Doing Business In.. 2020

Last Updated July 15, 2020

Armenia

Law and Practice

Authors



Ameria Legal and Tax Advisors is one of the leading advisory teams in Armenia providing, under the umbrella of a single team, an array of comprehensively packaged solutions comprised of individually tailored business management, legal and tax advisory services. Located in Armenia, the firm effectively co-operate with clients providing them fully-fledged legal support for successfully doing business. Ameria support investors establishing businesses in industries such as IT, pharmaceuticals, finance, tourism, food and energy. The firm has a strong team of 15 professionals who are committed to providing an all-encompassing package of legal advisory and representation services to businesses and business individuals. During the last decade, Ameria was engaged in a number of major projects, its lawyers were instrumental while working on large-scale projects for clients such as Lannet, Philip Morris, Veolia Eau, Johnson&Johnson, Servier and CISCO.

Legal System

The legal system of Armenia is mainly based on the continental (civil law) system. However, recent changes in legislation have resulted in the import of common law elements into the legal system of Armenia. In particular, the Judicial Code of Armenia has introduced the concept of judicial precedent into the legal system. From 2007, the decisions (ratio decidendi) of the Cassation Court of Armenia became binding on the lower courts. In 2018, the Judicial Code was amended and its current edition does not directly stipulate that decisions of the Cassation Court of Armenia are binding on the lower courts, but it still provides that, where case law interpretation differs from the Cassation Court’s interpretation for similar cases, the differing court shall provide an justification for not considering the Cassation Court’s ratio decidendi in similar or alike circumstances. Nonetheless, it must be noted that decisions of the Court of Appeal are no longer compulsory for lower courts.

At the same time, the Judicial Code provides that persons can refer to decisions of the Court of Appeal and the Courts of First Instance made for similar cases, and use the legal interpretation contained in such decisions as legal argumentation. Pursuant to the new edition of the Judicial Code, the court hearing a dispute shall consider and discuss interpretations of the law presented by parties to the court process.

The hierarchical construction of sources of Armenian law is fixed by the Constitution and Law on Normative Legal Acts and can be briefly summarised, in descending order, in the following way:

  • the Constitution;
  • international treaties, ratified by Armenia;
  • Constitutional Statutes (Laws) of Parliament;
  • Statutes (Laws) of Parliament;
  • President’s decrees;
  • Resolutions of the Cabinet of Ministers (Government);
  • administrative acts of Ministries and independent state authorities; and
  • local acts of local authorities.

Judicial Structure

The Armenian court system is regulated by the Judicial Code, adopted in 2007 and substantially amended in 2009 and in 2018. The Code provides for a three-tiered court system, comprising Courts of First Instance, Courts of Appeal and the Court of Cassation.

First-Instance Courts (trial courts) comprise of courts of general jurisdiction and specialised courts – administrative courts and insolvency courts. The jurisdiction of administrative courts covers all disputes with state and municipal bodies. The jurisdiction of insolvency courts covers all disputes arising out of insolvency relations. The jurisdiction of courts of general jurisdiction covers all other disputes that are not heard by specialised courts.

The appellate courts comprise of criminal, civil and administrative appellate courts. The civil appellate court also hears appeals in commercial matters. Appellate courts have discretion over whether to proceed in trial mode or decide the case based on submissions only, but are limited, in any case, to evidence submitted during the trial at first instance (unless it is proved that the relevant evidence was not available during the trial at first instance).

According to the Constitution of Armenia, the highest judicial instance of the Republic of Armenia, except for issues of constitutional import (for which the highest court is the Constitutional Court of Armenia), is the Cassation Court of Armenia, which is called to provide the uniform application of law. The Constitutional Court decides with respect to constitutional matters, including (i) the constitutionality of laws, regulations and other acts adopted by the National Assembly, President or Government; and (ii) compliance with the Constitution of international treaties that Armenia intends to enter into. The Constitutional Court and the Cassation Court are the two judicial bodies, which engage in the interpretation of laws to ensure consistency of law enforcement and judicial practice. 

Armenian law is based more on statute than precedent, having as its main source the Civil Code of Armenia, which regulates most important private law (including commercial law) issues. The Civil Code of Armenia was adopted on 1998. It is based on the CIS Model Civil Code, which in its turn was mainly based on German Civil Code (BGB) and the Civil Code of the Netherlands. Similar to those, it is comprised of the General Provisions (eg, persons, legal capacity, assets transactions, obligations, liability, statute limitations, representation, property law, general contract provisions, etc) and Special Provisions (eg, different forms of contracts, torts, intellectual property issues, inheritance, etc). The Civil Code of Armenia also includes provisions on and private international law.

The Law on Administration and Administrative Process as well as the Code of Administrative Offences are the main sources of Administrative law.

The Criminal Code is the only source for criminal law.

Armenia has ratified the 1965 Washington Convention on the Settlement of Investment Disputes between States and Nationals of Other States - International Centre for Settlement Of Investment Disputes and the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral awards. Both Conventions ensure investors’ rights protection at local and international level. Armenia has also signed and ratified more than 35 bilateral investment treaties, which form an indivisible part of the investors’ rights protection system.

In addition, in 1998 Armenia joined the Convention on the Protection of the Rights of the Investor, adopted on 28th March 1997 in Moscow.

Armenia has entered into a number of inter-governmental treaties on the promotion and mutual protection of capital investment with China, the UK, France, Georgia, Italy, Canada, Iran and other countries.

The Law on Foreign Investments provides guarantees for national treatment and non-discrimination for foreign investors. The laws applied to foreign investments cannot be less favourable than the laws governing the property rights and investment activities of citizens and legal entities of Armenia. No direct restrictions are set for foreign investment admission under Armenian law or any regime of permission. However, some indirect limitations may exist.

No foreign investment “negative list” is set under Armenian law as such. The Armenian Government guarantees the free movement of international capital. However, due to political developments in recent years and the present geopolitical situation, the possibility of investing in Armenia from certain countries (such as Azerbaijan and Turkey) is limited.

Foreign investment does not need special approval and foreign investment is treated as local investment, though there are some industry-specific limitations requiring at least a certain percentage of the shareholding to be local.

See 2.1 Approval of Foreign Investments.

See 2.1 Approval of Foreign Investments.

The most common types of corporate business entities in Armenia are limited liability companies (LLC), with capital being a bulk amount where a certain percentage is held by shareholders and joint stock companies (JSC), with capital divided by equal number of shares of equal value. Far rarer are such business forms as co-operative business societies and even rarer or almost non-existent are partnerships (most probably due to the fact that partnerships cannot be limited). The liability of shareholders is limited in cases of LLCs, JSCs and business co-operative societies and piercing of the corporate veil is possible only if the corporate entity was brought to an insolvent situation by wilful misconduct of on the part of shareholders. LLCs and JSCs (closed non-public ones) are very similar vehicles with the differences often being occasional. Among the most important differences to note are the following:

  • JSCs are used to make business public while LLCs cannot be publicly held;
  • LLC participation can be repudiated and redeemed without cause;
  • the JSC regime provides for more flexibility in governance and especially executive governance structure;
  • JSCs are more suitable for capital investment and capital transfer; and
  • information about JSC share ownership is not publicly available.

A basic package of documents has to be submitted to the State Registry and a company can registered within two days (expedited incorporation within a few hours is available for an additional fee). Quick, easy and straightforward registering a business entity with the state is possible if the documents are in the proper form. This, however, does not include the bank account opening and tax registration processes which are to follow incorporation. Armenian law requires the capital to be paid before incorporation, but this rule is not enforced and, in practice, companies pay the capital after incorporation.

The main documents that need to be submitted to register a business entity are:

  • founding resolution/founding meeting protocol;
  • articles of association;
  • documents on the identity of the CEO and founders;
  • declaration regarding the ultimate beneficial owners (UBOs);
  • proof of payment of state duty for registrations; and
  • various powers of attorney (PoAs) to prove authority for taking the action of founding and submitting.

If the company is formed by natural persons, copies of their passports are required (notary-certified copies of passports for foreigners). If the company is formed by a legal entity (or entities), the founding documents of that company (or those companies) are required (eg, certificate of registration, charter of the company (or companies), copy of directors' passports). A UBO statement should be submitted to the State Register of Legal Entities when registering the company. Some other documents may be needed depending on the company type.

The following information on a company is publicly available:

  • information on founders (ID, address);
  • information on the CEO;
  • information on current shareholders (not for JSCs);
  • articles of association/charter;
  • information on whether the company is in the process of voluntary or mandatory dissolution; and
  • information on changes in the information above

Changes in shareholding, changes related to the CEO and changes to the articles of association have to be registered in order to be binding on any third parties.

As a general, rule it is not mandatory to disclose financial information, save for the nominal share capital, which it is mandatory to disclose as a matter of articles of association content. There are, however, exceptions from the non-disclosure rule for special types of companies (publicly traded companies, if turnover exceeds a certain threshold, some types of licensed companies, etc).

LLCs

For LLCs, the most common management structure is either a general meeting of members (sole member) or a CEO.

Whatever is not the exclusive authority of the general meeting rests with the CEO.

Forming supervisory boards in the case of LLCs is voluntary and is rare in practice. The possibility of forming executive boards is not provided for under the law. This actually means it is not prohibited to form such boards but at the same time their formation cannot alter or curb the rights of the CEO.

JSCs

For JSCs, management structures can vary depending on the type of the company (public or private, number of shareholders) or the will of the shareholders. Public (open) JSCs and private (closed) JSCs with more than 20 shareholders are required to have a supervisory board in their management structure. Otherwise JSCs are free to form supervisory boards or not. In any case, JSCs are free to form executive boards (called under the law “collegiate executive bodies”: “administrations”, “directorates”, etc) but it is not mandatory. So, ultimately, private JSCs with less than 50 shareholders may, like LLCs, have a simple “meeting of shareholders – CEO” two tier management structure, but may also have a “meeting-supervisory board-executive board-CEO) structure”. Another corporate management body that can be formed but is usually omitted (as the law does not provide for any consequences for not forming it) is the internal auditing committee/or sole internal auditor reporting on financial results to the general meeting.

The law prescribes certain mandatory powers for each of the management bodies, which cannot be delegated to any other authority. Powers, which are not indicated as in the exclusive jurisdiction of a corporate body under the law, can be delegated to another body under the articles of association. 

Certain industry-specific laws, mainly in the financial industry, impose, on the companies licensed to do business in those industries, specific corporate governance rules (with general rules being applicable without prejudice to such specific rules and unless otherwise is provided in those specific rules).

Piercing the corporate veil is possible in Armenia, but the test for doing is so is rather restrictive and in fact equals that which applies to the criminal offence of deliberate insolvency. Armenia law on JSCs provides that shareholders may be held liable for the debt of the company if they took action (or abstained from acting), being aware beforehand that such action would result in insolvency of the company.

Employment relationships in the Republic of Armenia (RA) are mainly governed by the following legal sources:

  • the Constitution of the RA;
  • the Labour Code of the RA (adopted on 09.11.2004);
  • international treaties;
  • collective bargaining agreements; and
  • individual employment contracts.

According to Armenian law, employment contracts shall be concluded in writing and shall have certain mandatory content (in terms of issues regulated) but, by consent of the parties, may also contain other provisions to the extent not contrary to mandatory statutory regulations.

The employment contracts may be for a fixed term or an indefinite term. An employment contract with a fixed term is concluded if the employment relations may not be determined for an indefinite term, taking into account the nature of the work to be performed or the conditions for its completion, unless otherwise provided under the Labour Code or other relevant law.

The Labour Code provides that the normal duration of the working week may not exceed 40 hours and that the working day is limited to eight, except for cases provided for by the Labour Code, Armenian law, other legal acts and collective agreements. The maximum duration of working time, including overtime work, may not exceed 12 hours per day (including breaks for rest and meals), and 48 hours per week (with certain exceptions stipulated under the Labour Code).

The Armenian Labour Code provides an exhaustive list of the grounds of employment agreement termination. The most common grounds are:

  • consent of the parties;
  • expiry of the valid term of the agreement;
  • upon the initiative of the employee; and
  • upon the initiative of the employer.

Consent of the Parties

When terminating the employment agreement upon consent of the parties, one party to the employment agreement shall offer, in writing, to the other party to terminate the agreement. In case of agreement on offer, the other party shall, within seven days, notify the offering party of his or her consent.

Expiry of the Validity Term

The employer and the employee may terminate an employment agreement concluded with a fixed term due to expiry of its validity term. The employer or the employee can terminate the employment agreement due to expiry of the validity term by notifying the employee thereon in writing at least ten days in advance.

Employee’s Initiative

The employee is entitled to terminate an employment agreement concluded for an indefinite period, as well as an employment agreement concluded for a fixed term before the expiry of its validity term by notifying the employer thereon in writing at least 30 days in advance.

Employer’s Initiative

The employer is entitled to terminate an employment agreement concluded for an indefinite period, as well as an employment agreement concluded for a fixed term prior to the expiry of its validity term, in the below-mentioned cases:

  • in case of liquidation of the organisation (in case of termination of the sole entrepreneur’s activity and termination of the state registration or invalidation thereof);
  • in case of reduction of the number of employees and/or working places justified by changes in the volume of production and/or economic and/or technological conditions and/or conditions of organisation of work, as well as by production needs;
  • if the employee is not suitable for the occupied position or performed work;
  • in case of rehabilitation of the employee in his or her previous position;
  • in case of regular non-performance of employment duties stated under the employment agreement or internal rules without any reasonable excuse;
  • in case of a loss of confidence in the employee;
  • in case of the employee’s long term disability (if the employee does not come to work for more than 120 consecutive days or for more than 140 days during the preceding year, because of a temporary disability, if the law or the relevant legal acts do not state longer period for preservation of the working place or position);
  • if the employee is in the workplace under the influence of alcohol, drugs or psychotropic substances;
  • if the employee does not appear at the workplace for a full working day, without a reasonable excuse;
  • if the employee refuses a mandatory medical check-up; and
  • if the employee is entitled to a pension and turns 63, or, if the employee is not entitled to a pension and turns 65, if this is provided for in the employment agreement. 

Notice periods

The main time periods when the notice of termination shall be sent are as follows:

  • if the employee was employed for up to one year, no later than 14 days in advance;
  • if the employee was employed from one up to five years, no later than 35 days in advance;
  • if the employee was employed from five up to ten years, no later than 42 days in advance;
  • if the employee was employed from ten up to fifteen years, no later than 49 days in advance; and
  • if the employee was employed for more than fifteen years, no later 60 days in advance.

The collective and employment agreements can mandate longer notification periods than the notification periods provided by the Labour Code.

Severance payment

Though it depends on the relevant grounds of termination, in the majority of cases the amount of severance payment is calculated as follows:

  • if the employee was employed for up to one year, an amount of ten days average salary;
  • if the employee was employed from one up to five years, an amount of 25 days average salary;
  • if the employee was employed from five up to ten years, an amount of 30 days average salary;
  • if the employee was employed from ten up to fifteen years, an amount of 35 days average salary; and
  • if the employee was employed for more than 15 years, an amount of 44 days average salary.

Collective redundancy

In case of liquidation of the organisation, or in case of a reduction of the number of employees and/or number of working positions, the employer shall, no later than two months prior to termination of the employment agreement, submit to the state-authorised body in the field of employment (State Employment Agency), and representatives of the employees, information on the number of employees (per age, sex and profession) being dismissed, if the employer intends to dismiss more than 10% of the total number of employees, and not less than ten employees (mass dismissal), within two months.

Employees may acquire employment rights and duties, alter or waive them, and protect them, through their representatives both in collective and individual employment relations. Representation in collective employment relations is regulated by the Labour Code of the RA and representation in individual employment relations is regulated by the Civil Code of the RA.

Representation in collective labour relations arises if the representative represents the will of more than half of the employees. Obligations of a general nature assumed through such representation are binding to all employees, who do not have the special powers provided to the representative of the team but who fall within the scope of such obligations. The representatives of the employees have the following main rights:

  • to receive information from the employer;
  • to submit proposals to the employer regarding the organisation of the work;
  • to conduct collective bargaining with the employer, conclude collective bargaining agreements and supervise the execution of the latter;
  • to exercise non-state supervision over the implementation of labour legislation (and other regulatory legal acts containing rules of labour law) by the employer;
  • to appeal, through judicial procedure, the decisions and activities of the employer, and the authorised persons thereof that:
    1. contradict the legislation of the RA, as well as the relevant collective agreements and employment contracts; or
    2. violate rights of the representatives of employees;
  • to participate in the development of production plans and their implementation by the employer; and
  • to submit proposals to the employer on:
    1. improving the working and leisure conditions of employees;
    2. introducing new technical equipment;
    3. reducing the amount of manual work; and
    4. revising production norms, as well as the amount of, and procedure for, the remuneration for work.

All employees must pay personal income tax.

As a rule, employers, acting as tax agents, have to calculate and withhold income tax on behalf of their employees.

The employee income tax rate is 23%. This rate will decrease to 20% during the next three years.

Additionally, employees have to make social security payments at the rate of 2.5% of gross salary. Social security payments must also be calculated and withheld by the employer. 

In the context of an employment relationship, the employer does not have any tax payment obligations. However, the employer does has to make monthly payment of AMD3,000 (approximately USD6) for those employees who are in maternity leave.

Taxes applicable to business are:

  • corporate income tax;
  • VAT;
  • excise tax;
  • property tax (although this tax applies not only to business, but also to individuals) and
  • depending on the nature of the business, ecological tax and ecological exploration payments.

Corporate Income Tax

This tax is to be paid both by residents (ie, organisations registered in Armenia) and non-residents (ie, international organisations and other organisations established abroad).

Residents are taxed on the profit gained in the territory of Armenia and outside, while non-residents are taxed solely on profit gained in Armenia.

The tax base for residents is net income (gross income minus expenses).

The tax base for non-residents receiving income through a permanent establishment is similar to the tax base for residents.

The tax base for non-residents receiving income without a permanent establishment is gross income received from Armenian sources. 

The tax rate for residents and non-residents acting through a permanent establishment is 18%.

The tax rate for non-residents acting without a permanent establishment depends on the type of income and ranges from 5–20%.

VAT

VAT is also to be paid both by residents and non-residents for those transactions the place of which is deemed to be a territory of Armenia.

The tax code provides criteria based on which the place of transaction is determined.

The tax code also provides a list of those transactions that are not subject to VAT. Basically, these are transactions involving social goods and financial transactions.

The VAT rate is 20%.

Excise Tax

Excise tax must be paid by those organisations that import or produce excisable goods. An exception is the sale of petrol at petrol stations. In this case, any seller pays excise tax.

An exhaustive list of excisable goods is provided in the Tax Code.

The tax code does not provide for a uniform excise tax rate, and it differs depending on the type of excisable goods.

Property Tax

Property tax is a tax on the property considered as a taxable object. Taxable objects include real estate situated in Armenia and vehicles registered in Armenia.

The property tax shall be paid by resident and non-resident organisations (as well as by all other persons having taxable objects) except those persons and organisations who are released from the property tax by law.

The tax base for vehicles derives from their engine power and, for real estate, is the cadastral value of real estate. The cadastral value is determined based on the procedure prescribed by the law.

Armenian law does not provide for a uniform property tax rate, and it differs depending on the type of the property.

Ecological Tax and Ecological Exploration Payment

These taxes are to be paid by those organisations that engage in activities related to environmental pollution or the use of natural resources.

The list of activities as well as tax rates are exhaustively listed in the Tax Code.

The tax code provides for the following tax incentives:

  • Exemption from tax – entities specified in the law are exempt from paying a given type of tax.
  • Reduction of the object of taxation – the types of income or transactions specified in the law are not included in the object of taxation for a given type of tax.
  • Reducing the tax rate – this benefit is mainly applied to personal income tax and property tax, some types of incomes and property indicated in the Tax Code are taxed at lower rates.
  • Tax reduction – the payable tax amount may be reduced by the amount of tax that was paid abroad in respect of the same income.
  • Postponement of tax – this benefit applies mainly to corporate income tax some entities specified in the Tax Code are exempt from income tax for a period specified by the Code.
  • Refund of income tax in the amount corresponding to the amount of interest paid on a mortgage – this benefit applies to personal income tax where the amount of income tax equal to the amount of interest on a mortgage may be returned to the taxpayer (this benefit applies only to mortgages that were taken for purchasing apartments in new buildings).

All tax incentives are applied at the discretion of the taxpayer, who may waive the benefits.

In the tax legislation of Armenia, there are no rules on tax consolidation, regardless of whether a company is part of a group of companies or is a subsidiary of a parent company. In the cases described, each of the companies bears its own responsibility for paying taxes.

The parent company of a group of companies will only be required to compile and present consolidated statements for all the companies included in the group.

Interest deductions are not allowed in cases of thin capitalisation.

Transfer pricing rules are applicable. With regard to transfer pricing, the Tax Code provides:

  • transactions for which transfer pricing rules apply – these are transactions between related parties and transactions where one of the parties is an offshore company;
  • arm-length transaction rules;
  • the rules for determining the market price in transactions for which transfer pricing rules apply;
  • rules for reporting on controlled transactions; and
  • liability for breaching transfer pricing rules.

There is both administrative and criminal liability for tax evasion.

Criminal liability applies only for large-scale tax evasion (amounts exceeding around USD8,000). There are financial penalties and imprisonment for a term of between two and ten years, depending on the type of the crime.

In other cases, only administrative liability applies (ie, fines).

Under Armenian law, economic concentration clearance (merger control filing) is a routine process where parties to a concentration (which involves an acquisition of shares or assets in Armenia) submit their financial reporting and sales (turnover) data to the State Commission for the Protection of Economic Competition (SCPEC) to assess whether the concentration will result in a monopolistic position. Failure to declare also results in fines being imposed by the SCPEC. In such cases the SCPEC may also forbid the merger or dissolve an already-implemented one. The law and regulations of SCPEC provide for the criteria as to what constitutes the merger concentration and in which cases it has to be filled. Generally, the Armenian approach to concentration notification (declaration) is rather formalistic, the regulation mainly looking at formal criteria (like assets, turnover) rather than the actual impact on the market when defining which transactions that are to be declared (notified) and supervised.

Concentration

Concentration is in place when thee following happen:

  • amalgamation of economic entities registered in the RA;
  • merger of economic entities registered in the RA;
  • acquisition by an economic entity of assets of another economic entity registered in the RA, the value of which, per se or together with the value of assets already belonging to the acquirer, constitutes 20% or more of the assets of that economic entity;
  • acquisition by an economic entity of a share of another economic entity registered in the RA, if this share, per se or together with the share already belonging to the acquirer, constitutes 20% or more of the charter capital (capital stock) of that economic entity; and
  • any transaction, action, reorganisation or attitude of economic entities, by which an economic entity will directly or indirectly have influence on the decision-making or competitiveness of another economic entity or which can directly or indirectly influence on the decision-making or competitiveness of another person.

Obligatory Filing

The following concentrations are subject to obligatory filings:

  • if the joint value of the assets of the parties to a horizontal concentration (operating in the same market/being concurrent or potentially concurrent entities) were at least AMD1.5 billion or the value of the assets of a party were at least AMD1 billion, in the financial year preceding the establishment of the concentration;
  • if the joint amount of revenue of the parties to a horizontal concentration was at least AMD3 billion or the revenue of а party was AMD2 billion, in the financial year preceding the establishment of the concentration;
  • if the joint value of assets of the parties to a vertical concentration were at least AMD3 billion, in the financial year preceding its establishment, or the value of assets of a party were at least AMD2 billion, in the financial year preceding the establishment of the concentration;
  • if the joint amount of revenue of the parties to a vertical concentration was at least AMD4 billion or the revenue of a party was AMD3 billion, in the financial year preceding the establishment of the concentration; or
  • if one of the participants has a dominant position in the market in accordance with a decision of the SCPEC.

There is only a general rule that merger notification has to be submitted before merger transaction is effected. This mean that agreements may be entered into before notification but completion of transfer shall be subject to notification clearance. After declaration (joint for both parties or separate for each), whereby the parties to the concentration submit data on their financial standing and sale volumes, the SCPEC has 90 days to clear the concentration. Clearance usually happens within 30–40 days. The SCPEC can forbid mergers only in cases where they would result in a monopolistic position being formed. Failure to declare results in fines and the possibility that the proposed transaction will be affected.

The Competition Act defines and prohibits entering into anti-competitive agreements. Such agreements are defined as (i) those written or verbal transactions between economic entities that directly or indirectly co-ordinate actions or conduct by such entities, and (ii) decisions adopted by unions of such economic entities that directly or indirectly lead or may lead to restriction, prevention or prohibition of competition.

The Competition Act provides a non-exclusive list of possible manifestations of anticompetitive agreements and conduct. Anti-competitive agreements are classified into two types based on the participant entities' position in the market:

  • Those between potentially or actually competing economic entities operating in the same commodity market (horizontal agreements).
  • Those between economic entities (sellers and acquirers or potential sellers or acquirers of the goods and/or substitutes thereof that are not competitors) having certain interrelation but operating in different commodity markets (vertical agreements).

Horizontal Agreements

Horizontal anti-competitive agreements may particularly relate to:

  • distribution or division of the market or supply sources according to the volume of sale or acquisition or assortment of goods or groups of sellers or acquirers or territorial principle or otherwise;
  • impediment to market entry (restriction of market entry) of other economic entities, or ousting them from the market;
  • unjustified increases, decreases or maintenance of the prices of goods;
  • agreed direct or indirect establishment, change or maintenance of sale or purchase prices, rates, discounts, surplus, privileges or other conditions of trade;
  • restriction of (or control over) product, supply, technical development or modernisation, import, trade or investment;
  • import of goods to the detriment of the interests of consumers or unjustified decrease in or termination of production or creation or maintenance of deficit in the commodity market, by means of keeping, spoiling and destroying the goods;
  • arrangement with regard to the conditions or results of state procurement, tenders or auctions, or falsification (distortion) of the results thereof, or unjustified increase, decrease or maintenance of the price of goods;
  • an arrangement to organise trade activity with any economic entity without a grounded reason;
  • offering or applying unequal conditions for the same goods, which leads or may lead to restriction, prevention or prohibition of economic competition;
  • forcing additional obligations onto a party to a contract, including trade facilities, which are not justified economically or technologically and are unfavourable for the party, or where they are not related to the main subject of the contract in their nature or in terms of their fulfilment; and
  • compelling someone not to enter into contractual relations, or compelling someone to terminate or to suspend their contractual relations with certain sellers or acquirers.

Vertical Agreements

Vertical anti-competitive agreements may particularly relate to:

  • restrictions of sale of goods in terms of territory, price or other characteristics;
  • unjustified increases, decreases or maintenance of the prices of goods;
  • refusal to acquire (or sell) goods from (or to) other economic entities;
  • offering or applying unequal conditions for the same goods, which leads or may lead to restriction, prevention or prohibition of economic competition;
  • establishment of a clause (or clauses) in transactions which is (or are) not economically or technologically justified and is (or are) unfavourable for the party, or which in its (or their) nature or in terms of implementation, is (or are) not related to the main subject of the transaction; and
  • compelling someone not to enter into contractual relations, or compelling someone to terminate or to suspend their contractual relations with certain sellers or acquirers.

The SCPEC will usually apply fines where the entering into of anti-competitive agreements is investigated and proved.

Defining Dominant Position

Under the Armenian Competition Act. An economic entity is deemed to have a dominant position in the product market if it:

  • has market power over the market for that particular product, in particular if it encounters no essential competition as seller or acquirer and/or, due to its financial power or other qualities, can have decisive influence on the general terms of turnover of goods for that particular product market and/or oust another economic entity from that particular product market and/or prevent another economic entity from entering that particular product market;
  • captures at least a third of the given market in terms of sale volumes as seller or acquirer; or
  • provided none of the economic entities separately have a share in the market that exceed a tenth of that market:
    1. each of two economic entities having the largest sale/purchase volumes in a particular product market is deemed to have a dominant position in that market if, as seller or acquirer, they jointly capture at least half of the given market in terms of sale or purchase volumes; or
    2. each of three economic entities having the largest sale/purchase volumes in a particular product market is deemed to have a dominant position in that market if, as seller or acquirer, they jointly capture at least two thirds of the given market in terms of sale or purchase volumes.

An economic entity also is deemed to have a dominant position if it has under its management four or more trade facilities (a trade network) with total annual sales turnover exceeding AMD1.5 billion.

Abuse of Dominant Position

Abuse of dominant position is prohibited. The law sets forth a non-exhaustive list of various manifestations of abuse of dominant position. Among the common types of abuse Armenian law mentions are:

  • establishing or applying unjustified, discriminatory sale or acquisition prices or direct or indirect forcing of other trade conditions contradicting the legislation;
  • direct or indirect forcing or application of conditions contradicting the legislation or business turnover practices of the RA, as a result of which unequal competitive conditions are created or may be created;
  • restricting trade or modernisation of production or investments of another economic entity;
  • unjustified reduction in import of goods or production, or creation or maintenance of deficit in a commodity market, to the detriment of the interests of consumers by means of keeping, spoiling and destroying the goods;
  • establishing or applying discriminatory conditions (including prices) with regard to other economic entities or consumers under otherwise equal conditions;
  • forcing economically and/or technologically unjustified conditions – non-profitable for them or not related to the subject matter of the contract – to a party to the contract or a person willing to conclude a contract, including trade facilities;
  • compelling economic entities to re-organise, undergo liquidation or disrupt economic ties;
  • creating impediments to the market entry (restriction of market entry) of other economic entities, or ousting them from the market, as a result of which another economic entity did not enter the market or was ousted from the market or incurred additional expenses in order not to be ousted from the market, or as a result of which another economic entity might have failed to enter the market or might have been ousted from the market or incurred additional expenses in order not to be ousted from the market;
  • offering or applying conditions that create or may create unequal competitive conditions in cases where similar conditions have not been offered to other economic entities operating in the given commodity market;
  • establishing, changing or maintaining discounts of sale or acquisition prices or privileges, where they are aimed at the restriction, prevention or prohibition of competition;
  • unjustified increases, decreases or maintenance of the price of goods;
  • establishing and/or applying unjustifiably high or unjustifiably low prices; and
  • refusing to conclude or avoiding concluding a contract with the acquirer of goods or those willing to acquire goods on economically and/or technologically unjustified grounds, where there is a possibility of production and/or sale of the relevant goods.

The SCPEC will usually apply fines where conduct amounting to abuse of a dominant position is investigated and proved.

Definition

According to the Law on Inventions, Utility Models and Industrial Designs, a technical solution in any field relating to the use of a product (in particular, a device, substance or biotechnological product) or process (something that affects a material subject matter using material means), shall be protected as an invention. An invention shall be granted legal protection if it is new, has an inventive step and is industrially applicable (conditions for patentability of invention) even if it refers to a product containing, or consisting of, biological material, or a process through which biological material is produced, derived or used.

Length of Protection

The term of validity of a patent for an invention shall be twenty years as from the date of filing of the application. Immediately upon expiry, the term of validity of a patent may be extended once, but for no more than five years in the case of a state of war, natural disasters or similar unpredictable events.

The term of validity of a patent for a utility model is ten years as from the date of filing of the application.

Registration Process

This mainly involves:

  • examination of the conformity of the content and the form of the application documents or supplementary materials by the Intellectual Property Agency, which is carried out within three months from the filing of the application;
  • the Intellectual Property Agency publishing the application within 18 months from the date of the filing of the application, and, if priority is claimed, from the date of priority;
  • third parties being able to file an objection to a patent's registration within two months following publication, the Intellectual Property Agency must notify the patent holder within ten days of the objection being received so it can provide its written arguments; and
  • the Intellectual Property Agency then publishing the conclusion on patentability.

Enforcement and Remedies

The protection of rights may be enforced in judicial proceedings. Activities violating the rights of the patent holder can be terminated by the court. If the registration of the rights of the holder are in breach of the rights of any third party, that registration can be declared invalid by the court.

The decisions of the Intellectual Property Agency can be appealed before its appeal board. The decisions of the board are the final decision of the Agency but can be appealed to the Administrative Court of the RA.

Definition

According to the Law on Trademarks, a trademark sign, represented graphically, is used to distinguish goods and/or services of one person from goods and/or services of another person.

Length of Protection

Trademarks shall be registered for a period of ten years from the date of filing of the application. Registration of a trademark may be renewed in respect of all or a part of a goods and/or service, on each occasion for not longer than ten years. 

Registration Process

This mainly involves:

  • preliminary examination of the application;
  • publication of the application, third-party remarks and opposition (publication should occur within one month from the decision on publication, any person may, within a period of two months following the publication of the application, present a written remark to the state authorised body against the registration of the claimed trademark);
  • substantive examination of the trademark (this shall be done within a period of three months from the day of publication of the application);
  • registration of the trademark; and
  • issuance of the certificate of registration of the trademark (within one month following the decision on registration of a trademark).

In general, national registration takes 5–6 months.

Enforcement and Remedies

The protection of rights may be enforced in judicial proceedings. Activities violating the rights of the holder can be terminated by the court. If the registration of the rights of the holder was in breach of the rights of any third party, that registration can be declared invalid by the court.

An applicant, or his or her representative, may appeal the decision on refusal of the registration of the trademark or partial registration of the trademark, made by the Intellectual Property Agency after the re-examination, applying to the Board of Appeals, within three months from the day of receiving the decision.

Definition

According to the Law on Inventions, Utility Models and Industrial Designs, any solution defining the outward appearance of an article, which is novel and original shall enjoy protection as an industrial design.

Length of Protection

The rights-holder of an industrial design may renew the term of its protection for one or more periods of five years each, up to a total term of 25 years from the date of filing of the application. 

Registration Process

This mainly involves:

  • preliminary examination of the application (within two months following application);
  • decision on application of the rights of the applicant; and
  • publication of the registered industrial design.

Enforcement and Remedies

The protection of rights may be enforced in court. The activities violating the rights of the holder can be terminated by the court. If the registration of the rights of the holder was in breach of the rights of any third party, that registration can be declared invalid by the court.

The decisions of the Intellectual Property Agency can be appealed before its appeal board. The decisions of the board are the final decision of the Agency but can be appealed to the Administrative Court of the RA.

Definition

According to the Law on Copyright and Related Rights, the subject matters of copyright shall be:

  • the unique outcome of a creative activity in the domains of science, literature and art;
  • created individually or jointly;
  • expressed in spoken, written or any other objectively perceivable manner;
  • including permanent or temporary storage in electronic form; and
  • regardless of the scope, significance, merits and purpose of creation.

Length of Protection

The proprietary rights of the author are valid during the lifetime of the author and continue for 70 years after their death.

Enforcement and Remedies

The protection of copyright is automatically provided and does not depend on the official endorsement of this right. The protection of the proprietary rights of the author may be enforced in judicial proceedings. Activities violating the rights of the author can be terminated by the court.

Issues related to the protection of software and databases are the same as for other forms of copyright.

There is no specific regulation for trade secrets under Armenian legislation.

Data protection related issues are mainly regulated under the Law on Personal Data Protection of the Republic of Armenia, adopted on 18 May 2015. The RA has also been a signatory of the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data (Strasbourg, 1981) since 01 September 2012.

Personal data can be transmitted out of Armenia, provided that:

  • the data processor has the data subject’s consent to do so; or
  • the transmission of data is necessary for the purposes of processing personal data and/or necessary for the implementation of these purposes.

Personal data can be transmitted out of Armenia without the prior permission of the Data Protection Agency, where:

  • personal data is transmitted in compliance with an international treaty to which both Armenia and the transferee country are signatories; and
  • personal data is transmitted to any of the countries included in the list officially published by the Data Protection Agency.

Additionally, the Personal Data Protection Law stipulates that personal data can also be transmitted to countries that do not ensure an adequate level of protection for such personal data, but only with the prior permission of the Agency, if that personal data is transmitted under the agreement and that agreement provides guarantees of personal data protection, which are deemed to ensure an adequate level of protection by the Agency.

Data protection rules are enforced by a separate division of the Ministry of Justice of the Republic of Armenia: the Personal Data Protection Agency of the Republic of Armenia. The Agency is an independent body and has the following main roles and authority:

  • on its initiative, or on the basis of an appropriate application, to check the compliance of the processing of personal data with the requirements of Armenian Data Protection Law;
  • to apply administrative sanctions prescribed by law in the case of violations of the requirements of this Law;
  • to require the blocking, suspension or termination of the processing of personal data violating the requirements of this Law;
  • to require from the processor rectification, modification, blocking or destruction of personal data, where grounds provided for this by the Law exist;
  • to prohibit completely or partially the processing of personal data as a result of examination of the notification of the processor on processing personal data;
  • to keep a register of processors of personal data;
  • to recognise electronic systems for processing of personal data of legal persons as having an adequate level of protection and include them in the register;
  • to check the devices and documents, including the existing data and computer software used for processing data;
  • to apply to court in cases provided for by law;
  • to exercise other powers prescribed by law;
  • to maintain the confidentiality of personal data entrusted or known to it in the course of its activities;
  • to ensure the protection of rights of the data subject;
  • to consider applications of natural persons regarding the processing of personal data and deliver decisions within the scope of its powers;
  • to submit, once a year, a public report on the current situation in the field of personal data protection and on the activities of the previous year;
  • to conduct research and provide advice on processing data on the basis of applications from processors or inform on best practices for processing personal data; and
  • to report to law enforcement bodies where doubts arise with regard to violations of a criminal nature in the course of its activities.
AMERIA Legal and Tax Advisors

2 Vazgen Sargsyan Street
Yerevan
Armenia

+374 10 56 11 11

+374 10 513111

legal@ameria.am www.amerialegal.am
Author Business Card

Trends and Developments


Authors



AMERIA Legal and Tax Advisors has one of the leading advisory teams in Armenia, providing an array of comprehensively packaged solutions comprising individually tailored business management, legal and tax advisory services. The firm co-operates effectively with clients, providing full-fledged legal support for successfully doing business in Armenia. It supports investors in establishing business in such industries as IT, pharmaceuticals, financial institutions, tourism, food, energy, etc. Ameria Legal and Tax Advisors has a strong team of 15 professionals who are committed to providing an all-embracing package of legal advisory and representation services to businesses and business individuals. During the last decade, Ameria has been engaged in a number of major projects for clients such as Lannet, Philip Morris, Veolia EAU, Johnson & Johnson, Servier and CISCO.

Tax Law

In January 2020 the National Assembly of Armenia made amendments to the Tax Code (2018), aimed at encouraging foreign investments and incentivising capital markets.

In accordance with the amendments, non-residents are exempt from paying income tax for income received as follows:

  • as capital gain from the sale of shares and bonds listed on the Armenian Stock Exchange;
  • as dividends on shares listed on the Armenian Stock Exchange;
  • as interest on bonds listed on the Armenian Stock Exchange; or
  • as interest on loans that are backing bonds listed on the Armenian Stock Exchange.

It is assumed that the changes will contribute to the inflow of foreign capital into the Armenian market.

Another change in the Tax Code stipulated that the taxpayer will independently determine the depreciation period of fixed assets imported into the territory of Armenia from 1 July to 31 December 2020. However, the depreciation period should not be less than one year. By this change, the State is in fact stimulating the return on imported fixed assets.

The Transfer pricing rules of the Tax Code 2018 came into effect on 1 January 2020. The effect of the rules is not yet clear, particularly regarding to what extent they will be retrospectively applied to continuing transactions entered into before the adoption of the Tax Code and the effective date of the transfer pricing rules but producing effects after 2020. While signals from authorities indicate that some retrospective effect will be applied, the issue is most likely to end up in the National Assembly in the form of a bill amending the Tax Code.

Merger Control

In 2020 the Commission for the Protection of Economic Competition (SCPEC) circulated a draft law amending the Law of the Republic of Armenia “On the Protection of Economic Competition”. A brief review of the proposed changes to the Law is presented below.

The draft currently being discussed provides that, in addition to the existing forms of concentration (share and asset acquisitions, mergers and amalgamations), the following transactions or actions will also qualify as "concentrations" for the purposes of the Competition Act and will therefore become declarable:

  • the acquisition of shares of one economic entity registered in Armenia by another if said acquisition alone or together with the share already possessed by the acquirer constitutes 20% of the charter capital of such economic entity, or together with the share already possessed by the acquirer constitutes at least 35% or at least 50% of the charter capital of such economic entity;
  • the acquisition of the right to use intellectual property rights or other means of individualisation resulting in a situation whereby one economic entity may have a significant influence on competition in any product market; and
  • the formation of a legal entity by more than one economic entity that will act as an independent economic entity.

There is also a proposal to supplement the list of non-notifiable transactions by adding transactions relating to the acquisition of securities listed on the stock exchange. In addition, there are plans to remove the acceptance of an inheritance from the list of notifiable transactions.

Note that there is no publicly available data on potential changes of thresholds of notifiable transactions, and it is not clear whether those thresholds are going to be changed.

Transactions between entities pertaining to a group of persons

Parties to notifiable transactions that happen between entities pertaining to the group of persons must provide SCPEC with the list of economic entities pertaining to the group of persons, and with supporting data proving membership of entities to the group of persons at least one month prior to the date of the consummation of the concentration. Thereafter, SCPEC must be notified of the consummation of the concentration within ten business days of said consummation. SCPEC publishes data on economic entities pertaining to the group of persons on its official website.

Possibility of giving retroactive effect to decisions prohibiting concentrations

The draft law expressly authorises SCPEC to prohibit a concentration that was consummated by parties without notice being given to SCPEC. Note that the Law currently in force does not explicitly grant such authority to SCPEC.

According to the draft amending law, failure to notify a concentration that is later prohibited by a SCPEC decision may result in the imposition of a penalty of up to 5% of the proceeds received by the economic entity in the year preceding the date of the violation.

Simplified procedure of concentration

A simplified procedure of notification is proposed to be introduced for participants in concentrations acting on different product markets, where the absence of grounds for prohibiting the concentration is obvious.

Grounds for prohibiting concentration

The following list of grounds for prohibiting concentrations is proposed to be introduced:

  • if a concentration will result in the limitation, prevention or prohibition of economic competition on the relevant product market, or will otherwise adversely affect economic competition on the economic market;
  • if a concentration will result in a dominant position or the strengthening of a dominant position; 
  • if a concentration will adversely affect the interests of consumers (ie, will cause damages to the interests of consumers); 
  • if a participant of the concentration has failed to provide data that SCPEC deems significant to evaluate the influence of the concentration on the relevant product market, and receiving such data from other sources is impossible; or
  • if a participant of the concentration has provided false information that SCPEC deems significant to evaluate the influence of the concentration on the relevant product market, which has adversely affected the process and the results of the examination conducted by SCPEC.

The discussions regarding the above-mentioned legislative package are still in progress and the provisions of the final edition of the law may ultimately be modified, although there is little possibility of the package being modified substantially in the National Assembly once it is approved by the Cabinet.

Employment Law and Foreign Residents

The Armenian Government approved the Plan for the Introduction of an Electronic System of Work Permit Granting and Registration of Employment Contracts with Foreign Employees on 30 April 2020. This is good news for local employers who keep foreign staff or plan to contract migrant employees, since the approved Plan aims to facilitate the procedure for granting work permits by way of replacing the existing bureaucratic chains with an electronic system operating under a single window. Successful implementation of the Plan requires the introduction of changes to the legislation currently in force and several technical solutions; according to provisional forecasts, the new procedure might be enforceable no sooner than early 2021.

What changes?

According to the current legislation, a foreigner working under a work permit is entitled to reside in Armenia as long as their residence permit or visitor’s visa is valid. Short-term employees may work in the country during the effective period of a visitor’s visa that was received before arriving in the country, while long-term employees have to apply for a residence permit based on the work permit granted by the Employment Agency of the Ministry of Labour and Social Affairs (Employment Agency).

The anticipated changes to the law imply the introduction of a new type of visa type, the labour visa (A-Visa), which will constitute part of the work permit acquisition process. At this point, there is a lack of clear understanding of what exact procedure migrant workers will have to pass through to get a right to work in Armenia, but it is likely that the A-Visa will allow foreigners to lawfully enter Armenia in order to commence the second round of the work permit acquisition process. At the same time, it will enable national security bodies to start the checks on foreigners during the process of evaluating an A-Visa application. The proposed legislative changes would enable foreigners to stay in the country during the period of validity of the work permit (which cannot exceed one year), without need to apply for a further residence permit.

The Armenian Government plans to develop a new electronic system to maintain the register of unemployed citizens of Armenia, which will be operated by the Migration Service of the Ministry of Territorial Administration and Infrastructure of Armenia (Migration Service). The Plan provides that the decision-making function with respect to granting work permits will pass to the Migration Service; authority for providing work permits is currently delegated to the Employment Agency.

Anticipated procedural changes

Conceptually, the steps to be taken for the acquisition of a lawful right to work and reside in Armenia are as follows:

  • Step 1 – an employer wishing to contract a foreigner submits an application through the electronic system, including a job description of the vacant position.
  • Step 2 – the e-system conducts an automatic search of local unemployed individuals (Armenian nationals) by comparing the job description provided by the employer with the data on local candidates looking for a job. Where there is no data on local candidates looking for the same job, the Employment Agency authorises the employment contract with the foreigner. If the e-system detects a local candidate that meets the job description requirements, the employer will have to consider filling the vacancy with the local candidate. If no employment contract with the local candidate is signed in the period prescribed by the law, the Employment Agency authorises the employment contract with the foreigner.
  • Step 3 – the employer inputs data on the foreign candidate together with the necessary documents in the electronic system.
  • Step 4 – the electronic system submits the data on the foreign candidate to the National Security Service and Police to commence the relevant checks.
  • Step 5 – if there is a positive outcome from such checks, the Migration Service issues an electronic document that confirms the possibility of granting a work permit to the foreigner.
  • Step 6 – the foreign candidate submits an A-Visa request to the Armenian consulate together with an e-document evidencing his or her eligibility for a work permit, within the timeline specified in such e-document. A-Visas will be granted only by the Armenian consulate operating abroad.
  • Step 7 – the employer signs an employment contract with the foreigner once he or she arrives in Armenia. Thereafter, the employee applies to the Migration Service by submitting said employment contract together with other required documents, and the Migration Service grants a work permit that is effective for up to one year.

Rules for specific categories of foreigners

Foreigners included in the list of work permit exemptions (including but not limited to the citizens of EU Member States) are planned to be allowed to reside and work in the country even after the expiry of their visitor’s visa or after a period of permitted non-visa stay, provided their employment contracts are recorded on the electronic system operated by the Migration Service.

AMERIA Legal and Tax Advisors

2 Vazgen Sargsyan Street
Yerevan
Armenia

+374 10 56 11 11

+374 10 513111

legal@ameria.am https://www.amerialegal.am/
Author Business Card

Law and Practice

Authors



Ameria Legal and Tax Advisors is one of the leading advisory teams in Armenia providing, under the umbrella of a single team, an array of comprehensively packaged solutions comprised of individually tailored business management, legal and tax advisory services. Located in Armenia, the firm effectively co-operate with clients providing them fully-fledged legal support for successfully doing business. Ameria support investors establishing businesses in industries such as IT, pharmaceuticals, finance, tourism, food and energy. The firm has a strong team of 15 professionals who are committed to providing an all-encompassing package of legal advisory and representation services to businesses and business individuals. During the last decade, Ameria was engaged in a number of major projects, its lawyers were instrumental while working on large-scale projects for clients such as Lannet, Philip Morris, Veolia Eau, Johnson&Johnson, Servier and CISCO.

Trends and Development

Authors



AMERIA Legal and Tax Advisors has one of the leading advisory teams in Armenia, providing an array of comprehensively packaged solutions comprising individually tailored business management, legal and tax advisory services. The firm co-operates effectively with clients, providing full-fledged legal support for successfully doing business in Armenia. It supports investors in establishing business in such industries as IT, pharmaceuticals, financial institutions, tourism, food, energy, etc. Ameria Legal and Tax Advisors has a strong team of 15 professionals who are committed to providing an all-embracing package of legal advisory and representation services to businesses and business individuals. During the last decade, Ameria has been engaged in a number of major projects for clients such as Lannet, Philip Morris, Veolia EAU, Johnson & Johnson, Servier and CISCO.

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