IT outsourcing in Armenia

Destination Armenia - costs, culture, taxes, travel and everything you should know when planning IT outsourcing of software development and IT functions to the Middle East outsourcing country.

IT OutsourcingUPDATED ON December 3, 2021

Cover image for blog on IT outsourcing in Armenia FAQs

It’s fair to say the most common response to the concept of IT outsourcing in little-known Armenia is “Armenia?”

Poland, Ukraine, Romania, Bulgaria, Serbia and, more recently, even mysterious Belarus have become familiar nearshore IT outsourcing destinations for companies from high salary economies in Western Europe. Eastern Europe’s strong tradition of mathematics has seen the region become a fertile breeding ground for software developers and other IT specialists. And a favourite recruitment market for neighbours further west struggling with a combination of eye-watering costs at home and, increasingly often, a simple lack of available experts on the domestic labour market.

Eastern Europe doesn’t just offer a renowned talent pool for IT outsourcers to fish from and comparatively lower costs – salary savings, lower office rents and other overheads, and often highly attractive tax regimes. The region also benefits from geographic proximity to Western Europe and the accompanying time zone compatibility, the EU membership status of countries like Poland, Romania (potentially important for GDPR compliance) and generally good levels of English.

But with demand for software developers and other IT specialists from DevOps engineers to QA engineers and software testers now stretched to breaking point in existing IT outsourcing destinations, the net has recently been cast further. Armenia is arguably the brightest of the new gems to have been discovered as a result.

Located in the Caucasus region that nestles between the Black Sea and the Caspian Sea, between Europe and Asia, Armenia, like the countries of Eastern Europe, is a former Soviet republic. And like the countries of Eastern Europe we have become used to working with IT specialists from, Armenia’s education system is also traditionally strong in mathematics. Which, in recent years, has led to a similar concentration of software engineers.

Like Poland and Ukraine in years gone, and more recently Belarus, the mention of Armenia as a potential IT outsourcing destination often leads to a degree of trepidation followed by a flurry of questions. Can Armenian developers visit us onsite? How long does it take to travel to and from Yerevan? Are Armenian developers any good? Do they speak English? What are the taxes like?

In this blog we’ll answer as many of the FAQs we encounter around IT outsourcing in Armenia as we can, the country itself, and even throw a little trivia into the mix as well so you can impress local colleagues if you do end up working with any of the country’s extremely talented IT specialists.

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Armenia – Geography and population

Population

3,0 million

Land area

29.743 km²

Boarders

Azerbaijan, Georgia, Turkey, Iran

Time Zone

The time zone in which Armenia is located is UTC +04:00 or AMT (Armenian time). UTC stands for Coordinated Universal Time (UTC) and countries to the western extreme of Europe like the United Kingdom and Portugal fall under it.

Central European Time is UTC +01:00 (or Central European Time (CET)), which means that Armenian Time (AMT/UTC +04:00) is three hours ahead of that of countries such as Germany, France, Italy. It is also two hours ahead of Ukraine or Bulgaria and one hour ahead of Belarus/Belarus and Western Russia.

Armenian major cities by population

Looking at the distribution of Armenia’s population, it quickly becomes clear that almost everything takes place in the country’s capital. In the country of 3.0 million inhabitants, almost 1.1 million people live in the capital Yerevan (sometimes spelled Erevan) alone. It is by far the largest city in the country, with almost ten times as many people living there as in the second largest city, Gyumri, with just over 100,000 inhabitants.

The other significant Armenian towns and cities, by population, are: Vanadzor (80,000), Vagharsapat (50,000), Abovyan (45,000). It is noticeable that all major cities in Armenia, with the exception of Yerevan, have suffered a loss of population in the last ten years, partly due to migration from Armenia and partly due to migration to the capital.

Ethnic Groups

It is somewhat difficult to find good data on the ethnicity of people living in Armenia. However, according to the latest census, only less than three per cent of the population do not consider themselves Armenian. The largest minority, with a few tens of thousands of people, are the Yazidis, followed by the Assyrians, Ukrainians and Greeks, and very small numbers of a few other minorities

ReligionThe predominant religion in Armenia is the Armenian Apostolic Church. Over 90 % of the Armenian population belongs to this church, which is also endorsed by the government. The Christian Armenian Apostolic Church is an ancient national church, just as its faith is considered a national faith. Accordingly, there can be some marginalisation of followers of other Christian denominations who are sometimes perceived as disloyal to the national faith. Other religious adherents are: Protestants (1.0%), Yezidi faith (0.8%) and others (Sunnis, Catholics, Jehovah’s Witnesses, others).

Politics

Armenia’s political climate has historically lacked the   stability of most Western European countries. Nevertheless, it is a country that has shown a strong desireto developpolitically and economically.. For example, Armenia became a member of the Council of Europe in the early 2000s and subsequently committed to the promotion and defence of  human rights and democracy.

However, there are still problems in the country. The internationally active non-governmental organisation Reporters Without Borders sees “discernible problems” with press freedom in Armenia. Armenia is not as politically stable as countries in Western and Central Europe, but compared to the surrounding Caucusus region it does not fare so badly.

The Fragile State Index, published by the US think tank Fund of Peace, analyses the political, economic and social stability or fragility and thus the vulnerability of states and summarises them in a ranking. Armenia is ahead of all its neighbouring states and on par with Ukraine and similar to Belarus, both of which are already considered popular IT outsourcing countries by many Western European companies.

Languages

A total of twelve languages are spoken in Armenia, which can be divided into four different language families. However, the official language of Armenia is Armenian, which is spoken by about 95% of the population and is the standard variant of the Eastern Armenian dialect.

Russian is by far the most widely spoken foreign language in Armenia. The Russian Ministry of Foreign Affairs reported in 2010 that about 70% of the Armenian population can speak Russian, although the influence of the language has declined significantly since independence in 1991. Other important languages of the country are the Turkic language Azerbaijani and the Northwest Iranian Kurmanji, which are spoken by around 160,000and 42,000 people respectively.

Armenian is the language of instruction in schools and universities, but there is a trend from Russian towards English as a first foreign language, although the general level of English is very mixed. However, among educated younger generations, the level of English tends to be high and at least on the same level as is found in Ukraine, Poland etc.

Armenia –  are there majorcultural differences to Western Europe?

Due to its geographical location, it might be assumed that Armenia would culturally more in common with the Middle East than West Europe . However, the mentality of the people living in present-day Armenia (which does not necessarily apply to Armenians in present-day Turkey or elsewhere) is often more Eastern European as a result of historically close relations with Russia and many other Eastern European countries

As the Armenian Soviet Socialist Republic, Armenia was an important part of the Soviet Union until its independence in 1991, which shaped its mentality towards Europe. In addition, the Christian heritage of the country, which is considered the oldest Christian state, has created cultural-historical ties with Eastern Europe. The architecture in many places is strongly reminiscent of that of many Eastern European countries as well as the Russian language, which is still widely spoken in the country.

However, historical Oriental influences, which are particularly reflected in the food or the craftsmanship, are also highly visible.

Business travel from and to Armenia

The trend towards remote working in the IT and software industry has accelerated sharply, especially in the aftermath of the outbreak of the Covid 19 pandemic. As a result, many teams could only meet online, regardless of their location. It did not matter whether the teams were generally from the same city or scattered internationally. During the Corona period, remote working was a reality for everyone

Under normal circumstances, regular physical team meetings were a necessary measure for many development teams. However, the last few months have shown that, at least for some time, physical meetings are not always necessary for successful project implementation, as long as a solid organisational framework for remote working is in place

However, as the Armenian border is open to travellers from most European countries, physical meetings are again possible and business relations can be refreshed in person. Due to its geographical location, Armenia is not as easy to reach as many popular outsourcing countries from Eastern Europe. However, it is also not a particularly long journey and  this “one step removed” status could also be an opportunity for companies quickest to establish themselves in a still rather unknown market for IT specialists.

How long does it take to travel to Armenia from major European cities?

Armenia may seem a little  further away than you are used to if accustomed to the European luxury of a very diverse mix of countries in a relatively small space. Travel options are mixed depending on the season, but there are direct flights to and from Yerevan (Armenia), from most major European airports. Here are some direct flight connections with travel times:

Vilnius – Yerevan ~ 3:25 h

Vienna – Yerevan ~ 3:50 h

Rome – Yerevan ~ 4:10 h

Frankfurt – Yerevan ~ 4:25 h

Brussels – Yerevan ~ 4:55 h

Paris – Yerevan ~ 5:30 h

Flight connections to other major cities such as Berlin, London or Scandinavian cities can usually only be made with connections via the above-mentioned cities or geographically closer states such as Cyprus, Greece, Ukraine or Russia, which often stretches the travel time to more than 6 hours.

How much does it cost to travel to Armenia from major  European citites?

Armenia is not conveniently reachable by train or car. Which makes the air route the only practical alternative.. Travel costs for flights to and from Armenia vary greatly depending on the departure point, as well as travel time and comfort. For example, a flight with a stopover from London via Vienna to Yerevan can cost many times more than a direct flight from Vilnius or Cyprus. As a guideline, however, one can assume that the cost of a round-trip ticket booked 2 to 4 weeks in advance is between €400 and €800.

Do EU, EEA or UK citizens need a visa to enter Armenia?

Entry to Armenia is visa-free for citizens of all EU Member States and all countries that are part of the Schengen Agreement (including Switzerland, Norway and Iceland). This was decided on 10 January 2013 and allows a visa-free stay of 180 days per year in the Republic of Armenia. Not only EU and Schengen countries are affected by this regulation. The Armenian Embassy has published a list of all states to which such a visa exemption applies. This includes countries such as UK, but also Japan, Australia, the USA and other countries.

What are the entry requirements for Armenian IT professionals in EU countries as well as the UK, Norway or Switzerland?

Armenian citizens cannot enter EU countries, the UK, Switzerland, Norway or Iceland without a visa. Armenian developers and IT professionals must apply for a national visa before visiting clients or employers in Western Europe.

As a rule, the visas to be applied for and the associated visa requirements differ depending on the motive and length of stay of Armenian IT professionals. The visa that is sufficient for entry into all of the above countries is the well-known Schengen visa, which allows Armenians to enter all states of the Schengen area for up to 90 days within a period of 180 days.

The digital economy in Armenia – FAQ

Armenia, like many former Soviet countries, has a history heavy in technology and mathematics. When it was still part of the Soviet Union, the landlocked country in the Caucasus was one of the most important locations for the development of electronic components for Soviet space travel and other robots. Besides the chemical and shoe industries, information technology was the most important industrial sector in the former Union Republic as part of the Soviet Union. In 2017, for example, the CIA published documents showing that the first Soviet atomic bomb was developed in Armenia.

The IT culture and related expertise were lost in the post-Soviet years due to emigration and changing priorities, be it independence or the country’s infrastructure. Until enthusiasm for the IT industry returned in the 2000s. In 2008, the government unveiled a ten-year plan to develop the digital ecosystem in terms of infrastructure, funding and promising educational institutions for a future-proof IT sector. The goal is to build the technology sector as a fundamental part of the national economy.

The first very successful start-ups have already been established in Armenia or founded by Armenians abroad. One example is the AI company “Krisp Technologies, Inc.”, which was founded in 2017 by two Yerevan State University graduates and was listed in the “Forbes AI 50 2020” or the “TIME Best 100 Inventions 2020”. Established international companies also recognise the potential of the small Caucasus state. Large companies such as Microsoft, Oracle, Cisco or Synopsys are active in Armenia in various ways.

Are there many IT professionals in Armenia?

Since the 2000s, the government has prioritised the IT sector in the country and accordingly tax benefits for IT companies were introduced, which should not only fuel foreign investments but also the construction of IT campuses. Meanwhile, more than 22,000 people work in the IT industry, of which almost 74% are software developers, a rate that is significantly higher than in other IT outsourcing locations such as Ukraine (58%) or Belarus (40%).

Training the next generation of  IT professionals is very important for a future-proof IT industry. In Armenia, the prospects are good, with around 7,000 students starting IT-related studies at Armenian universities every year. In addition, many more IT professionals enter the IT sector every year through self-study, professional courses and  private technology and software development education centres. It is also worth noting that women make up a very large proportion of IT professionals. The Armenian IT community consists of about 30% women in an industry where women rarely exceed 20% globally.

Source: itis.am

How good are Armenian IT professionals?

Armenia has a rather mediocre reputation as far as the education system is concerned but like most former Soviet states has a long tradition in mathematics, which has benefitted the growing IT sector. The school system works well and is free, with compulsory education for 9 years. The illiteracy rate is very low at 1%, with only 0.2% among young people.  Armenia has been a member of the “Bologna Process – the European Higher Education Area ” since 2005, which aims to make the level of education at universities comparable throughout Europe.

Internet: What is the IT infrastructure like in Armenia?

Digital infrastructure is an important component of the digital economy, which is highly dependent on it. Armenia does not have the infrastructure levels of developed economies, so  nationwide internet speeds and coverage are  below average compared to Europe. However, internet speeds in Yerevan are adequate. Broadbandspeedchecker.co.uk estimates the average download speed in Yerevan at 19.08 Mb/s and the upload speed at 17.55 Mb/s, which is at least on a par with major German cities.

The country’s average and median internet speeds are not important for most companies. Virtually all IT companies and IT professionals are located in the capital Yerevan.

Doing business in Armenia: Salaries, overheads and taxes in Armenia – FAQ

Armenia is a rather unknown quantity for many Europeans but that shouldn’t put you off.Of course, it would be naïve to compare Armenia’s economy, politics and judiciary with developed economies, but there are advantages and disadvantages here too.

If Armenia were as developed a country as the countries from which most of the companies that are IT outsourcing clients come, then Armenia would not be an attractive destination for IT outsourcing. Emerging countries such as Armenia, Ukraine or Belarus often have attractive tax regimes for companiesto attract foreign investment and business. In addition, there is usually a lower income tax which reduces gross salary overheads without affecting the take-home net income of employees and contractors

Below are some FAQs around salary costs, taxes, and overheads in Armenia.

How much do software developers and other IT professionals cost in Armenia?

The need for software developers and IT experts is great everywhere. Especially in Western Europe, however, there seems to be a major shortage of IT professionals. In Germany alone, for example, tens of thousands of IT positions are unfilled, forcing some companies to outsource IT tasks.

Due to the emergency created by Covid-19 in most European countries, the willingness of many organisations  to hire remote workers from abroad has increased. Inevitably, this has made software developer salaries  more comparable around the world, with senior professionals benefiting the most.

Eastern European countries that were once considered IT outsourcing insiders’ tips are now part of the permanent mainstream business model for many companies and developers based there accordingly earn much higher salaries than they did  just a few years ago. The IT skills market is scarce everywhere, so companies have had to become more adventurous and innovative to to counteract  sharply rising cost-of-labour prices.

Armenia is not necessarily the first country that would spring to mind for many companies when it comes to IT outsourcing. Nevertheless, the potential is great. The developers are highly qualified, the skilled labour market is a reasonable size, and salaries  are still relatively low.

Armenian software developers typically earn between 20-50% less than comparable developers from Germany, England or France. How significant savings might be will depend on the tech stack as well as the professional experience of a developer. For example, the difference between comparable senior software developers is not as great as the difference between two mid-level or junior developers.

Like everywhere, salaries in the IT and software industry in Armenia are also rising very fast. Nevertheless, a saving of about 20% to 30% of absolute development costs is quite realistic. For large corporate projects, this makes a huge difference in the budget. Even for small development projects, this can have a positive impact.

These figures are based on our own recruitment experience and can vary greatly depending on the position.

How long does the recruitment process for software developers and other IT professionals take in Armenia?

The hiring process and the average time it takes to hire professionals is often significant for software development projects. Glassdoor’s 2015 recruitment report states that it takes about 35 days to hire a software developer. A similar prediction is also published by other organisations and might have been correct in 2015.

In 2021, the situation is different and 35 days is too optimistic for an average hiring cycle. IT professionals are in short supply, and notice periods of several weeks to two to three months are also not uncommon.

Companies that need to implement IT projects in a tight timeframe should therefore start recruiting suitable IT professionals early. IT outsourcing companies can usually shorten the recruitment process significantly.

Income tax in Armenia: How much net remains of gross salaries in Armenia?

Income tax in Armenia is flat, unlike in many Western European countries such as Germany or France. Thus, the percentage income tax remains the same regardless of whether it is a top earner or a low earner. However, it makes a difference in what form the income is earned, for example, income from dividends or real estate is taxed differently (5% – 20%) to income from ordinary permanent employment. IT professionals have to pay a flat income tax of 22% as of 2021, gradually decreasing to 20% as follows.

  • From 1 January 2020: 23%
  • From 1 January 2021: 22%
  • From 1 January 2022: 21%
  • From 1 January 2023: 20%

The following is an example with a gross salary of AMD 33,150,000 (Armenian dram), which at the time of writing is equivalent to about €60,000. The net income of the original AMD 33,150 after the income tax of 22% applicable in 2021 is still AMD 25,857,000 (€46,800), which logically corresponds to 78% of the gross income.

However, it should be noted that with such an income of more than AMD 500,000, a 10% pension contribution (minus AMD 37,000, because the first AMD 500,000 are assessed differently) of the gross income must be paid. That reduces actual net income to  AMD 22,579,000 (41,000 €), although the difference does to the individual’s pension fund.

Compared to a person with the same gross income in Ukraine (48,300€), this is about 7,300€ less, compared to a person with the same gross income in Poland (40,700€) 300€ more and compared to someone from Germany (35,700€ with church tax) even 5,300€ more.

What is the corporate income tax in Armenia?

The standard rate of corporate income tax in Armenia is 18%. However, you only need to worry about this if you earn income in the country or have it directly accounted for by an Armenianlegal entity. If you outsource IT functions to Armenia, you may only have expenses in the country or no taxable profit. However, it should be added that corporate income tax can be different for different industries as well as company sizes and the tax rate is graduated depending on the type of income.

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Trivia – A handful of facts about Armenia

Now that we have answered the most frequently asked questions about IT outsourcing in Belarus, here are some interesting facts about Belarus. You can use them to impress your work colleagues during one of your next coffee breaks, at a shared after-work beer or, of course, over a glass of Brandy (Armenian Cognac).

Armenia – the oldest Christian state in the world

Whether the Bronze Age, the Urartian Empire of Biainili or Tigranes II the Great, the history of Armenia is very exciting and goes back 3000 years. One of these many historical stories is that in times of the Roman-Persian Wars, when the Persians and Romans fought over Armenia. The Romans supported the Armenian king Trdat III, with the empire later falling apart.

Later, around the year 290, King Trdat III was reinstated as king until around the year 301, when he was proselytised by St. Gregory after Christ and subsequently introduced Christianity as the state religion. Accordingly, Armenia is the first state to introduce Christianity as a state religion and recognised as the oldest Christian state in the world.

 

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