Introduction
As businesses expand globally, Armenia has emerged as an attractive destination for international companies. With its strategic location between Europe and Asia, growing tech sector, and favorable business environment, many organizations are looking to establish a presence in the Armenian market. However, when expanding into Armenia, companies face a critical decision: should they use an Employer of Record (EOR) service or set up their own Armenian subsidiary?
This comprehensive guide examines both options in detail, providing you with the strategic insights needed to make an informed decision based on your company's specific needs, timeline, and budget.
Key Takeaway: Your choice between an EOR and a subsidiary should align with your long-term business strategy in Armenia, considering factors like time-to-market, investment capacity, and operational control requirements.
Understanding the Options
Employer of Record (EOR)
An Employer of Record is a third-party organization that takes on the legal responsibility of employing workers in a foreign country on behalf of another company.
Using an EOR in Armenia is legal as long as the provider complies with national labor and tax laws.
Armenian Subsidiary
A subsidiary is a separate legal entity incorporated in Armenia that is owned fully or partially by a foreign parent company.
Most foreign companies establish an LLC (Limited Liability Company) as their preferred subsidiary structure in Armenia.
Legal Requirements & Setup Process
EOR Legal Requirements
When using an EOR in Armenia, most of the legal burden falls on the EOR provider, but you should still understand the basics:
- Verify that your chosen EOR is properly registered in Armenia
- Ensure the EOR complies with the Armenian Labor Code, Civil Code, and other relevant employment regulations
- Review the EOR's processes for handling employment contracts that comply with Armenian law
- Check their procedures for tax withholding and social security contributions
- Verify their understanding of the Armenia's minimum wage requirements (AMD 68,000 monthly)
Subsidiary Setup Requirements
Setting up an Armenian subsidiary involves several legal steps:
- Determine the company structure (most foreign businesses opt for an LLC)
- Choose and verify a unique company name
- Prepare incorporation documents, including:
- Articles of Association
- Resolution to establish the company
- Power of attorney for representatives handling the registration
- Notarized copies of parent company documents
- Register with the State Register Agency of Armenia
- Obtain a tax identification number
- Register with social security authorities
- Open a corporate bank account in Armenia
Important Note: While Armenia doesn't have a minimum capital requirement for establishing an LLC, adequate capitalization is recommended based on the planned business activities.
Cost Comparison
Understanding the financial implications of both options is crucial for making an informed decision:
| Cost Factor | Employer of Record | Armenian Subsidiary |
|---|---|---|
| Initial Setup | $0-500 onboarding fee | $2,000-5,000 for registration, legal fees, etc. |
| Ongoing Costs | $299-650 per employee monthly | $1,000-3,000+ monthly for maintenance |
| Exit Costs | Minimal to none | $1,500-3,000 for proper dissolution |
| Legal Compliance | Included in EOR fee | Additional cost for local legal counsel |
| Accounting/Tax Filing | Payroll taxes managed by EOR | $200-500 monthly for accounting services |
| Office Space | Not required | Required (varies by location) |
Total Cost Analysis
EOR Example: 5 Employees for 1 Year
- Onboarding: $500
- Monthly fee: $450 x 5 employees x 12 months = $27,000
- Total first-year cost: $27,500
Additional costs may include any specific benefits beyond standard packages.
Subsidiary Example: 5 Employees for 1 Year
- Setup: $3,500
- Monthly maintenance: $2,000 x 12 months = $24,000
- Legal and accounting: $350 x 12 months = $4,200
- Office space (modest): $800 x 12 months = $9,600
- Total first-year cost: $41,300
Additional costs may include business travel, specialized legal consulting, etc.
Financial Insight: The cost advantage of an EOR is most significant for smaller teams (1-15 employees). As your Armenian team grows larger, setting up a subsidiary may become more cost-effective in the long run, typically at around 15-20 employees.
Timeline Comparison
Employer of Record Timeline
- 1 Day 1-2: Sign agreement with EOR provider
- 2 Day 3-5: Submit employee information and job details
- 3 Day 6-10: EOR prepares compliant employment contracts
- 4 Day 11-15: Employee onboarding and start date
Total time: Approximately 2 weeks
Subsidiary Timeline
- 1 Week 1-2: Legal consultation and document preparation
- 2 Week 3: Company registration (2-3 business days)
- 3 Week 4: Tax registration and bank account setup
- 4 Week 5-6: Office setup and operational preparations
- 5 Week 7-10: Hiring and employee onboarding
Total time: Approximately 2-3 months
Time-to-Market Insight: For companies needing to move quickly into the Armenian market or secure talent rapidly, the EOR option offers a significant speed advantage. If you're working on a project with tight deadlines, this could be the decisive factor.
Taxation & Compliance
Armenian Tax Overview
Understanding Armenia's tax system is crucial for making an informed decision:
| Tax Type | Rate | Notes |
|---|---|---|
| Corporate Income Tax | 18% | Applied to taxable profits |
| Personal Income Tax | 20% | Flat rate applied to employment income |
| Value Added Tax (VAT) | 20% | Standard rate for most goods and services |
| Social Security Contributions | Varies | Based on employee salary levels |
| Turnover Tax | 1.5%-10% | For small businesses, varies by activity |
EOR Tax Handling
- The EOR handles all payroll tax calculations and remittances
- Ensures compliance with Armenian income tax withholding requirements
- Manages social security contributions
- Provides monthly and annual tax reporting
- No corporate income tax concerns as you don't have a legal entity
- May help avoid permanent establishment concerns
Subsidiary Tax Responsibilities
- Responsible for corporate income tax filings and payments
- Must calculate and withhold employee income taxes
- Required to register for and remit VAT if threshold is met
- Must maintain proper accounting records per Armenian standards
- Annual financial statement filings required
- Potential tax audits and inspections
Compliance Considerations
EOR Compliance Benefits
Subsidiary Compliance Challenges
Foreign Employee Considerations
When planning to hire foreign employees in Armenia, each option has distinct advantages and challenges:
Work Permits with EOR
EORs often have established processes for obtaining work permits for foreign employees in Armenia:
- The EOR typically handles the entire work permit application process
- Required documents include employee's passport, diploma, photos, and application forms
- EORs understand which nationalities may be exempt from work permit requirements
- Processing times through an EOR are often streamlined due to established relationships
- EOR ensures compliance with Armenia's foreign worker quotas if applicable
Work Permit Timeline with EOR: Typically 3-6 weeks
Work Permits with Subsidiary
Your subsidiary will need to navigate the work permit process independently:
- Your HR team must learn and manage the application process
- Prepare documentation including employment contracts, company registration, and employee qualifications
- Navigate potential language barriers with authorities
- Foreign employees need Temporary Residence Cards (TRCs) in addition to work permits
- Understand exceptions for certain nationalities or roles
Work Permit Timeline with Subsidiary: Typically 4-8 weeks
Key Information: The standard work permit in Armenia is valid for one year and is renewable. Temporary Residence Cards (TRCs) for foreign workers cost 85,000 AMD (approximately $175) and are tied to employment status.
Foreign Employee Documentation Requirements
- Valid passport with at least six months validity
- Completed work permit application form
- Recent passport-sized photographs
- Job offer letter or employment contract
- Educational qualifications with apostille or consular legalization
- Proof of accommodation in Armenia
- Medical certificate (may be required in some cases)
- Application fee payment proof
Strategic Benefits Analysis
EOR Advantages
- Speed to Market: Begin operations in Armenia within 1-2 weeks rather than months
- Reduced Financial Risk: No need for significant upfront investment in entity establishment
- Simplified Exit: If market entry is unsuccessful, wind down operations without complex dissolution procedures
- Compliance Expertise: Leverage the EOR's knowledge of local employment laws
- Scalability: Easily adjust team size up or down without administrative burden
- Focus on Core Business: Devote resources to business development rather than administrative tasks
Subsidiary Advantages
- Complete Control: Full autonomy over all business and employment decisions
- Brand Presence: Establish direct brand identity in the Armenian market
- Long-term Cost Efficiency: More economical for larger teams after initial investment is recovered
- Business Expansion: Ability to expand into other business activities beyond employment
- Tax Planning: Greater flexibility for international tax optimization
- Local Credibility: Enhanced reputation with local partners, clients, and government
Limitations to Consider
EOR Limitations
- Limited to employment activities only
- Monthly fees may exceed subsidiary costs for larger teams
- Less direct control over employment processes
- Potential delays in communication as a third party is involved
- Dependency on the EOR's expertise and service quality
- May be perceived as less committed to the local market
Subsidiary Limitations
- Significant upfront investment required
- Lengthy setup time before operations can begin
- Need to build compliance expertise from scratch
- Ongoing administrative burden and maintenance costs
- Direct liability for regulatory violations
- Complex dissolution process if exit is required
Practical Scenarios
Note: The following scenarios are theoretical examples to illustrate different business situations. They are not based on real companies or actual cases.
Scenario 1: Tech Startup Market Testing
Company Profile: A European tech startup wants to hire 3 Armenian developers to test the market before committing to a permanent presence.
EOR Approach:
- Quick hiring within 2 weeks
- Monthly cost: ~$1,350 (3 employees × $450)
- No long-term commitment required
- Easy scaling if market test is successful
Subsidiary Approach:
- 3-month setup before hiring can begin
- Initial investment: ~$5,000+
- Monthly cost: ~$2,500+ for maintenance
- Significant resources for a market test
Recommendation: EOR is clearly advantageous for this market-testing scenario, offering flexibility and minimal financial risk.
Scenario 2: Mid-sized Manufacturing Expansion
Company Profile: A manufacturing company plans to hire 20 employees in Armenia and establish a production facility.
EOR Approach:
- Quick employment setup
- Monthly cost: ~$9,000 (20 employees × $450)
- Cannot directly lease factory space
- Limited control over business activities
Subsidiary Approach:
- 3-month setup process
- Initial investment: ~$10,000
- Monthly cost: ~$6,000 for maintenance
- Can directly lease and operate facilities
Recommendation: A subsidiary makes more sense for this scenario given the scale of operations, need for physical facilities, and longer-term cost efficiency.
Scenario 3: Hybrid Approach for Software Development Center
Company Profile: A global software company wants to establish a development center in Armenia with plans to grow from 5 to 30 developers over two years.
Strategic Approach:
- Begin with an EOR to hire initial 5 developers quickly
- Use first 6 months to assess market and talent pool
- Simultaneously begin subsidiary registration process
- Transfer employees from EOR to subsidiary once established
- Scale team through the subsidiary structure
Recommendation: This hybrid approach offers the speed advantages of an EOR while building toward the cost efficiency and control of a subsidiary as the team scales.
Decision Framework
To determine which option best suits your specific situation, consider these key decision factors:
| Consider EOR If... | Consider Subsidiary If... |
|---|---|
| You need to hire quickly (within 1-2 weeks) | You're planning a long-term presence (5+ years) |
| You have a small team (1-15 employees) | You have or plan to have a larger team (15+ employees) |
| You're testing the market before full commitment | You're certain about your Armenian market strategy |
| You want to minimize upfront investment | You're prepared for significant initial investment |
| You need employment flexibility | You need broader business activities beyond employment |
| You lack expertise in Armenian regulations | You have access to local legal/compliance expertise |
| You're uncertain about market success | You want to establish a strong local brand presence |
Critical Questions to Ask
- Timeline: How quickly do you need to be operational in Armenia?
- Budget: What is your available budget for market entry?
- Team Size: How many employees do you plan to hire initially and in the future?
- Business Activities: Will you need to conduct activities beyond employment (e.g., manufacturing, direct sales)?
- Risk Tolerance: What is your organization's appetite for compliance and financial risk?
- Market Certainty: How confident are you about long-term success in the Armenian market?
- Control Requirements: How much direct control do you need over employment processes?
Strategic Insight: Many companies begin with an EOR for rapid market entry and then transition to a subsidiary once they've validated their Armenian market strategy and grown beyond 15-20 employees.
Frequently Asked Questions
Can an EOR help my company avoid permanent establishment risk in Armenia?
An EOR can help mitigate permanent establishment risk, but it doesn't eliminate it entirely. The risk depends on the nature of your activities in Armenia. If your company has significant business presence beyond employment (sales activities, contract negotiations, etc.), you may still create a permanent establishment despite using an EOR. It's advisable to consult with a tax professional regarding your specific situation.
What happens to employees if we switch from an EOR to our own subsidiary?
The transition typically involves terminating employment with the EOR and immediately hiring the employees under your new Armenian subsidiary. Most EORs have established processes for this transition and can work with you to ensure it happens smoothly with minimal disruption to employees. The employees would sign new employment contracts with your subsidiary, but their work, compensation, and benefits can remain consistent.
Are there any restrictions on the types of positions an EOR can hire in Armenia?
EORs can generally hire for most position types in Armenia, including technical roles, management positions, and support staff. However, certain regulated professions (such as legal or medical professionals) may have additional requirements. Additionally, if your business activities could be considered sensitive or strategic for national security, there might be limitations that require direct entity establishment.
What are the benefits requirements for employees in Armenia?
Mandatory benefits in Armenia include paid annual leave (20 working days minimum), sick leave, maternity leave (140 days), paternity leave (5 days), public holidays, and social security contributions. Competitive employers often provide additional benefits such as private health insurance, meal allowances, transportation subsidies, and performance bonuses.
Can we use an EOR for a short period and then establish our own entity?
Yes, this hybrid approach is common and often strategic. Companies frequently use an EOR for quick market entry and to test the viability of their operations in Armenia. Once they've confirmed their commitment to the market, they can transition to their own subsidiary. Most EOR providers have experience with this transition and can support the process.
What's the minimum capital requirement for setting up an Armenian subsidiary?
Armenia does not impose a minimum capital requirement for establishing an LLC (the most common type of subsidiary). However, adequate capitalization is recommended based on your planned business activities to ensure the entity can meet its financial obligations.
Conclusion
The choice between using an Employer of Record or establishing your own Armenian subsidiary ultimately depends on your specific business needs, timeline, budget, and long-term strategy. Both approaches offer distinct advantages:
EOR is Ideal For:
- Companies needing rapid market entry
- Organizations testing the Armenian market
- Businesses with small teams (1-15 employees)
- Startups with limited budgets for expansion
- Companies lacking Armenian legal expertise
- Businesses requiring employment flexibility
Subsidiary is Ideal For:
- Companies committed to long-term operations in Armenia
- Organizations with larger teams (15+ employees)
- Businesses needing a strong local brand presence
- Companies requiring activities beyond employment
- Organizations with available investment capital
- Businesses seeking long-term cost efficiency
Remember that these options aren't mutually exclusive. Many successful companies use a strategic hybrid approach—starting with an EOR for speed and flexibility, then transitioning to a subsidiary once they've established a strong foundation in Armenia.
Regardless of your choice, Armenia offers significant advantages for international businesses, including a skilled workforce, strategic location, and favorable business environment. With the right approach tailored to your specific needs, your company can successfully establish and grow its presence in this emerging market.
Next Steps
- Evaluate your specific business needs against the factors outlined in this guide
- Consult with legal and tax professionals familiar with Armenian regulations
- Request detailed proposals from several EOR providers if considering that route
- Create a detailed budget comparison specific to your situation
- Consider a phased approach if appropriate for your business strategy