are owned or leased in the FEZ, no customs duties on materials imported in the FEZ, free convertibility of foreign currency.

In addition, firms operating in an FEZ may be foreign owned and there are no requirements for local partnerships. However, they are required to withhold payroll taxes from worker’s salaries (income, social security, and military).

The Benefits of Operating a Business in Armenia

-Business Registration: Takes no more than three days with minimal fees and there are no capital requirements or renewal fees. Firms are not required to hire employees, have an office, or open a bank account.

-Low taxes: Armenia has a flat, standard corporate tax rate of 18%. Dividends are taxed at 5% and there are treaties ruling out double taxation with 47 countries. In addition, no taxes on capital gains, gifts, inheritance, and net worth. 

-Privacy laws: There are strict secrecy laws that cover certain types of corporate entities and bank accounts, and this information can only be revealed by a court order. Also, Armenia is not subject to the CRS reporting requirements. 

-A skilled and low-cost workforce: Armenia has long been known as a tech hub in the Caucasus region thanks to an emphasis on education in the STEM sectors. The average monthly wage is approximately $400/month.

-Stability and economic growth: Armenia had one of the highest GDP growth rates in Europe, around 7% a year (pre-Covid). Armenia is also part of the Eurasian Economic Union and has free-trade agreements with the CIS countries and GSP status with the EU.

-No restrictions on ownership: Foreigners may own a firm or invest in it. There are no residency or local partnership requirements.

Contact us