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Free economic zones in the Republic of Armenia

In 2011 the Law “On free economic zones” came into force. This legal act provides certain privileges in the conduct of business activities in some areas of the Republic of Armenia. Options for creating such zones are assigned to the Government of the Republic of Armenia, which also approves the order of their functioning. Free economic zones are intended to contribute to the progress of technological development in the Republic of Armenia, raising the level of economic development and job creation. However, it is also a profitable investment of funds into the FEZ (Free Economic Zones) for foreign investors, because the government in every way creates the necessary conditions for effective economic activity within the FEZ.

Definition of Free Economic Zone:

A Free Economic Zone is the designated area specifically provided for conducting economic activity, which is considered to be outside the customs territory of the Republic of Armenia and where entrepreneurial activity has certain features. These features are associated with liberal regulation in the field of taxation of products for individuals who are exploiters of free economic zones IE: are FEZ residents. There are several such zones already in the Republic of Armenia, with plans to create new ones in the near future.

The organizer is the legal entity that is created, or selected by the decision of the Government of the RA, to organize the activities of the FEZ. The organizers cannot be engaged in any other activities, except the organization of the FEZ. Their objectives are:

  • Preparation and maintenance of engineering structures and infrastructures for use by the residents within its territory;
  • The definition of the rules, which will operate within the FEZ;
  • The conclusion of contracts with the FEZ residents who have received permission from the Government of the RA and the control over their execution;
  • The establishing of internal security rules within the FEZ;
  • The reporting on the activities of the past year in the FEZ to authorized bodies of the Government of the Republic of Armenia;
  • The fulfillment of the obligations that will be offered to FEZ;
  • The application of efforts for international recognition of the FEZ and attraction of FEZ residents.

The powers of the authorized body of the Government of the RA include:

  • Proposing to amend the agreement on the organization of the FEZ, or its termination;
  • Supervision of the fulfillment of the obligations provided for by the contract on the organization of the FEZ;
  • Authority to check the resident requirements, issuance of permits for FEZ residents, giving recommendations to the Government of the RA;
  • To request reports from the FEZ residents about their operations;
  • To invite the Government of the RA to terminate the powers of the resident.

In the Republic of Armenia, the organizer, or legal entity must obtain a permit to build the FEZ from the Government of the RA. Creating FEZ occurs on the initiative of the Government of the RA, or by private initiative. In the first case after the decision on the establishment of the FEZ, an organizer is determined by the Ministry of Economy of the RA, according to the rules of the law “On state purchases” using the form of the competitive dialogue. In the case of establishment of the FEZ by private initiative, the applicant must submit an application for the establishment of free economic zone with the following documents:

  • The application;
  • A comprehensive list of services provided by the organizer and their price list;
  • A description of the FEZ, the purpose of the establishment and activities;
  • The proposed location, plan of the territory and in case of buildings and structures in the area – their projects and floor plans;
  • The proposed business plan.

To evaluate the application the Government of the RA creates a permanent inter-ministerial commission. The Commission within 20 (twenty) working days of the request, deliberates about the establishment of a free economic zone and sends its opinion to the Government of the Republic of Armenia, which discusses the feasibility of creating a free economic zone and the applicant’s appointment as its organizer. The applicant will be notified within three working days after the decision of The Ministry of Economy of the RA. In case of positive outcome The Ministry of Economy of the RA will conclude a contract with the organizer within 30 (thirty) days from the date of entry into force of the decision of the Government of the RA.

The activities on the territory of the free economic zone are carried out by the FEZ resident IE: exploiter, a commercial entity that is registered in the Republic of Armenia, sole proprietorship, branch, or representative organizations engaged in entrepreneurial activities solely in the FEZ. They must obtain permission from the Government of the RA for the activities within the FEZ and conclude an agreement with the organizer.

In the course of their activities the FEZ residents are exempt from the obligation to pay:

To obtain this permission the resident must submit a business plan to the authorized government body, on the basis of which the latter will make a decision. Additionally, the FEZ resident is obliged to:

  • Build up the area of the FEZ as set up with the organizer and aligned with the development plan;
  • Ensure that their activities are aligned with the legislation of the RA and the procedures of the FEZ;
  • Follow all the requirements of safety rules and requirements specified in the contract.

To obtain permission from the Government of the Republic of Armenia to carry out business activity in the FEZ applicant must submit:

  • The application;
  • The business plan;
  • A certificate from the organizer setting the conditions of business in the territory of the free economic zone.

The commission within the period of 15 (fifteen) working days considers the submitted documents and evaluates the business plan. After this, the commission makes a determination sent to the Government of the Republic of Armenia. The Government of the RA within 21 (twenty one) working days makes a decision whether to issue or refuse a permit. Within three months from the date of issue of a permit, the applicant and the organizer conclude an agreement. After the conclusion of this agreement between the parties, within three working days The Ministry of Economy provides a certificate to the applicant for authorization to conduct business activities in the FEZ. Within one business day after the issuance of the certificate, The Ministry of Economy of the RA sends a copy to the State Revenue Committee of the RA.

Business plans are evaluated based on the below criteria:

  • The export policies, directions and volumes;
  • Compliance with project objectives and operations, which created the FEZ;
  • The use of technological innovation;
  • The number of jobs and other social benefits;
  • The total investments;
  • The information about the main strategic partners, if any.

The activities of the FEZ resident may be terminated by the decision of the Government of the RA, based on the following grounds:

  • On voluntary decision of the FEZ resident;
  • In case of termination of the contract between the resident and organizer;
  • In case of liquidation of the free economic zone;
  • In case of deadline expiry;
  • In the event of a breach, or failure to perform the requirements of the permit;
  • In case of implementation of forbidden activities on the designated territory of the FEZ.

The following activities are forbidden in the FEZ:

  • To produce and engage in the purchase and sale of radioactive substances;
  • To produce and trade in arms, explosives and ammunition;
  • To import, store, produce, or trade in narcotic and psychotropic substances without a permit.

When entering and leaving the territory of the FEZ, individuals, vehicles and goods are subject to mandatory customs control. For convenience, the delivery of public services on the territory of the FEZ, the principle of “one window” applies. This means that all the works on the transfer of applications, providing information on the transfer of the results of the provision of public services to residents, registration certificates are performed by a single body, except for matters relating to the customs declaration.

Activities that are not included in the FEZ resident’s permit issued may be exercised only on the territory of the FEZ by entrepreneurs and legal persons who are not FEZ residents. Their work will not be considered outside the remit of customs border of the RA. The tax benefits of the FEZ residents do not apply here. The FEZ can be eliminated before the term by the decision of The Government of the RA. However, the organizer and the FEZ residents are qualified for mandatory compensation of any losses incurred as a result of this decision. All disputes regarding the implementation of activities in the FEZ are settled on the basis of the legislation of the RA. In the event of a dispute between residents, disputes are also settled through international arbitration.