Free Economic Zones in Armenia

The Law of the Republic of Armenia “On free economic zones” entered into force in 2011. This legal act provides certain privileges when carrying out entrepreneurial activity in some areas in the territory of Armenia. The functions on creating free economic zones belong to the Government of the RA. The Government also establishes the order of their functioning. Free economic zones are designed to facilitate the progress of technological development in Armenia, increase the level of economic development and create new individual working places. However it remains very profitable for foreign investors to make investments in FEZ, because the Government do its best to create necessary conditions for conducting effective economic activity.

What is the free economic zone?

Essentially the free economic zone is a special area which is deemed to be beyond customs area of the Republic of Armenia, wherein entrepreneurial activity is carried out in accordance with certain peculiarities. These peculiarities concern with the liberal regulation in the scope of taxation for persons, appearing operators of FEZ (residents). Several free economic zones has already been established in the territory of Armenia and the Government intends to create the new ones in near future. Organizer of the free economic zone in Armenia is a legal entity founded by the Government or selected upon the decision of the Government of the RA with the aim of organizing functioning of FEZ. The organizers cannot carry out other types of activities other than organizing free economic zones. The aims of the organizers are:

constructing and exploiting the engineering constructions and infrastructures for operators in the territory of FEZ;
defining internal safety rules of FEZ;
concluding contracts with the operators, which have obtained authorization from the government and controlling over their implementation;
defining rules of functioning of FEZ;
submitting reports to the authorized body on the activities for the previous year in FEZ;
fulfilment of the obligations of free economic zone;
implementation of measures aimed at the international recognition of the free economic zone and the engagement of operators therein.

The authorized body:

may recommend to make amendments to the contract on organization of the FEZ or rescind it;
shall exercise control over fulfilment of the obligations provided by the contract on organization of the FEZ;
shall exercise control over compliance of the operators with the requirements established by the authorization of operator and furnish the Government with a respective recommendation;
shall require reports from the operator on the activities in the FEZ;
shall submit a proposal to the government on withdrawal of the authorization.

Legal entity must acquire the permission for founding free economic zone from the Government of the RA to obtain a status of an organizer of the FEZ in Armenia. Free economic zone may be founded on the initiative of the Government or on private initiative. In the first instance after making decision on establishment of the free economic zone, organizer shall be defined by the Ministry of Economy in accordance with the Law of the RA “On public procurement” using the form of competitive dialogue. In case of establishment of the FEZ on private initiative, the applicant must submit an application on establishment of the free economic zone, attaching the following documents:

application;
list of services rendered by the organizers and prices for them;
description, aims of establishment and directions of activity of the free economic zone;
place of location, ground plan and the projects of the buildings and constructions on that territory (in case of presence);
business

Permanently operating commission shall be created for assessment of the applications. Stated commission assesses submitted application on establishment of the free economic zones within 20 days and transfers a relevant opinion to the Government of the Republic of Armenia, which discusses the appropriateness of establishment of the free economic zone and appointing the organizer. The Ministry of Economy gives notice to the applicant on the decision of the Government within 3 days of making decision. If the application of the applicant was gratified, the Ministry of Economics of Armenia shall conclude a contract with the organizer within 30 days from the date of entering into force. Activity on the territory of the free economic zone is conducted by the operator. The operator is a commercial legal entity, registered in the Republic of Armenia, an individual entrepreneur, branch or representation of the organization, carrying out entrepreneurial activities solely in the free economic zone. Listed entities must hold authorization of the Government of the RA and conclude a contract with the organizer to perform activities in the FEZ.

When conducting activities the operators are not obliged to pay:

profit tax;
value added tax (VAT);
property tax;
customs duty.

The operator need to submit a business plan to authorized body of the Government, based on which the latter will take decision. He also must:

construct in the area of the free economic zone in accordance with the plan by agreeing it with the organizer;
provide compliance of its activity with the legislation of Armenian and rules of procedure of the FEZ;
comply with safety rules of the FEZ and requirements defined in the contract.

For obtaining authorization from the Government of Armenia for performing entrepreneurial activity in the free economic zone, the applicant must submit:

application;
business plan;
reference from the organizer on conditions of activity in the free economic zone.

The commission shall examine submitted documents within 15 working days and assess business plan. After it the relevant opinion of the commission must be submitted to the Government of the RA. The Government of the Republic of Armenia shall, within a 21-day period, adopt a relevant decision on either granting a permit or refusing the application. The applicant and the organizer shall conclude a contract within 3 months after the decision to grant the permit enters into force. After conclusion of the contract between above mentioned parties the Ministry of Economy shall grant a permit certificate to the applicant within 3-day period. After granting the certificate, the Ministry shall submit the copy of the certificate to the State Revenue Committee within 1 day.

Business plan shall be assessed on the base of:

export policy, destination and volume;
compliance of the plan with the aims of establishing the free economic zone and its operational nature;
use of technological innovations;
number of employees and other social actions;
amount of total investments;
information on key strategic partners (where appropriate).

The activity of the operator may be terminated by the decision of the Government by virtue of:

the request of the operator;
the termination of the contract between the organizer and the operator;
the liquidation of the free economic zone;
the expiration of the term established by the permit;
the violation of or non-fulfilment of the requirements fixed by the permit;
carrying out activity prohibited in the territory of the free economic zone.

In the territory of the free economic zone is prohibited to:

produce or sell radioactive substances;
produce and sell arms, ammunition, and explosives;
import, store, produce and sell narcotic drugs and psychotropic substances without appropriately issued permit.

Individuals (natural persons), transport and goods are subject to obligatory customs control when entering or leaving the free economic zone. In order to make the provision of state services more convenient the Government established the principle of “one window”. It means that all cases on submission of the applications, providing with information, transferring the results of rendered state services to the operators, issuing references and so on shall be carried out by the Single Reception Body, except the matters on customs clearance. Types of activities which are not established in the permit issued to resident maybe only be carried out by individual entrepreneurs and legal entities, who don’t appear the operators in the territory of the free economic zone. Their activity will not be considered as the activity which is carried out beyond customs area of the Republic of Armenia. In this way the privileges of the operators don’t extent to the latter.

Upon the decision of the Government of the RA the free economic zone may be liquidated before the established term. However, damages incurred by the organizer and the operators in result of the liquidation must be compensated. All disputes with regard to the operations in the FEZ shall be resolved in accordance with Armenian legislation. If there is a dispute between the operators of the FEZ, the settlement may also be carried out through international arbitration.