Multilayer Protection For The Foreign Investment

09/08/18

Multilayer Protection For The Foreign Investment

Acquisition of Foreign Investments in Armenia was and remains one of those topics that Armenian government keeps under its everyday sight. Foreign investment amount during 2017 has reached 2, 32 Billion USD out of which 679 Million USD was Direct Foreign Investment (DFI). According to the reports of the ministry of Economic development and Investments of the Republic of Armenia overall amount of the foreign investments compared to the overall foreign investment amount of 2016 during 2017 were increased in amount of 298 Million USD, which represents around 14.6% growth. (Ministry of the Economic Development and Investments of the RA)
But what is actually attractive for the foreign investor? The answer is that the foreign investments have multilayer protection.

LEGISLATION:
By in large, direct foreign investments in Armenia are protected by the law of RA “On Foreign Investments”. Notwithstanding the fact that the mentioned law was adopted in 1994 and the latest amendment was made in 2007, the legislation protects the foreign investments in Armenia in compliance with the internationally undertaken obligations of the Republic of Armenia.
The Law “On foreign investments” sets forth the rights, guarantees and privileges for foreign investors, who can make their investment in various forms: such as a joint venture or establishment of a wholly-owned subsidiary.

GUARANTEES:
Investments made by foreigners shall not be nationalized or confiscated. Seizure of property can be applied only as an exclusive measure and only if authorized by a court and where the Government has declared a state of emergency. Meanwhile such seizure of property is subject to full compensation. Moreover, foreign investors shall be indemnified against the damages and losses (also for the profit loss) resulting from unlawful acts of the state authorities or agents or improper performance of their duties.
Goods , which are imported by the foreign investors with the purpose of paying up shares or the charter capital, are exempt from customs duties**.
The Law contains a so-called “grandfather clause”, which allows foreign investor to apply the investment legislation, effective for a five-year period from the moment of making the investment.
Moreover, foreign investors in Armenia are also protected by the 3-tier judicial system currently existing in Armenia.

CONVENTIONAL OBLIGATIONS:
On 16th September 1992 Armenia has signed the Convention on the Settlement of Investment Disputes (ICSID Convention). The ICSID convention prescribes obligatory measures and protective means that the contracting states shall perform and comply with.
Meanwhile, new draft of the Law of RA “On foreign investments” (Draft) is currently being circulated and widely discussed.
The Draft as it is now will comply with the International standards also in the field of protection and guarantees provided to the foreign investors. The Draft includes guarantees (clauses/principles) such as the “Most Favored Nation” (MFN), “National Treatment” (NT) and “Fair and equitable treatment” and “Minimal standard”. The said law is lacking the mentioned guarantees at all or partially. Notwithstanding this, Armenia was and remains obliged to provide such guarantees and to comply with the mentioned principles according to the International treaties signed by the latter.
Be that as it may, Legelata continues to provide “a one stop shop” principle based services for its foreign clients for advising on the company establishment, acquisition of shares, taxation and other related matters and conducting legal management for its clients to reach the most efficient legal, tax and regulatory structure and business compliance.

Author:
Artur Buduryan, Senior Associate