Investor's guide

1. Investment Policy

The Government of Armenia considers the investment policy as one of the key aspects of its economic development course. The Government highly prioritizes the attraction of private investments, including FDI, which will stimulate economic development in the industrial and other sectors of economy. As a result of successful implementation of this policy, stable economic growth is achieved for the last 10 years. The growth rate in average during 20012005 was 12% and it is reflected in steady growth in GDP (2001 - 9.6%, 2002- 12.9%, 2003 - 13.9%, 2004 – 10.1%, 2005 – 13.9%) and in drastic quantitative and qualitative increase in export volumes (2000-28.4%, 2001-14.1%, 2002-48.5%, 2003 - 30.5%, 2004 - 4.3%, 2005 -131.1%). To sustain these trends and promote further economic development, the Government of Armenia signifies the role of private investments and has adopted a five-dimensional approach:

1. To create favorable environment for investors in all sectors of economy by ensuring stable and predictable conditions for business operations and proper legal protection of investments.

2. To mitigate the investment risk for inward and domestic investments by removing fiscal and

3. To attract TNCs to enhance the role of Armenia in globalizing world economy.

4. To accomplish privatization process more efficiently (case by case) by attracting successful investors.

5. To maintain high export rates for coming years, the Government of Armenia will make an effort to diversify the export structure, because the current structure is confined to some commodity groups. The way to develop and maintain high export rates is the identification and development of innovation clusters such as scientific-research and commercialization of education services by attracting export oriented investments, particularly investments by TNCs.

Based on these approaches Armenia has declared an "Open Door" investment policy and this liberal approach was incorporated into legislation by adoption of the Law "On Foreign Investments" in 1994 and in other investment relevant provisions of economic laws. Signifying the role of the "Foreign Investment Law" in attracting foreign capital in economic development, the Government has emphasized the decisive role of FDI in accelerating the economic growth and necessity to efficiently utilize FDI benefits for Armenian economy. The Government approaches combined with the following institutional and economic factors makes Armenia attractive for FDI.

Advantages for Investing in Armenia;

• Favourable Investment legislation; 

• Investment garantees;

• Government active involvement in economic and structural reforms;

• Fast growing economy;

• Easy access to CIS and Middle East Markets; 

• Well educated, skilled and easily trainable workforce; 

• No restrictions on staff recruitment;

• Corporate tax remissions available for foreign companies with investments at least AMD 500 million; 

• Profit tax exemptions for companies engaged in agricultural production;

• 100% ownership permition for foreigners;

• No restrictions on remittances;

• Stable banking system and local currency; 

• Competitive energy cost; 

• Worldwide Diaspora 

• Membership in the World Trade Organization

• Liberal trade regime, no quotas and licenses on imports; 

• No export duties & VAT refund on goods and services exported; 

• Free conversion of foreign exchange; 

• Free repatriation of profit; 
  

Profitable Sectors for Investment

• High-tech electronics projection 

• Mining and Metallurgy 

• Electrical power systems

• Chemical production 

• Light industry

• Banking services

• Computer software engineering 

• Food production and packaging

• Tourism

2. The Regulatory Framework for Foreign investments

Armenia has shown sustainable growth in its main economic figures in last 10 years and, more over, the Government has a clear vision of economic development strategies and currently develops its economic strategy policy for the next decade. In this regard, Armenia has recognized the importance of protecting investments and investors and developed such a legal framework that makes Armenia attractive for foreign investments. According to the assessment by American Bar Association (Report "On Investigation of Factors Inhibiting Foreign Direct Investment in Armenia", September, 1998), the Law of the RA "On Foreign Investments" proves to be the most progressive and liberal foreign investments law in existence among other transitional economies and it: 

• guarantees equal treatment of foreign and domestic investments 

• considerably restricts the government's ability to confiscate the property

• requires full compensation in case of nationalization or confiscation by government

• allows foreign investments in wide sectors of economy and in various forms

• protects investments for a period of five years from adverse legislative changes (grandfather clause)

• provides access to the Armenian and international courts to resolve the commercial disputes

• allows for full repatriation of profits and property z protects intellectual property

• provides a set of other rights and privileges that are regarded as important, if not essential, to foreign investors.

By establishing of fully foreign-owned companies, affiliates, branches, representative offices, new joint venture companies and purchasing different types of securities in Armenia, foreign investors are free to make such types of investments as real estate, securities, world currencies, including the Armenian dram, money orders or other orders for implementation of obligations, any form of intellectual property rights or any other economic activity specified by legislation or by an agreement with the Republic of Armenia.

3. Bilateral and multilateral investment agreements

In addition to its legislation, Armenia has signed bilateral treaties on reciprocal promotion and protection of investments with 35 countries. Favorable conditions have been created for foreign investors in the RA, in particular, the inviolability of investments, the possibility of settlement of emerged disputes in international tribunal courts and the free transfer of money have been stipulated according to the principles and norms of international law. 

4. Settlement of Investment Disputes

A serious achievement is that Economic Courts were separated and now are specializing in adjudicating on economic cases. What is more, Armenia is a signatory to the International Convention on Investment Disputes and a member of the International Center for the Settlement of Investment Disputes (ICSID). It gives additional confidence to foreign investors by providing quick, effective and qualified settlement of the investment disputes. 

5. Other provisions of investment related legislation

In general all sectors of the economy are open to foreign investments; however, like the Armenian companies, they are required to acquire a license for investments in certain sectors. According to the "Law on Profit Tax", companies with foreign participation, where the share of the foreign partner exceeds 500 million drams (about 900,000 USD), receive profit tax holiday for two years and 50% deduction for the next three. In the event of liquidation of the taxpayer within the effective period of the preference, set by this item, the amount of the profit tax for the period of that preference shall be calculated in full for the entire period of operation.

6. Trade regime

Armenia has a liberal foreign trade regime, which consists of a simple two-band import tariff (at 0% and 10%), no taxes on exports, and no quantitative trade restrictions. Import, export, and domestic production licenses are required only for health, security, and environmental reasons. There are no limits on hard currency imports.  The new Customs Code, in force since 1 January, 2001, streamlines customs procedures and complies with WTO rules. The main features of the customs regulations are:

• All exports from Armenia are duty free

• The import tariff rates are 0 or 10%. The 10% tariff is levied mainly on consumer and luxury goods. 

• Tariffs are in ad valorem terms and levied on CIF values.

• No import customs duties are payable in the following circumstances:
  
  - Imported capital goods (included in the list defined by the Government of
  Armenia) forming a part of an investment in a business; 
  
  - Transit goods transported across the territory of Armenia;
  
  - The means of transport (e.g. truck) used for regular interstate transport of
  freight;
  
  - Currency and stocks;
  
  - Goods temporarily imported into Armenia and temporarily exported from Armenia
  for the purpose of processing or reprocessing. 

• All payments must be made in the currency of Armenia

Armenia has concluded Free Trade Agreements with Georgia, Kyrgyzstan, Moldova, Russia,
Tajikistan, Turkmenistan, and Ukraine. Under the terms of these agreements, tariff exemptions
are extended to goods traded between Armenia and Belarus, Georgia, Kyrgyzstan, Moldova,
Russia, Tajikistan, Turkmenistan and Ukraine. Excise taxes are charged at various rates on the
import or production of some goods, including alcohol, tobacco and petrol.
According to analysis conducted by the Heritage Foundation/The Wall Street Journal, Armenia
has the most liberal investment and trade regime among CIS countries (see below).

7. WTO accession benefits

Republic of Armenia joined the WTO in February 2003. Fulfillment of its WTO obligations involves substantial trade and investment liberalization, which will have an impact on its inward and outward FDI. Accession to the WTO will make the economy of Armenia more attractive to foreign investors. Armenia has committed to liberalizing the regulatory framework for a number of industries, including business services, communications, education, financial services, health and social services, air transport services.  Joining the WTO will not only attract new investors, but also enable foreign joint-venture partners to increase their equity shares in exiting affiliates. However, accession to WTO may not immediately have substantial FDI-generating effects. Nevertheless, over time, freer access to the import of production inputs could help to improve the cost-quality conditions of manufacturing, and increase the attractiveness of economy as a place for efficiency-oriented manufacturing FDI. In brief, accession to the WTO will make economy of Armenia more attractive. The services sector will replace manufacturing as the engine of growth for inward FDI. In the manufacturing sector, FDI will play a more crucial role in the process of restructuring and consolidation in response to a new and more competitive landscape.  As the FDI regime will be gradually liberalized, both inflows and outflows are likely to reach new and higher levels.

8. Evaluation of Armenia’s institutional and investment performance by international organizations

Since 1995, the "Wall Street Journal" and Heritage foundation has been conducting an annual in-depth examination of the factors that contribute most directly to economic freedom and prosperity (the Index of Economic Freedom). Following factors are analyzed to determine the overall economic freedom: trade, fiscal burden, government intervention in the economy, monetary policy, black market, banking and finance, foreign investments, regulation, etc. (Table 1). In this survey Armenia is ranked as "mostly free". According to the review Government Intervention in the Economy described as stable (moderate level). Trade policy evaluated as stable (very low protection): most imports are free of prohibitions, quotas or licensing. Capital Flows and Foreign Investment described as stable (low barriers). Armenia offers equal official treatment to foreign investors, who have the same right to establish business as citizens of Armenia in most sectors of economy. Privatization is proceeding and it is open to foreigners. According to IMF, Armenia has no restrictions or controls on the holding of foreign exchange accounts, invisible transactions, current transfers, repatriation of profits, or outward and inward direct investments by either residents or non-residents.

Doing Business

Doing business provides objective measures of business regulations and their enforcement. Periodic studying from the World Bank provides the studying of real business regulation and measures on their realization, in other words the classification expresses the facility degree of doing business in given economy. The Doing Business indicators are comparable in economies of 155 countries. They express regulating parameters of business and can be used for the analysis of different regulations which interfere with investments, productivity and to growth. Investigated spheres include - realization of the contract, the credit markets, entry regulation, etc. In 2006 Armenia has occupied 46th place in a number of 155 countries in classification of Doing Business. Overall costs for procedures which are required for registration of the company in Armenia do not exceed 68.8 US dollars, including the associated charges.

9. Investment Climate & Business Environment Indicators

Since 1991 the inflow of FDIs increased and dynamics of FDI growth is encouraging. From 2000 to 2005 in Armenia total sum of FDI made more than 1.5 billion US dollars. The major foreign investment origin countries are:

Since 1991 the number of companies with foreign capital participation has increased. According to official statistics 3102 companies with foreign investment have been established during 19912005 and the largest number of them registered in the last years. In 1991-1997, the majority of joint ventures and private foreign companies were involved primarily in import-export trade, but since 1998 there is a trend toward investing in local production and services. From 1998 to 2005 structural considerable changes in FDI volume have been noticed. In this time period when the process of privatization basically has been finished, and FDIs have not an essential share in the privatization process, the volume FDIs includes the capital of the new small and average enterprises as well as re-investment. In 2005 total foreign investment flows in Armenia economy made 504,5 million USD (including state control and bank system incomes), exceeding value of 2004 by 8.3%, including In economic of real sector the volume of the foreign investment flow (exclude state control and bank system incomes) made 400.4 million USD (growth was 31%), including direct investments 244.4 million USD (growth was 8%). Without privatization means in real sector the overall volume of the foreign investments increased in compare to 2004 on 51.1%, and direct investments volume on 27.6%.  In 2005 there was more diversification in a structure of investments, in particular in real sector large investments into the following spheres have been made:

• The sphere of communication - 132.1 million US dollars (competition in communication
  sphere promoted growth of investments in this sphere)

• Mining industry - 97.5 million US dollars

• Metallurgical industry - 53.3 million US dollars

• Foods and drinks production - 26.4 million US dollars

• Construction - 16.4 million US dollars

• Activity of air transport - 14.9 million US dollars

• Information technologies and electronics - 14.4 million US dollars

• Hotel services - 7 million US dollars

The volume of the foreign investments which have been carried out in Armenia during 2000-2005 made 1466 million US dollars, from which direct investments - 962 million US dollars

During 1991 - 2005 the general foreign investments, which have been carried out in Armenia, made 1996 million US dollars, and direct foreign investments - 1460 US dollars

10. Improving Investment environment 

Trough the intermediary of the Government of Armenia and together with Consulting Service of Foreign Investments, which is joint body of the World Bank and the International Financial Corporation, in the autumn 2003 the investigation on the "Estimation of administrative procedures for realization of enterprise activity" has been started and at the end 2004 has been completed : The objects of the investigation were: 

• To estimate efforts applied by the government of Armenia for the improvement of the administrative procedures concerning enterprise activity

• To present and suggest the methodology of comprehensive measures directed on
  reforms 

• To reveal the priorities of reforms

• To develop the updated program of actions for steady reforms.

The report represents the environment regulating the investment from the point of view
of a macro-level. Thus, detail discussing and analyzing those different procedures on which pass investors from the beginning to expansions of enterprise activity in Armenia. In the report were represented suggestion for actions, which the Government of Armenia can consider expedient for realization with the purpose of increase of competitiveness of the country.

As a result of investigation the Project of actions of the Government, which will be submitted to the Government of Armenia after discussion with businessmen being members of Council on Assistance to Business and the interested organizations, has been made.