Investment in Armenia

62 Pages·2009·5 MB·English

Investment in Armenia

Introduction for foreign companies
considering doing business in Armenia

KPMG in Armenia
Preface

This publication has been prepared by KPMG Armenia to assist foreign investors
who consider starting a business in Armenia.

The information contained herein is of a general nature and is not intended to
address the circumstances of any particular individual or entity. Although we
endeavor to provide accurate and timely information, there can be no guarantee
that such information is accurate as of the date it is received or that it will
continue to be accurate in the future. No one should act on such information
without appropriate professional advice after a thorough examination of the
particular situation.

KPMG Armenia would be pleased to assist you in evaluating and implementing
your investment plans. For details of the services which we provide, and on how
to contact KPMG Armenia, please refer to Chapter 7.

KPMG Armenia cjsc

Yerevan, August 2009

Note: For your reference, USD equivalent of amounts indicated in AMD may be
calculated using the official exchange rate established by the RA Central Bank. At
the time of issuing this publication the rate established by the RA Central Bank
was: USD 1 = AMD 370.83 (as at 11 August 2009).
Investment in Armenia 1

Contents

CHAPTER 1 ARMENIA: A BRIEF SUMMARY 3
Geography 3
Climate 3
Historical overview 3
Population and language 4
Currency and payments 4
International time 4
Weights and measures 4
Government 4
Entry visas/residency status 5
Work permit 6
Office and living accommodation 6
Business hours 6
Hotels and accommodation 6
Transportation and communication 8
Armenian Diaspora 9

CHAPTER 2 BUSINESS ENVIRONMENT 11
The Government’s approach towards foreign investment 11
Foreign investment incentives 12
Types of foreign investments 13
Foreign investments in Armenia 14
Workforce 15
Economy 15
Key Macroeconomic Indicators 16
Government economic policy 16
Foreign trade and free trade agreements 16
Import regulations 17
Export regulations 17
Membership of international organizations 17
International finance assistance 18
Monetary policy and the banking sector 18
Insurance system 20
Credit Bureaus 21
Privatization 21
Natural resources 22
Government Securities market 22

CHAPTER 3 BUSINESS ENTITIES 25
Entrepreneurs/Sole proprietors 25
Business partnerships 25
Limited liability companies 26
Supplementary liability companies 26
Joint-stock companies 26
Investment in Armenia 2

Cooperatives 26
Representative offices and branches of legal entities 26
Establishment (registration) of legal entities, branches and representative
offices 27

CHAPTER 4 ACCOUNTING REQUIREMENTS 25
Regulation of accounting and reporting 28
Recent changes in the RA Law “On Accounting” 28
Financial statements 29
Auditors and audit requirements 29
Auditing standards 29
Audit companies 29

CHAPTER 5 LEGAL ENVIRONMENT 30
Foreign Investment Law 31
Banking and related legislation 32
The judicial system of the Republic of Armenia 36
Law firms 37

CHAPTER 6 TAXATION OVERVIEW 38
The Law on Taxes 38
Value Added Tax (VAT) 38
Profit Tax 40
Personal Income Tax 43
Mandatory Social Security Payments 45
Excise Tax 45
Customs Duties 47
Property Tax 48
Land Tax 48
Presumptive Fee 49
Double Taxation Treaties 49
Other Mandatory Payments 49

CHAPTER 6 LABOUR LEGISLATION 38
Tax Inspections 50
Labour relationship 51
Labour contracts 51
Documents required for employment 51
Types of labour contracts 51
Terms and conditions of labour contracts 52
Termination of labour contract 52

CHAPTER 8 KPMG'S OFFICE IN ARMENIA 54

AN INTERNATIONAL OVERVIEW 55

KPMG IN RUSSIA AND CIS 56

APPENDIX 1 PROCEDURE FOR REGISTRATION OF A REPRESENTATIVE
OFFICE/BRANCH OF A BUSINESS ENTITY 57

APPENDIX 2 LIST OF ABBREVIATIONS AND ACRONYMS USED IN THE TEXT 58
Investment in Armenia 3

Chapter 1
Armenia - A brief summary

Geography
Modern Armenia is a small, strategically important country located at the
crossroads of Europe and Asia. The Republic of Armenia (the RA) occupies
an area of 29,800sq. km. Armenia borders Turkey to the west, Georgia to the
north, Azerbaijan to the east, with Nakhichevan (part of Azerbaijan) to the
south-west and Iran to the south. Land boundaries total 1,254km. The terrain
is defined by the high Armenian Plateau with mountains (mount Aragats
being the highest peak at 4,090 meters), fast flowing rivers, some forest land
and fertile soil by the Arax river. Armenia is rich in certain natural resources,
among them, deposits of copper, molybdenum, zinc, aluminium and gold.
Substantial deposits of pumice, marble, tuffa, limestone, basalt and salt also
exist. Mineral springs supply bottled-water industry.

The capital of Armenia is Yerevan.
Climate
The climate is highland continental with hot, dry summers and cold winters.
The coldest month is January, with the average daily temperature ranging
between -13°C and 1°C. The hottest months are July and August with the
average daily temperature ranging between 30°C and 35°C. Average annual
rainfall varies between 22 and 90 cm. The wettest months are from May and
June and the driest month is January.
Historical overview
Situated between Asia and Europe, the territory of today’s Armenia has seen
many migrations, political states and conquerors. Armenians are an ancient
race, who has preserved its traditions and spirit through difficult historical
periods, each of which had its own influence and impact on the development
of the Armenian history and culture. Armenia was the first nation to adopt
Christianity as a State religion. In 2001, Armenia celebrated the 1700th
anniversary of the declaration of Christianity as it has been a State religion
since 301 AD. The country is adorned with over one hundred ancient
churches and monasteries of great architectural merit, dating back to the VI
century AD. Some of these monasteries were famous centers of education
and culture.

There is also a large Diaspora of Armenians (about six million people) living
outside the country in various parts of the world, whose ancestors left
Armenia due to regional conflicts which took place in the early part of the
20th century. The Armenian nation soon recovered from these conflicts and
on 28 May 1918 declared itself independent, creating the first Armenian
Republic, with Yerevan as the capital.
Investment in Armenia 4

After two years of independence, on 2 December 1920 Armenia joined the
Soviet Union. During the Soviet period of seventy-one years, Armenia
developed dramatically as a country in education, industry and infrastructure.
In 1991, along with other nations of the former USSR, the Armenians voted
overwhelmingly for independence.
Population and language
The population of Armenia numbered 3,236,700 people as at the end of
2008. Only about two percent of the population is non-Armenians. There are
an estimated six million ethnic Armenians living outside the Republic, spread
over Russia, North and South Americas, the Near and Middle East, and
Western Europe (a total of 66 countries).

The population is highly educated and well-trained, particularly in engineering
and technology. Close to one hundred percent of the adult Armenian
population is literate. Of special significance are the teams of qualified
scientists who have conducted research in many areas of science and
technology.

The State language is Armenian, which forms a separate branch of the Indo-
European language family. Armenian has its own unique alphabet, invented
between 401-406 AD by St. Mesrop Mashtots (361-440 AD).

Despite the homogeneity of the population, many Armenians are fluent in
foreign languages. The majority of them speak Russian and an increasing
number are becoming fluent in English, French and German as a
consequence of Armenia’s deeper integration in the world economy.
Currency and payments
Armenia’s national currency is the Dram (known by ISO standards as AMD)
with each Dram being divided into 100 Lumas. It was introduced on 22
November 1993 by the Central Bank of the Republic of Armenia (the CBA).
The CBA has exclusive right to issue currency; it also organizes and controls
the monetary circulation in the economy.

The CBA runs a liberal monetary policy allowing floating exchange rates and
free transfer of currency. The key objective of the monetary policy is to
ensure stability of prices. However, the Armenian Dram is not an
internationally recognized freely convertible currency.

Both residents and non-residents may import and export currency and
securities to and from Armenia without any restrictions. There is a cash
export limit for individuals, amounting to USD 10,000 (or equivalent in other
currencies). Amounts above this limit should be transferred through bank
accounts.

The most popular foreign currency is the US dollar. A number of banks have
started to encash travelers cheques. Almost all of the Armenian commercial
banks operate automated teller machines, which accept MasterCard, Visa,
ArCa, eDram and other plastic cards.
International time
The time in Armenia is four hours ahead of Greenwich Mean Time (GMT+4).
Weights and measures
The commonly accepted standard for measurement in Armenia is the metric
system.
Government
Armenia is a republic. A new post-Soviet constitution was adopted by public
Referendum on 5 July 1995. The Constitution is based largely on that of the
French, favouring the semi - presidential model. The Armenian authorities
implemented a constitutional reform aiming to strengthen the separation of
Investment in Armenia 5

powers and to continue making progress towards compliance with the
commitments to the Council of Europe. On 27 November 2005 the
amendments to the Constitution of Armenia were adopted in the
Constitutional Referendum.

In accordance with the Constitution, the President of Armenia is elected for a
period of five years by popular vote. The President appoints the Prime
Minister and members of Government who are nominated by the Prime
Minister.

The Armenian Parliament (the National Assembly) is unicameral (with one
legislative chamber) and currently has six standing committees, which, along
with the Ministries, are actively involved in the legislative reform process.
Members of the National Assembly are elected through general election
once every five years.

The territory of the Republic of Armenia is divided into ten regions (Marzes).
The capital city of Yerevan has the status of a community since the
constitutional amendments from 27 November 2005.
The regions are divided into communities. The communities are legal entities
with local self-government, which is implemented by the local authorities: by
the Heads of the communities and by the Councils of the Elders of the
communities, both elected directly by the population of the respective
community. The communities have their own budgets and manage their
property independently. In the regions (on Marz level) the State Government
is represented by the Governors (Marzpets), who are appointed by the
Government.
Entry visas/residency status
Foreign citizens (except for those from some countries of the
Commonwealth of Independent States (CIS), traveling to Armenia must
obtain an entry visa.
Entry visas are provided by Armenian embassies abroad, or at the points of
crossing the RA State Border, or on the territory of Armenia – by the
Passport and Visas Department of the RA Police and by the RA Ministry of
Foreign Affairs. Foreign citizens may also apply to the RA Ministry of Foreign
Affairs to obtain electronic visa via Internet.
(www.armeniaforeignministry.am/eVisa).
The entry Visas are provided for the period of stay of up to 120 days, with
the possible extension for the maximum of 60 days.
The currently available types of visas are shown in the table below:

Fee Number of Visa validity
Type of Visa
(in AMD 000’) entries period
Diplomatic None multiple/single Up to 3 years
Official None multiple/single Up to 3 years
Visitor 3-40 multiple/single Up to 1 year
Transit 18/10 multiple/single Up to 1 year
For residing on the territory of Armenia foreign citizens may apply to receive
a Status of Stay in the RA. The authority dealing with provision of the Status
of Stay is the Passport and Visas Department of the RA Police.
The statuses currently available are shown in the table below:

Fee
Status Period of validity
(in AMD 000’)
Temporary Stay 105 Up to 1 year (may be extended
by 1 year at a time)
Permanent Stay 140 5 year (may be extended by 5
years at a time)
Special Stay 150 10 years (may be provided
multiple times)
Investment in Armenia 6

Work permit
The RA employers have the right to sign a labor contract with foreign
employees and use their labor, on the basis of the work permit issued by
the relevant authority to the foreign citizen.
There are exemptions specified by law, where a foreign citizen is allowed to
work in Armenia without having a work permit. In particular, the following
categories of foreign citizens are allowed to work in Armenia without a work
permit:
(cid:131) Foreign citizens having a Permanent Stay or a Special Stay status,
(cid:131) An RA citizen’s or a legally residing in the RA foreign citizen’s
spouse, who has a Temporary Stay status in Armenia,
(cid:131) A close family member (having a Temporary Stay status in
Armenia) of an RA citizen or of a foreign citizen having a
Permanent Stay status in the RA.
(cid:131) The founders, directors or authorized representatives of
commercial organizations with foreign capital,
(cid:131) The employees of foreign commercial organizations who work at
the representative offices of those organizations located in
Armenia.
Office and living accommodation
The approximate office rental rates in the center of Yerevan currently vary
between USD 25 and USD 40 per square meter per month (including 20%
VAT). Outside the city center rental values are considerably lower.
Several real estate agents specialize in finding apartments for rent for
expatriates. As with office rental, prices for apartments vary significantly,
depending on location, living area and level of refurbishment.
Business hours
Most businesses operate five days a week. Usual business hours for
financial institutions, commercial and industrial organizations are from
9.00am to 6.00pm, with a lunch break from 1.00pm. to 2.00pm.
Business hours for retail stores vary depending on their size and location.
Most retail outlets are open from 8.00am. to 9.00pm. There are also 24-
hour stores.
Hotels and accommodation
During the past three to four years, the hotel industry has been continually
developing and improving. Along with the renovation of old hotels, several
new hotels have been built in Armenia. Below is a list of some of the hotels
which provide services comparable with international standards.
Hotels in Yerevan:
Hotel Ani Plaza, 19 Sayat-Nova Ave, Yerevan 0001,
Tel: [phone]
Hotel Ararat, 71 Grigor Lusavorchi Street, Yerevan 0015,
Tel: [phone]
Hotel Arma, 275 Norki Ayginer, Yerevan 0025,
Tel: [phone],
Armenia Marriott Hotel,1 Amiryan Street, Yerevan 0010,
Tel: [phone]
Hotel Avan Villa Yerevan, 16, 13th Street of Nork Marash,
Tel: [phone]
Hotel Aviatrans, 4 Abovian Street, Yerevan 0010,
Tel: [phone],
Hotel Bass, 3/1 Aygedzor Street, Yerevan 0019,
Tel: [phone],
Hotel Best Western Congress, 1 Italian Street, Yerevan 0010,
Tel: [phone]
Hotel Erebuni Plaza, 26/1 V. Sargsyan Street, Yerevan 0010,
Tel: [phone]
Hotel Europe, 38 Hanrapetutian Street , Yerevan 0010,
Tel: [phone],
Hotel Golden Palace, 2/2 Azatutyan Ave, Yerevan 0037,
Investment in Armenia 7

Tel: [phone]
Hotel Golden Tulip Yerevan, 14 Abovyan Street, Yerevan 0010,
Tel: [phone]
Hotel Hrazdan, 72 Dzorapi Street, Yerevan, 0015,
Tel:[phone]
Bass Hotel Complex, 3/1 Aygedzor Street, Yerevan, 0019,
Tel: [phone]
Hotel Hy Business Suites, 8 Hanrapetutian Street, Yerevan 0010,
Tel: [phone]
Hotel Latar, 58, 4th street Silikyan District, Yerevan 0029,
Tel: [phone]
Hotel Metropol, 2/2 Mashtots avenue, Yerevan, 0015
Tel: [phone]
Hotel Olympia, 56 Barbusse Street, Yerevan 0028,
Tel: [phone]
Hotel Regineh, 235/1 Norki Ayginer, Yerevan 0047,
Tel: [phone]
Hotel Shirak, 13a Movses Khorenatsi Street, Yerevan 0010,
Tel: [phone]
Hotel Terjan, 5th Street, Silikyan district, Yerevan 0029,
Tel.: [phone]
Hotel Tufenkian Hospitality, 16, 13th Street, Nork, Yerevan 0047,
Tel: [phone]
Hotel Valencia, 40 Myasnikyan Ave., Yerevan 0025,
Tel: [phone]

Hotels in the Marzes:

Gegharqunik
Avan Marak Tsapatagh Hotel, 21/1 Tumanyan Street, Sevan,
Gegharkunik Marz,
Tel: [phone]
Bohemyan Resort Hotel Complex, 29 Sayat Nova Ave, Sevan,
Gegharkunik Marz,
Tel: [phone]
Harsnaqar Hotel Complex, Tsamakaberd, Sevan, Gegharkunik Marz,
Tel: [phone]

Kotayq
“Arthur’s Aghveran Resort” Holiday Home, Aghveran Recreation
Area, Arzakan Kotayk Marz
Tel: [phone]
“Jupiter” Tsakghkadzor Hotel Complex, Tsaghkadzor, Kotayk Marz,
Tel: [phone]
Hotel Kecharis, 15 Orbeli Yeghbayrner Street, Tsaghkadzor, Kotayk
Marz
Tel: [phone]
Multi Rest House Hotel Complex, Tsaghkadzor, Kotayk Marz
Tel: [phone]

Lori
Hotel Argishti, 1 Batumi Street, Vanadzor, Lori Marz,
Tel: [phone]
Avan Dzoraget Hotel, Dzoraget, Lori Region,
Tel: [phone]
Hotel Gugarq, 20 Tigran Mets Ave, Vanadzor, Lori Marz,
Tel: [phone]
Odzun Holiday Home, Odzun, Lori Marz,
Tel: [phone]

Shirak
Araks Hotel Complex, 25 Gorki Street, Gyumri, Shirak Marz,
Tel: [phone]
Hotel Berlin, 25 Haghtanaki Street, Gyumri, Shirak Marz,
Tel: [phone]
Hotel Isuz, 1/5 Garegin Nzhdehi Street, Gyumri, Shirak Marz,
Tel: [phone]
Investment in Armenia 8

Syunik
Hotel Lalaner, 29 Sisakan Street, Sisian, Syunik Marz,
Tel: [phone]
Hotel Mirhav, 100 Mashtots Street, Goris, Syunik Marz
Tel: [phone] or Mobile: (+374
91) 209 083

Tavush
Haghartsin Hotel Complex, 121 Kamoi Street, Golovino District,
Dilijan, Tavush Marz
Tel: [phone]
Hotel Mosh, 3 Yerevanyan Street, Ijevan, Tavush Marz
Tel: [phone]

Vayots Dzor
Hotel Anush, 5 Vardanyan Street, Jermuk, Vayots Dzor Marz
Tel: [phone]
Hotel EvMary, 3 Shahumyan Street, Jermuk, Vayots Dzor Marz
Tel: [phone]

Nagorno Karabakh

Hotel Armenia, 4 Petrvari Qsani Street, Stepanakert, Nagorno
Kharabakh,
Tel: [phone]
Hotel Lotus, 81 Vagharshyan Street, Stepanakert, Nagorno Karabakh,
Tel: [phone]
Hotel Nairi, 14a Hekimyan Street, Stepanakert, Nagorno Karabakh,
Tel: [phone]
Hotel Shushi, 3 Amiyan Street, Shushi, Nagorno Karabakh,
Tel: [phone]

Currently, hotel prices vary from USD 40 to USD 250 per night for a single
room. Business centres, conference rooms and other facilities are available in
most of the hotels.
Transportation and communication
Yerevan has a relatively developed public transportation system, which
includes buses, trolley buses, Metro, taxi services and vans or so-called ‘route
taxis’. Similar means of transportation are available in the other major
Armenian towns, except for electrical transport (Metro and trolleybuses).
Road and railroad communication exists between all the major regions of
Armenia. Taxis are available in the capital and in all major towns and are
relatively inexpensive.

Three international airports are in operation: Zvartnots International Airport
and Erebuni (both in Yerevan) and Shirak (in Gyumri). There are also nine local
airports in Armenia. In June 2002, Zvartnots Airport was given under
concession to a foreign operator for 30 years. The renovation and expansion
works of the Airport began in 2004, and a new international terminal (18,000
sq. m.) was opened on 1 June 2007. Yet, another terminal is being built to
house passenger check-in counters and customs control for departing
passengers, which are currently located in the old, Soviet-era built terminal of
the Airport. It is planned to open in 2011-2012. In 2008 the airport handled a
total of 1,360,596 passengers.

Several local and international airlines (such as Armavia (national carrier),
Aeroflot, Air France, BMI, Czech Airlines and Lufthansa) provide a number of
flights to the largest cities in the CIS, Europe, and Asia. Scheduled flights
operate to Amsterdam, Athens, Aleppo, Beirut, Dubai, Istanbul, Frankfurt,
Kiev, London, Moscow, Munich, Paris, Prague, Tehran, Tbilisi, Vienna, and
other major cities in the world.

There are 840 km of railways, excluding industrial lines. Of the three
international railroad connections via Georgia, Azerbaijan and Turkey, only the
connection through Georgia to the Black Sea ports (mainly Poti and Batumi) is