The Private Wealth & Private Client Review: Greece
Greece remains a jurisdiction where medium and large businesses are owned and managed by Greek families who need advice on the structuring of the generational transfer of business. Furthermore, Greece attracts foreigners that relocate to Greece and require pre-immigration advice on the operation of the Greek forced heirship rules and the tax efficiency of existing ownership structures.
In addition, Greece attracts investments in real estate by non-resident private clients who need advice on the structuring of the acquisition, ownership and disposal of such investments. Furthermore, owing to the beneficial tax regime of shipping companies operating under Law No. 27/1975, Greece attracts relevant activities. However, amendments have been introduced into the Greek tax legislation dealing with individuals' wealth and tax avoidance practices, such as provisions relating to controlled foreign companies (CFC) rules.
The new Income Tax Code (Law No. 4172/2013 (ITC)), effective from 1 January 2014, as recently amended, introduces a number of significant changes to the tax rules, including measures designated to combat tax avoidance and tax evasion. For instance, under the new ITC, any wealth increase deriving from an illegal, unjustified or unknown source or cause is considered as business profits subject to tax at 33 per cent. Moreover, the Greek government recently introduced special alternative tax regimes into the new Income Tax Code for high-net-worth individuals,2 for individuals with foreign-source pension income3 and for individuals repatriating in Greece with employment and business income in Greece4 who choose to transfer their tax residence to Greece and apply to be subject to these tax regimes.
In addition, the new Tax Procedures Code (Law No. 4174/2013 (TPC)), as recently amended, which is a separate piece of legislation, explicitly introduces a 'general anti-avoidance provision', as a measure to combat tax avoidance and tax evasion. In this frame, under Article 66 of the TPC, the meaning of acts of tax avoidance is broadened and the meaning of concealment of income is clarified.
Finally, in terms of ruling, from a tax perspective, wealth, income and succession planning, Greece may use an extensive double taxation treaty network (57 income tax treaties and four estate tax treaties).
In July 2020, the Greek parliament ratified Law No. 4714/2020 with the description 'Tax measures for the enhancement of the development of the Greek economy, the implementation into Greek legislation of the EU Directives 2017/1852, 2018/822, 2020/876, 2016/1164, 2018/1910 and 2019/475, the contribution of the Greek State to the repayment of loans of affected borrowers from the adverse effects of covid-19 and other provisions', introducing significant changes in the Greek tax legislation. Its provisions affect the taxation of individuals and legal entities, as well as indirect taxation. It also introduces a committee for out-of-court resolution of tax disputes and incorporates the provisions of Council Directive (EU) 2017/1852 of 10 October 2017 on tax dispute resolution mechanisms into Greek legislation. Finally, Law No. 4714/2020 amends several provisions of Law No. 4170/2013 on administrative cooperation in the field of taxation, by incorporating EU Directive 2018/822 on the mandatory automatic exchange of information on reportable cross-border arrangements.
i Greek tax residence
Individuals who are tax residents of Greece are subject to Greek income tax on their worldwide income (Greek and foreign income) while a foreign tax credit is provided on foreign income declared in accordance with the Organisation for Economic Co-operation and Development (OECD) guidelines for the avoidance of double taxation. Non-Greek tax residents are subject to Greek income tax only for their income sourced in Greece. The ITC provides an indicative list of income considered as arising in Greece (Greek-sourced income).
For income tax purposes, an individual is considered as a Greek tax resident provided that he or she maintains in Greece his or her permanent or primary residence or habitual abode or the centre of his or her vital interests (i.e., personal, economic and social bonds) or he or she is a consular or diplomatic employee or public officer of similar status or a civil servant of Greek nationality and serving abroad.
Also, an individual residing in Greece continuously for a period of more than 183 days is considered as a Greek tax resident. This is not applicable where an individual is residing in Greece exclusively for tourism, medical, therapeutic or similar private purposes, if his or her residence does not exceed a period of 365 days, including short-term stays abroad. The above provision may not be applicable if a double taxation treaty (DTT) (ratified by law) exists, in which case DTT provides a different way of taxation from the tax residence of the other country – party of the DTT. It is mentioned that DTT, by its integration into Greek (domestic) law, has automatically acquired an increased legislative power over the domestic legislation, according to Article 28 of the Greek Constitution.
Greece has entered into DTTs with the following countries, providing beneficial income tax provisions compared to internal income tax legislation: Albania, Armenia, Austria, Azerbaijan, Belgium, Bosnia-Herzegovina, Bulgaria, Canada, China, Croatia, Cyprus, the Czech Republic, Denmark, Egypt, Estonia, Finland, France, Georgia, Germany, Hungary, Iceland, India, Ireland, Israel, Italy, Korea, Kuwait, Latvia, Lithuania, Luxembourg, Malta, Mexico, Moldova, Morocco, Netherlands, Norway, Poland, Portugal, Qatar, Romania, Russia, San Marino, Saudi Arabia, Serbia, Slovakia, Slovenia, South Africa, Spain, Sweden, Switzerland, Tunisia, Turkey, Ukraine, United Arab Emirates, United Kingdom, United States and Uzbekistan.
ii Income tax
The following four categories of income are subject to income tax under the current ITC:
- income derived from employment and pension;
- income derived from business activities;
- capital income; and
- capital gains income.
Different tax rates apply to the above categories for individuals. The applicable tax rates are either progressive or tax exhaustive (one-off tax). The above-mentioned types of income are taxed as follows.
Income derived from employment or pensions
Income derived from employment or pensions is considered to be the gross income from salaried work and pensions, and includes all types of income, in cash or kind acquired, in the context of any current, past or future employment relationship. In addition, the ITC explicitly provides that the board of directors' fees are categorised as employment income for tax purposes.
Apart from the general provision for the taxation of salaries, the ITC contains provisions for the taxation of specific benefits in kind annually exceeding €300 that are considered as taxable income derived from employment for the employee and are added to the gross income from salaried work and pensions. Benefits in kind indicatively include the following:
- the value of goods represented by gift cheques;
- the value of vouchers given free of charge to purchase goods or services at associated stores. In the case of food vouchers, the benefit in kind is assumed to be any amount exceeding €6 per working day;
- use of company credit cards to cover expenses not incurred on behalf of the company, but to cover personal, family or other expenses unrelated to the business interests of the employer or not used in normal commercial transactions, where the cost is assumed by the employer;
- the benefit accruing to employees, managers, administrators, board members and pensions or companies providing energy, telephony, water supplies, gas or subscriber services (such as television) from providing them with a certain quantity of electricity, phone calls, water, natural gas and subscriber channels, at either a reduced rate or free of charge;
- various payments made directly by employers to third parties, such as payments to extra tuition centres, schools, nurseries and campsites and payments covering tuition costs and nursery fees, direct payments to cover the cost of such persons participating in workshops, programmes, training or education training courses, or to cover subscriptions to journals or chambers, unrelated to their business activities or the post they hold; and
- the provision of company mobile phone connections to employees, managers and board members to the extent that it goes beyond the cost of their tariff plan, provided that the excess above the tariff plan is used for personal reasons and not for reasons associated with the employer's business activities.
Since 1 January 2020, income from employment or pensions is taxed according to the following progressive tax scale.
|Taxable income||Tax rate|
|Up to €10,000||9%|
|€10,001 to €20,000||22%|
|€20,001 to €30,000||28%|
|€30,001 to €40,000||36%|
|€40,001 and above||44%|
Income derived from business activities
Individuals are subject to income tax on business income, which is defined as the total revenue from business transactions as well as from independent professions after the deduction of any business expenses, depreciations and bad debts. The business income is taxed according to the following tax scale.
|Taxable income||Tax rate|
|Up to €10,000||9%|
|€10,001 to €20,000||22%|
|€20,001 to €30,000||28%|
|€30,001 to €40,000||36%|
|€40,001 and above||44%|
Moreover, according to the ITC, any increase of wealth for an individual deriving from an illegal, unjustified or unknown source or cause is considered as income derived from business activities and is further subject to tax at 33 per cent.
Capital income is a distinct category of income and includes the income, in cash or in kind, from dividends, interests, royalties and immovable property.
Income from dividends is defined as the income from shares, founders' shares, or other rights of participation in profits that are not debts, as well as income from other corporate rights, including interim dividends and actuarial reserves, profits from partnerships and any other distributed amount.
Income from interest is defined as the income on any kind of claims, either secured by mortgage or not, whether providing a right to participate in profits of the debtor or not. Specifically, this includes income from deposits, government securities, bonds (with or without security) and from every kind of loan agreement, including premiums, repurchase agreements or reverse repurchase agreements and rewards derived from shares, partnerships, bonds or securities. There is a tax exemption regarding the income by the interest of bond loans and treasury bills of the Greek state, received by individuals, as well as to the interest arising from bonds issued by the European Financial Stability Facility in application of the programme for the restructuring of the Greek debt.
Income from royalties is defined as the income gained in exchange for the use or the right to use any kind of intellectual property rights.
Income from real estate property is defined as the income (in cash or in kind) derived from leasing (rental), self-use or the free concession of the use of land or real estate property. The income received in kind is calculated at the market value. In addition, the income for self-use or the free concession of use is equal to 3 per cent of the objective value of the property. A tax exemption is applied to the aforementioned presumptive income in the case of the free concession of the use of the real estate property – which shall not exceed 200 square metres – to a relative in the ascending or the descending line, who will use it as his or her main residence.
The capital income earned by an individual is subject to withholding tax as follows:
- dividends distribution is subject to a withholding tax at the rate of 10 per cent, with effect for payments performed up to the tax year 2016, 15 per cent for the tax year 2017, 10 per cent for the tax year 2019 and 5 per cent for the tax year 2020 onwards exhausting any further tax liability for individuals (final tax);
- interest payments are subject to a withholding tax rate of 15 per cent, exhausting any further tax liability for individuals (final tax); and
- royalties payments are subject to a withholding tax at the rate of 20 per cent, exhausting any further tax liability for individuals (final tax).
Income from immovable property sourced by the leasing (rental) or by the self-using (presumptive income) of the real estate property is subject to income tax in accordance with the following tax scale, which is applicable to income gained from 1 January 2017.
|Up to €12,000||15%|
|€12,001 to €35,000||35%|
|€35,001 and above||45%|
Short-term lease: Airbnb
As of 1 January 2017, income from the short-term lease of real estate in the context of the sharing economy is taxed in accordance with the provisions of Article 39A of the ITC.
Specifically, rental income from the short-term lease of immovable property in the sharing economy is considered as taxable income deriving from immovable property, provided the immovable property is furnished when rented, without the provision of any additional service other than the provision of bed linen, and is taxed pursuant to the corresponding applicable tax scale (15 per cent to 45 per cent). If any additional services are provided, the income is considered as business income and taxed according to the corresponding applicable tax scale (9 per cent to 45 per cent).
Short-term lease of immovable property in the context of the sharing economy5 is exempt from value added tax (VAT), provided that, during the lease, the lessor does not provide additional services to guests similar to those offered in hotels, such as cleaning services, waste collection, changing linen and other customer care services. The supply of bed linen is not considered an additional service and therefore has no effect on the VAT exemption. Also, other utilities such as electricity, water and internet connection, which are charged to the host and subsequently passed on to the guest, are included in the value of the rental price and therefore are not considered additional services and do not affect the VAT exemption.
Capital gains income
Any surplus that arises from the transfer of capital (i.e., real estate property, securities, listed shares, sovereign bonds, interest-bearing bills, company bills or derivative financial products as described in the ITC) is considered income from capital gains and is subject to tax at a rate of 15 per cent. The taxable surplus is the difference between the purchase (acquisition) price and the transfer (selling) price. An exemption from the said tax is applied in special cases. For example, any capital gains derived from the transfer of securities by individuals could be exempted from capital gains tax if said individuals are tax residents of another state with which a DTT has been signed, and provided that all the necessary documentation is submitted to the relevant tax administration authority, evidencing the residence of the aforementioned individuals to these states.
Taxation on capital gains from the transfer of real estate property has been postponed until 31 December 2022.
iii Special income tax provisions provided by the ITC
Alternative method for determining minimum taxation (deemed income)
The ITC provides an alternative method for calculating the minimum tax obligation of individuals according to certain objective criteria. If, after application of those objective criteria, the deemed income of the taxpayer is higher than the declared income, he or she will be taxed according to his or her deemed income.
Deemed income may derive either from 'living expenses' from assets owned or from 'actual expenses' from the amount spent to purchase assets and is calculated after taking into account the following objective criteria:
- the surface area of the main residence of the taxpayer in combination with its tax value;
- the surface area of any secondary residences of the taxpayer;
- the size of the engines (e.g., 1,200cc, 1,400cc) of any cars of the taxpayer, in combination with the year of the car's production;
- salaries of housemaids and other staff;
- fees for private schools for the taxpayer's children;
- leisure boats;
- aeroplanes; and
- swimming pools.
Purchases of cars, motorcycles, boats, aeroplanes and other goods that cost above €10,000, the establishment or the participation in the capital increase of a company under the form of an unlimited or limited liability partnership or corporation or limited liability company or private corporation or society of civil law or joint venture or purchase of company parts or securities, as well as payments to insurance investment contracts, to the extent that they constitute investment product, are taken into account in the calculation of the taxpayer's annual deemed income. The taxpayer can, under certain conditions, cover the difference between actually declared income and income that is deemed after the application of the above rules, by showing that the amount in excess of the declared income is justified by savings made from income taxed in previous years.
Deemed income provisions are not applicable in the case of a foreign tax resident who does not earn income from Greek sources.
Controlled foreign companies
CFC rules were introduced in the ITC, with the aim of dealing with the tax avoidance of Greek companies or individuals, through shifting revenues to subsidiaries in low-tax jurisdictions.
It is specified that the taxable income of an individual Greek tax resident includes the non-distributed income of legal or other entities or permanent establishment, tax-resident in another state, provided that the following conditions are cumulatively met:
- the taxpayer, on his or her own or jointly with related persons, holds, directly or indirectly, shares, parts, participations, voting rights or participations in the capital at a percentage exceeding 50 per cent, or is entitled to receive a percentage exceeding 50 per cent of the profits of the said legal or other entity;
- the corporate tax actually paid regarding the profits of the above foreign legal person or legal entity or permanent establishment is less than the difference between the corporate tax that would be owed by the legal person or legal entity or the permanent establishment, according to the provisions of Greek law if this legal person, entity or permanent establishment was a Greek tax resident in accordance with Article 6 of the ITC and the corporate tax actually paid by the legal person or legal entity or permanent establishment regarding their profits; and
- a percentage exceeding 30 per cent of the net income before taxes realised by the legal entity or other entity falls under one or more of the following categories:
- interest or any other income generated from financial assets;
- royalties or any other income generated from intellectual property;
- income derived from dividends and the transfer of shares;
- income derived from movable assets;
- income derived from finance lease;
- income derived from invoicing companies that generate revenue from (1) sales of goods and services and (2) services purchased and sold to affiliated companies that do not add an economic value or add a minimum economic value; and
- income derived from insurance, bank and other financial activities.
The above shall not apply to cases where the CFC is engaged in a substantial economic activity supported by personnel, equipment, assets and facilities, as evidenced by relevant facts and circumstances. However, the above provisions of the ITC shall apply if the CFC is a tax resident or maintains a permanent establishment in a third country that is not a party to the Agreement on the European Economic Area.
iv Solidarity tax contribution on individuals' income
As a result of the economic crisis, a special solidarity tax contribution was imposed on individuals' total income (both declared and deemed income from any source) that exceeded €12,000 on an annual basis. However, since 1 January 2020, this special solidarity tax contribution has applied to an individual's total income (from any source) from €0.
For income earned from 1 January 2020, a solidarity tax contribution is imposed in accordance with the progressive rates below.
|Up to €30,000||2%|
|€30,001 to €40,000||2%|
|€40,001 to €65,000||5%|
|€65,001 to €220,000||9%|
|€220,001 and above||10%|
In addition, as of 27 May 2016, salaries and wages are subject to withholding tax against solidarity tax contributions in accordance with the above rates.
According to Circular E2009/2019, issued by the Independent Authority of Public Revenue, the special solidarity tax contribution of Article 43A of the ITC, as an income tax, is not imposed on income generated abroad by a Greek tax resident that is not subject to Greek income tax under the provisions of the applicable DTT. Also, the special solidarity tax contribution of Article 43A of the ITC is not imposed on income generated in Greece by a foreign tax resident that is not subject to Greek income tax under the provisions of the applicable DTT.
For the tax year 2021, the income of a natural person is exempt from the imposition of the special solidarity levy, with the exception of income from wage labour in the public sector and pensions, as recently amended under Article 121 of Law No. 4799/2021.6 This exemption extends to tax year 2022 for employment income in the private sector.
v Luxury living tax
As a result of the economic crisis, from the tax year 2014, a luxury living tax applies on individuals' income, calculated on the amounts of the annual deemed expenditures arising from the ownership or holding of private passenger cars, aeroplanes, helicopters, yachts and swimming pools, as follows:
- for passenger cars from 1,929cc to 2,500cc, a tax rate of 5 per cent is applied;
- for passenger cars more than 2,500cc, a tax rate of 13 per cent is applied (private passenger cars with more than 10 years' use since their first year on the road are exempted from said tax); and
- for aircraft, helicopters, swimming pools and yachts longer than 5 metres, a tax rate of 13 per cent is applied.
vi Real estate tax
Real estate transfer tax
The rate of the real estate transfer tax (RETT) is 3 per cent calculated on the value of the real estate property. For tax purposes, a system has been established for the objective calculation of the value (i.e., based on a system of minimum values). According to this system, if contracting parties declare a price lower than the objective price, the taxes are based on the objective price (higher price). Lately, the actual sale prices of real estate in Greece have been significantly reduced and have been much lower than the objective values. As a result, the tax paid on the objective values provided by Greek law is higher than the tax that would be calculated on the actual sale price according to the contract. Further, a municipality surcharge equivalent to 3 per cent of the RETT also applies, thus leading to an effective transfer tax rate of 3.09 per cent. The buyer suffers the RETT, which should be paid as a lump-sum amount before signing the transfer deed. No tax benefit (deduction) is provided for this amount. Also, notary and land registry fees aggregately amount to approximately 1.1 per cent of the price agreed in the notarial deed (i.e., the consideration) or the objective (tax) value of the property for RETT purposes, whichever is greater. Notary and land registry fees are usually payable by the buyer. No tax benefit (deduction) is provided for this amount.
Annual real estate tax
Annual real estate tax (ENFIA) is imposed on real estate property rights including main and supplementary tax (for real estate over €250,000) and applies to real estate located in Greece that is owned by individuals and entities. ENFIA is payable on an annual basis. The tax payable depends on several factors.
Special tax real estate
A special tax applies on the value of real estate situated in Greece and owned by a company that has its registered seat at a non-cooperative state, as provided under Article 65 of the ITC, at a tax rate of 15 per cent. However, if the company discloses all its shareholders or ultimate beneficiaries (individuals) who hold a tax identification number in Greece, it is exempt from the special tax. Many other exemptions are also provided.
i Applicable law
According to international private law, Regulation No. 650/2012 of the European Parliament and of the Council of 4 July 2012 'on jurisdiction, applicable law, recognition and enforcement of decisions and acceptance and enforcement of authentic instruments in matters of succession and on the creation of a European Certificate of Succession', with effect from 17 August 2015, shall apply. The Regulation applies to all civil aspects of the succession to the estates of deceased people. It does not apply to revenue (for example, tax matters), customs or administrative matters. Areas of civil law other than succession, such as matrimonial property regimes, gifts and pension plans are not covered by the regulation.
Regarding the general jurisdiction, the courts of the European Union country in which the deceased had his or her habitual residence at the time of death shall have jurisdiction to rule on the succession as a whole. As a rule, the law applicable to succession is the law of the country in which the deceased had his or her habitual residence at the time of death. It can be the law of either an EU or non-EU country. However, before his or her death, a person can instead choose that the applicable law should be the law of his or her country of nationality. For example, a person of multiple nationalities (including Greek) may choose that the applicable law shall be the Greek law. A declaration of this shall be made in the form of a disposition of property upon death (i.e., a will).
The applicable law will govern, for example, the determination of the beneficiaries and their respective shares, the capacity to inherit, the powers of the heirs, the executors of the wills and the administrators of the estate, the liability for the debts under the succession and the sharing out of the estate.
The application of a single law by a single authority to an international succession avoids parallel proceedings, with possibly conflicting judicial decisions. It also ensures that decisions given in an EU country are recognised throughout the EU without need for any special procedure. Decisions enforceable in the EU country where they have been given are enforceable in another EU country when, on the application of an interested party, they have been declared enforceable there by the local court.
The aforementioned regulation also introduces a European Certificate of Succession (ECS) to be used by heirs, legatees having direct rights in the succession and executors of wills or administrators of the estate to invoke their status or exercise their rights or powers in another EU country. Once issued, the ECS will be recognised in all EU countries without any special procedure being required. In contrast with national certificates of succession, which have different effects depending on the EU country of issue, the ECS will have the same effects, set out in the Regulation, in all EU countries.
Forced heirship rules
Greek succession law provides for forced heirship rules. The rules on forced heirship protect the closest relatives of the decedent, who may not disinherit them. Forced heirs are always entitled to a certain percentage of the estate (legitimate portion of the estate).
Forced heirs are the descendants of the deceased (children), the surviving spouse and the parents of the deceased. According to Greek inheritance law, forced heirs are entitled to half of the portion they are entitled to in the case of intestacy.
Under forced heirship rules, any disposal by will of the decedent's estate to the prejudice of the forced heirs is void. Moreover, if the testator donates his or her estate and as a consequence the estate at death is not sufficient to cover the legitimate portions of estate for the forced heirs, then said donation may be cancelled.
ii Taxation of inheritance and gifts inter vivos
According to Article 1 of Law No. 2961/2001 (the Code on taxation of inheritance, gifts inter vivos and lottery gains), tax is imposed to any asset acquired by inheritance, gift inter vivos and winnings in lotteries, whether acquired by an individual or a corporate entity.
The legislator provides for a list of assets that are subject to inheritance tax. These are property of any kind situated in Greece that belongs to Greek citizens or foreigners, and movable property situated abroad that belongs to a Greek resident or (under conditions) to a foreigner residing in Greece. Movable property that is located abroad and belongs to a Greek citizen who was established outside Greece for at least 10 consecutive years is exempt from Greek inheritance tax.
The legislator provides for a list of assets that are subject to gift tax. These are:
- any movable or immovable property situated in Greece;
- any movable property of a Greek citizen situated abroad; and
- any movable property of a foreign national situated abroad that is being gifted or donated to a Greek or foreign citizen who resides in Greece.
The categories of rates of inheritance and gift tax depend on the relationship of the taxpayers to the decedent or donor. Taxpayers are classed into three categories depending on their proximity to the deceased. Category A includes:
- the spouse;
- the partner who has a contract for cohabitation according to the provisions of Law No. 3719/2008, provided that the partnership was in existence at the time of death and it lasted at least two years;
- grandchildren; and
Category B includes:
- great-grandchildren et seq.;
- grandparents and great-grandparents;
- voluntarily or judicially recognised children as against the parents of the father who recognised them;
- the children of a recognised child as against the father who recognised them and his parents;
- brothers and sisters;
- collateral relatives of the third degree;
- stepfathers and stepmothers;
- children of the spouse from a previous marriage; and
- brothers-in-law, sisters-in-law, fathers-in-law and mothers-in-law.
Category C includes the remaining relatives and aliens.
The following table illustrates the inheritance tax rates, also applicable on gifts, for the three categories of individuals.
|Value in €||Tax rate||Tax||Total value||Total tax|
As an exception, by virtue of Law No. 3842/2010, monetary gifts inter vivos are taxed at a rate of 10 per cent when the gift is given to a relative of category A, 20 per cent for category B and 40 per cent for category C.
Tax treaties for the avoidance of double inheritance taxation
Individuals who are subject to Greek inheritance tax on their worldwide assets can benefit from the Greece inheritance tax treaties. Greece has entered into tax treaties for the avoidance of double taxation in inheritance and estate tax with Germany, Italy, Spain and the United States to prevent double taxation. Thus, individuals who are subject to Greek inheritance tax on their worldwide assets can benefit from the Greek inheritance and estate tax treaties.
Wealth structuring and regulation
i Trusts and foundations
Trusts and foundations are commonly used vehicles for private wealth structuring and planning. Recently, Circular Pol. No. 1114/2017 was issued by the Independent Authority of Public Revenue, providing for interpretative general guidelines with respect to the tax treatment both of the foreign trusts and foundations and their distributed or undistributed income to Greek tax residents within the framework of Greek income and gift and inheritance taxation. Specifically, pursuant to Circular Pol. No. 1114/2017, the tax treatment depends on the time period within which the taxable events take place as follows.
Taxable events as of 1 January 2014 onwards
As of 1 January 2014, the ITC recognises trusts and foundations as taxable legal entities for corporate income tax purposes.
On individuals' taxation level, any distribution of profits, acquired by the settlor under his or her capacity as beneficiary of the foreign trust or foundation, falls within the definition of dividends, being that considered as taxable income, and is subject to Greek income dividend tax of 10 per cent for the tax year 2019 and 5 per cent for the tax year 2020 onwards (plus solidarity tax contribution).
If the settlor or founder and the beneficiary of the trust or foundation is not the same person, the transfer of the trust's assets to the beneficiary is treated as a gift or inheritance for tax purposes and is taxed according to the gift or inheritance tax scale that is applicable based on the relationship between the settlor or founder and the recipient of the assets.
Undistributed income that arises in the trust or foundation could be treated pursuant to the provisions of CFC rules referred to above, provided that all the conditions are cumulatively met.
In the case of the trust or foundation's dissolution and liquidation, the distributed amounts that exceed the initial capital transferred to the trust or foundation are considered as dividends and are subject to Greek income dividend tax of 10 per cent for the tax year 2019 and 5 per cent for the tax year 2020 onwards (plus solidarity tax contribution). There is no taxable event to the extent the distributed amounts do not exceed the initial capital, as they are considered as capital repayment.
Finally, the transfer of assets into the trust or foundation upon its settlement is not considered a taxable event.
Taxable events until 31 December 2013
Greek Law No. 2238/1994, which was applicable on income taxation up to 31 December 2013, recognised only foundations as taxable legal entities for corporate income tax purposes.
On individuals' taxation level, any distribution of profits, acquired by the settlor under his or her capacity as beneficiary of a foreign trust, is subject to income tax at the level of the settlor of the trust depending on the source of income (e.g., interest, dividends, capital gains), while, as per the distribution of profits from a foundation, acquired by the founder under his or her capacity as beneficiary of the foreign foundation, is subject to income tax according to the tax scale applicable on freelancers pursuant to Greek Law No. 2238/1994.
If the settlor or founder and the beneficiary of the trust or foundation is not the same person, the transfer of the trust or foundation's assets to the beneficiaries is treated as a gift or inheritance for tax purposes and is taxed according to the gift or inheritance tax scale that is applicable based on the relationship between the settler of the trust or foundation and the recipient of the assets.
The trust's dissolution and liquidation is not considered a taxable event, while, in the case of a foundation's dissolution and liquidation, the distributed amounts that exceed the initial capital transferred to the foundation are subject to income tax according to the tax scale applicable on freelancers pursuant to Greek Law No. 2238/1994. There is no taxable event to the extent the distributed amounts do not exceed the initial capital, as they are considered as capital repayment.
Finally, the transfer of assets into the trust or foundation upon its settlement is not considered a taxable event.
ii Shipping companies operating under Law No. 27/1975
Because of the beneficial tax regime of shipping companies operating under Law No. 27/1975, Greece attracts Greek or foreign ship-owning companies with vessels flying a Greek flag and foreign ship-owning companies with vessels flying a foreign flag, if their management is exercised by Greek companies or foreign companies established in Greece (operating under a special regime of offshore companies), which are subject to tonnage tax.
The Greek tonnage tax regime applies to vessels of categories A and B. Category A vessels include cargo vessels, tankers, steel hull vessels for dry or liquid cargo that ply to or between foreign ports, passenger vessels and drilling platforms, while category B vessels include small boats and any other motor vessels not listed under category A. The gross tonnage is calculated by multiplying coefficient rates by each scale of gross registered tonnage. This taxable tonnage is then multiplied by an age-corrected rate. A credit for the tonnage tax paid abroad is provided.
The shipowner is liable to pay the ship's tonnage tax, whether an individual or a legal entity, who is the registered owner of the relevant ship on the first day of each calendar year. The person managing the ship and collecting the hire as well as the manager's representative, subject to the latter having accepted the relevant appointment in writing, are also jointly and severally liable to pay the ship's tonnage tax.
Various exemptions and reductions of the tonnage tax apply, such as vessels built in shipyards in Greece, under a Greek flag, are exempt from tax for the first six years. Also, a 50 per cent reduction applies for vessels operating regular routes between Greek and foreign ports or solely between foreign ports.
The payment of the tonnage tax exhausts all income tax liability of the shipowner with respect to income derived from the ship's operation; the exhaustion of tax liability also applies to the shareholders or partners of a (Greek or foreign) shipping company. It also covers all capital gains arising out of the sale of the vessel, realised at the level of either the shipowner, shipping company or their shareholders. If a company that owns a Greek-flagged ship also has commercial activities other than the operation of the ship, exemption from income tax applies to the net profits that correspond pro rata to the gross income the owner derives from ships, subject to the tonnage tax regime.
In addition, the shareholders of the above-mentioned companies are exempt from any tax, duty, contribution or withholding, up to natural person, for the income acquired from dividends or distribution of net profits, whether such profits are acquired directly or through holding companies. Exemption from any taxation applies on the transfer of shares or parts of Greek or foreign shipowner companies, under Greek or foreign flags, regardless of the reason that the transfer occurs. On the contrary, a 10 per cent withholding tax is applicable on dividend distributions, exhausting any further tax liability, to Greek tax residents by offices or domestic companies that are engaged in activities such as chartering, insurance, brokerage, etc, other than the management and exploitation of Greek or foreign-flagged ships.
According to Article 29 of Law No. 27/1975, exemption from inheritance tax applies with respect to transfers of vessels, stocks or shares of Greek or foreign companies that own vessels flying a Greek or foreign flag with gross tonnage of over 1,500 and of stocks or shares of holding companies that hold stocks or shares of shipping companies, whether directly or through holding companies.
Finally, an annual contribution, at a regressive tax scale of 5 per cent to 3 per cent, referring to the years 2012 onwards, and at a regressive tax scale of 7 per cent to 5 per cent, referring to the years 2016 onwards, is imposed on offices or branches of foreign enterprises that have been established in Greece by virtue of Article 25 of Law No. 27/1975 and that are engaged in the chartering, insurance, average (damage) settlements, purchase, chartering or shipbuilding brokerage, or chartering of insurance of ships under the Greek or foreign flag whose capacity exceeds 500 gross registered tons, as well as the representation of shipowner companies or undertakings, whose object is identical to the above-mentioned activities. Greek and foreign companies that have established an office or branch under Law No. 27/1975 and are engaged in the management of vessels flying a Greek or foreign flag, as well as in other activities approved by their licence of operation, are exempt from the above-mentioned annual contribution.
iii Anti-avoidance tax provisions
In Greece, a general anti-avoidance tax rule has been introduced for the first time under Article 38 of the TPC, according to which the tax administration may disregard any arrangement or series of arrangements that are not considered to be genuine and that are performed either by individuals or legal entities that aim to evade taxation and lead to a tax advantage.
An arrangement is considered non-genuine if it is not performed for valid commercial reasons reflecting the economic reality, therefore lacking commercial or economic substance. To determine whether an arrangement is genuine or non-genuine, various characteristics are examined by the Greek Tax Administration. For the purposes of this provision, because the arrangement or series of arrangements are considered to be non-genuine, the tax obligation arising is calculated depending on the provisions of Greek legislation that would apply in the absence of such arrangement.
Finally, by virtue of specific tax provisions, transactions (e.g., expenses) between domestic entities and entities of non-cooperative states or states with beneficial tax regimes (e.g., offshore entities) are not recognised for income tax purposes.
At an EU level, the Economic and Financial Affairs Council adopted Council Directive (EU) 2018/822 amending Directive 2011/16/EU as regards mandatory information on automatic exchange of reportable cross-border arrangements. The main purpose of this framework, known as DAC6, is to provide a mechanism that will enhance and increase tax transparency throughout the EU as regards tax-aggressive cross-border arrangements, which effectively result in tax avoidance. Each Member State must implement DAC6 into its domestic laws and regulations by 31 December 2019 and be in position to apply the new mandatory disclosure rules by 1 July 2020 (as a transitional measure, where the first step in a reportable cross-border arrangement is implemented between 25 June 2018 and 30 June 2020, the arrangement should be reported between 1 July 2020 and 31 August 2020). As a result of the severe disruption caused by the coronavirus pandemic, the EU allowed Member States, under Council Directive (EU) 2020/876 of 24 June 2020, to defer the DAC6 reporting deadlines by up to six months (i.e., deferral period), as follows:
- to 28 February 2021 for the look-back period; and
- to 1 January 2021 for the start date of the 30-day reporting deadline and for arrangements that met one of the reporting triggers during the deferral period.
In Greece, DAC6 was incorporated into domestic legislation in July 2020 under Law No. 4714/2020, which amended Law No. 4170/2013. The Greek Public Revenue Authority has published Circular A1017 of 27 January 2021, which provides an extension of the deadline for initial DAC6 reporting. This includes an amendment of the deadlines to provide that the 30-day reporting period began on 1 February 2021 (instead of 1 January 2021), including with respect to the period 1 July to 31 December 2020 and the period 1 January to 31 January 2021. With respect to the initial reporting for historical arrangements (25 June 2018 and 30 June 2020) and marketable arrangements, the deadlines are unchanged.
At a global level, according to the provisions of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (MLI) and Action 6 OECD/BEPS, separate rules are proposed to address situations of treaty abuse (treaty shopping for technical tax avoidance).
- a general anti-abuse rule based on the principal purpose of transactions and arrangements, according to which Member States could deny the application of the preferential provisions of a bilateral treaty when transactions or arrangements are entered into the application of a treaty to only obtain the tax benefits of these provisions in inappropriate circumstances (i.e., technical arrangements);
- a principal purpose test (PPT), according to which, having regard to all relevant facts and circumstances, obtaining a tax benefit is one of the principal purposes of any arrangement or transaction that results directly or indirectly in this benefit, unless it is established that granting this tax benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the covered tax agreement. The benefit under this Convention is not granted if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining this benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit. In this case, a case-by-case analysis, based on what can reasonably be considered to be one of the principal purposes of transactions or arrangements, is required; and
- simplified limitation on benefits (LOB) provisions. The MLI does not include a detailed LOB provision given the substantial customisation required by Member States. Instead, the MLI allows parties who prefer to address treaty abuse by adopting a detailed LOB provision to opt out of the PPT and agree to 'endeavour to reach a bilateral agreement that satisfies the minimum standard'. In addition, the MLI allows parties who prefer a detailed LOB provision to express their intention to incorporate the PPT as an interim measure while the detailed LOB provision is bilaterally negotiated. In particular, for a special purpose vehicle, fund or holding company, the above limitation could arise if a significant percentage of the ultimate beneficial owner does not qualify for the tax relief that the legal entity seems to qualify.
The MLI applies after ratification and incorporation in the domestic legal framework of each jurisdiction. Greece ratified the MLI on 26 January 2021 and has generally opted to apply the minimum standard, which includes the 'PPT rule'. Therefore, even if the other jurisdiction chooses the LOB provisions, the PPT rule will apply if the source country (place of payment) is Greece. Greece also deposited its ratification instrument on 30 March 2021 and thus the BEPS MLI entered into force on 1 July 2021.
iv Infringements of tax avoidance (Article 66 of the TPC)
Under Article 66 of the TPC, a taxpayer is considered to have committed the main offence of tax evasion in the following cases:
- where the taxpayer conceals from the tax authorities taxable income from any source or assets, in particular by failing to submit tax returns, by submitting inaccurate tax returns, by recording (totally or partially) fictitious costs in his or her accounting records, or by using such fictitious costs so as not to disclose or to disclose reduced taxable income with the intention of avoiding paying income tax, property tax or special property tax;
- where the taxpayer fails to make payment, makes incorrect payment, offsets or incorrectly deducts taxes or misleads the tax authorities by presenting false facts as real or by concealing real facts by which he or she fails to make payment, makes incorrect payment or offsets or incorrectly deducts taxes or incorrectly receives a tax refund, or makes a tax withholding with the intention of avoiding paying VAT, turnover tax, insurance premium tax, withholding tax and contributions; or
- where the taxpayer fails to make payment, or makes incorrect payment, of the special vessels tax, with the intention of avoiding paying such tax.
v Ultimate beneficial owner
By virtue of Law No. 4557/2018, Greece transposed Directive 2015/849/EU into domestic legislation, introducing the Central Ultimate Beneficial Owner (UBO) Register. Law No. 4557/2018, inter alia, provides for the establishment of a central register where ultimate beneficial owners of all legal entities are to be registered to increase transparency and prevent money laundering and terrorist financing practices.
Law No. 4557/2018 adopted the Directive's threshold of 25 per cent, to determine who is to be considered as ultimate beneficial owner.
In the case of corporate entities, ultimate beneficial owner means the individual or individuals who ultimately own or control a legal entity through direct or indirect ownership of a sufficient percentage of the shares or voting rights or ownership interest in that entity, as well as through bearer shareholdings or through control via other means.
Shareholding higher than 25 per cent or ownership interest higher than 25 per cent in the legal entity held by an individual shall be an indication of direct ownership, whereas shareholding higher than 25 per cent or ownership interest higher than 25 per cent in a corporate entity held by a third corporate entity, which is under control of an individual or by multiple corporate entities, which are under control of the same individual, shall be an indication of indirect ownership.
In the absence of an ultimate beneficial owner as defined above or in case of doubts as to whether the person identified as per the above criterion is indeed the beneficial owner, the 'senior management' of the legal entity, even if not a member of a board thereof, is considered as the 'beneficial owner'.
In the case of trusts, ultimate beneficial owners are: (1) the settlor; (2) the trustee or trustees; (3) the protector, if any; (4) the beneficiaries, or where the individuals benefiting from the legal arrangement or entity have yet to be determined, the class of persons whose main interest in the legal arrangement or entity is set up or operates; or (5) any other individual exercising ultimate control over the trust by means of direct or indirect ownership or by other means.
Recent tax incentives
i Greek non-dom tax regime
Alternate tax regime for individuals investing in Greece (new Article 5A ITC)
According to the new ITC, as amended by Law No. 4646/2019, high-net-worth individuals now have incentives for transferring their tax residency to Greece. Under the clarifications provided by Decision 1036/2020 of the Greek Ministry of Finance and the Independent Authority for Public Revenue (IAPR) on the newly presented non-domiciled (non-dom) regime, investors will pay a fixed tax of €100,000 per tax year for income earned abroad (irrespective of the source or amount of the income) and be taxed based on domestic income tax rules for Greek-sourced income (under the same rates as for any Greek tax resident). The specific non-dom regime applies for a maximum of 15 fiscal years. High-net-worth individuals who choose to transfer their tax residence to Greece will enjoy the privileges of this special tax treatment provided the following conditions are met:
- the taxpayer has not been a tax resident of Greece for the past seven of the eight years prior to the transfer of his or her tax residence to Greece; and
- the taxpayer can prove that he or she or a relative has invested at least €500,000 in real estate or business of transferable securities or shares in legal entities established in Greece (the investment may have been made through a legal entity in which the taxpayer holds the majority of the shares).
Moreover, the individual has the right to request an extension of the non-dom regime to a relative. In that case, an additional tax of €20,000 per relative shall be levied while provisions on gifts, parental gifts and inheritance do not apply.
Following the payment of the fixed amount of tax, the individual carries no further tax obligations for income earned abroad and he or she is exempt from inheritance or gift tax on assets located abroad.
Alternate tax regime for individuals with foreign pension income (new Article 5B ITC)
Since 1 January 2020, a new non-dom regime has applied to individuals entitled to a foreign pension, granting them a favourable taxation of their income. The application of this regime does not affect the validity of the applicable DTT. The Greek Ministry of Finance and the IAPR have recently issued Decision A.1217/2020, which regulates the process and requirements for individuals earning pension income from abroad who transfer their tax residency to Greece and choose to be subject to an alternate tax for their foreign-source income.
To be eligible, an individual must satisfy the following conditions: (1) he or she earns foreign-sourced pension income; (2) he or she has transferred his or her tax residency to Greece; (3) he or she has not been a Greek tax resident for five of the six years preceding the transfer of his or her tax residency to Greece; and (4) he or she has relocated from a country with which Greece has a valid agreement on tax issues. As to the evidence of the foreign tax residency status of the applicant, a distinction is made between (1) cases in which the applicant has never been registered with the Greek tax authorities, or has been registered and appears as a foreign tax resident in the records of the Greek tax authorities for five of the six years preceding the transfer of his or her tax residency to Greece – in which case no documents need to be filed to prove the foreign tax residency status and (2) all other cases in which the individual will have to produce evidence of his or her foreign tax residency status for five of the six years preceding the transfer of his or her tax residence to Greece. The competent tax authority to receive and decide on such applications is the Athens Tax Office for Foreign Tax Residents and Alternate Tax Regimes for Greek Tax Residents. Exceptionally for fiscal year 2020, the filing deadline was extended to 30 September 2020 and applications were able to be filed without any supporting documentation, in which case the latter should have been filed with the Greek tax authorities by 30 November 2020.
Provided that the application for the transfer of the tax residency by the above process is successful, the individual is required to: (1) report all Greek-source income and all foreign-source income that is subject to the alternate taxation regime; and (2) pay a 7 per cent flat income tax (annually, by the end of July each year) for their income obtained abroad with the full exhaustion of their tax liability in Greece for the foreign-source income, unless the income is exempt by application of a tax treaty between Greece and the foreign country. Interest in arrears is also imposed if the tax is not paid on time. He or she is also entitled to receive foreign tax credit on certain conditions against this tax, is exempt from solidarity tax and is subject to Greek personal income tax for all Greek-source income, according to the general tax rules. The entire amount of the tax due should be paid in full in a single instalment for each tax year by the last working day of July, while no offsetting or credit possibility is foreseen.
A maximum of 15 years is set for the eligibility of the alternate tax regime, which cannot be extended.
Successful applicants are considered as Greek tax residents under the meaning of the tax treaties between Greece and foreign jurisdictions. Successful applicants are not exempt from Greek inheritance tax, or Greek donations' tax for movable assets located abroad, where applicable.
Alternate tax regime for salaried employees working abroad (New Article 5C ITC)
Recently enforced Law No. 4758/2020 introduced the most recent non-dom resident tax regime for individuals working abroad as salaried employees who wish to transfer their tax residency to Greece, with effect from 1 January 2021. This specific non-dom regime applies for a maximum of seven fiscal years. The Greek Ministry of Finance and the IAPR recently issued Decision A1087/2021, which regulates the process of and requirements for the benefits provided by this regime.
To be eligible, an individual must meet the following conditions: (1) he or she has not been a Greek tax resident for five of the six years preceding the transfer of his or her tax residency to Greece; (2) he or she has relocated from a country with which Greece has a valid agreement on tax issues; (3) he or she is providing employment services in Greece through an employment relationship as defined by Greek law to a Greek legal person or legal entity or to a Greek branch of a foreign company; and (4) he or she declares that his or her stay in Greece will be for at least two years. The favourable tax regime applies only to new employment positions.
The deadline to apply for this regime is 31 July of the year during which employment is commenced. The tax authority's decision to accept or reject the application is issued within 60 days of the application date.
Provided that the application for the transfer of the tax residency by the above process is successful, the individual will be exempt from paying income tax and solidarity tax on 50 per cent of his or her Greek employment income.
For all other Greek-source income, as well as for non-Greek-source income, the above-mentioned Decision provides that the individual will have to report this in his or her annual Greek personal income tax return and will be subject to income tax (and possibly solidarity tax, where applicable) according to the general provisions and rates applicable for all local tax residents. Successful applicants are not exempt from Greek inheritance tax, or Greek donations' tax for movable assets located abroad, where applicable.
ii Family office regime
New Law No. 4778/2021 introduces new Article 71H in the ITC in relation to the concept of family offices in Greece and regulates their business purpose, the nature of the services to be provided, operation details and various tax matters (determination of gross income, profit percentage, taxable income, calculation of income tax and applicable payment process and applicable VAT). This tax measure aims to make Greece an even more attractive destination for high-net-worth individuals' economic activity. The new regime provides for the management of the wealth of individuals and their family members who are tax resident in Greece, which can be carried out by special purpose corporate vehicles (i.e., family offices) that operate in any legal form except that of non-profit legal entities.
Pursuant to the provisions of Article 71H and Circular 2092/2021 of the IAPR, the conditions for the lawful operation of the regime that shall cumulatively apply are that the family office should employ at least five individuals in Greece within 12 months of its establishment and that the office should incur operating costs in Greece of at least €1 million on an annual basis. Greek tax residents' family members, as well as legal entities in which family members participate, can be involved as members of a family office. For the purposes of the current provision, the following are considered as family members: (1) the spouse of the individual; (2) their unmarried children; (3) the unmarried children of the other spouse if custody has been legally assigned to each one respectively; and (4) the parents of the spouses. Further, under the regime, special purpose companies are entitled to engage people specialised in different fields in relation to provided services. However, individuals who are involved in a family office as members cannot be employed by the same entity.
The gross income stemming from the services provided by family offices, which can be received through bank transfer only, is determined based on the cost-plus method (i.e., with the application of a mark-up set at 7 per cent of total business expenses and depreciations excluding corporate income tax). All expenses on which the mark up applies shall be tax deductible for income tax purposes, on the condition that they are supported by fiscal records complying with Greek GAAP7 legislation. Transactions carried out between the family office and the family members are considered as incurred within a single entity and therefore fall outside the scope of VAT.
The provisions for this regime apply from fiscal year 2021 onwards.
In the context of the continuous improvement of international tax compliance, Greek Law No. 4493/2017 ratified the memorandum of understanding between the governments of Greece and the United States on the improvement of international tax compliance, and the implementation of the Foreign Account Tax Compliance Act on preventing tax evasion. Greece and the US agreed on the automatic exchange of information on financial accounts held by Greek tax residents in US financial institutions and financial accounts held by US tax residents in Greek financial institutions
In addition, in the context of mutual administrative assistance and cooperation in tax matters on an international and EU basis (OECD, EU) for the automatic exchange of information, Greece has adopted the global standard for the automatic exchange of information of financial accounts (the Common Reporting Standard (CRS)). By virtue of Law No. 4378/20168 and Law No. 4484/2017,9 amending Law No. 4170/2013, Greece implemented Council Directive 2014/107/EU amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation, adopting the use of CRS at European level. By virtue of Law No. 4428/2016,10 Greece ratified its participation in the Multilateral Competent Authority Agreement on the automatic exchange of financial account information. According to the new provisions, financial institutions and tax residents in Greece must adopt specified due diligence procedures for the purpose of identifying bank accounts of individuals and legal entities and report their findings annually to the Ministry of Finance.
Outlook and conclusions
Wealth and succession planning for high-net-worth individuals is in demand in Greece. Greece has entered into many DTTs. Trusts are now recognised as taxable legal entities for corporate income tax purposes and are commonly used as a vehicle for wealth and succession planning purposes. Shipping companies operating under Law No. 27/1975 are attractive to wealthy individuals for use as vehicles for Greek tax purposes because they fall under a beneficial tax regime.
On the other hand, new tax provisions have been introduced, such as the CFC rules and other 'tax evasion' or 'artificial arrangement' provisions, with the aim of addressing tax evasion and preventing techniques that lead to a tax advantage. In line with the aim of these provisions, Greek tax authorities have been adopting a stricter attitude and policy towards any kind of tax planning.
1 Aspasia Malliou is a partner and Maria Kilatou and Dimitris Vasilakos are associates at PotamitisVekris. This chapter was originally written by Aspasia Malliou and Eleni Siabi (a former associate at PotamitisVekris). In addition, it has been reviewed by Alexios Papastavrou, Kelly Papadaki and Anastasia Platipodi. Alexios Papastavrou is a partner and Kelly Papadaki and Anastasia Platipodi are associates in the family and inheritance law department at PotamitisVekris.
2 Article 5A ITC.
3 Article 5B ITC.
4 Article 5C ITC.
5 Article 39A of the ITC.
6 Government's Gazette A' 78/18.5.2021.
7 Generally accepted accounting principles.
8 Government Gazette A 55/106 [please confirm '106' is correct here].
9 Government Gazette A 110/2017.
10 Government Gazette A 190/2016.