What kind of support is available to a startup in Armenia
Launching a startup in Armenia is a good idea for businessmen who want to get a return on their investment. According to Forbes, this Caucasian country is a world-class tech hub. The state supports newcomers and develops technologies. It is easy to start your business here and to register ownership. In these categories Armenia takes 10 and 13 places in the Doing Business ranking prepared by the World Bank. This article will tell you what kind of support is available to a local company and where this support can be found.
Ecosystem in Armenia
High tech is one of the country’s priorities. For IT startups the income tax rate is 0% and the payroll tax rate is 10%. According to the government, in 2019 230 entrepreneurs benefited from these preferences and invited over 1000 workers.
The turnover of tech companies grows by 20 to 25% annually. Record increase was observed after the 2018 revolution when the tech sector grew by 33% and reached 250 million USD. Finances keep growing despite COVID-19 and related restrictions. At the end of 2020 the turnover increased by 20% and reached 380 million USD.
Armenia provides a good environment for a pre-seed round when a startup tests a hypothesis and makes sure a product is viable. Here it is convenient to develop a product and to execute a beta launch, to search for investment from Europe and Americas if a company already has a final product and sales reports.
The advantages of the region: a strong tech school and an active Armenian diaspora abroad, including the Silicon Valley. Successful projects include PicsArt, Vineti, Krisp, IntelinAir, ZERO, TruePublic.
Besides, VMWare, Cisco, Oracle, Synopsys and other strong players open new branches in the country.
Why you should register a business in Armenia
- Speed: a business will be registered in under 3 days.
- No state fees on registration.
- No need to rent an office.
- All capital can belong to a foreign citizen or a foreign legal entity. You don’t have to reside in the country. The charter capital can be equal to 1 EUR.
- An entrepreneur can get a residence permit and apply for citizenship in three years.
- Citizens and foreigners have equal rights when stating and doing business.
- Manufacturers get access to the European and Asian markets. It is easier to export and import goods, you have access to a broader market.
- Low taxes on dividends and on real estate profits. No other fixed payments.
How to start a business in Armenia
You should register your company in the State register of legal entities. You will need:
- Passport of the director and a copy of it.
- Three versions of the original company name.
- Resolution on establishing a company or minutes of a shareholders meeting.
- The charter and corporate documents.
- A legal address.
- Notarized translations of Russian documents into Armenian.
The company will be included in the register within two or three working days. Afterwards you will need to open a bank account and to pay up the charter capital. There are no strict requirements to the amount of it, it is recommended to deposit 50 000 AMD (90 EUR).
The next step is registering with the pension fund, the tax inspection and the social insurance fund. You will need a passport, an extract from the State register of legal entities and a copy of the extract.
Which business structure to choose
- A sole entrepreneur
The requestor will be the sole founder who receives income and can be held liable.
- A limited liability company and an unlimited liability company
In this case there can be several founders. Decisions are made by the board of directors with the participation of all shareholders.
- A closed joint stock company and an open joint stock company
The liability of shareholders is limited by their share, all important decisions are made by the shareholders’ meeting.
- A representative office of a foreign company
A branch of an organization with headquarters abroad.
- A partnership.
No limitations on the founders’ liability, based on trust.
Taxes on small businesses in Armenia
- Turnover tax
If the annual turnover is below 115 million AMD (211 000 EUR), manufacturing companies and commercial organizations pay 5%. Companies that rent out properties pay 10% and those who provide notarial services pay 20%.
If the annual turnover of a company is above 115 million AMD (211 000 EUR), entrepreneurs will have to pay the value added tax (20% of the turnover).
Agriculture, insurance sector and companies involved in state programs are exempt.
- Land tax
Companies pays 0.5–1% of the cost of the lot. The rate depends on the territory where the lot is located.
- Excise tax
This tax is imposed on import and sale of alcohol and tobacco, oil, gas and petrochemicals.
- Property tax
For example, on cars, yachts, personal and commercial real estate. Depends on the type of property.
Tips to avoid difficulties
- You should carefully select employees. It is hard to find experienced professionals because many of them go to work abroad.
- You should open a bank account in Armenian currency. This will make your work easier.
- You will need a security team that will observe how employees perform their duties.
- You will need a control team to keep track of all stages of production, logistics and sales.
- A company needs a lawyer and an accountant. They will help you understand local laws and make the right business decisions.
- You should sign agreements, make contracts or at least ask for receipts. This will protect an entrepreneur if a partner breaks an engagement.
- Armenians are emotional, you should be ready to hold your ground.
The government of Armenia helps young people passionate about science and business to create new products, start companies and promote them on the local market. For that purpose the STEP program was established by the Ministry of Economy. The program provides educational support to startups and helps raise up to 6000 USD to finance a project.
The state changes the business environment thanks to the policy of openness. It is aimed at attracting foreign capital and international investment funds.
Some ministers are former heads of tech companies. So they are well aware of challenges faced by the IT sector. They share a common language with the business and help remove regulatory obstacles.
Where to look for investment
There are few venture funds and private investors in the country. So many newcomers start trying to enter major international markets even on the developmental stage.
The community has existed for five years already and it functions with the support of SMEDA, a European project. The investors are local entrepreneurs willing to invest up to 100 000 USD.
This network of 20 specialists has been on the market for three years. It was established by the co-founders of IntelinAir and Inverselogic as well as the founder of MLL Industries.
A community of Armenia-born entrepreneurs who are willing to invest in early stages. They also help with management, share their experience and knowledge.
This fund has been helping startups get starting capital and additional investment for the past eight years. It works with viable business plans and active startupers who are passionate about their ideas. There are branches in Yerevan, London and Singapore. The fund supports such projects as News Deeply and ggTaxi.
For the past seven years this fund has been investing in tech startups led by Armenian entrepreneurs around the world. It helps with money and connections by introducing founders to mentors from Silicon Valley. Its projects include Gecko Robotics and Discotech.
A Silicon Valley venture fund. Key areas include artificial intelligence, security, IoT, biotech, quantum computing and blockchain.
Incubators and accelerators
Here incubators often play the role of venture funds: they connect entrepreneurs with foreign investors, They also help young businessmen start and develop their projects.
You can find help in the country depending on your goals and stages of development. Some organizations will provide mentorship, others will explain legal nuances and provide an office.
Participation in acceleration programs provides useful connections, the right employees and helps meet future clients.
Here newcomers are taught to do business and to work with technologies. These programs will suit innovative startups and those who have only an idea of a potential project. They will help you create a product and test its viability, to develop a business plan, to promote the product and to raise funding for future growth.
The accelerator is launched under a UN program. Its doors are open to young projects and established companies from such sectors as education, food, agriculture and fintech.
This incubator looks for relevant ideas in IT and turns them into full-fledged companies, educates IT professionals and managers.
It also helps improve the legal environment in Armenia, promotes the idea of a digital society and works on the IT brand of the country.
It collaborates with the government and large companies such as Microsoft Corporation, SUN Microsystems, Cisco Systems.
It works on the basis of the American University of Armenia. It conducts educational sessions, sponsors lectures and hackathons, connects newcomers with more experienced entrepreneurs and coaches. The organization has a whole prototype laboratory with 3D scanners and printers where it is possible to quickly print a prototype of a future product.
It was established by founders of the SmartGateVC fund. Its goal is to launch programs that will provide the Armenian startup ecosystem with useful skills. It is interested in tech startups. It manages the coworking Home of Heroes (Don Geroyev) and the hackathon Startup Boost Weekend.
Students of major universities can join the Al Incubator course and be assigned mentors from tech companies. Priorities: cryptocurrencies, marketing, online security, media, biology, robots.
The incubator supports digital startups. It offers an office space, teaches financial and legal literacy, explains how to promote projects with PR and marketing, helps find mentors and financing.
This is a regional branch of Startup Grind, an organization that unites 2 million entrepreneurs from around the world. It connects young businessmen and investors. It is sponsored by Google for startups.
This organization helps startups break into international markets with programs Pre-Acceleration and Traction. The former teaches how to test ideas, to find clients and to promote a product. The latter helps participants improve results of their campaigns.
This is an incubator for social investments that will benefit residents of Armenia. Startups can get training, find a mentor and resources for development.
This organization helps scientists get access to foreign markets. The company focuses on developing IT, AI, robotics and other tech areas. 200 researchers raised funding thanks to its support.
The evolution of IT in Armenia shows which path a post-Soviet country can take to start building a modern digital state.
Thanks to the efforts of politicians, the diaspora and large companies, local startups can rely on professional consultations and funding in all stages of development. Let’s add unified tax principles and equal rights for residents and non-residents and we get a profitable platform that can pay for itself within several years.