GREECE: An Introduction to Tax
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Greece is making significant efforts to invigorate its economy and attract foreign investments in the country following a decade-long economic recession.
One of the main obstacles to making Greece an investment-friendly destination has been its taxation system. With the corporate tax rate currently at 24% (in 2018 it was 29%, one of the highest in the EU) and individual taxation ranging from 9% for income up to EUR10,000 to 44% on an income of just EUR40,000, not to mention a progressive solidarity contribution and social security contributions paid on top of income, Greece has not been the first choice when it comes to investments for many years.
However, this seems to have changed. Apart from measures taken with respect to corporate taxation, through a reduction of the income tax rate as of 2019 and the introduction of a dividend tax rate of 5% (the lowest among EU countries that levy a dividend tax, followed by Slovakia with a tax rate of 7%), Greece recently implemented a number of tax provisions in order to attract certain categories of individuals with a view to facilitating foreign direct investments in the country and invigorating its economy. As per these provisions, incentives are granted to foreign tax residents (high net worth individuals, pensioners, paid employees) to transfer their tax residency to Greece and fall into the scope of a favourable tax regime (non-dom regime). Further, the concept of Family Offices has recently been introduced, targeting the attraction of more foreign funds into Greek territory.
– Non-dom for high net worth individuals
As of 1 January 2020, Greece has introduced an alternative taxation of foreign-source income for individuals wishing to transfer their tax residency to Greece. According to this regime, these individuals can opt to pay to the Greek State a lump-sum annual tax of EUR100,000 for their foreign-source income, irrespective of its amount and without having the obligation to disclose to the Greek tax authorities the source and amount of this foreign income. Such a regime will be applicable for a maximum of 15 years following the relocation of the individual.
In order for an individual to benefit from this scheme, the following conditions should be cumulatively met: (a) the individual shall not have been a Greek tax resident for seven out of the previous eight years prior to the transfer of his/her tax residency to Greece; and (b) the individual concerned or one of his/her relatives (e.g. spouse, ascendants, descendants), or a legal entity in which he/she holds a majority participation, shall invest at least EUR500,000 in real estate, undertakings, securities, shares or units in legal entities registered in Greece. Such investment shall be completed within three years following submission of the application for the transfer of tax residency.
The law does not seem to require that the individuals benefiting from the said regime shall maintain their permanent residence and centre of vital interests in Greece or fulfil the 183-day rule; however, possible non-fulfilment of said conditions may be invoked by foreign tax authorities in order to dispute the tax residency status of the individual concerned.
– Non-dom for foreign pensioners
Apart from high net worth individuals, Greece is also aiming to attract foreign pensioners who wish to shift tax residency to Greece by adopting another non-dom tax regime. According to the relevant provisions, individuals who are beneficiaries of foreign income deriving from pensions who transfer their tax residency to Greece shall be subject to a flat annual income tax rate of 7% for all of their foreign income, including pensions, investments and business activities, for 15 years following transfer thereof.
In order for retirees to be eligible for this non-dom scheme: (a) they should not have been tax residents of Greece for five of the previous six years prior to the transfer of their tax residency to Greece and (b) they must transfer their tax residency from a country with which Greece has in place an agreement on administrative cooperation in the field of taxation.
According to the relevant guidelines issued by the Independent Authority of Public Revenues (IAPR), the fixed tax rate of 7% is not imposed on income exempted from taxes at the individual’s country of residence pursuant to the provisions of a Double Taxation Convention. In addition, any tax paid abroad for income covered by said regime will be deducted from the tax imposed in Greece, provided that either a right for taxation for both countries is provided in the applicable Double Taxation Convention or such a convention is not in place between Greece and the other jurisdictions involved.
– Alternative taxation for foreign employees and freelancers
With the aim of boosting the Greek economy, reversing the brain drain of highly qualified Greek people and attracting educated foreigners to work with Greek companies (given also the conditions caused by the COVID-19 pandemic, whereby thousands of employees worked remotely), as of 1 January 2021 a new regime for alternative taxation of income deriving from paid employment and business activity arising in Greece, for individuals shifting their tax residency to Greece, is available. According to the relevant provisions, those individuals shall be exempted from income tax and the special solidarity contribution fοr 50% of their income derived from employment or business activity, for the next seven years following their tax residency shift.
The conditions under which the new tax regime is applied are the following: (a) the individual was not a Greek tax resident for five out of the previous six years prior to transferring his/her tax residency to Greece; (b) he/she relocates from an EU or EEA member state or from a country with which Greece has in place an agreement on administrative cooperation in the field of taxation; (c) he/she provides employment services in Greece under an employment relationship with a Greek legal person or legal entity or with a permanent establishment of a foreign company in Greece; and (d) he/she declares that he/she will reside in Greece for at least two years.
It is noted that condition (c) above shall not apply for freelancers who choose to shift their tax residency to Greece and opt for this regime.
Given that favourable taxation is granted only to income deriving from employment or business activity (in the case of freelancers), any other income derived in Greece (e.g. dividends, interests, rents, etc.), will be taxed as per the general provisions of the Greek Income Tax Code.
– Incentives for Family Offices
Another tax measure targeting the attraction of ultra-affluent individuals, i.e. Greeks who keep their money abroad, as well as investors, is the introduction for the first time in Greek legislation of the concept of Family Offices, already known to other jurisdictions (e.g. Switzerland, Malta, Luxembourg and the UK). Under the newly adopted legislation, the wealth of individuals and their family members, all being tax residents in Greece (a prerequisite), can be delegated to special purpose legal entities having any legal form, except for non-profit entities, with an exclusive purpose to support these individuals in the management and administration of their assets and investments, held either directly or through legal entities.
In order for such an entity to qualify as a Family Office, the following conditions should be cumulatively fulfilled: (a) it should employ at least five persons in Greece within the first 12 months of its establishment; and (b) its annual expenditure in Greece should be at least EUR1 million.
In relation to taxation, Family Offices are taxed using the “cost plus margin” method whereby a profit of 7% is applied to all their incurred expenses and depreciations, excluding income tax. The income so calculated is then subject to the current corporate income tax rate of 24%.
Overall, it is not yet possible for an assessment of the results of these reforms to the Greek economy to be made, as the global health crisis has affected the mobility of individuals, an important factor for the implementation of said regimes. However, there is no doubt that significant steps have been taken in order for Greece to be established not only as an investor-friendly country but also as an attractive place for any individual, as far as taxation is concerned.