i Investment vehicles in real estate
The investment vehicles most commonly used for investing in real estate in Greece are the Greek société anonyme (AE), the limited liability company (EPE) and the private company (IKE), which are all referred to as 'corporations' given that, as a general rule, the liability of the shareholders is limited to the amount of their contributions. Greek partnerships are taxable persons (opaque for tax purposes) and therefore not commonly used for real estate investment by Greek or foreign investors. Institutional real estate investors may also invest through a Greek real estate investment company, which is an entity operating under the supervision of the Hellenic Capital Market Committee (see Section III). From a practical perspective, a Greek AE is the most commonly used entity in cases of debt-levered acquisitions. This is because an AE is eligible to issue bond loans under Greek Law 4548/2018), which provides for specific tax exemptions (see Section II.ii, 'Tax framework: Financing of real estate transactions: Indirect taxes on financing').
Furthermore, foreign companies may also invest directly in Greek real estate.
ii Property taxes
Greek taxes are imposed upon acquisition, during the holding period and upon selling Greek real estate (see Section II.iii). The basis for the imposition of most property-related taxes, during the holding period is in principle the objective value of the property.
The objective value system has been in place since 1982 and is used to calculate the market value of real estate in a predetermined manner that is binding for both the tax authorities and the taxpayers. Almost every Greek municipality is divided into zones, which are narrower and smaller in urban areas and wider and bigger in the countryside. The Ministry of Finance sets an initial price per square metre for each zone. To calculate the objective value, the initial zone price set by the Ministry of Finance is adjusted according to special evaluation factors (e.g., the specific street, floor, age and joint ownership, among other factors), that may increase or decrease the objective value. The Supreme Court has consistently ruled2 that objective values and, in particular, zone values constitute predetermined values that aim to reflect the fair market value of the property that diligent, well informed and unrelated parties would be willing to accept for the transfer of the property. Relevant objective values, therefore, constitute a rebuttable presumption for computing the market values of real property. Taxpayers have the right to challenge the validity of the objective values and predetermined zone prices if they can prove, on the basis of comparable data, that the objective value is higher than the market value of their real estate.
The zone values are to be reassessed by the Ministry of Finance every two years to confirm that they are aligned with market values, following a review of comparative data on sale and lease transactions, and consultation with various stakeholders, such as the municipalities, valuers, civil engineers, etc. Historically, the objective values of properties in areas subject to town planning have been lower than the market values. However, the joint eurozone members–International Monetary Fund financial rescue package in 2010 resulted in a significant decline in the Greek economy, including in the values of residential and commercial properties, driving the market values in some areas lower than the objective values.3
Notwithstanding the collapse of property values due to the crisis, the reassessment of the objective values was effectively frozen for a period of seven years from 2008. Following taxpayers' appeals and Greek Supreme Administrative Court4 jurisprudence, in June 2018, the Ministry of Finance readjusted the objective values of properties in areas that fall within town planning, although areas outside town planning have not been adjusted yet. The Greek government recently put in place further readjustments of the objective values and these had been scheduled for 2020, but because of the covid-19 upheaval they have been postponed until 2021. Furthermore, the electronic Registry of Property Values, where real estate transactions data is reported (including among other things the municipality where the property is located, the type of property, surface area and transaction value) was launched in 2017 and is publicly available.5
There are still some areas both within and outside the town planning regime where the objective value system does not apply. Accordingly, the market value of real estate located in these areas is calculated based on comparative data, such as previous sales of real estate in the area.
II ASSET DEALS VERSUS SHARE DEALS
Most inbound real estate investment structures consist of a Greek corporate entity acquiring and holding the real estate, and a non-Greek parent company, usually resident in an EU jurisdiction and qualifying under the Parent-Subsidiary Directive and the Interest and Royalties Directive.6 In terms of exiting the investment, non-resident corporate sellers usually favour share deals since capital gains earned on the sale of shares in local companies, including sales of shares in property-rich companies (see Section II.iv), are not subject to Greek taxes. Tax-related considerations relevant to the choice of using share deals include, on the one hand, the exemption of share deals from indirect taxes (value added tax (VAT) and stamp duty), real estate transfer taxes and share transfer taxes (with the exception being the 0.2 per cent sales tax that applies exclusively to transfers of shares admitted to trading on a stock exchange); and on the other hand, restrictions on allocating the purchase value to the underlying assets, depreciating the acquisition value of the shares and deducting business expenses incurred for the acquisition of the shares.
i Legal framework
Acquisition of real estate entities
The acquisition of shares in real estate entities is rather straightforward, given that there are neither formal requirements for the share purchase agreement to be vested in a specific form nor any requirement for registering the relevant agreement with the land registries. Border area permits and restrictions (see below) apply equally in cases of share deals.
In principle, shareholders of Greek corporations are not liable for the debts of the corporations. Exceptionally, shareholders could be held jointly liable with the taxpayer for special real estate tax (see Section II.iii). In any case, prior to the acquisition of shares in a real estate company, a legal and tax due diligence process is highly advisable.
Share acquisitions are exempt from indirect taxes (VAT and stamp duty), real estate transfer taxes and transfer taxes, with the exception being a 0.2 per cent sales tax that applies exclusively to transfers of shares admitted to trading on a stock exchange.
Acquisition of real estate assets
In accordance with the law, unless a special licence is required (see below), the mandatory procedure for proceeding with the acquisition of a real estate asset is the filing of the real estate tax return for payment of the real estate transfer tax or VAT, the execution of the notarial transfer deed and its registration (see Section II.i). Customary legal and technical due diligence reviews prior to acquisition extend to title checks (usually going back 20 years), land use restrictions, permits and restrictions for border areas, islands and forest areas, and archaeological restrictions. Customary tax due diligence reviews are also conducted for asset deals because the new owner can be held jointly liable with the seller and the seller's predecessors if they have not duly complied with their property tax-related liabilities in relation to the property concerned. In particular, the purchaser can be held jointly liable for real estate transfer tax, the annual property tax known as unified real estate tax, special real estate tax and municipal property tax (see Section II.iii for details of these).
Execution of the notarial deed
According to Greek law, the deed regarding the establishment, transfer, amendment or abrogation of any in rem right on real estate property must be in writing in the form, and vested with the legal status, of a notarial deed.
The advance payment by the purchaser of either the real estate transfer tax or VAT (see Sections I.ii and II.iii) is a prerequisite for the execution of the sale deed before a notary public. Having filed the tax return with the competent tax authority and paid the corresponding tax, a copy of the tax return and the tax payment receipt are attached to the transfer deed. Prior to filing that tax return, the prospective purchaser (i.e., legal entity or individual) should obtain a tax identification (ID) number in Greece (see above). A number of certificates need to be attached in the notarial deed. In particular, the tax, the social security and the municipality agencies should certify that the seller does not owe taxes, social security contributions and municipality taxes, and that he or she has accurately reported the real estate for property registry purposes (with the same characteristics with the ones it is described in the notarial deed) and has paid the annual property taxes during the previous five years. Moreover, a certificate executed by a civil engineer should be collected evidencing that no unauthorised constructions exist on the real estate and no unauthorised change of use has occurred.
Furthermore, the issuance of an energy performance certificate, regarding the energy consumption and relevant emissions deriving from the use of the buildings to be transferred, must also be attached to the deed.
The notary public is paid a percentage fee calculated on the higher of either the purchase price or the objective value. That fee may range from 0.8 to 0.01 per cent depending on the value of the real estate or transaction7 (that is the higher between the objective value and the purchase price). Those fees are paid by the purchaser of the real estate.
Registration of the notarial deed
Following execution, the notarial deed must be registered with the land registry and the Cadastre. The fees for registration of the deed with the relevant land registry are levied at a rate of between 0.475 and 0.775 per cent on whichever is the higher of the purchase price or the objective value. Land registry fees are borne by the purchaser of the real estate. Additional fees are payable in places where the property-based Cadastre system operates, the amount of which varies according to whether the Cadastre is fully operational or not.
ii Corporate forms and corporate tax framework
The most common corporate structures used for real estate investments are AEs, EPEs and IKEs, which are all corporate entities. The choice of structure depends on the flexibility offered by the corporate form compared to the others, taking into account the set-up procedure, the need for the shareholders to register with the Greek tax administration prior to set-up, the number of directors, minimum capital, etc. From a tax perspective, an AE is preferable to an EPE or an IKE where it is anticipated that the entity will also earn foreign source income from EU subsidiaries because only the AE structure qualifies under the Interest and Royalties Directive. Greek partnerships are taxable persons (opaque for tax purposes) and therefore not commonly used for real estate investment by Greek or foreign investors. Greek real estate investment companies (REICs) are regulated entities operating under a special framework and are not as common in Greece (see Section IV). Furthermore, foreign companies may opt to invest directly in Greek real estate.
Branches of foreign companies
If a foreign company has acquired real estate directly and intends to carry out business activities in Greece in connection with its exploitation, it will need to set up a corporate branch in Greece. A branch is a financially and legally dependent department of the foreign entity. It does not have legal personality and its activities are performed in the name and on behalf of the foreign company. It may perform all activities provided for in the articles of incorporation of the foreign company, except that there are limitations on the power of attorney for the establishment of the branch in Greece.
For the branch to be established, it needs to be registered with the General Commercial Registry, which will publish an announcement regarding the branch's registered seat, objective, name and legal representative.
Additional licensing may also be required depending on the kind of activities performed (e.g., in the case of certain industrial establishments).
During their operation in Greece, branches of foreign companies' main obligations are to submit the following to the General Commercial Registry:
- all changes to the data that has been submitted for their establishment;
- a copy of the annual balance sheet of the foreign company; and
- a record of the branch's operations in Greece during the financial year of the corresponding balance sheet.
A branch of a foreign entity is managed by a legal representative, who may be a foreign individual, whose powers are defined by a power of attorney issued by the foreign company.
Corporate income tax rate and tax base
All types of corporations, legal entities and permanent establishments holding Greek properties and earning income from Greek sources, whether or not they have legal personality, are required to maintain fiscal books and are taxed on the basis of the same rules. In general, their income is classified as business income, irrespective of its source, and their taxable profits are determined on the basis of their profit-and-loss account prepared according to the accounting principles applied (either Greek Accounting Standards or International Financial Reporting Standards) as readjusted based on the tax rules of the Income Tax Code (ITC). The nominal corporate income tax rate applicable to corporations (AE, EPE and IKE) and foreign entities operating in Greece, including foreign entities holding Greek real estate, with the exception of credit institutions, is 24 per cent. There is a tax prepayment of 100 per cent offset against the corporate income tax due the following year. Exceptionally for the first three years of newly set-up businesses, tax prepayment is reduced by 50 per cent.
Gross income derived from real estate is reduced by tax deductible expenses to arrive at the net income. In this way, the annual gross income of companies is reduced by the depreciation of fixed assets and by the expenses incurred in relation to their activity (operating expenses). The annual depreciation rate for buildings is 4 per cent. Interest paid for the acquisition of real estate is in principle deductible subject to certain limitations (see below). Furthermore, the ITC provides for specific expenses that are not tax deductible, including expenses in excess of €500 that have not been paid by means of bank wire transfer or bank cheques; bad debts in excess of the bad debt provisions provided in the ITC; penalties and fines; and expenses paid to companies registered in non-cooperating jurisdictions8 or the jurisdiction of a preferential tax regimes,9 unless the taxpayer proves that they have been paid for business purposes and do not result in profit shifting. Under previously applicable provisions property taxes were non-deductible expenses, but under the new rules unified real estate tax is deductible for tax purposes.
Irrespective of the fact that income from immovable property is classified as business income when earned by legal persons, reference to income from immovable property is still of relevance with respect to specific tax compliance obligations of those legal entities (e.g., for imputed income purposes, for special real estate tax purposes, for special reporting of rental or granting of free-use agreements, reporting for income tax purposes). Income from immovable property is either actual or imputed, the latter being earned by persons holding real estates that are occupied either by their owners for the conduct of their business activities or by third parties that have been granted free use. Imputed income is taxable in all cases and is assessed at 3 per cent on the objective value of the real estate. However, for legal entities that use their properties for their own business activities, their imputed income is equal to the imputed expense, and therefore from a tax perspective the overall impact is neutral. In addition, investments and enhancements financed by the lessee that remain to the benefit of the owner following the termination of the lease may constitute in-kind taxable rent to be taxed either during the term of the lease or upon its termination.
Branches of foreign companies have the same rates and tax base as Greek entities. From a corporate income tax perspective, there is in principle no different tax treatment if the real estate is attributed to a foreign company or to its permanent establishment in Greece. This is because foreign tax residents holding Greek real estate are subject to the same accounting bookkeeping and tax compliance requirements, irrespective of whether they hold the Greek real estate through a Greek permanent establishment (see Section II.iii, 'Taxes upon disposal: Permanent establishment issues'). Remittance of profits from the Greek branch of a foreign company to its head office is not treated as a dividend and therefore not subject to any withholding tax. Taxation of dividends is analysed under Section II.iv.
Financing of real estate transactions
Interest limitation rules
There are no thin capitalisation rules in Greece. Interest on loans for the acquisition of real estate assets is deductible subject to the earnings stripping rules. In particular, net interest expense, if in excess of €3 million, is deductible provided that it does not exceed 30 per cent of the company's earnings before interest, taxes, depreciation and amortisation (EBITDA). EBITDA is assessed under the Greek accounting principles following the readjustments for tax purposes. Net interest is defined as the amount by which interest expenses and other financing associated costs exceed interest revenues. Interest that exceeds the thresholds may be carried forward indefinitely.
There are also restrictions on the deductibility of interest payable to tax residents (individuals or legal entities) in non-cooperative or preferential tax regimes (see Section II.ii, 'Tax framework: Corporate income tax rate and tax base').
Interest on related parties' loans is subject to transfer pricing rules while interest on third-party loans, other than interest on loans by banks, inter-bank loans and corporate bond loans that exceed specific statistical thresholds set by the Bank of Greece is not deductible. For corporate law purposes, the granting of loans to affiliated entities is subject to prior corporate approvals and publication in the Companies Registry.
Interest on loans for the financing or the acquisition of shares is not tax deductible pursuant to the legal provisions that recently introduced the capital gains participation exemption for gains from the sale of qualifying participations, with effect from 1 July 2020 (see Section II.iv).
Withholding tax on Greek source interest
Greek source interest payments, with the exception of interest payments to banks, are subject to 15 per cent withholding tax based on domestic tax rules. Relevant withholding tax may be reduced on the basis of the applicable double tax treaty between Greece and the country of the beneficiary of the income and eliminated for interest payments qualifying under the Interest and Royalties Directive (i.e., interest payments between qualifying entities, holding a minimum participation of 25 per cent for an uninterrupted period of 24 months).
Indirect taxes on financing
Loans agreements signed and executed in Greece, both intragroup and third-party loans, with the exception of bank loans, are in principle subject to 2.4 per cent stamp duty, but there is an exemption for loans granted by Greek and foreign banks, although these are subject to the special bank contribution at 0.6 per cent.10 Bond loans issued by Greek AEs are exempt from both stamp duty and the bank special contribution.
iii Direct investment in real estate
Taxes upon purchase
Real estate transfer tax
Subject to the imposition of VAT on new buildings (see below), the sale of real estate is subject to real estate transfer tax. The real estate transfer tax is calculated on whichever is the higher of the objective value (see Section I.ii) or the actual transfer value agreed, and it is payable by the purchaser. It is levied at the rate of 3 per cent. An additional 3 per cent municipality tax is also payable, calculated on the amount of the real estate transfer tax due, with the result that the transfer tax adds up to 3.09 per cent. Reduced rates of real estate transfer tax apply in certain cases, such as divisions, exchanges and mergers.
The sale of new buildings or parts of new buildings (i.e., buildings that are transferred prior to their first occupation and the building permit for which was issued after 1 January 2006) and the land on which they have been constructed is in principle subject to VAT at the standard rate (currently 24 per cent). The tax base for the calculation of VAT is based on whichever is the higher of the actual sale price, the objective value of the real estate property and the construction cost, as well as the technical, quantitative and financial data included in the corresponding building permit. VAT on such sales has nonetheless become optional for sales taking place in the period from 1 January 2020 until 31 December 2022, both for buildings that have been completed and for buildings that will be completed during this time frame. A special notification procedure before the tax administration is to be followed by constructors opting for the VAT suspension.
Taxes during the holding period
The main property taxes due by corporate entities during the holding period are summarised below.
|Unified real estate tax||Main tax ranges from €0.001 to €13 per square metre; supplementary tax ranges from 0.1% to 0.55%|
|Special real estate tax||15% on property's objective value unless taxpayer is entitled to one of the applicable exemptions|
|Municipal property tax||Computed with a range determined by the municipality, within the range of 0.025% to 0.035% on the property's tax value as determined for these purposes|
Unified real estate tax
Unified real estate tax (ENFIA) is an annual property tax that applies as of 1 January 2014 and is imposed on persons (i.e., both individuals and legal entities) holding in principle in rem rights (ownership, bare ownership, usufruct, etc.) on real estate property located in Greece. Exceptionally, ENFIA may also burden persons having possession over state property.
ENFIA consists of main and supplementary tax and is imposed on the owner of the property on 1 January of each year. The main tax is computed on an asset-per-asset basis, and the same formula is applied for both individuals and legal entities (separate formulas apply for buildings, plots or fields); the amount of tax due ranges from €0.001 to €13 per square metre, readjusted by a number of coefficients (based on floor, age, façade, etc.).
The supplementary tax is imposed for legal entities, including real estate investment companies (see Section IV), at a flat rate (0.55 per cent) on the tax value of the properties. The relevant tax value is computed on the basis of a formula that is quite similar to the formula computing the objective value (see above). A reduced flat rate (0.1 per cent) applies to properties that are used by legal entities for their own trade, services, agricultural and other business activities. Moreover, a reduced flat rate (0.35 per cent) applies for properties held by not-for-profit entities provided that specific requirements are met. In contrast to the flat rates applicable to legal entities, the supplementary tax on private individuals is computed on progressive tax rates that apply according to the specific taxable bracket, ranging from zero per cent for total values of up to €250,000 to 1.15 per cent for total values exceeding €2 million.
ENFIA is assessed electronically by the information technology systems of the Ministry of Finance on the basis of the property registry (i.e., based on a special tax form filed by the taxpayer, the E9 form) that is maintained for each taxpayer.
Special real estate tax
Special real estate tax (SRET) constitutes a special anti-avoidance rule applicable to legal persons and entities holding Greek real estate on 1 January each year. SRET is imposed annually at a rate of 15 per cent on the objective value of the property, unless the owners qualify for one of the applicable exemptions.
According to the Law's explanatory report, SRET was enacted in Law 3091/2002 to tackle tax avoidance effected by means of offshore companies holding Greek real estate ('because the secrecy surrounding the ownership status of offshore companies obviously enables the real owners of immovable property to stay anonymous and avoid taxes related to their property').11 Furthermore, the explanatory reports on the subsequent legislative amendments to SRET (including Article 57 of Law 3842/2010) stated that the amendments sought to balance the facilitation of real estate investments against an increase in transparency requirements for investment structures, with the aim of tackling tax avoidance and protecting the tax base and the fair allocation of taxes.
The most commonly applicable exemption for properties used as passive income investments and for new set-ups or development projects is the disclosure exemption, either up to the level of the ultimate beneficial owners (UBOs) (full disclosure exemption) or of a regulated entity (regulated entity exemption) or a company with shares admitted to trading on a regulated market (listed entity exemption). For properties used as instrumental assets for conducting business activities, namely tourism activities, the most commonly used exemption is the business income exemption.
Amendments to SRET legislation in 2019 have both clarified and broadened the scope of the regulated and listed entity exemption, providing greater clarity on the exempt status of specific holding structures with the participation of EU funds, and on listed entities. In particular, explicit reference is now made to the entities qualifying for exemption from the liability to further disclose their respective shareholders, including alternative investment funds (AIFs), managed by alternative investment fund managers (AIFMs) pursuant to Law 4209/2013 and the EU Alternative Investment Fund Managers Directive (AIFMD);12 European long-term investment funds pursuant to Regulation (EU) 2015/760, and the corresponding management companies; European venture capital funds pursuant to Regulation (EU) No. 345/2013, and the corresponding management companies; European social entrepreneurship funds pursuant to Regulation (EU) No. 346/2013, and the corresponding management companies. Moreover, entities with shares traded on multilateral trading facilities are treated similarly to entities with shares traded on a regulated stock exchange.
The full disclosure exemption requires that all UBO private individuals obtain a Greek tax ID and that the interposed entities are registered in cooperative jurisdictions and maintain documents giving evidence as to the identity of their shareholders (such as share registers or depositories' registers).
Greek companies whose corporate objective is to purchase, manage, invest in and exploit Greek real estate must file a SRET return irrespective of whether they are exempt from that tax.
Municipal property taxes
The following municipal taxes and fees are imposed on real estate property: cleaning and lighting fees, payable by the owners or users of buildings for the collection of waste and the lighting of streets, with the amount being based on the size of the building; fees for use of streets, squares and pavements; a general duty (the municipal real estate duty), payable by the owners or users of buildings or spaces supplied with electricity, ranging from €0.02 to €0.07 per square metre; and a tax on building licences and for the expansion or amendment of zoning variances.
A small municipal property tax is levied at a rate ranging from 0.025 per cent to 0.035 per cent on the market value of immovable property located in the territory of a municipality.
Stamp duty and VAT
Payments under a lease agreement attract stamp tax. The tax is calculated on the annual rent, as it has been agreed in the lease contract. Stamp tax is payable at a flat rate of 3.6 per cent. It is payable to the state by the lessor. Nevertheless, the parties may agree that the tax will be only borne by one of them. In practice, the tax is borne by the lessee. Stamp tax is deductible for income tax purposes. Residential leases are exempt from stamp tax.
There is an option for commercial leases to be subject to VAT at 24 per cent (applicable from 1 June 2016). Until 2013, VAT was optional only for commercial leases of stores within shopping centres, as those were defined in the VAT law.
Taxes upon disposal
Legal entity sellers – corporate income tax
The capital gains realised on a transfer of real estate by corporate taxpayers and by individuals carrying on business are treated as business income and are subject to the standard corporate income tax rate, currently set at 24 per cent. In particular, capital gains are added to the company's annual income and, following deduction of allowable expenses and any tax losses, are subject to income tax at the corresponding rate. The capital gains realised upon a disposal of real estate are calculated by subtracting from the transfer value of the property the value of the asset as it is reflected in the accounting books (i.e., the acquisition cost as increased following any revaluation and reduced by the depreciation applicable).
Permanent establishment issues
The ITC provides for a definition of a permanent establishment in line with that of the OECD Model Tax Convention.13 Treaties for the avoidance of double taxation between Greece and other countries may vary in their definition of a permanent establishment and taxation of foreign residents.
According to the ITC:
- income from immovable property and other rights connected with Greek immovable property in Greece constitutes Greek source income;
- income from immovable property is classified as business income when earned by legal entities; and
- business income earned by foreign entities is taxable in Greece only if the foreign entities hold a permanent establishment in Greece and the relevant income is attributable to that permanent establishment.
Pursuant to Ministerial Decision No. 1069/2015, foreign entities tax resident in states with which Greece has signed a double taxation agreement will be taxed in Greece on the income generated from immovable property situated in Greece. According to the decision, Greece's right to tax in cases of this kind is based on the provisions of the relevant double taxation agreements, which follow the terms of the OECD Model Tax Convention in relation to the taxation of income from immovable property14 and the taxation of business income,15 stating that there is no need to examine whether the foreign tax resident holds a permanent establishment in Greece.
According to the ministerial decision, foreign legal entities tax resident in states with which Greece has not signed a double taxation agreement will be deemed to hold a permanent establishment in Greece if they exploit immovable property situated in Greece and therefore earn Greek source income. Thus, on the basis of this decision, which is binding on the tax administration, foreign entities holding Greek real estate are effectively subject to Greek taxes for the income from their Greek property and from capital gains upon its disposal, irrespective of whether the facts gave rise to a permanent establishment. Therefore, from a corporate income tax perspective, regardless of whether the real estate is attributed to the foreign company or to its permanent establishment in Greece, there is in principle no different tax treatment.
iv Acquisition of shares in a real estate company
Taxes upon acquisition
There are no direct or indirect taxes upon acquisition of shares in Greek companies, except for a sales tax at the rate of 0.2 per cent that is levied on sales of shares listed on the Athens Stock Exchange effected on or off exchange.
Taxes on dividends
Subject to applicable double taxation agreement provisions or EU legislation, dividends distributed from 1 January 2020 by Greek legal entities and other legal entities maintaining double entry books are subject to a 5 per cent tax. Profit distributions performed by domestic corporations to their EU parent companies are exempt from any withholding provided that the Parent-Subsidiary Directive is applicable, namely that the foreign company is subject to corporate tax in the EU, has one of the forms listed in the annex to the Directive and has had a minimum 10 per cent shareholding in the subsidiary for at least two years. The remittance of profits by the permanent establishments of foreign entities to their head office is not subject to withholding tax.
Capital gains taxes
At the end of 2019, Greece introduced a capital gains participation exemption regime. Accordingly, as from 1 July 2020, Greek legal entities are exempt from corporate income tax on gains from the disposal of shares in a legal entity tax resident in an EU Member State provided that the transferring entity holds a participation of at least 10 per cent for a minimum holding period of 24 months. The capital gain is taxed neither at the time of its distribution nor capitalisation. Expenses related to the shareholding participation are not tax exempt.
Gains realised from the sale of participations in companies holding Greek properties by tax resident corporate taxpayers that do not qualify for the above capital gains participation exemption, or by permanent establishments of foreign entities, are treated as business income and taxed on the basis of the applicable corporate income tax rate (see Section II.ii).
Foreign tax residents that do not hold such participations through a permanent establishment in Greece are exempt from Greek taxes (without any need for further analysis of their tax status) until 31 December 2022.
The current ITC, which has been in force since 1 January 2014, specifically introduced a provision for real estate-rich companies, namely companies deriving more than 50 per cent of their value from real estate. Under that provision, capital gains from the transfer of shares of such companies are treated similarly to capital gains from the transfer of real estate (see Section II.iii). However, since 1 January 2015, the provision has been subject to continuous suspension, with the latest having been granted until 31 December 2022. Thus there have been no guidelines issued regarding its application so far. Nevertheless, even if such a provision were to apply to non-resident corporations under domestic rules, if the foreign corporation was tax resident in a country with a double tax agreement with Greece, it would be necessary to review the relevant treatment under that double tax agreement (see Section VI.ii). Furthermore, the enactment of the domestic capital gains participation exemption for gains from the disposal of shares further eliminates Greece's rights to tax capital gains from the disposal of shares in Greek property-rich companies by EU parent entities.
By way of a recap, see the table below for the main differences between direct and indirect acquisition of Greek real estate with reference to the transaction taxes and costs, the income and property tax treatment and taxes upon exiting.
|Acquisition type||Direct acquisition of the real estate||Indirect acquisition through the purchase of a property company|
|Real estate transfer tax||Yes||No|
|Notary fees and land registration duties||Yes||No|
|Stamp duty on the sale||–||–|
|Deductibility of interest expense for the acquisition||Yes||No|
|Corporate income tax||Same treatment|
|Taxable basis||Same treatment|
|Property taxes||Same treatment|
|Dividend withholding tax||–||Yes (see Section II.iv)|
|Capital gains upon exit||Subject to CIT||Depends (see Section II.iv)|
III REGULATED REAL ESTATE INVESTMENT VEHICLES
i Regulatory framework
Notably, Greece has no general fund tax regime that applies to all type of funds. There are separate legal frameworks for different types of Greek funds, such as Greek undertakings for collective investment in transferable securities (UCITS), real estate mutual funds and REICs. In addition, there is an exemption from Greek corporate income tax for Greek and EU UCITS (i.e., UCITS set up in accordance with the UCITS Directive,16 which is not of relevance, however, to real estate property investors since UCITS are not entitled to invest in qualifying transferable securities.
There are two different types of regulated vehicles that may be used for real estate investment in Greece, namely real estate mutual funds and REICs. The establishment, licensing and operational requirements and restrictions in relation to REICs and real estate mutual funds, as well as their supervisory regime, are set out in Law 2778/1999 and relevant decisions and circulars issued by the Hellenic Capital Market Commission (HCMC). Furthermore, Law 4209/2012 on AIFMs (implementing the AIFMD in Greece) is concurrently applicable to REICs.
ii Regulated investment vehicles overview
REICs qualify as internally managed alternative investment funds and are in practice the only type of regulated vehicle used for investments in real estate in Greece, since no real estate mutual fund has yet been established in the country. In addition, a law on a new form of Greek AIF is currently being prepared, which is not expected to have an impact on existing real estate investment structures since, according to the draft law released for public consultation, the new AIF will not be allowed to invest more than 20 per cent of its assets in real estate. In view of the fact that no real estate mutual funds have been established in Greece to date, Greek REICs are set out in more detail below.
Greek REICs are self-managed AIFs governed by the AIFMD. They are incorporated in the form of an AE following approval by the HCMC, with a minimum share capital of €25 million at the time of incorporation. Its corporate objective is exclusively the management of real estate property investments. The REIC's shares are registered and the company is required to list its shares on Athens exchange within two years of its incorporation. Upon listing, at least 50 per cent of the REIC's share capital has to be invested in eligible investments. The HCMC may grant an extension of up to three years in addition to the initial two-year period for the listing of the shares.
REICS are closely supervised by the HCMC, which should be notified of and approve any amendment to their articles of association and any changes in their share capital. Changes in the shareholding structure of a REIC exceeding 10 per cent of the voting rights or share capital are subject to the approval of the HCMC.
REICS' investments are kept with a custodian bank or other institution that provides custody services and has an establishment in Greece. Rules applicable to listed companies are also applicable to REICs from the moment of their incorporation. Thus, REICs should apply corporate governance rules (including the appointment of executive and non-executive board members, establishment of internal control systems, etc.).
In addition, REICs must comply with the internal organisation and transparency requirements applicable to alternative investment fund managers and must accordingly separate their risk management operation from the rest of their business operations, set remuneration policies compatible with efficient risk management and establish conflicts of interest mechanisms. Finally, REICs are subject to specific transparency obligations, namely the provision to investors and the HCMC of its annual financial report and the provision of specific information to investors in relation to, among others, the investment strategy, internal procedures, structure and liquidity risk management applied by the REICs.
REIC eligible investments
In relation to the business operation of REICs, the Greek legal framework stipulates specific types of eligible investments.
Investments in real estate property of at least 80 per cent of REICs share capital are permitted, including investments in:
- real estate properties located in Greece or in an EU/EEA Member State, used as residential property, tourist facilities or business premises, or for carrying out commercial and industrial activities;
- real estate properties under development to be completed within 36 months of specific commencement dates, where development costs cannot exceed 40 per cent of the REIC total investments;
- real estate properties located outside the EEA that can be used immediately as residential property, tourist facilities or business premises, or for carrying out commercial and industrial activities and where total investment value does not exceed 20 per cent of the total REIC investments; and
- land to be developed within a specific designated time frame (i.e., a building permit to be granted within five years of acquisition), where total investment value does not exceed 25 per cent of the REIC investments.
Among other investments, participation in the following schemes also constitutes an eligible investment:
- investment in real estate special purpose vehicles with a minimum holding of 80 per cent;
- investment in associated companies with similar corporate objectives for the purpose of the development of a real estate project for at least €10 million with a minimum holding of 10 per cent; and
- investment in regulated UCITS, REICs and AIFs exclusively engaged in real estate investments and investing in similar eligible investments with a minimum holding of 80 per cent.
Finally, investments in money market instruments of up to 10 per cent of the REIC's share capital are permitted for a reasonable time until the realisation of investments in real estate.
Requirements to access the REIC regime
REICs must obtain an operating licence by the HCMC. The company must submit with its application a detailed description of the investment policy and the uses of the real estate in which the company will invest its assets, including the market data on which its strategy is based and the means it intends to use to achieve its development goals. The HCMC will assess the organisation; the technical and financial resources of the company; the credibility and experience of the managers, especially in the field of real estate investments; the suitability of the founders for securing the sound management of the company; and the existence of corporate governance rules. REIC shares are registered and must be listed on the Athens exchange or any other organised market within 24 months of the company's date of establishment (or within 36 months of special permission being granted by the HCMC).
iii Tax regime
The framework governing REICs sets out different tax rules, various exemptions and special provisions that make a REIC an appealing vehicle for significant real estate investments. The majority of those special provisions and exemptions apply also to the real estate subsidiaries of REICs.
REICs are exempt from corporate income tax. They are only subject to tax on the average of the fair market value of their investments, (including cash items) at a rate equal to 10 per cent of the interest rate provided by the European Central Bank for main refinancing operations (MRO),17 and the minimum applicable threshold, previously set at 0.375 per cent, was abolished in 2019. Relevant tax is paid on a six-month basis and exhausts the tax liability of the REIC and its investors. Special rules apply to income from securities. A REIC also qualifies for tax neutral reorganisations (e.g., mergers, demergers and sector spin-offs).
The acquisition of real estate property by a REIC is fully exempt from any tax or duty while any capital gains realised upon disposal of real estate assets are also exempt since the sole taxation of the REIC consists of the tax on its assets, including cash items.
REICs are subject to the surcharge on loans under Law 128/1975, but they are exempt from SRET (see Section II.iii). However, they are subject to ENFIA like any other corporate entity holding Greek real estate (see Section II.iii). Real estate mutual funds are afforded the same tax treatment as REICs.
iv Tax regime for investors
Dividends distributed by Greek REICs are not subject to dividend withholding tax.
No capital gains tax is imposed on the transfer of non-listed REIC shares based on the REIC Law. Once the shares of the REIC are admitted to trading on the stock exchange, the capital gains tax treatment is to be reviewed, taking into account the tax residency status and identity of the seller. According to the ITC, no Greek tax is due if the seller is a non-Greek resident legal entity with no permanent establishment in Greece (see above). In addition, a 0.20 per cent sales tax applies exclusively in the case of transfers of shares admitted to trading on a stock exchange.
v Forfeiture of REIC status
If REICs do not achieve the listing of their shares on the Athens exchange within two years of incorporation or before the lapse of the extension granted by the HCMC (which cannot exceed three years), the latter will revoke the operating licence and the company will be dissolved.
The licence can be also revoked by the HCMC for other reasons; for example, if the REIC has not made use of the licence within 12 months or has explicitly resigned from it, has ceased its activities for a period of more than six months, does not fulfil its licence requirements or has committed serious breaches of the applicable legislation.
In the event of revocation of the operating licence, the tax benefits provided for the REIC, as well as any other favourable tax arrangements provided under other laws, shall be revoked and the REIC is obliged to return all tax benefits received.
vi Comparative tax treatments of a Greek corporate entity and a Greek REIC
The table below summarises the key differences between the treatment of a Greek corporate entity and that of a REIC with reference to real estate transfer tax, corporate tax and property tax.
|Taxes||Greek corporate entity||Greek REIC|
|Real estate transfer tax||Yes||No|
|Corporate income tax||Yes||Exempt|
|Tax on assets||n/a||Yes|
|Taxable basis||Taxable profits||The average of the fair market value of the investments plus cash|
|Property taxes||Same treatment|
|Dividends withholding tax||Yes||No|
|Capital gains on disposal of property||Subject to CIT||Exempt|
IV INTERNATIONAL AND CROSS-BORDER TAX ASPECTS
i Tax treaties
Greece entered into 57 tax treaties between 1953 and 2014. All tax treaties, except for those concluded with the United States and the United Kingdom, follow, in principle, the OECD Model Tax Convention. These treaties define, in general, certain key terms, such as the permanent establishment or place of taxation and provide for certain tax exemptions at source in favour of tax residents of the other country or the special treatment of certain types of income.
The 'real estate-rich property clause' (see Section II.iv) is found in the treaties with Azerbaijan, Canada, China, Ireland, Israel, Malta, Morocco, Spain, Switzerland and Ukraine. Greece incorporates the clause in its more recent treaties and those that are renegotiated. Greece has expressed its intention to modify existing tax treaty articles in line with Article 9 of the OECD Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI). In particular, Article 9 introduces a special anti-abuse clause in relation to the right to tax capital gains earned from the alienation of shares or interests of entities deriving their value principally from immovable property situated in one contracting state (property-rich companies). Whether Article 9 will become effectively applicable also depends on the approach of the other above-mentioned contracting states that have implemented a special capital gains provision for property-rich companies.
Greece has signed the MLI and has, on the one hand, expressed its intention to adopt measures relevant to, inter alia, the prevention of treaty abuse (the Principal Purpose Test); anti-avoidance rules applicable to property-rich companies; the improvement of the mutual agreement procedure; and the introduction of measures related to the arbitration procedure. On the other hand, Greece has not opted into measures relevant to, inter alia, hybrid mismatches and permanent establishment status. The Greek parliament has not yet ratified the MLI.
EU Anti-Tax Avoidance Directive
On 23 April 2019, Greece enacted Law 4607, modifying its domestic rules in line with the rules of the EU Anti-Tax Avoidance Directive (ATAD),18 which provides for measures consistent with the conclusions of the OECD Base Erosion and Profit Shifting Project. The Law amended the domestic interest barrier rule, the controlled foreign company (CFC) rules and the general anti-abuse rule (GAAR), with effect from 1 January 2019.
The CFC rules provide that the undistributed income of a low-taxed subsidiary or permanent establishment, the profits of which are not subject to tax or are tax exempt in Greece, shall be re-attributed to the shareholder or the head office and be subject to Greek income tax. A foreign entity is classified as a CFC if the following conditions are cumulatively met:
- the Greek shareholder by itself, or together with its associated enterprises holds directly or indirectly more than 50 per cent of the rights in the capital of the CFC;
- the actual corporate tax paid on the CFC's profits is less than 50 per cent of the corporate tax that would have been charged on the profits in Greece; and
- 30 per cent or more of the income before taxes accruing to the CFC falls within the following categories (the passive income approach):
- interest or any other income generated by financial assets
- royalties or any other income generated from intellectual property
- dividends and income from the disposal of shares
- income from financial leasing
- income from insurance, banking and other financial activities; and
- income from invoicing companies that earn sales and services income from goods and services purchased from and sold to associated enterprises, adding no or little economic value (income from rent is not included in the passive income list as it was under the previous rule).
The CFC rules do not apply to companies or permanent establishments resident in EU or EEA Member States provided that those entities carry on a substantive economic activity supported by staff, equipment, assets and premises, as evidenced by relevant facts and circumstances. The tax authorities bear the burden of proving the absence of a substantive economic activity.
The GAAR allows tax authorities to ignore arrangements that have as their main purpose, or one of their main purposes, obtaining a tax advantage that defeats the object or purpose of the applicable tax law, and are not genuine having regard to all relevant facts and circumstances. An arrangement is non-genuine if it is not put into place for valid commercial reasons that reflect economic reality. The Greek law provides for an indicative list of circumstances that tax authorities shall take into account upon the determination of genuine arrangements.
EU parent and subsidiary anti-avoidance rules
Greece has also transposed the amendments to the EU Parent-Subsidiary Directive with regard to the rules against hybrid arrangements and treaty-shopping practices. In particular, as of 1 January 2016, the exemption from Greek corporate income tax on dividends received by Greek legal entities from EU affiliates applies only to the extent that the profits are not deductible by the subsidiary. This amendment targets hybrid loans and aims at preventing situations of double non-taxation resulting from mismatches in the tax treatment of profit distribution between the state of the subsidiary and that of the parent company. Furthermore, the special anti-avoidance rule aims at prohibiting the withholding tax exemption of dividends paid by Greek companies to their EU parent entities, as well as the relief from corporate income tax regarding dividends received by Greek companies by their EU-based subsidiaries in cases of artificial arrangements that are not put in place for valid commercial reasons reflecting economic reality.
ii Cross-border considerations
Generally speaking, there are no specific restrictions regarding direct and indirect investment in Greece.
Restrictions on foreign investment on national security grounds exist as regards land purchases in border regions and on certain islands (see Section II.i).
In terms of the structuring of Greek real estate investments, it is common for foreign investors to incorporate Greek companies that are held by EU qualifying parent companies (see Section IV.i) and financed through debt by their EU parent or affiliate entities that qualify under the Interest and Royalties Directive (see Section II.ii). In terms of debt financing, bond loans are most commonly used (see Section II.ii).
The tax treatment of foreign entities that have no legal personality in their country of registration and that earn Greek source income (e.g., dividend or interest) raises uncertainties, These arise because, from a Greek tax perspective and pursuant to the general rules of the ITC currently in effect, all legal persons (such as corporate entities and associations with legal personality of their own) and legal entities (i.e., persons that are not legal persons) are treated as opaque for corporate income tax purposes; thus their entitlement to the application of a tax treaty between Greece and the country of their registration depends on whether they are treated as tax residents of a contracting country under the applicable treaty. For application of a treaty, the Greek tax administration requires the submission of a claim for the relevant treaty's application, incorporating a tax residence certificate and a statement that the relevant person is the beneficiary of the income. In cases where no such tax residence certificate can be submitted by the tax transparent entity, uncertainty arises as to whether Greek withholding taxes will be imposed, based on the domestic legislation, or whether they could be eliminated by means of application of the tax treaties of the country of residence of the investors participating in these entities. Under the former ITC, there were explicit guidelines19 to the effect that in cases of foreign partnerships that were not tax resident in their state of incorporation, treaty benefits could be claimed by the partners themselves. Following the introduction of the new ITC, no guidelines have been issued and risks of double taxation exist.
A significant consideration for foreign investors was the introduction of capital control restrictions in Greece as of 28 June 2015, which applied to cash withdrawals and transfers of funds applicable to credit institutions operating in Greece, payment institutions, e-money institutions (as well as foreign institutions' branches and representatives in Greece) and the Consignment Deposits and Loans Fund. Significant capital control restrictions were lifted on 1 September 2019 and as of that date funds may be freely transferred abroad from bank accounts held in Greece without any restrictions.
iii Locally domiciled vehicles investing abroad
At the end of 2019, Greece introduced a capital gains participation exemption regime (see Section II.iv). Recent tax changes should now see Greece being considered of interest as an alternative holding jurisdiction, alongside other EU Member States that provide similar dividends and capital gains participation exemptions.
V YEAR IN REVIEW
The following recent tax developments will have a positive impact on Greek real estate investments.
The suspension of VAT on sales of new buildings, applicable to sales concluded up until 31 December 2022 (see Section II.iii), reduces the indirect tax burden on sale transactions. It is therefore anticipated to have a positive impact on the residential and, in particular, the secondary housing market. This is because private individual purchasers will now incur real estate transfer tax at 3.09 per cent instead of VAT at 24 per cent.
The enactment of the capital gains participation exemption for Greek holding entities (see Section II.iv) makes Greece more attractive as a holding jurisdiction. As a result, Greek and foreign investors are anticipated to be more willing to use Greek holding entities for their Greek and foreign investments.
The suspension of the capital gains tax regime for property-rich companies has been further extended until 31 December 2022 (see Section II.iv). Nevertheless, following the introduction of the capital gains participation exemption for Greek qualifying parent entities, a similar capital gains exemption should also apply to EU qualifying parent entities.
Amendments to SRET legislation in 2019 increased clarity regarding the SRET-exempt status of specific EU regulated funds (see Section II.iii). As regards funds registered in third countries, a relevant exemption could be claimed following an assessment based on terms of equivalence.
The abolition of the minimum tax threshold of 0.375 per cent applicable to REIC assets (see Section III.iv) has had a positive impact on the tax efficiency of Greek REICs.
The new law on Greek AIFs, expected to be enacted in 2020, will not create a new vehicle for Greek real estate investments in view of the low thresholds it sets for qualifying real estate investments (see Section III.ii).
In 2019, the Greek tax administration issued guidelines regarding the application of the GAAR and clarifying its interaction with the special anti-abuse provisions of other EU directives (i.e., the Parent-Subsidiary Directive and the Cross-Border Mergers Directive20), as well as with the anti-abuse rules of the applicable double taxation treaty (e.g., the Principle Purpose Test). It is now anticipated that the tax administration will focus more on taxpayers' compliance with substance and genuine business activity requirements. In this context, it is anticipated that the business rationale behind Greek real estate holding structures will be more reviewed closely.
1 Marina Allamani is partner and Myrto Stavrinou is a senior associate at Zepos & Yannopoulos.
2 Greek Supreme Administrative Court judgments No. 4003/2014, No. 3833/2014, No. 2563/2015 and No. 1357/2018).
3 According to the report 'Monetary Policy 2013–2014' released by the Bank of Greece on June 2014, property prices during the years 2009–2013 fell by between 30 per cent and 38 per cent, depending on the location and use. http://www.bankofgreece.gr/BogEkdoseis/NomPol20132014.pdf at page 50.
4 Judgment No. 4003/2014.
6 Respectively, Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States and Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States.
7 Ministerial decision 111376/2012, published in Government Gazette issue B 13/11 January 2012, and decision 72386/2015 published in Government Gazette issue B 2170/2015 set out the range of fees.
8 According to Article 65, Paragraph 3 of Law 4172/2013, non-cooperating jurisdictions are those that are not part of the European Union; their status regarding transparency and change of information on tax matters has been reviewed by the Organisation for Economic Co-operation and Development (OECD) and has not been characterised as 'conforming to a great extent'; they have not entered into and do not enforce an agreement for administrative assistance in tax matters with Greece or have not entered into the OECD and Council of Europe Convention on Mutual Administrative Assistance in Tax Matters; and have not committed to the automatic exchange of financial account information beginning as of year 2018 at the latest.
9 According to Article 65, Paragraph 6 of Law 4172/2013, an individual or legal entity is considered to be subject to a preferential tax regime if it is not subject to taxation or if subject, not actually taxed, or is subject to tax on profits, revenues or capital at a rate that is equal to or lower than 50 per cent of the corporate tax rate that would be due from Greek tax residents.
10 Law 128/1975.
11 Explanatory report on Law 3091/2002, comments on Article 15.
12 Directive 2011/61/EU of the European Parliament and of the Council of 8 June 2011 on Alternative Investment Fund Managers and amending Directives 2003/41/EC and 2009/65/EC and Regulations (EC) No. 1060/2009 and (EU) No. 1095/2010.
13 The Organisation for Economic Co-operation and Development Model Tax Convention on Income and on Capital.
14 Article 6 of the OECD Model Tax Convention.
15 Article 7 of the OECD Model Tax Convention.
16 Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS).
17 MRO increased by one percentage point.
18 Council Directive (EU) 2016/1164 of 12 July 2016 laying down rules against tax avoidance practices that directly affect the functioning of the internal market.
19 POL. 1013/90.
20 Directive 2005/56/EC of the European Parliament and of the Council of 26 October 2005 on cross-border mergers of limited liability companies,