Dozens of small information technology (IT) firms set up in Armenia recently have reportedly been granted tax breaks which the Armenian government hopes will give a further boost to the fastest-growing sector of the domestic economy.
Under a government bill passed by the National Assembly in December, they will be exempt from profit tax until the end of 2019. They will also enjoy a preferential income tax rate for their employees, equivalent to 10 percent of their gross wages. The minimum payroll tax rate in Armenia is set at 24.4 percent.
The tax breaks are granted on a case-by-case basis by a special commission comprising not only government officials but also representatives of the country’s burgeoning IT industry. IT startups employing up to 30 people can apply for such privileges by December 2017.
“We had expected that an average of 40 companies will be set up [for the tax breaks] annually, but we issued [tax credit] certificates to this many firms as of September 9,” Bagrat Yengibarian, a member of the government commission, told the Armenpress news agency. “We are very happy that most of these companies are aiming to create their own products and sell them in the Armenian and international markets.”
Yengibarian, who also heads Armenia’s Enterprise Incubator Foundation promoting the spread of IT, said many of those firms are run by young IT specialists who have “worked at home” for foreign clients and have paid no taxes until now. “They are now coming out and registering firms,” he said. “It looked as though we [the state] will lose money by exempting them from taxes, but no, we will actually earn the state budget more revenue. We are enabling people to enter the tax field without fear.”
In Yengibarian’s words, the 40 startups cleared by his commission are currently employing 171 people. “They are tiny now but they will have a lot of revenue in the future,” added the official.
According to government data, nearly 400 IT firms operated in Armenia as of last December. Their combined output soared by 25 percent to $475 million last year. The figure was equivalent to about 5 percent of Armenia’s 2014 Gross Domestic Product.
The Armenian IT sector, which is dominated by local subsidiaries of U.S. software giants, generated only 1.7 percent of GDP in 2010. The total number of skilled personnel working there has since more than doubled to around 11,600, the government figures show. The export-oriented sector expanded by an average of 22 percent annually from 2008-2013.
Much of this rapid growth has been driven by U.S. hi-tech firms such as Synopsys, National Instruments, Mentor Graphics and VMware.
Several other international hi-tech heavyweights have established or stepped up their presence in Armenia in the past several months. Oracle, the world’s second largest software developer, opened a branch in Yerevan in November 2014, while Taiwan’s D-Link Corporation, a leading manufacturer of computer networking equipment, inaugurated its newly constructed research and development center in Gyumri in May 2015. Later in May, Microsoft announced plans to open in Yerevan soon a regional center for mobile applications and so-called “cloud computing,” which allows such software to be operated over the Internet.
The government expects the sector’s double-digit growth to continue unabated in the coming years. Some government officials have forecast that its annual operating revenue will pass the $1 billion mark by 2019.