Tax Incentives for IT Startups in Armenia

Redbridge

Armenia has made the IT sector a priority industry since the year 2000. Several initiatives have been adopted over the years to encourage the development of the IT industry, such as tax incentives for IT startups.

The system of granting tax incentives to IT startups first came into force in 2015 based on the law “On State Assistance to the Information Technology Sector”. It is designed to provide IT startups with tax breaks for the first years of their activity. Low rates set under the law are intended to provide motivated behavior for investment and reduce the risk of tax evasion.

In April 2019, the Armenian parliament adopted a set of amendments and additions to the law “On State Assistance to the Information Technology Sector”, which extends the term of the above-mentioned tax breaks. As a result, the deadline for applying for and obtaining a certificate for tax breaks has been extended to 1 December 2022.

IT startups operating in the following fields can benefit from state support:

  • Software development,
  • Consulting activities in the field of computer technology,
  • Computer system management activities,
  • Data processing, network distribution, and related activities,
  • Activities related to web-portal development,
  • Implementation of educational or research programs in the field of information technologies,
  • Electronic systems design, testing and production, computer animation and modeling, as well as design and testing of integrated circuits.

Tax break certificates are granted on a case-by-case basis by the Special Commission established by the Government.

The tax breaks granted to Armenia-based IT startups exempt them from paying corporate tax of 20% (a zero rate applies under this Law), as well as providing a reduced income tax flat rate of 10% (instead of generally 20-21%) for employees.

Companies applying for a certificate must meet certain requirements, particularly:

  • They must be trade organizations or Private Entrepreneurs registered in the Republic of Armenia. The certificate cannot be applied to subsidiaries, economic associations, branch offices, or representatives of foreign legal entities.
  • The number of employees should not exceed 30
  • They shall not sell their fixed assets                            
  • At least 70% of turnover must derive from the types of activities defined above, etc.

Armenia is a welcoming country, and among the mentioned, there are multiple reasons to choose Armenia as a business location.

 

International Sanctions on Russia and its impact on Armenia

Redbridge

Many countries have imposed a slew of financial restrictions, including freezing the assets of Russia’s Central Bank, limiting its ability to access its dollar reserves. The US, EU, UK, Canada and Australia have also banned people and businesses from dealing with Russia’s Central Bank, Finance Ministry and the Wealth Fund.

Russian Banks Otkritie, Bank Rossiya, Novikombank, Promsvyazbank, Sovcombank, VEB and VTB have been already removed from the Swift messaging system, which enables the transfer of money across borders. However, the ban stopped short of including those banks handling energy payments. Credit cards issued by Russian banks using the Visa and Mastercard payment systems have stopped functioning overseas after March 9.

Russia has officially become the most sanctioned country in the world. Could it have drastic repercussions for business and what should be noted?

In recent years, Russia has accelerated using its own payment cards, like MIR, and its own version of Swift, SPFS․ MIR system was introduced in Kazakhstan, Kyrgyzstan and Armenia in 2018, and in 2019 in Turkey, and Uzbekistan. In October 2021, MIR was launched in the UAE, Bulgaria and Thailand.

The Central Bank of Russia announced that the Russian banks plan to issue cards using UnionPay (China), enabled in 180 countries. While several Russian banks already use UnionPay, others including Sberbank and Tinkoff, could start issuing cards co-badging Russia’s domestic MIR payments system with UnionPay.

The Ministry of Economy of Armenia has published a guide for Russian, Belarusian and Ukrainian businesses seeking to move to Armenia, suggesting how to register a business, renting an apartment, even how to bring pets across the border. It also has created a working group to answer queries from businesses interested in moving.

Today, many Ukrainian, Belarusian and Russian companies, especially IT companies are considering Armenia as a potential new home. Favorable investment environment, developed banking and legal system, and tax incentives make Armenia an attractive direction.