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  Employer of Record

 Armenia 2022  

Employer of Record (EOR) Professional Employer (PEO) Armenia 2022 

An Employer of Record (EOR) is a third-party organization that hires and pays an employee on behalf of another company and takes responsibility for all formal employment tasks. The EOR carries out the following duties:

  • Provides a registered entity for running a local, compliant payroll
  • Ensures immigration compliance by arranging for visas, work permits, residence permits, etc.
  • Makes sure that the labor laws pertaining to local and expat workers are complied with
  • Advises the client of required notice periods, termination rules, severance pay, etc.

EOR services allow you to:

  • Reduce liabilities and be protected from compliance risks
  • Streamline international growth by eliminating the need to incorporate and form costly legal entities
  • Make global operations and hiring new employees simple and cost-effective
  • Keep talent and intellectual property in-house and contractually protected
  • Take the red tape of the immigration process off your shoulders
  • Convert existing freelancers and contractors into employees
  • Optimize taxes and other costs of employment of both local workers and expats

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2022.05.23 EOR
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Frequently Asked Questions on EOR in Armenia

1. Are employees and contractors treated differently? 

Yes, employees benefit from a number of protections and guarantees that are part of the Labor Code, including rules related to termination of employment (causes, advance notices), leaves (annual leaves, sick and maternity leaves, etc.) limited liability, etc. By contrast, independent contractors are not specifically protected by law and parties are generally free to stipulate any clause of their choice in the services agreement on the basis of the freedom of contract principle. Thus, it is generally more advantageous to the employer to hire workers as contractors and not employees. The worker may be interested in having a services agreement for tax reasons as the personal income tax rate in Armenia is 21%, while independent contractors ("private entrepreneurs") are normally subject to business taxes of 0-5%.


The distinction between an employee and a contractor is not always very clear and there is a risk of misclassification. Similar to the laws of many other countries, a number of considerations can be taken into account to assess the independence level of the worker, including, the worker's ability to choose the time and manner of work, methods used, the worker's engagement on a permanent or exclusive basis, etc. 

2. What are the taxes involved?

As a general rule, Armenian employers are required to withhold a 21% (20% starting from 2023) personal income tax from salaries. That being said, taxation will depend on various circumstances.


Employer status. Certain employers are granted tax benefits that result in lower tax rates to their workers. Most notably, IT companies with up to 30 employees that have been certified by the Ministry of High Tech benefit from a tax regime where an employee's salary is taxed at 10% (as opposed to normally applicable 21%). Tax benefits also exist for IT companies that create more than 10 jobs in a month.  


Employees of so-called "microbusinesses" (with annual sales not exceeding around $50,000) pay a flat income tax of AMD 5,000 (about $10) per month. 


Employees v. independent contractors. While employees generally do not file or pay taxes (all taxes are withheld by the employer) an independent contractor may choose to register as a taxpayer (by registering a as a "private entrepreneur"). That way the independent contractor may reduce his taxes to 5% (if his annual income does not exceed around $250,000) or, in certain cases, even to 0% (if the annual income does not exceed $50,000).


Examples of employment-related costs (2022):

Header

Regular Employee

Employee of an IT Company

 Independent Contractor

Gross Salary

$40,000

$40,000

$40,000

Personal Income Tax

$8,400 (21%)

$4,000 (10%)

$128 + $2,000 turnover tax (5%)

Social (Pension) Payment

$1,902

$1,902

$128

Military Stamp Duty

$383

$383

$255

Net Salary

$29,315

$33,715

$37,489

Resident v. non-resident workers. The immigration status of the worker may also have an impact on taxes. In addition to the 21% personal income tax, employers are also required to withhold social (pension) contributions (5-10% of the salary, capped at around $160 per month) and military contributions (around $3-30 per month). However, these contributions are applicable only to Armenian residents (holders of residence permits or equivalent immigration documents). 


Double tax treaties. A double tax treaty may exempt the employer from the requirement to withhold the 21% personal income tax if the worker is a tax resident of a country with which Armenia has a treaty (the worker would have to provide the employer with a tax residence certificate from his country of residence). Currently Armenia has such treaties with the following countries: Austria, Belarus, Belgium, Bulgaria, Canada,  China, Croatia, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Hungary, India, Indonesia, Iran, Ireland, Italy, Kazakhstan, Kuwait, Kyrgyzstan, Latvia, Lebanon, Lithuania, Luxembourg, Malta, Moldova, Netherlands, Poland, Qatar, Romania, Russia, Serbia, Singapore, Slovakia, Slovenia, Spain, Sweden, Switzerland, Syria, Tajikistan, Thailand, Turkmenistan, UAE, Ukraine, United Kingdom. 

3. What is required to hire an employee?

Prior to signing an employment agreement an employer shall ask the employee to provide an identification document (for example, a passport or a national ID document) as well as a social security number (SSN). 


Where the employee is not an Armenian national a work permit may be needed if the work will be performed in Armenia. Nationals of certain countries (e.g. Russia, Belarus, Kazakhstan) are exempted from work permit requirements. Work permit exemptions are also available to certain specialists educated in natural sciences, information technologies, finances, management, etc. 


The employment agreement (or the employer's decision to hire the employee) shall contain information on the duties of the worker, the place of work, the term of the agreement (for a fixed or indefinite term, etc.), start date, probation period (if any), salary, bonuses and other compensation, working hours, annual leave, etc. If the worker is a foreigner the agreement shall also clarify who will bear the costs related to transportation to/from Armenia, accommodation, insurance, address registration, etc. 


Electronic signatures are allowed in Armenia. 


Armenian tax laws require employers to electronically notify the tax office of any new hires of employees or individual service providers. 

4. What is required to fire an employee?

In general, early termination of an employment agreement is not allowed without cause. This limitation does not apply to services agreements which can be terminated pursuant to the terms of such agreements.  


An employee can terminate the agreement by notifying the employer in writing at least 30 days in advance. Employer can terminate the agreement for cause, for example

  1. Two months notice in case of dissolution of employer; layoffs caused by production necessity  or changes in 1) volumes of production; 2) economic conditions; 3) technological conditions; 4) conditions of labor organization;
  2. 14-60 days notice (depending on employee’s length of service) in case of a failure to meet the requirements for the position to be held or the work to be performed (due to health issues or incompetence); long-term disability of employee (120 consecutive days or 140 days in a year); employee reaching the age of retirement;
  3. Without notice, in case of regular failure by employee to perform his/her duties without a valid reason; loss of confidence in employee; employee reporting to work under influence of alcohol or drugs; employee's absence from work for a whole working day (shift), without a valid reason.

Severance payments (10-44 days' wages) may also be due if the agreement is terminated due to reasons listed under 1 and 2.

5. What are the time-off benefits?

Armenia has 12 public holidays, namely, January 1-2 (New Year Days); January 6 (Christmas Day); January 28 (Army Day); March 8 (International Women's Day); April 24 (Armenian Genocide Remembrance Day); May 1 - International Workers' Day; May 9 - Victory and Peace Day; May 28 - Republic Day; July 5 - Constitution Day; September 21 - Independence Day; December 31 - New Year Day.


Employees are generally entitled to an annual leave of 20 business days. Unused portions can be deferred to the following years but must be used within 18 months. 


An employee shall be given at least a 30-minute lunch break after completing 1/2 of the working hours for the day but not later than after 4 hours of work.

6. What are the laws on sick leave and maternity leave?  

Employees have to provide a medical certificate (normally issued by a local polyclinic or other medical institution) to document the sickness. The first five business days of sickness are covered by the employer (at 80% of the normal rate) while the excess period is financed by the government in the form of tax credits.

Maternity leave normally lasts 140 days (70 days before and 70 days after the delivery). The payment of the benefits is done via the employer with government financing by means of granting an income (withholding) tax credit to the employer equal to the amount of the benefits. 


Fathers are entitled to a paid leave of 5 business days which they can take within 30 days after the birth of the child.

7. How is overtime work compensated?

Overtime work is allowed in certain situations where, for example, the discontinuation of the work will result in material damages to the employer or a breach of its contractual obligations. The maximum duration of overtime work is limited to 4 hours every two days and to 180 hours in a year. The total duration of the work (regular and overtime) shall not exceed 12 hours per day or 48 hours per week. Restrictions on overtime work are not applicable to those holding managerial positions specified in the internal rules of the employer.

An employee may be required to work on a non-working day or during non-working hours (on-call work), but not more frequently than once a week and no longer than 8 hours per day. If the duration of on-call work exceeds these limits the employee can request time-off in the next month or that time be added to his/her annual vacation or monetary compensation.

Higher rates of compensation are required in the following cases:

  • Overtime work - premium of 50%
  • Night work (10 PM to 6 AM) - premium of 30%
  • Work on public holidays and other non-working days - premium of 100% (or an extra day off)

8. Is medical insurance required by law? 

In general, the law does not require the employer to provide any benefits to employees such as medical insurance. Many companies offer their employees medical insurance on a voluntary basis. Health insurance is offered by all insurance companies licensed in Armenia. There are currently 6 of them. The rates are normally between $300 - 600 per year per employee.

Please note that annual payments of up to around $270 made by employers are not considered taxable income for employees. However, payments in excess of that amount will be taxable at the standard rate.

9. When and how salaries are paid? What is the average salary? Is there a minimum wage?

Monthly salaries shall be paid via bank transfer not later than the 15th day of the following month. In general,  the payments in Armenia shall be made in local currency, Armenian drams. 


As of 2022, the average monthly salary in Armenia is around $500. However, salaries in the IT industry are higher and normally start at $700 for junior positions and are between $1,500-$3,500 for mid-level and senior positions. 


As of 2022, the minimum monthly salary in Armenia is AMD 68,000 ($142). Minimum hourly wages are AMD 406 ($0.85), AMD 454 ($0.95) and AMD 680 ($1.42) for 40-hour, 36-hour and 24-hour work weeks respectively. 

10. What are the rules on probation and fixed-term agreements? 

If an employee is on probation it is possible to terminate the agreement by giving a 3-day notice. The period of probation shall be indicated in the employment agreement and generally cannot exceed three months. 

Fixed-term agreements are generally allowed if an indefinite-term agreement is not suitable because of the nature or the conditions of the work. In addition, agreements for a specific term can be used 1) for seasonal works; 2) for temporary works of up to two months; 3) to replace another temporarily absent employee; 4) to hire a foreign worker for the duration of his residence permit; 5) to hire an employee who has reached the age of retirement. There is a presumption that a fixed-term agreement is automatically converted into an indefinite agreement if it is extended or if a new agreement is signed within one month following the expiration of the previous one. However, this presumption still does not apply if the nature or the conditions of the work make it impossible to sign an agreement for an indefinite term.

11. What are the immigration requirements for foreign workers?

The following immigration requirements are generally applicable to foreign workers:

  1. Obtain a visa. Nationals of practically all European and post-Soviet countries, US, China, Iran, Korea, and many other countries are exempt from visas. Other foreigners can easily apply for an e-visa online. Only nationals of certain African and Asian countries still have to obtain embassy-issued sticker visas. More information on visas is available here
  2. Obtain a work permit. A work permit is normally required prior to performing any work in Armenia for an Armenian employer. Nationals of EAEU countries (Russia, Belarus, Kazakhstan, Kyrgyzstan) are exempt from work permit requirements. Such exemptions also exist for specialists educated in information and communication technologies, management and administration, food technology, finances, agriculture, etc.  More information on work permits is available here
  3. Obtain a residence permit. Since 2022 employment-based residence permits and work permits are issued in the form of a single document (residence card). If the employee is exempt from work permit requirements an application for a residence permit is normally necessary if the stay in Armenia will exceed 180 days. More information on residence permits is available here
  4. Register a local address. Foreigners who obtain an Armenian residence permit are required to register their address with the local police office within 15 days. By virtue of an international treaty between Russia and Armenia Russian nationals are allowed to register their address and stay in Armenia indefinitely (as long as the Russian passport is valid) even without having a residence permit. 
  5. Obtain a social security number. A social security number is normally issued together with the employment-based residence permit. Foreigners who do not need a residence permit can obtain a social security number from a local police office. EAEU nationals are required to have an SSN before they can start working in Armenia for an Armenian employer. 
  6. Obtain residence permits for family members. If the foreign employee is accompanied by family members they may also need a residence permit for an extended stay in Armenia. Normally such applications are filed after the main applicant obtains his residence permit (by exception, EAEU nationals and their family members can apply for residence cards simultaneously).

12. What is the incorporation process?

There are various options for registering an entity in Armenia:

  • Subsidiary owned by a foreign company
  • Branch office of a foreign company
  • Individually-owned company, such as a limited liability company (LLC) or a joint-stock company (JSC). 

There are generally no restrictions on foreign ownership. The incorporation process is straightforward and normally takes from a few days to a few weeks. We recommend checking the incorporation page for more details. 

13. How is intellectual property (IP) protected in Armenia?

Armenia is a member country of the Berne Convention, TRIPS (WTO), WIPO Copyright Treaty, the Paris Convention, and Patent Cooperation Treaty (“PCT”). 


Contractual requirements for obtaining ownership of intellectual property differ for contractors and employees.

Header

Employee

Contractor

Agreement after Completion of Work

Geographic Scope

Obligation to Exercise the Rights Assigned

Duration of Assignment

Copyright

Yes

Not Required

Worldwide

Not required

Perpetual

Patent

No unless assigned in writing

14. What are the data protection laws in Armenia?

Data protection is regulated by Personal Data Protection Act. It contains the procedural and substantive data protection obligations concerning the processing of personal data, i.e. information that can lead to identification of a natural person. Processing is a broad term encompassing the collection, input, systematization, organization, storage, use, alternation, restoration, transfer, rectification, blocking, and deletion of personal data. Personal data that relates to state and official secrets, banking, notarial, and insurance secrecy, legal professional privilege, anti-money laundering, and so on, are governed by special laws. Compliance with Personal Data Protection Act is overseen by the Personal Data Protection Agency of the Ministry of Justice. Non-compliance may result in administrative penalties (fines of up to $1,000) or criminal penalties in the form of monetary fines or imprisonment. Employment or outsourcing contracts may contain clauses concerning data ownership, data transfer, confidentiality, processing protocol, technological and information security practices, and indemnities for breaches.

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Nerses Isajanyan

Managing Attorney
LL.M. Georgetown University
New York Bar | Armenian Chamber of Advocates

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