COMMERCIALIZING THE SPACE: THE ARMENIAN LIBERAL LEGAL FRAMEWORK

Nowadays we are witnessing incredible developments in the space industry. Armenia is one of those countries that generally has a favorable legal framework and liberal approach towards this field. In this short note we present the summary of Armenia’s legal policy regarding commercial purpose space exploration.

OVERVIEW

Beginning from its very first technological steps (and even earlier), humankind has been dreaming of exploring the unfamiliar and very interesting world located beyond our shared home – planet Earth. For almost 70 years now, we have been undertaking steps to get a little closer to what once used to exist only in the imagination of the most daring dreamers and desperate believers.

So, as of today, the Man has reached space, stepped onto the Moon, created an international space station, and launched the first commercial spaceship.

As we get deeper into space, we try to gradually accommodate it to the laws and rules we are accustomed to living under here – on the planet Earth. In tandem with market relations being a huge part of our lives, we’ve started to commercialize the space. Even the term “commercial space” emerged, which encompasses space-related products and services, space ventures, initiatives, and financing thereof. One can state that nowadays, concerning “conquering” space, big corporations and multi-billionaire donors have beaten the monopoly of the most powerful governments in the world.[1] Due to public interest and excitement in NewSpace[2] companies, the volume of smaller-scale and retail investments is growing fast. Worth mentioning that in 2019, 95% of the estimated $366 billion in revenue earned in the space sector, especially from space-for-earth economy[3] , and respectively, in 2020, the turnover of the global space economy was approximately 446.9 billion U.S. dollars.

Based on SpaceFund research, as of January 2019, at least 116 commercial organizations from all over the world have announced plans to fly payloads to space. Of those, more than 40 have received private funding (nearly $4B in total, almost $3B of which has gone to SpaceX).

Under these circumstances, the launch of commercial spaceships, space tourism, and other private initiatives require private financing, which, to function properly, must be regulated and applied accordingly. Considering the innovative and specific nature of such projects, as well as the needs and objectives of these new initiatives, financial and legal solutions regarding space initiatives should be tailor-made to meet those needs and objectives.

 

DOMESTICATION OF COMMERCIAL SPACE INTO ARMENIAN MILIEU

Being a pioneer in Space Law, Armenia has shown its willingness to the international community via providing advantageous regulations and incentives. Particularly:

  1. First, Armenia has established a friendly environment for the space industry. This is embodied through the Government policy and objectives. Continuously, Armenia creates a regulatory environment that enables Armenian commercial activity to thrive which is a good sign.
  2. Second, Armenia promotes open-door investments for NewSpace entrepreneurs by providing a favorable tax environment. A lookover of the Armenian tax legislation shows that a wide range of transactions about the alienation of space objects and equipment, provision of services for their repair or modernization, transmission, processing of satellite data of remote Earth observation, launch, the landing of space objects and their management during flight and take-off are either VAT exempt transactions (for business entities) or the income generated from such activities shall not be considered an “income” (both for resident and non-resident individuals) for income tax purposes until December 31, 2030.
  3. Third, the bulk of toolkits, along with the at-hand financing structures, make Armenia a step forward for the NewSpace ventures in achieving “commercial space”.
  4. Fourth, another example is the adoption in 2020 of the Law on Space Activity, which regulates relationships arising from the arrangement and performance of space activity.

At the same time, even though Armenia seems a favorable jurisdiction for space ventures and the government seems to be open to new initiatives, there may still be a few legislative and organizational obstacles to the proper establishment and functioning of the industry.

First, many of those are associated with the “wide” definition of “space activity” in the Law on Space Activity. In particular, the definition at issue states that space activity shall include manufacturing, maintenance, innovation, alienation of space objects and (or) equipment, execution of research and experiments with the use of space equipment, acceptance, and processing of satellite data of remote Earth observation, the launch of space objects, management of space objects during their take-off and landing, production and exploitation of space infrastructure. This may be unfavorable to relatively small and not-for-profit (research, academic and educational) initiatives. 

Second, under the Law on State Duty, persons engaged in any such type of space activity shall be subject to licensing and payment of annual state duty of AMD 10,000,000 (approximately USD 20,000).  In our opinion, application of these requirements towards non-profit, in particular – educational initiatives, which may fall under the definition of “space activity” (e. g. educational programs including launch of space objects such as nano-satellites or scientific research based on satellite data) impairs the potential for talent development, and, subsequently, may have its adverse effect on the industry. Likewise, the R&D or R&A in the field of space activities also plays an important role, however, even in an Armenian scenario such concepts may fall under the definition of “space activity”.  While such activities are tax-exempt, as described above, nevertheless, persons engaged in those shall be obliged to pay a big state duty, which can become an unbearable duty for non-profits. Thus, the regulatory framework leaves out the non-profit sector from participating in such prospective progress, which might be less attractive for non-profit space agencies.

 

HOW WE CAN HELP?

Our attorneys have valuable experience in providing legal advice related to the most innovative fields of business, best suited for clients’ needs and objectives. Do not hesitate to get in touch with us, in case you need our assistance.

 

[1] The two most famous ventures of this type – SpaceX and Blue Origin, have been founded by multi-billionaires Elon Musk and Jeff Bezos accordingly. Even though both initiatives employed hybrid financing (including government-backed investments and, mainly, venture capital), a substantial part of the financing came from pockets of the mentioned individuals. This is substantially ahead of and different from what existed half a century ago, when exploration of space was the monopoly of and race between two strongest and wealthiest sovereigns in the world – USA and USSR.

[2] The term NewSpace has been developed to mean any young space startup or technology.

[3][3] https://hbr.org/2021/02/the-commercial-space-age-is-here.