Foreign direct investment
Armenia, a country that largely depends on foreign trade, is making signifcant efforts to attract foreign direct investment. The Government has adopted an “open door” policy, with Most Favored Nation (MFN) and National Treatment regimes in place, and thorough-going legal protection to promote foreign investment. The law “On Foreign Investments” ensures a highly favorable business environment for foreign investors. It also allows unlimited participation of foreign capital in Armenian enterprises and ensures its protection.
Foreign investors are entitled to implement investments through:
- Establishment of a fully foreign-owned company (including representatives, affliates and branches), or the purchase of an existing company;
- Establishment of a new joint venture company with the participation of Armenian companies or citizens, or the purchase of shares in an existing company;
- Purchase of different types of securities;
- Procurement of permits to use the land, or a concession agreement for the use of Armenian natural resources with participation of Armenian companies or citizens; or
- Procurement of other property rights. According to the National Statistical Service of Armenia, foreign direct investment in Armenia rocketed from $70 million USD in 2001 to $1 billion USD in 2008. Although a decline in investments was observed immediately subsequent to the international fnancial crisis in 2009-2010, the infow of foreign investments in 2011 increased to $816m USD, of which $631m USD represented foreign direct investments.
FIGURE 9. FOREIGN DIRECT INVESTMENT BY SECTORS (AS OF THE END OF 2011)
Major sources of investment in the Armenian economy include the Russian Federation ($3,170 million USD), followed by France ($727 million USD), Greece ($479 million USD), United States ($378 million USD), Lebanon ($365 million USD), Germany ($357 million USD) and Argentina ($334 million USD). Russia, France and the United States were the three biggest investors in Armenia in 2011. The three most important sectors where foreign investments were directed in 2011 included the processing industry ($246 million USD), telecommunications ($231 million USD), and electricity and gas ($101 million USD). The information technology sector has major investment potential as well.
Free Economic Zones
Free economic zones (FEZs) in Armenia offer a unique opportunity for entrepreneurs to establish businesses in strategic sectors of the economy and to process, produce and export goods with a reduced tax burden. FEZs allow the export of goods without any restrictions to international markets with more than 500 million consumers. The law “On Free Economic Zones” and tax legislation grant exemptions from proft tax, income tax, property taxes, VAT and customs duty payment obligations to companies operating within FEZs.
The law on FEZs grants the following incentives to FEZ operators and organizers:
- NO VAT for delivering services and supplying goods in FEZ territory;
- Tax-free proft to legal entities and NO income tax for sole proprietor acting as operators or organizers of FEZs;
- NO property taxes on public and industrial buildings and structures owned or leased within FEZs;
- NO customs charges and non-tariff regulation measures applied to the export of goods released under the customs regime “Imports into Free Economic Zones”, or to other goods produced due to the use of such goods within the territory of FEZs;
- Freely convertible currency is ALLOWED as a medium of exchange while trading within FEZs, unlike the entire territory of the Republic of Armenia, where trade is allowed only through use of the national currency.
The services rendered by the State bodies in FEZs are implemented on a simplifed, “one stop shop” basis.
Two FEZs will soon be operational in Armenia. One of them will be in the agricultural sector, in the area adjacent to “Zvartnots” International Airport. This FEZ will focus on the storage, grading, deep freezing and packaging of fresh fruit and vegetables. The second FEZ, which is established in the territory of RAO Mars Closed Joint-Stock Company and Yerevan Research Institute of Mathematical Machines, will specialize in the production and export of innovative technologies in the areas of electronics, precision engineering, pharmaceuticals and biotechnology, information technologies, alternative energy, industrial design and telecommunication (design and production of technological equipment, systems and materials for data/information transfer).