Overview of Outsourcing to Armenia

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Considerations for Oursourcing

Examine the structural options for outsourcing to Armenia and learn about benefits of outsourcing.

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Data Protection

Explore the framework for data protection on our dedicated section.

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HR Matters

Investigate the procedural aspects of hiring and firing in Armenia as well as immigration matters for foreign foreigners.

Considerations for Outsourcing

When considering outsourcing your business to Armenia, several structural options are available for your consideration:

1. Contract for Services with a Third Party (Direct Outsourcing)

This approach involves the client company engaging directly with an Armenian service provider—an independent contractor equipped with its own infrastructure and workforce—to execute the required services. To ensure the success of this arrangement, comprehensive due diligence is recommended on the Armenian service provider. This scrutiny should include an assessment of its financial stability, employee mobility, intellectual property safeguards, infrastructure adequacy, and performance track record on similar projects.

2. Indirect Outsourcing

Indirect outsourcing entails the client company enter into an outsourcing arrangement with an Armenian or alternative enterprise. This primary entity then subcontracts the tasks to an Armenian service provider. Often, this subcontractor maintains some affiliation with the intermediary. In such cases, it's recommended for the client company to incorporate additional safeguards within the vendor contract, aimed at protecting against potential issues arising from the subcontractor's involvement.

3. Establishing a Subsidiary or a Branch Office

In this strategic framework, the client company initiates the establishment or acquisition of a subsidiary or a branch office within Armenia. This entity is either fully owned by or under the control of the client company. While a subsidiary constitutes a distinct legal entity, a branch office functions as an extension of the client company. This arrangement gives the client company with heightened authority over the employees tasked with service provision, alongside the implementation of protocols for managing intellectual property and confidential information. Integrating the subsidiary into the client company's global systems, processes, and culture becomes feasible. Notably, the greater degree of control may be a valuation element in an acquisition of the client company. However, this structure may demand additional time and resources to oversee the subsidiary's operations. In this setup, due diligence primarily centers on the subsidiary's management team. Typically, a local manager oversees day-to-day operations, requiring a selection process. The chosen individual holds considerable significance, as the managing director's actions can bind the subsidiary with third parties through the legal theory of apparent authority, irrespective of restrictions imposed by the subsidiary's board of directors and/or employment agreement terms.

4. Dedicated Center or "Build, Operate and Transfer"

This structure presents a fusion of the previously described approaches. The Armenian service provider, functioning as an independent contractor, initiates the establishment of a dedicated center (team) tailored to cater to the client company's service requirements. This specialized team could operate within a distinct section of the service provider's premises or in a separate facility altogether. While certain managerial, accounting, and administrative personnel might not be exclusively assigned to the dedicated team to streamline overhead costs, the core team remains isolated.

In this setup, the client company wields greater authority over the vendor's employee selection, their training, and the nature of their tasks. In return, the client company assumes increased risks and potential cost increases associated with these employees.

Within the "Build, Operate and Transfer" (BOT) model, the agreement often incorporates an option empowering the client company to potentially acquire the business unit represented by the dedicated team. Alternatively, the client company may be granted the right to solicit and hire certain employees from the dedicated center.

HR Matters

Employees v. Independent Contractors: In Armenia, there is a distinct advantage for clients to engage individuals as independent contractors rather than formal employees. This is primarily due to favorable considerations in taxation, with a nominal 5% tax on services paid by contractors, as opposed to the more substantial 25.5% income tax and accompanying social payments typically withheld from an employee's salary. Moreover, independent contractor agreements offer greater contractual customization, without numerous restrictions imposed by the Labor Code. Employment agreements may be used either because services cannot be provided by an independent contractor such as employment clearly exists because of the requirement to work on specific premises under customer's close control, in the order or sequence set by the customer or because of other considerations, such as putting important professionals on the payroll to increase the value of the company.

Employment Agreements: Written employment agreements must be executed, taking the form of a single document produced in duplicate—one copy each for the employee and the employer. These agreements must conform to the provisions outlined in the Labor Code and other relevant labor regulations. Employment contracts may be of fixed or indefinite terms, with a probationary period typically capped at three months. While the enforceability of restrictive covenants like non-compete and non-solicitation clauses remains somewhat uncertain, judicial precedent leans toward validating such limitations for independent contractors. There is a possibility that these clauses could be upheld for employees as well, provided their implementation is reasonably necessary to safeguard the employer's business interests.

Work Schedule and Leaves: Armenia adheres to a regular five-day work week, Monday to Friday. However, a six-day work week—Monday to Saturday—can be adopted at the employer's discretion. Regardless of the work week structure, weekly working hours should not surpass 40 hours. Employees are entitled to an annual leave of 20 working days (24 days for a six-day work week). Maternity leave ordinarily spans 140 days (70 days prior to and 70 days following childbirth). The nation observes 12 non-working public holidays, including December 31 to January 2, January 6, January 28, March 8, April 24, May 1, 9, and 28, July 5, and September 21.

Compensation: The minimum monthly salary in Armenia stands at AMD 75,000 (approximately $194). However, the average monthly wage in the country tends to be around $690. IT professionals, particularly those in managerial capacities, generally receive substantially higher wages. Higher compensation rates are mandated for overtime work, non-working day assignments, and night shifts.

Termination: Termination of employment can be done through mutual agreement between the employer and employee. Employees typically possess the unilateral right to terminate an employment contract—fixed or indefinite—by providing a 30-day notice. Employers can initiate the termination of indefinite-term employment if valid grounds such as economic fluctuations, incapacity to fulfill job requisites, long-term disability, regular failure by employee to perform his/her duties, loss of confidence in the employee, and more, are substantiated. For detailed information, please check the employment webpage.

Data Protection

The regulatory framework governing data protection is established by the Personal Data Protection Act. This legislation contains both procedural and substantive obligations concerning the processing of personal data—information that possesses the potential to identify a natural individual. The scope of "processing" is comprehensive, encompassing activities such as data collection, input, systematization, organization, storage, utilization, alteration, restoration, transmission, rectification, blocking, and deletion of personal data.

Special legal provisions govern personal data that pertains to matters of state and official secrets, banking, notarial and insurance confidentiality, legal professional privilege, anti-money laundering, and related domains. Compliance with the Personal Data Protection Act is entrusted to the Personal Data Protection Agency of the Ministry of Justice. Failure to conform to these regulations may result in regulatory repercussions, including administrative penalties such as fines of up to $1,000, or potentially even criminal penalties in the form of monetary fines or imprisonment.

Apart from the regulatory framework, a significant number of outsourcing agreements incorporate comprehensive clauses addressing crucial aspects such as data ownership, data transmission, confidentiality, procedural protocols for data processing, technological and information security measures, as well as provisions for indemnification in the event of breaches.