Armenia

Over the past few years Armenia has been laying the groundwork for a more transparent and business friendly environment. One domain that has great potential but somewhat remains untapped, is arbitration. In today’s rapidly changing global market, investors look for fast results, impartiality and flexibility, something that can be achieved through arbitration and not traditional court proceedings. For Armenia, providing this level of efficiency should not just be optional; it should be a necessity, since we are closer than ever to making arbitration a defining feature of our legal and business landscape.   The Armenian landscape: What’s the Current Status? Armenia is no longer a trend follower; it has gained solid momentum in arbitration. Adopting UNCITRAL Model Law in 2006 was its beginning. The real progress should be in how we continue to adapt and meet the evolving needs of foreign investors and businesses. We are, I believe, moving beyond theory, and the ongoing shift from policy to real-world application reflects Armenia’s growing commitment to becoming a key player in the region’s arbitration landscape.   What Needs to Happen for Armenia to Move Forward Armenia has come a long way in positioning itself as a reliable and business-friendly destination. In fact, it may be further along in arbitration than many may realize. The legal infrastructure is ready and the international ties are improving. Geographically, it is uniquely positioned between Europe and Asia and this could be a great opportunity to become a regional arbitration hub in the South Caucasus. What is needed now is not a complete overhaul, the right steps simply need to be taken to fully tap into the potential. As Armenia steps deeper into regional trade, especially with major initiatives like the North-South Transport Corridor, arbitration is becoming more than relevant. It is essential. Its location between Iran, Russia, and the EAEU gives it real leverage, and trade is growing fast. Sectors like banking, logistics, and infrastructure are seeing more cross-border deals and with that comes risks, not every deal goes smoothly, and that’s exactly where arbitration plays a crucial role. The North-South Corridor is already changing the game. It is bringing in investments, improving infrastructure, and creating long-term commercial links. Naturally, this dynamic creates the need for reliable dispute resolution. Armenia has what it takes. But now, it is about sharpening the tools. We need more institutional backing to ensure international partners see us as stable, fair, and ready. With a few smart moves, Armenia can position itself as a trusted hub for resolving regional trade disputes not just in the INSTC, but well beyond it. That said, the next step should focus on encouraging a mindset shift by raising awareness and education, particularly among the local business community. While arbitration as an alternative dispute resolution method is gaining popularity, there is still a need for more open dialogue and hands-on guidance to help with the shift, people need to see real examples and tangible benefits. Institutional support is the next crucial step. Armenia is becoming more active in the global arbitration scene and it is no longer sitting on the sideline. It is strengthening its connections with respected international arbitration institutions such as ICC. With more support and presence from these bodies, it can gain greater trust amongst international investors that shows Armenia is engaged, forward-thinking and serious about creating incentives and favorable conditions. Moreover, making a few practical moves could go a long way, such as offering incentives by reducing arbitration related fees and promoting contracts that are arbitration-ready and include clear clauses. These may seem like minor adjustments, but they could create a real difference and encourage more businesses to choose arbitration from the outset. With all that said, the vision of becoming an arbitration hub is not far-fetched, the path is being paved, the foundation is solid. With just a few constructive refinements, we can own that space.   Why Arbitration Matters for Armenia’s Future Arbitration should not be merely seen as an alternative legal tool, it is a strategic asset tied directly to Armenia’s future economic growth. The global trend is clear, according to The World Bank, countries with strong arbitration systems attract more foreign direct investments (FDI). And it makes sense, Investors need reassurance that their interest will be protected at all cost and building that foundation of trust can go a long way. By leveraging arbitration, Armenian can offer exactly that, a solid sense of security and trust for foreign investors. This kind of reputation does not just bring in capital, but more importantly builds long-term partnerships, strengthens the economy and positions it on the international map. At this stage, arbitration is not just ‘nice to have’, it is a critical component in turning this country into a thriving and investment-ready nation.   Looking Ahead: What It’ll Take Arbitration has the potential to fundamentally transform the way business is done in Armenia. It is a strategic key that can unlock real economic growth and long-term trust in the system. It has the chance to go from being a place where business just happens to a place where it thrives. The adoption of the Model Law was only the beginning, the real change has to happen in the mindset. Arbitration should not be seen as an alternative, it should be the default way that commercial disputes are handled, efficient, and forward-thinking. So, what’s next? More legal professionals need to be trained, and more systems that support arbitration must be built at every level to make it part of the business DNA. By doing this, Armenia would not only encourage foreign investment, but also build something sustainable, a solid foundation of trust and clarity that international partners can rely on. The vision is already in motion, and the structure is solid. With just a few strategic moves, Armenia can become a trusted arbitration hub in the region.     This analysis is provided by Ms. Ani Davoodi, an Australian-registered international lawyer, currently visiting ELL Partnership Law Firm to support legal research and cross-jurisdictional exchange. The analysis is edited by Taron Simonyan, Founder of ELL Partnership Law Firm.

Concern Dialog's Senior associate, attorney Shushanik Stepanyan has prepared an client note on the amendments to the Labor Code in Armenia concerning Forced Downtime Compensation and the Digital System for Signing Employment Contracts. A separate section also addresses the draft law on Work Hour Reduction. Recent and Expected Changes in the Labor Code To raise public awareness, below we will discuss the recent and anticipated changes in the Labor Code of the Republic of Armenia (hereinafter referred to as the Labor Code or the Code). Regarding the amendment on payment for forced downtime: With the RA Law "On Amendments and Addendums to the Labor Code of the Republic of Armenia," dated October 2, 2024, No. HO-364-N, an amendment has been made to Article 265 of the Labor Code. The law came into force on November 24, 2024, and will apply to compensation obligations for forced downtime arising from judicial acts that were issued and came into legal effect as a result of claims accepted for proceedings after the law's entry into force. What was the situation before the law came into force? Before the mentioned amendment came into effect, under the existing regulation, if an individual legal act regarding dismissal was invalidated by a court decision, the court was obligated to require the employer to compensate the employee for the entire period of forced downtime. This was the case regardless of whether the employee had started working for another employer after the termination of their employment with the original employer. Now, when handling labor disputes, courts must take into account whether the employee has started working for another employer after the termination of the employment relationship. What necessitated the change? Although the law stipulates that labor disputes must be reviewed by the first-instance court within three months, this timeframe is typically not adhered to. This is due to factors such as the heavy workload of courts or motions submitted by participants in the proceedings that lead to delays. Additionally, the time required for higher courts to review cases—especially in instances where cases are sent back for re-examination—can significantly extend the overall duration. Under these circumstances, employers often find themselves in a particularly unfavorable position. Regardless of their fault or lack thereof, they are required to pay employees larger sums than they would if the procedural deadlines were met. In practice, many labor disputes take three years or more to resolve. The negative financial burden falls entirely on the employer, who is obligated to compensate the employee for the entire period of forced downtime, including the time consumed by court proceedings. What changes have been introduced? From now on, if an employee starts working for a new employer after the termination of employment with their previous employer, compensation can be claimed from the previous employer for a maximum of nine months of forced downtime, rather than for the entire period of forced downtime with the previous employer. How will payments be made? If the employee worked for the previous employer for more than nine months, they will be compensated for forced downtime based on the last nine months’ salary they earned at their previous job. If the employee worked for the previous employer for less than nine months, they will be compensated based on the salary they earned during the actual period of employment with the previous employer. If the employee earns a lower salary at the new employer compared to the previous one, the positive difference between the salaries will also be compensated. Specifically, the salary received at the new job will be subtracted from the salary earned at the previous job. If the difference is greater than zero, that amount will also be paid to the employee for the relevant period. Regulations on the Introduction of a digital system The RA Law "On Amendments and Addendums to the Labor Code of the Republic of Armenia," dated December 4, 2024, No. HO-525-N, introduces the possibility of implementing a digital system for signing employment contracts. What does the digital system for signing employment contracts entail? The digital system for signing employment contracts (hereinafter referred to as the "Digital System") will be a separate module within the electronic reporting system of the State Revenue Committee. Through this module, employers and employees will have access to an electronic interface (personal account). Employment contracts will be signed using an electronic digital signature via the Digital System. This means that once the Digital System is implemented and becomes mandatory, all employees will be required to have an electronic digital signature to sign contracts through the system. Who will have access to the Digital System? Access to the Digital System will be granted to the following entities: Inspection Body The Inspection Body will have access to the data within the Digital System to the extent necessary for performing supervisory functions prescribed by law. This includes monitoring compliance with the requirements of labor legislation, other normative legal acts containing labor law norms, and collective and employment contracts within the scope of their legally assigned powers. Relevant departments of the State Revenue Committee of the Republic of Armenia These departments will have access to the data in the Digital System to the extent necessary for verifying the proper documentation of an employee's hiring or registration applications, as well as ensuring tax control over calculated and paid income, income tax, social contributions, and other mandatory payments, as required by their legally assigned powers. Migration and Citizenship Service of the Ministry of Internal Affairs of the Republic of Armenia This body will have access to the data of foreign workers within the Digital System to the extent necessary for processing administrative proceedings initiated based on applications submitted through the unified electronic platform work permit. Employers and Employees As mentioned earlier, employers and employees will be provided with access to their electronic data through a personal account within the Digital System. In cases where employment relationships involve individuals under the age of 16, access to electronic data will be granted to the parent, foster parent, adoptive parent, or guardian who signs the employment contract. What problems will the Digital System address? The basic access provided by the Digital System will enable the Inspection Body to conduct effective monitoring, uncovering violations of labor legislation, including breaches of employment contract terms. The presence of the Digital System will eliminate the established practices of backdated contract signing, failing to register actual employment with tax authorities (illegal employment), or underreporting actual wages in contracts. The Digital System will allow employees to independently monitor the preservation of their rights arising from employment relationships. It will help them avoid situations involving illegal employment or exploitation. When will the Digital System regulations take effect? July 1, 2025: The regulations regarding the Digital System are planned to take effect on this date. During the initial phase, the signing of employment contracts via the Digital System will be voluntary. This transitional period will allow employers to adapt to the new system while identifying and addressing potential system flaws. January 1, 2026: From this date, signing, terminating, and amending employment contracts will be conducted exclusively through the Digital System. This timeline also aligns with the mandatory requirement for all individuals to submit annual income tax calculations (declarations) starting in 2026, as access to the Digital System will be integrated with the platform for filing declarations. What should employers do? Starting from January 1, 2026, within a twelve-month period, employers must input the employment contracts of their current employees into the Digital System (if those contracts were not originally signed through the Digital System). These contracts must be entered with their terms as they stand at the time of entry. The procedure for entering employment contracts signed before the law comes into force into the Digital System will be defined by the Government of the Republic of Armenia. What penalties are foreseen for violations of the Digital System regulations? Considering that the Digital System is a new tool requiring time for adaptation, the following penalties will apply (Article 41 of the "Code on Administrative Offenses"): First Violation: A warning will be issued. Repeated Violations Within One Year: If an employer commits another violation within one year after being subjected to an administrative penalty, a fine equivalent to fifty times the minimum wage (50,000 AMD) will be imposed on the employer. Expected Amendment to the RA Labor Code On the e-drafts.am platform, a draft law titled "On Amendments and Addendums to the Labor Code of the Republic of Armenia" is currently under discussion. This draft proposes to reduce working hours from 8 to 7 hours per day and from 40 to 35 hours per week, while maintaining current wages. The author of the draft is the Ministry of Labor and Social Affairs of the Republic of Armenia. Objective of the Draft: According to the authors, the adoption of the draft will promote the efficient allocation of time and resources between work and personal life (work-life balance). Specifically, it aims to provide opportunities for: ncreasing rest time. Spending more time with family. Reducing stress, tension, and overwork. Addressing personal issues fully. Allocating more time for self-development. Achieving balanced involvement across all spheres of life. Expected Benefits of the Draft: The draft is anticipated to: Increase work efficiency. Lead to productivity growth. Balance the relationship between work and rest. Enhance quality of life. Contribute to the creation of new jobs in both the public and private sectors. Current Status: The draft has not yet been included in the agenda of the National Assembly of the Republic of Armenia.

A. Adoption of Basel III and Regulations. The implementation of Basel III, the new regulation developed by the Basel Committee on Banking Supervision in response to the 2007–2009 financial crisis, was a lengthy process in Armenia, concluding only in 2022. Basel III introduced new rules for the structure of banks' capital and assets, aiming to enhance the stability of the banking system by increasing both the quantity and quality of liquid assets. This regulation found its local and adapted reflection in "Regulation 2" on the "Regulation of Banks' Activity, Main Economic Normatives of Banking Activity," issued by the Board of the Central Bank of Armenia (CBA) and periodically amended. B. Subordinated Loans as a Capital Element for Banks. Regulation 2 provides banks the opportunity to attract subordinated loans under specific rules for capital replenishment. Subordinated loans can supplement banks' Tier 2 capital if they meet the specific requirements outlined in the regulation. For example, such loans must have a minimum term of five years, and early repayment requires CBA approval. In the event of financial distress, these loans may be converted into equity, transferring business risk to the lenders and acting as financial buffers for struggling banks. C. Opportunities for Issuing Subordinated Bonds. A review of international experience reveals that the market for subordinated bonds is currently experiencing significant growth, driven by the expansion of the private credit market and investors' search for higher returns. This presents a new opportunity for Armenia to attract foreign (and domestic) direct investments through the issuance of subordinated bonds by banks. To realize this potential, the current regulations should be adapted to accommodate the issuance of such bonds, which are particularly suited to these conditions. Additionally, it is worth considering the issuance of bonds without principal repayment, whose terms could align with those of shares and serve as primary capital (core or additional) for banks. D. Simulation of Subordinated Bond Issuance. Simulations conducted by our company indicate that uncertainties surrounding the timing, terms, and conversion process of subordinated bonds may deter banks from making decisions to issue subordinated debt. Furthermore, the publicity associated with such bonds could be seen as an unnecessary burden for banks in managing their financial condition. Lastly, the CBA’s broad discretionary powers in prohibiting early repayment may be viewed as a significant disincentive, particularly for smaller investors. E. Conclusion. The issuance of subordinated bonds offers a new opportunity to activate Armenia's capital market, including the attraction of foreign investments. To make these debt instruments appealing to foreign (and local) investors, it will be necessary to adapt the regulations governing subordinated loans and limit the regulator's broad discretion over repayment terms. Author: Got Margaryan (Mr)

Finally, after a long silence, the Republic of Armenia legally acknowledges that crypto-assets exist and is attempting to regulate relations in connection with the latter. This is evidenced by the Law on Amendments to the RA Civil Code, already adopted in the first reading by the RA National Assembly on June 13 2024, which clearly stipulates that a crypto-asset is property that has value or certifies a right. As part of the same legislative initiative, several other laws are being amended, in particular the RA Law ‘'On confiscation of property of Illegal origin’’, where the term “cryptocurrency” is being replaced by the term crypto-asset. It is surprising, however, that within the framework of this initiative; the Tax Code of the Republic of Armenia (the “Code”) remains unchanged, despite the fact that tax policy has occupied a central place in the public life in Armenia in recent years, particularly concerning fair and equitable collections. If there was no need to amend the Code, it presumably means that the provisions of the latter regarding the taxation of crypto-assets are comprehensive, clear, and predictable, reflecting the standards of countries with a democratic governance system. Therefore, all we have to do is to apply the laws to find out what kind of value-added tax, profit tax, and income tax obligations arise for individuals and legal entities when dealing with crypto assets. Our analysis begins with the immediate exclusion of the application of the Civil Code of the Republic of Armenia to clarify the terms within the Code, as Article 2 of the Code excludes the use of the RA Civil Code for this purpose. Therefore, the definition proposed by the new amendment is not applicable, and the Code should be considered a separate eco-system for interpretation and application. Value Added Tax According to Article 60 of the Code, transactions involving the supply of goods and provision of services are considered subject to value-added tax taxation. Moreover, the Code clearly states that the disposal of an intangible asset, as well as the provision of the use of an intangible asset, is considered a transaction for the provision of services. It is difficult not to notice that according to Article 4 of the Code, the terms 'asset' and 'intangible asset' adopt the logic of the RA Civil Code, which defines an asset as any property, property right, and personal non-property right. However, based on the fact that the Code excludes the application of the RA Civil Code to determine the meaning of its terms, it is unclear how the concepts of 'property', 'property right', and 'personal non-property right' should be interpreted. However, assuming that crypto-assets will at the very least be considered intangible assets within the meaning of the Code, it follows that any disposal or provision for their use will be subject to VAT. For example, if a legal entity operating a crypto-asset exchange trades AMD for crypto-assets, VAT must be added to the exchange price. This approach, of course, contradicts first of all the primary purpose for which crypto-assets are used. More developed countries, such as the USA, have regulated this issue in favor of the fact that the exchange is an exchange of two equal values and does not cause tax consequences. Income tax It also turns out that, following the aforementioned logic, the legal entity receiving cryptocurrency and paying funds to an individual must act as a tax agent and pay 10 percent income tax to the RA budget from the transaction amount (Article 150.9 of the Code). Understandably this regulation is also problematic and contradicts the essence of operations involving crypto-assets. If the goal is to tax profits, then individuals should be allowed to deduct costs, and the institution of the tax agent should be abolished, instead, enabling individuals to pay income tax on the difference between the initial and final value of the crypto-asset. Profit tax The provisions on profit tax will likely yield a result where legal entities will pay taxes on their profits. However, questions related to the valuation and revaluation of crypto-assets and their obligations remain open, which again creates uncertainties regarding their tax base. Conclusion To conclude, the provisions of the Code with regard to taxation of crypto assets are very uncertain and such uncertainty shall be interpreted to the benefit of the taxpayers. It does not bring predictability in terms of how much resource will be spent by the economic agents to protect their rights of making use of the uncertainty but currently it’s the cost of doing business with cryptocurrencies in Armenia. Author: Got Margaryan