IT Law in Armenia (2024)

Tax Benefits in Armenia in 2024 for IT

Armenia's information technology sector has been making remarkable strides in recent years. Despite starting late, in the early 2000s, it has recorded an annual income growth of about 20 percent since 2021. To boost the competitiveness of the IT sector, promote foreign investments, and encourage the development of start-up organizations, the Ministry of High Technologies of the Republic of Armenia provides certificates within the framework of the state support program. These certificates offer tax benefits regarding what employees of IT businesses are charged a reduced income tax rate of 10% instead of 23% of the general tax regime.

Additionally, this tax benefit is not available to all business entities.

1. Only starting entrepreneurs in the IT field,

2. Businesses involved in introducing innovative and modern information technologies,

3. Infrastructures promoting the development of the IT sector,

4. Organizations implementing educational and research programs in information technologies can apply for these benefits.

Commercial and non-commercial organizations, foreign legal entities, branches or representative offices of legal entities, and individual entrepreneurs can be considered economic entities under the state support program, provided the number of their employees does not exceed 30.

Armenia has implemented policies since 2015 to develop the IT sector and engage the masses in this growing industry. To further this goal, the state support program's deadline for applying for tax benefits has been extended to November 1, 2024, from the previous deadline of November 1, 2023. It's worth noting that the rights to use previously granted tax benefits will expire on December 31, 2024, at most, even if they are valid for five years.

The state support program aims to promote the growth of the IT sector by supporting IT start-ups, innovative and modern technologies, and educational and research programs in information technologies. The program also encourages the creation of IT infrastructures such as technoparks, techno centers, accelerators, and incubators. These entities support start-ups and innovative projects of small organizations and provide them with logistical and financial support.

The state support program is an initiative by the Armenian government that aims to support and encourage the growth of businesses in the IT sector. This program offers several benefits to eligible companies, making it an excellent opportunity for growth and competition in the market.

One of the most significant advantages of the state support program is the tax exemption certificate. This certificate enables businesses to save on taxes, allowing them to invest more in their growth. By obtaining this certificate, eligible businesses can save a significant amount of money, which they can use to expand their operations, hire more employees, and develop new products and services.

To provide you with a better understanding of the level of savings that can be achieved through the state support program, let us consider a real-life example. Our client company earned a net income of 400,000,000 AMD last year without paying any taxes. This was made possible by our professional legal team at "Gritarres" law firm, who obtained a tax exemption certificate for the company within the framework of the state support program.

The Armenian government has extended the deadline for applying for tax benefits, providing more opportunities for businesses to benefit from the program. This extension is excellent news for companies in the IT sector, as it will undoubtedly contribute to the industry's growth, making it a more attractive and competitive market for businesses.

Overall, the state support program is a significant opportunity for businesses in the IT sector to grow and thrive in the market, with the added benefit of contributing to the growth of the Armenian economy.

Key takeaways

The Ministry of High Technologies of the RA provides certificates within the framework of state support, based on the presence of which economic entities in the field benefit from the 10% income tax rate for employees.

IT contracts: What you need to know ?

Starting from the second half of the 20th century, information technologies (“IT”) have been the main source of innovation and have now become an indispensable part of our everyday lives. When you want to write down a note, prepare a presentation, or send a message to someone, you probably use some applications, tools that have been developed using IT. Such tools are generally referred to as “Software”, a machine-readable program that instructs a computer what to do. If you are using a device now to read this article, you agreed to some online terms (whether knowingly or not). Such online terms may include agreements for using an operating system, an application, or accepting some website terms and conditions. These online terms constitute a contract between you and the provider of IT services. These contracts and many other types of contracts that regulate the usage of software are commonly referred to as IT contracts, in order to distinguish them from other types of contracts.

So, what is an IT contract? An IT contract can be defined as a binding agreement between two or more parties, where at least one of the parties provides IT services or products, (let’s agree to use the term “software” in this article, although IT services and products are not limited to software only) and the subject matter of such contract is associated with actions (e.g. transfer, license, development, etc.) related to the use of software.

Contracts in general are governed by some rules that apply to the parties of the contract, whether those rules are written in the contract or not. Some rules may apply for every type of contract, some may be specific to certain types of contracts. Leaving alone general rules, we will dig deeper into the specific rules that regulate IT contracts. These rules as a whole form part of a specific branch of law which is commonly referred to as “IT Law”.

The main rules that relate to IT contracts contain rules of Intellectual Property law and Privacy and Cyber Law and Contract Law with specifications relating to IT contracts. Let’s discuss them separately and understand their relationship with IT contracts.

Key takeaways

The main regulations related to IT contracts also contain rules related to intellectual property, privacy, "cyber" and contractual rights, with specific features of IT contracts.

Intellectual Property Law and IT contracts

Software is developed by individuals/companies. In many jurisdictions, including the US, software is classified as a literary work, and literary works are protectable by copyright. Thus, software can be protected by intellectual property (“IP”) rights.

Under an IT contract, the owner/holder of the intellectual property (“IP”) rights may retain ownership of its IP rights or transfer them to the other party. Depending on the decision of the IP rights holder to keep or transfer its rights in the software, such products may be licensed or assigned. Let’s talk about the difference between these two models.

Licensing

If the owner desires to retain ownership of its IP rights, then it shall give a license for the use of its software to the other party (in the IT contract these parties will generally be referred to as a “Licensor” and a “Licensee”). The most widely used name for this type of IT contract is “Software License Agreement” (SLA). The main results that an SLA should try to achieve are

• to protect the Licensor's intellectual property rights, in this case the copyright of the software;

• to allow the Licensee to rightfully use the licensed software;

• to specify the terms and conditions for using the software.

Assignment

If the IP owner desires to transfer ownership of its software, then it shall assign it (transfer full ownership of the software) to another party (in the IT contract these parties will generally be referred to as a “Vendor” and a “Purchaser”, or “Service Provider” and a “Client”, as the case may be). The parties generally sign IP Assignment Agreements or IT Services Agreements, depending whether there is a ready software to transfer your rights on it or you are hired to develop a software for your client. The main issues that an IT Professional Services Agreement shall resolve are

• to define the scope of the license grant on the software;

• to allow Purchaser to rightfully use, distribute, modify, reproduce the software;

• to specify the terms and conditions for the transfer of the IP rights on the software.

It is worth noting that contracts are flexible and no one ruled out the possibility of making a hybrid contract which will include different elements of the above-mentioned contract types regarding the rights to use the IP.

When signing an IT contract, some basic conditions of IP usage shall be taken into consideration. The parties should decide whether the granted rights/license is:

Limited

Can it be used for any purpose, anywhere, anytime, or are there any restrictions?

Personal, or transferable

In each case, the main question is whether the Purchaser/Licensee will use the software themselves, or they can transfer the software rights to other parties, too.

Revocable, or non-revocable

Can the Vendor/Licensor revoke the rights to the software, or will these rights unconditionally remain with the Purchaser/Licensee?

Perpetual or limited in time

Will the right to the software expire at a given time, or will it remain with the Purchaser/Licensee in perpetuity?

Sublicensable, or non-sublicensable

Can the Purchaser/Licensee sublicense its rights to the software to other parties, or should the software be used only by itself?

Exclusive, or non-exclusive

Is the right to the software exclusive in some jurisdictions, industries, period of time, or can other parties also use the software with the same rights as the Purchaser/Licensee?

Worldwide or not

Can the Purchaser/Licensee use the software in the whole world, or are there any geographical limitations for the use thereof?

These are the main IP-related questions that need to be answered when drafting an IT contract. As a general information, it is worth noting that IP rights in software can be transferred in a variety of transactions not specified above, including, for example:

• A broader asset sale or carve-out transaction (the sale of a discrete business from a larger business enterprise).

• A merger, acquisition or change of control.

• Conditionally, as security in a financing arrangement.

Parties shall be prudent when it comes to IP rights since it is one of the main important points that need to be addressed in an IT contract and it is up to the parties to decide what are the limitations granted on IP rights.

Key takeaways

When drafting an IT contract, the main issues related to intellectual property are revocability, expiration, sublicensing, exclusivity and globality of rights.