Armenia sees surge in IT startups qualifying for five-year tax breaks
Armenia’s tax incentives for small technology firms are drawing a wave of new startups, with the government reporting Tuesday a sharp rise in companies qualifying for the breaks introduced three years ago to bolster the fast-expanding IT sector. A special government commission has granted nearly 430 startups five-year tax exemptions since the program began, including 281 approvals last year, up from around 100 in 2016.
The incentives stem from a government bill passed by parliament in late 2014. Under the measure, IT firms with up to 30 employees can be fully exempt from profit tax and offer a preferential income tax rate for staff equivalent to 10 percent of gross wages. The Ministry of Transport, Communications and Information Technology highlighted the regime in a statement accompanied by a video featuring recent founders.
One of them, Himnark, develops accounting software. “We provided services to one foreign company and our resulting profit wasn’t taxed,” said its owner, Ruben Osipian. “We invested it in developing new software.
Had it not been for the tax exemption, we would have obviously invested less.” Vahram Bleyan, a co-founder of another startup, Mamble, said, “Our income tax is lower and that allows us to pay higher [real] wages.” The company claims it mainly sells software to a large corporate client in the United States.
IT remains the fastest-growing branch of Armenia’s economy, expanding by more than 20 percent annually over the past decade and by almost 30 percent last year, according to government data. The sector now employs more than 15,000 people. Deputy Transport Minister Amalya Yeghoyan said last week she expects the rapid growth to continue unabated this year.
“I am sure that the number of jobs will increase,” she said, according to the Armenpress news agency. The government-funded Enterprise Incubator Foundation (EIF) estimates that the combined turnover of at least 650 IT firms operating in Armenia reached $765 million in 2017, equivalent to over 6.5 percent of GDP; the figure includes Internet service provision.
Major players include local branches of U.S. companies such as Synopsys, National Instruments, Mentor Graphics, and VMware. The EIF said in a recent report that expansion is increasingly driven by homegrown firms, which now have more employees, attract venture investment, show improved technical expertise and market knowledge, and are implementing more complex, value-added projects.
A shortage of skilled workers remains the sector’s main constraint. Executives have long criticized the inadequate professional level of many graduates from university IT programs, who often require on-the-job training. “This is a problem,” Yeghoyan said, adding that there are now at least 2,000 vacancies in the sector.