Launching an IT business and receiving tax benefits in Armenia
The Versus.legal command on the pages App2Top.ru launches a series of materials on preferential legal regimes for IT companies in the countries of the near arc. The first article is about working in Armenia.
Photo source: unsplash, Gevorg Avetisyan
Against the background of recent geopolitical events and the availability of extensive IT benefits, Armenia has acquired the status of one of the most attractive jurisdictions for the development of high-tech business in the post-Soviet space.
Sergey Tsygankov, lawyer Versus.legal
However, our interlocutors from Golden Dragon Games, a young and very small team for the development and publication of computer games, mention another reason why they decided to settle in the country.
We chose Armenia because by opening a company here, we can continue to fully work with both the global computer games market and Russia. At least not yet. There are not so many such jurisdictions left now, and Armenia has suited us both in terms of business opportunities and the cost of relocation.
Founder of Golden Dragon Games
However, let’s focus on the benefits.
Features of taxation, preferential policy and registration
Tax benefits
A special legal regime for IT business in Armenia has been in effect since 2014, when the country’s parliament adopted the Law “On state Assistance in the field of Information Technology“. Preferential treatment was established for 3 years. To date, it has already been extended twice. The last time is until the end of 2022. We assume that the benefits will be extended again.
This regime is valid only for local companies registered in Armenia. At the same time, the country of origin of the founders does not matter.
As part of the regime, all such IT companies are provided with a so-called “IT certificate”.
The main advantage of the certificate is the right to receive tax benefits that significantly ease the tax burden in comparison with the general tax regime. Thus, the IT certificate gives the company the right to pay taxes at the following rates:
- income tax — 0% (with a total rate of 18%);
- value added tax (VAT) — 0% (with a total rate of 20%);
- income tax (analogous to the Russian personal income tax) — 10% (with a total rate of 21%). For example, on the salaries of local workers;
- income tax (analogous to the Russian personal income tax) on dividends is 5% (with a total rate of 21%). For example, when distributing the company’s profits to the founders.
The benefits of an IT certificate apply only to income from abroad, which should be taken into account when planning your business. If the company plans to work with local customers (for example, to license its software to them), then obtaining an IT certificate does not make sense – benefits will not be applied even if there are receipts from abroad.
Important – it is necessary to apply for an IT certificate within the first three months after the registration of the company.
Key requirements
To obtain an IT certificate, a company must carry out activities in one of the following areas:
- software development;
- consulting activities in the field of computer technology;
- computer system management activities;
- data processing, placement of information on the network and related activities;
- actions related to web portals;
- implementation of educational and research programs in the field of information technology.
At the same time, the company should be newly created, and the number of its employees should not exceed 30 people.
At the same time, the company must show that it is actually operating (there are at least two employees in the state, there is a cash turnover on bank accounts). The presence of a real office is not mandatory, but the company must have a legal address (the so-called “virtual office”).
The process of obtaining an IT certificate
It is quite simple, but at the same time it includes a face-to-face presentation of your IT project at the Ministry of Economy of Armenia.
Certification includes the following steps:
1. Development and provision of a business plan for your project
The legislation does not establish specific requirements for a business plan, except for a detailed description of the company’s current and planned activities correlating with one of the above areas.
2. Applying for a certificate
There is no mandatory application form. Together with the application, it is necessary to provide information about the founders, the number of employees, as well as a business plan.
The documents are sent in paper form to the Certification Commission under the Ministry of Economy of Armenia.
3. Presentation to the Commission of the Ministry of Economy of Armenia
The presentation is a face-to-face presentation by a company representative before a five-person commission that analyzes the project, checks it for compliance with the areas of activity and makes a final decision.
For a presentation, it is better to prepare slides showing the main provisions of the business plan.
A representative of the company has the right to help with the preparation of a business plan and other documents, submit them, as well as hold a presentation by proxy (local lawyers can help with the preparation of the entire package of documents).
After receiving the certificate
The certificate begins to be valid from the month when the commission makes a positive decision. After receiving the certificate, you must submit it to the tax inspectorate where the company is serviced.
Every six months, a report on the implementation of the business plan must be submitted to the Ministry of Economy of Armenia. The report is submitted before the 20th day of the month following the reporting half-year. It is important that in order to comply with the IT certificate regime, the main thing is the fact of sending the report. Its content and the results of business activities are not evaluated by the state body for the purpose of renewal or revocation of the certificate.
The IT certificate (subject to compliance with its requirements) is valid indefinitely, it can be lost only if the fact of non-core activities is revealed.
To date, all procedures related to the passage of IT certification are carried out in person and on paper, full-fledged electronic communication is not yet provided.
Interaction with government agencies has been quite comfortable so far. However, it should be noted that the level of automation of public services is much lower than in Russia. However, all our issues were resolved quickly and without unnecessary problems, despite the increased burden on local government agencies.
Founder of Golden Dragon Games
Starting a business, working with banks and payments
Registration of a company in Armenia, including with foreign founders, does not cause any special difficulties and takes 2-3 working days. At the same time, it should be borne in mind that the procedure requires the personal presence of participants (or their proxies) at the registration authority: remote business registration in Armenia is not yet possible. A local lawyer can become a proxy: to do this, you need to make and send a power of attorney.
It was quite easy to start a business and get started. Many issues were solved remotely (by proxy), the whole process from making a decision on registration to opening bank accounts took about a month and required very little effort.
Founder of Golden Dragon Games
Today there are more than 15 banks working with businesses in Armenia. The choice of a particular bank depends on many factors, but almost all of them today open accounts for companies with foreign participants, including from Russia, without any problems. The process of opening accounts is not very fast and can take up to two weeks.
To open a bank account, the personal presence of the company’s director (may be a nominee), the company’s charter and state registration documents are required. Banks can also request information about potential counterparties of the created company.
In parallel, the bank checks the founders of the company: despite the fact that their personal presence is not required, it will be necessary to provide information about business reputation, existing real estate, bank accounts in other countries.
It is more difficult with personal accounts of individuals: some banks require a temporary or permanent residence permit in Armenia from a foreign citizen as a mandatory requirement for opening an account. Meanwhile, this requirement is not imperative and is not applied by all Armenian banks.
Settlements (including payments to Russian entities) are carried out without any special obstacles, however, sometimes problems may arise on the side of correspondent banks when making payments.
Now there is a lot of information circulating in the local IT community that payments come unstably, with delays, sometimes very large. This often happens on the side of correspondent banks and it is quite difficult to influence it somehow. The process of opening accounts is also quite long and is accompanied by the collection of a large number of documents, the percentage of refusals is high.
Founder of Golden Dragon Games
***
At the moment, Armenia continues to be an attractive and convenient jurisdiction for IT business with favorable conditions for the development of high-tech products.
