Term Deposits and Bonds in Armenia; Navigating Changes in Military Service

1. Investments in Armenia: Term Deposits and Bond Opportunities

Armenia's Economic Performance in 2023:
• GDP Growth: The economy is expected to grow by an impressive 7%.
• Inflation Rate: Maintained at a moderate level of 2%.
• Currency Fluctuations: The Armenian Dram (AMD) experienced a depreciation of 2.85%, with the exchange rate moving from 393.57 for 1 USD on January 1st to 404.79 on December 31st, 2023.

Term Deposit Rates in Armenian Dram (AMD) and U.S. Dollars (USD):
AMD Term Deposits:
• Fastbank: 11%
• Evocabank: 10.75%
• Byblos Bank: 10.75%
• Araratbank: 10.25%
• AMIO: 10.2%

USD Term Deposits:
• Evocabank: 5.25%
• Artsakhbank: 5%
• Byblos Bank: 4.75%
• Fast Bank: 4.5%
• Araratbank: 4.5%

Interest Rates on Bonds Issued by Armenian Banks:
AMD Bonds:
• Armswissbank: 10.65%
• Evocabank: 10.6%
• Armeconombank: 10.55%
• Unibank: 10.35%
• Inecobank: 10.3%

USD Bonds:
• Fastbank: 5.71%
• Armeconombank: 4.95%
• Unibank: 4.9%
• Araratbank: 4.8%
• ACBA Bank: 4.77%

Government Bonds in AMD:
• Current yields are as high as 10.8%, presenting another attractive investment avenue.

Tax Considerations:
• For term deposits, a 10% tax on interest income is withheld at the time of payment.
• Notably, interest income on bonds is generally not subject to the 10% withholding tax, making them a potentially more tax-efficient investment option.

Deposit Insurance Scheme in Armenia:
• Armenia has a robust deposit insurance scheme in place since 2003, providing a safety net for investors.
• Deposits in AMD are insured for a maximum amount of AMD 16 million (around $40,000), while deposits in foreign currency are covered up to AMD 7 million (around $17,000).
• Notably, this insurance system has not been tested in practice, as there have been no bank runs to date.

Practical Considerations for Foreign Investors:
• No legal restrictions exist for foreigners in making term deposits or purchasing bonds.
• Banks may require proof of ties to Armenia, like a residence permit, due to anti-money laundering policies.

Legislative Amendments to Armenia's Law on Military Service:

Recent amendments to Armenia's Law on Military Service, effective from February 12, 2024, introduce significant considerations for male citizens aged 27-37 aiming to acquire Armenian citizenship post-27.

Key Points of the Amended Law:
• Eligibility: The law applies to male individuals aged 27-37 who become Armenian citizens post-27 and have either not completed military service or have completed less than 12 months of service or have completed less than 18 months of alternative military service in a foreign country prior to • acquiring Armenian citizenship.
• Mandatory Service: There is now a requirement to complete a 12-month mandatory military service period or an alternative service.
• Opt-Out Payment Option: Individuals may choose to opt out of this mandatory service by contributing AMD 2,500,000 (approximately USD 6,200).

Regarding Retroactive Effect:
The Ministry of Defense of the Republic of Armenia has clarified, in response to our formal inquiry, that this law does not have retroactive effect.

Options for Citizens Who Evaded Military Service Before Age 27:
These amendments also address male citizens who were Armenian nationals before turning 27 and have illegally evaded military service. The law now offers the following options for legalizing their status:

Full 24-Month Enlistment.
• 12-Month Service plus AMD 2,500,000 (approximately USD 6,200) Payment.
• 6-Month Service plus AMD 5,000,000 (approximately USD 12,400) Payment.
• 1-Month Service plus AMD 8,000,000 (approximately USD 19,900) Payment.
• Complete Exemption: Achievable through a contribution of AMD 15,000,000 (approximately USD 37,000).