1. Openness To, and Restrictions Upon, Foreign Investment
Policies Towards Foreign Direct Investment
The government of Armenia officially welcomes foreign investment. The Ministry of Economic Development and Investments is the main government body responsible for the development of investment policy in Armenia. Armenia has achieved respectable rankings on some global indices measuring the country’s business climate. Armenia’s investment and trade policy is relatively open; foreign companies are entitled by law to the same treatment as Armenian companies. Armenia has strong human capital and a well-educated population, particularly in the science, technology, engineering, and mathematics fields, leading to significant investment in the high-tech and information technology sectors. Many international companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists and trade preferences with Russia and the Eurasian Economic Union (EAEU). However, many businesses have identified the challenges to Armenia’s investment climate as the country’s small market (with a population of less than three million), relative geographic isolation due to closed borders with Turkey and Azerbaijan, per capita gross national income of USD 3,990, and concerns related to weaknesses in the rule of law.
After a dramatic change in government in April/May 2018, major sectors of Armenia’s economy have presumably become more open to competition. According to third parties, large businesses backed by oligarchic interests are less able to draw on government support to prop up their market positions. A massive anti-corruption campaign was launched after the 2018 change of government, and a series of high-profile cases have resulted as part of efforts to eliminate systemic corruption. These developments serve to improve Armenia’s investment climate and competitive environment; however, some report that the fight against corruption needs to be ongoing and institutionalized in the long term in critical areas such as the judiciary, tax and customs operations, health, education, military, and law enforcement sectors. Moreover, foreign investors are still concerned about the rule of law and equal treatment. U.S companies have also reported that the investment climate is tainted by a failure to protect intellectual property rights. There have been concerns of lack of an independent and strong judiciary, which have undermined the government’s assurances of equal treatment and transparency and reduced businesses’ recourse in the instances of contract or tax disputes.
Limits on Foreign Control and Right to Private Ownership and Establishment
There are no limitations on foreign ownership or control of commercial enterprises. There are also no sector-specific restrictions.
The Armenian government does not screen foreign direct investment.
Other Investment Policy Reviews
As of the end of 2018, Armenia has not undergone investment policy reviews by either the Organization of Economic Cooperation and Development (OECD) or U.N. Conference on Trade and Development (UNCTAD). The World Trade Organization (WTO) conducted a Trade Policy Review in 2018, which can be found at https://www.wto.org/english/tratop_e/tpr_e/tp479_e.htm.
Armenia has traditionally fared well in the World Bank’s Ease of Doing Business report. Companies can register electronically at . This single window service was launched in 2011 and allows individual entrepreneurs and companies to complete name reservation, business registration, and tax identification processes all at once. The legal time limit for the process is two working days, but the application may be completed in one day. However, an electronic signature is needed in order to be able to register online. Foreign citizens can obtain an e-signature and more detailed information from the e-signature portal at . A foreign partner is not required to obtain approval to invest.
The Armenian government does not restrict domestic investors from investing abroad.
2. Bilateral Investment Agreements and Taxation Treaties
Basic provisions covering U.S. investments are set by the U.S.-Armenia Bilateral Investment Treaty (BIT), in force since 1996. The U.S.–Armenia BIT stipulates that conditions for investors of each party be no less favorable than for the party’s own national investors or for investors from any third state. It provides for the option of international arbitration in the case of investment disputes. Armenia has BITs in force with the following additional countries: Argentina, Austria, Belarus, Belgium, Bulgaria, Canada, China, Cyprus, Egypt, Finland, France, Georgia, Germany, Greece, Iran, Israel, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, the Netherlands, Luxembourg, Romania, Russia, Spain, Sweden, Switzerland, Syria, Ukraine, the United Kingdom, Uruguay, and Vietnam. According to UNCTAD, Armenia has also signed BITs with Iraq, Japan, Jordan, Kazakhstan, Qatar, Tajikistan, Turkmenistan, and the United Arab Emirates, but these agreements have not yet entered into force. Armenia is signatory to the Commonwealth of Independent States Multilateral Convention on the Protection of Investor Rights.
Armenia became a member of the EAEU in January 2015, together with Russia, Belarus, Kyrgyzstan, and Kazakhstan. Armenia also entered into a Comprehensive and Enhanced Partnership Agreement (CEPA) with the EU in November 2017. While CEPA will not affect customs or tax rates, it will, over time, align Armenia’s regulatory system and standards with those of the EU, as much as is possible under Armenia’s EAEU obligations.
There is no free trade agreement between the United States and Armenia, through Armenian exports to the United States may be eligible for preferential treatment under the Generalized System of Preferences program. In May 2015, Armenia signed a Trade and Investment Framework Agreement (TIFA) with the United States. The TIFA establishes a United States-Armenia Council on Trade and Investment to discuss bilateral trade, investment, and related issues and examine ways to strengthen the trade and investment relationship between the two countries.
Armenia does not issue foreign tax credits and does not recognize the existing 1973 double taxation treaty signed by the Union of Soviet Socialist Republics (USSR) and the United States. The United States considers Armenia to be party to this treaty by virtue of state succession to treaties and Armenia’s declaration of its commitment to fulfill the international treaty obligations of the former USSR as expressed in the Alma Ata Declaration of 1991. The government of Armenia has expressed interest in negotiating a new double taxation treaty with the United States, but there is no strong evidence at this time that the lack of such an agreement deters new investments.
4. Industrial Policies
Armenia offers incentives for exporters (e.g. no export duty, VAT refund on goods and services exported) and foreign investors (e.g. income tax holidays, the ability to carry forward losses indefinitely, VAT deferral, and exemptions from customs duties for investment projects). Starting from January 1, 2018, the Armenian government exempted imports of capital investment-related goods from VAT payments at the border. In 2015, the Armenian government exempted from customs duties investment-related import of equipment and raw materials from non-EAEU member countries. VAT and customs duties exemptions are implemented based on government decisions made on a case-by-case basis. Also, in accordance with the Law on Foreign Investment, several ad hoc incentives may be negotiated on a case-by-case basis for investments that are targeted at certain sectors of the economy or are of strategic interest.
Foreign Trade Zones/Free Ports/Trade Facilitation
In June 2011, Armenia adopted a Law on Free Economic Zones (FEZ), amended in October 2018, and developed several key regulations to attract foreign investments into FEZs: exemptions from VAT, profit tax, customs duties, and property tax. The Alliance FEZ was opened in August 2013 and currently hosts sixteen businesses taking advantage of its facilities. The focus of Alliance FEZ is on high-tech industries, which include information and communication technologies, electronics, pharmaceuticals and biotechnology, architecture and engineering, industrial design, and alternative energy. In 2014, the government expanded operations in the Alliance FEZ to include industrial production. In 2015, the Meridian FEZ, focused on jewelry production, watchmaking, and diamond cutting, opened in Yerevan, with six businesses operating in it. The Meghri FEZ, located on Armenia’s border with Iran, opened in 2017. A new FEZ, located in Hrazdan, opened in late 2018 and is focused on the high-tech and information technology sectors.
Performance and Data Localization Requirements
There are no performance requirements for investment in terms of mandating local employment. The processes for obtaining visas, residence, or work permits are straightforward. There are no government-imposed conditions on permission to invest, including tariff and non-tariff barriers.
Armenia does not follow any policy that would force foreign investors to use domestic content in goods and technology. There are no requirements for foreign information technology providers to turn over source code or provide keys for encryption. There are no requirements to store data within the country.
6. Financial Sector
Capital Markets and Portfolio Investment
The banking system in Armenia is sound and well-regulated, but the financial sector is not highly developed, according to investors. IMF estimates suggest that banking sector assets account for about 90 percent of total financial sector assets, however, financial intermediation is poor. Nearly all banks require collateral located in Armenia, and large collateral requirements often prevent potential borrowers from entering the market. U.S. businesses have noted that this creates a significant barrier for small- and medium-sized enterprises and start-up companies.
The Armenian government welcomes foreign portfolio investment and there is a supporting system and legal framework in place. Armenia’s securities market is not well developed and has only minimal trading activity through the NASDAQ-OMX exchange, though efforts to develop capital markets are underway. Liquidity sufficient for the entry and exit of sizeable positions is often difficult to achieve due to the small size of the Armenian market. The Armenian government hopes that as a result of pension reforms in 2014, which brought two international asset managers to Armenia, capital markets will play a more prominent role in the financial sector of the country. Armenia adheres to its IMF Article VIII commitments by refraining from restrictions on payments and transfers for current international transactions. Credit is allocated on market terms and foreign investors are able to access credit locally.
Money and Banking System
The banking sector is healthy and indicators of financial soundness have increased in recent years. The sector is well capitalized and liquid, though dollarization is high. Non-performing loans have fallen to below 10 percent of total loans. There are 17 commercial banks in Armenia and 13 universal credit organizations, and there are extensive branch networks throughout Armenia. As of the end of 2018, the top three Armenian banks by assets are Ameriabank (779.7 billion AMD, or USD 1.59 billion), Ardshinbank (678.6 billion AMD, or USD 1.38 billion,) and Armbusinessbank (642.8 billion AMD, or USD 1.31 billion). The minimum capital requirement for banks is 30 billion AMD (62.5 million USD). There are no restrictions on foreigners to open bank accounts. Residents and foreign nationals can hold foreign currency accounts and import, export, and exchange foreign currency relatively freely in accordance with the Law on Currency Regulation and Currency Control. Foreign banks may establish a subsidiary, a branch, or representative office, and subsidiaries of foreign banks are allowed to provide the same types of services as domestically-owned banks.
The Central Bank of Armenia (CBA) is responsible for the regulation and supervision of the financial sector. The authority and responsibilities of the CBA are established under the Law on Central Bank of Armenia. Numerous other articles of legislation and supporting regulations provide for financial sector oversight and supervision.
Foreign Exchange and Remittances
Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, or management or technical service fees. Most banks can transfer funds internationally within two to four days. Armenia maintains the Armenian dram (AMD) as a freely convertible currency under a managed float. The AMD/USD exchange rate has proven generally stable in recent years, though it has not been without occasional sharp movements.
According to the Law on Currency Regulation and Currency Control, prices for all goods and services, property, and wages must be set in AMD. There are exceptions in the law, however, for transactions between resident and non-resident businesses and for certain transactions involving goods traded at world market prices. The law requires that interest on foreign currency accounts be calculated in that currency, but paid in AMD.
Armenia has no limitations on the conversion and transfer of money or the repatriation of capital and earnings, including branch profits, dividends, interest, royalties, lease payments, private foreign debt, or management or technical service fees.
Sovereign Wealth Funds
Armenia does not have a sovereign wealth fund, though the government is considering plans to create one.
8. Responsible Business Conduct
There is not a widespread understanding of responsible business conduct (RBC) in Armenia, but several larger companies with foreign ownership or management are introducing the concept. It is rare to see examples of Armenian companies that contribute to local communities through charity, employee service days, or other similar programs. However, RBC programs that do exist are viewed favorably. Some NGOs, notably business associations, are playing a more active role to promote responsible business conduct. Armenia joined the Extractive Industries Transparency Initiative (EITI) in March 2017 as a candidate country. The first EITI national report for Armenia was published in January 2019. As part of its EITI membership aspirations, the government in March 2018 adopted a roadmap to disclose beneficial owners in the metal ore mining industry. Armenia is not an adherent to the OECD Guidelines for Multi-National Enterprises or the UN Guiding Principles for Business and Human Rights.
Some information is available regarding corporate governance, accounting, and internal controls to protect shareholders. Major pillars of corporate governance in Armenia include the Law on Joint Stock Companies, the Law on Banks and Banking Activity, the Law on Securities Market, and a Corporate Governance Code. International observers note inconsistencies in this legislation and generally rate corporate governance practices as weak to fair.
Domestic laws related to labor, employment rights, consumer protection, and environmental protection are not always enforced effectively. These laws and regulations cannot be waived to attract foreign investments.
Resources to Report Corruption
Armenia experienced a peaceful revolution in April/May 2018 that led to the arrival of a new government with an explicit anti-corruption mandate. The current government released a new official plan in January 2019 that includes a section on combatting corruption. The government has increased corruption investigations against mid- to high-level government officials since the revolution. Numerous high-ranking officials have stated publicly that corruption within their respective institutions will no longer be tolerated. Though some report that the government has mainly targeted ex-government officials in corruption investigations, there is no indication that Armenia’s anti-corruption laws are being applied by the post-revolutionary government in a discriminatory manner. Armenia’s anti-corruption laws extend to all Armenian citizens.
Corruption, particularly in areas that have been reported to be critical such as the justice system, as well as concerns related to the rule of law, enforcement of existing legislation, and equal treatment, remain a significant obstacle to U.S. investment in Armenia. Investors claim that the health, education, military, corrections, and law enforcement sectors lack transparency in procurement and have in the past used selective enforcement to elicit bribes. Civil courts are still widely perceived to be corrupt by the general public. Although bribery is illegal in Armenia for all citizens, the government does not actively encourage private companies to establish internal codes of conduct. Several multinational companies, select local companies, and foreign and local companies working with international financial institutions have implemented corporate governance mechanisms to tackle corruption internally. However, such corporate governance principles are not widely implemented among local companies.
According to Transparency International’s 2018 Corruption Perceptions Index, Armenia received a score of 35 out of 100, ranking it 105th among 180 countries.
Armenia’s ability to counter, deter, and prosecute corruption is noted to be hindered by the lack of robust enforcement of official disclosure laws to prevent the entrance and retention of corrupt officials in positions of authority and influence. The objective and systematic scrutiny of declarations by government officials is generally considered to be lacking. According to international evaluations, Armenian authorities have limited capacities to investigate money laundering and bring such cases to prosecution.
The Law on Civil Service, in force since 2002, as well as the Laws on Municipal Service (2005) and on Local Self-Government (2002), prohibit the participation of civil and municipal servants, as well as local government elected officials such as mayors and councilors, in commercial activities. However, powerful officials at the national, district, or local levels often acquire direct, partial, or indirect control over private firms. Such control is exercised through a hidden partner or through majority ownership of fully private parent companies. This involvement can also be indirect, including through close relatives and friends. According to foreign investors, these practices reinforce protectionism, encourage the creation of monopolies or oligopolies, hinder competition, and undermine the image of the government as a facilitator of private sector growth. Because of the strong interconnectedness of the political and economic spheres, Armenia has historically struggled to introduce legislation to encourage strict ethical codes of conduct and the prevention of bribery in the business field. In 2016, the Armenia adopted legislation on criminal penalties for noncompliance or filing of false declarations and illicit enrichment.
Armenia is a member of the UN Anticorruption Convention. While not a party to the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, Armenia is a member of the OECD Anti-Corruption Network for Eastern Europe and Central Asia and has signed the Istanbul Action Plan. A monitoring report released by the OECD in 2018 cited Armenia’s lack of enforcement of anti-corruption laws, together with continued presence of oligopolistic interests in the economy, as points of serious concern. The report contained a series of recommendations, including to take bold measures to ensure judicial and prosecutorial independence and integrity, introduce corporate liability for corruption offenses, investigate and prosecute high-profile and complex corruption cases, and increase transparency and strengthen monitoring in public procurement. Armenia has also joined the global Open Government Partnership initiative.
No specific law exists to protect NGOs dealing with anti-corruption investigations. The government, in close coordination with civil society, approved new legislation on public organizations in December 2016. The new law gives NGOs the right to engage in economic activities.
Resources to Report Corruption
For investigating corruption:
Investigation Department of Corruption, Organized and Official Crimes
Special Investigation Service of Armenia
13A Vagharsh Vagharshyan Street
[+374 11] 900 002
For prosecuting corruption:
Head of Department for Combating Corruption
and Economic Crimes
RA Prosecutor General’s Office
5 V. Sargsyan Street
For financial and asset declarations of high level officials:
26 Baghramyan Street
374 10 524689
Transparency International (Armenia)
164/1 Antarayin Street
374 10 569589
10. Political and Security Environment
Armenia has a history of political demonstrations, some of which have turned into violent confrontations between the police and protesters. However, the frequency of violent protests has significantly decreased. The last major violent protest occurred in July 2016, when an armed group, Sasna Tsrer, stormed and occupied a police compound in Yerevan. Three police officers were killed as a result. During the two-week standoff that followed, Sasna Tsrer took hostage additional police and medical personnel, demanding political changes. During the standoff, demonstrations in support of Sasna Tsrer took place in Yerevan and clashes between law enforcement officers and protesters occurred. These clashes did not pose any damage to businesses. In 2018, Armenia experienced a peaceful revolution that led to a change of government. Acts of peaceful civic disobedience in Yerevan and some other cities led to street closures, including on the road to Yerevan’s international airport, but did not impede the ordinary functioning of business or harm the country’s macroeconomic stability. These actions did not result in any damage to projects or installations.
The state of conflict between Armenia and Azerbaijan, including the regular exchanges of fire along the international border and the disputed territory of Nagorno-Karabakh, presents some potential political risk, according to investors and businesses. A cease-fire with Azerbaijan has been in effect since 1994 for the conflict surrounding the disputed region of Nagorno-Karabakh. However, intermittent gunfire along the cease-fire line and along the border with Azerbaijan continues, often resulting in injuries and/or deaths. There was an increase in violence along the Line of Contact and Armenian-Azerbaijan international border on April 2-5, 2016. The heavy clashes led to the highest death toll since the signing of the 1994 cease-fire agreement. There have been no threats to commercial enterprises from skirmishes in the border areas. It is unlikely that civil disturbances, should they occur, would be directed against U.S. businesses or the U.S. community. The government of Azerbaijan has suspended the importation and operations of U.S. companies in Azerbaijan if the companies’ products or services are provided in Nagorno-Karabakh and has banned the entry into Azerbaijan of some persons who have visited Nagorno-Karabakh. Due to the existing state of hostilities, consular services are not available to U.S. citizens in Nagorno-Karabakh.
11. Labor Policies and Practices
Armenia’s human capital is one of its strongest resources. The labor force is generally well educated, particularly in the science, technology, engineering, and mathematics fields. Almost one hundred percent of Armenia’s population is literate. According to official information, enrollment in secondary school is over 90 percent, and enrollment in senior school (essentially equivalent to American high school) is about 85 percent. Despite this, official statistics indicate a high rate of unemployment, at around 18 percent. Unemployment is particularly pronounced among women and youth, and significant underemployment is also a problem.
Considerable foreign investment in Armenia has occurred in the high-tech sector. High-tech companies have established branches or subsidiaries in Armenia to take advantage of the country’s pool of qualified specialists in electrical and computer engineering, optical engineering, and software design. There is a shortage of workers with vocational educations. About 20 percent of the non-agricultural workforce is employed in the informal economy, primarily in the services sector. Armenian law protects the rights of workers to form and to join independent unions, with exceptions for personnel of the armed forces and law enforcement agencies. The law also provides for the right to strike, with the same exceptions, and permits collective bargaining. The law stipulates that workers’ rights cannot be restricted because of membership in a union. It also differentiates between layoffs and firing with severance. According to some reports, labor organizations remain weak because of employer resistance, high unemployment, and poor economic conditions; collective bargaining is not common in Armenia. However, since the 2018 change of government, there have been consistent reports of grassroots movements to create unions in various spheres, including for doctors, teachers, and academics. Still, traditional labor unions are generally inactive with the exception of those connected with the mining and chemical industries. Labor laws are not waived to retain or attract investments.
The current Labor Code is considered to be largely consistent with international standards. The law sets a standard 40-hour work week, with 20 days of mandatory annual paid leave. However, there are consistent reports that many private sector employees, particularly in the service sector, are unable to obtain paid leave and are required to work more than eight hours a day without additional compensation. The treatment of labor in free economic zones is no different than elsewhere in the country. Employers are generally able to adjust employment in light of fluctuating market conditions. Severance in general does not exceed 60 working days. Benefits for workers laid off for economic reasons are mostly limited to offering qualification trainings to the unemployed and job search assistance.
Individual labor disputes can usually be resolved through courts; however, the courts are often overburdened, causing significant delays. Collective labor disputes should be resolved through collective bargaining. Armenia’s Health and Labor Inspection Body (HLIB) has a mandate to monitor health and occupational safety issues, but its enforcement powers have been undermined by continuous restructuring of the body and the absence of a legal framework and regulations to guide HLIB functions. No labor inspections have been completed since 2015.
Amendments to the Labor Code of Armenia that entered into force in 2015 clarified the procedures for making changes in labor contracts and further specified the provisions required in labor contracts, notably those relating to probationary periods, vacation, and wage calculations.
The current legal minimum wage is AMD 55,000 (USD 115) per month. Most companies pay an unofficial extra-month bonus for the New Year’s holiday. Wages in the public sector are often significantly lower than those in the private sector.
13. Foreign Direct Investment and Foreign Portfolio Investment Statistics
Table 2: Key Macroeconomic Data, U.S. FDI in Host Country/Economy
* Source for Host Country Data: Statistical Committee of the Republic of Armenia
Table 3: Sources and Destination of FDI
|Direct Investment From/in Counterpart Economy Data|
|From Top Five Sources/To Top Five Destinations (US Dollars, Millions)|
|Inward Direct Investment||Outward Direct Investment|
|Total Inward||$4,323||100%||Total Outward||$161||100%|
Source: IMF Coordinated Direct Investment Survey (CDIS), 2017
A significant portion of outward investment is not disaggregated by destination in the CDIS.
Table 4: Sources of Portfolio Investment
Data not available.