A major tax reform took place in April 2010, which was aimed at restoring fiscal justice and confronting tax evasion, with the most significant provisions being the following:

• Introduction of a split corporate tax rate regime, whereby non-distributed profits are taxed at the standard corporate tax rate (24% for FY2010) and distributed profits at 21%. This applies to profits deriving from fiscal years ending 31 December 2010 and onward.

• Introduction of anti-abuse provisions with respect to transactions with individuals or entities of any kind and form that have their registered seat or are established in countries that do not cooperate with Greece on information exchange in taxation matters or are characterized as having a beneficial tax regime. Additionally, the tax deductibility of the purchase value of goods (including raw and auxiliary materials) and services is denied when paid to an entity, the activity of which in the transaction has been limited only to invoicing, while the supply of the goods or the provision of the services has been performed by a third party.

 

• Extension of the thin-capitalization rules (3:1) to bond loans and loans granted to third parties for which guarantees of any kind have been provided by related companies.

• Decrease of the transfer pricing documentation’s threshold to €100,000 (from €200,000) per transaction. In case of non-submission of the documentation file within one month (instead of two, previously) of its request by the tax authorities or in case the file is inadequate or missing, the fine amounts to 20% of the value of the transactions not documented (or improperly documented).

• Increase of the penalty imposed in case of under- or over- pricing to 20% (from 10% previously), calculated on the additional net profits assessed to the companies involved, without the right to reduce it within the frame of a settlement with the authorities and irrespective of whether such over- or under- pricing actually results to the avoidance of direct or indirect taxes.

• Introduction of the Tax Certificate, which will be issued annually by Certified Auditors and auditing offices after the audit of tax issues, in parallel with the audit of the financial statements. The certificate, including observations and findings on potential violations of the tax legislation, shall be submitted – at the responsibility of the auditor – to the competent department of the Ministry of Finance no more than one month from its issuance.

• Increase of the VAT rules with respect to the intra-community supplies and waiver of the VAT exemption of certain activities (medical services, legal services, etc.)

• Increase of the withholding tax rate on royalties and remuneration for the provision of consulting or other services to non-Greek residents, without a permanent establishment in Greece, to 25% (from 20% previously), provided that they do not qualify for the lower rate (5%) under the EU Interest and Royalties Directive or they do not qualify for the reduced rates according to the international tax treaties.

A. INCOME TAXATION

Corporate Income Taxation

 

Taxation of profits and dividends

 

• A system involving two separate corporate income tax rates for non-distributed and distributed profits of legal entities is introduced. Non-distributed profits are taxed at a rate of 24% for profits arising in the accounting period commencing on the 1/1/2010, and 20% by 2011. Withholding tax rate of 21% for profits arising in the accounting period commencing on the 1/1/2010, and 25% by 2011 being applied on distributed profits (abolishment of the split corporate tax rate regime and re-introduction of a single tax rate regime, withholding tax of 25% being applied on dividend distributions to non-corporate shareholders and non-EU corporate shareholders). The new system applies to profits arising from balance sheets drafted from 31/12/2010 onwards.

 

Corporate tax rates at a Glance (as of January 2011)

Corporate Income tax rate (%)	20% on non – distributed profits
Withholding tax	25% on dividends distributed to individuals and non EU corporate Shareholders
Net operating Losses (Years)	Carryback 0 Carryforward 5

 

• The withholding tax of 25% on distributed profits of the legal entities exhausts any further tax liabilities of beneficiary individuals. However the dividend amount is further taxed as personal income based on the progressive tax scale applicable to individuals, and in case of a lower tax rate applicable than 25%, a credit being provided for the dividend withholding tax paid by the distributing legal entities, based on a certificate issued by the latter in the name of the individual.

 

• Withholding taxation of 25% on distributed profits of the legal entitles exhausts the tax liability in case the beneficiaries are legal entities. In case such legal entities proceed to the distribution of profits, in which dividends from the legal entities are included, the part of tax already paid for those dividends is deducted from the 25% tax imposed on distributed profits.

 

• Withholding tax rate of 25% on distributed profits is also imposed in case of capitalization or distribution of profits of previous accounting periods.

 

• It should be noted that the aforementioned apply to profits distributed by Limited Liability Companies also, and to profits permanent establishments in Greece remits to its head office abroad.

 

• Branches and other permanent establishments of foreign entities are subject to income tax on their Greek-source income at the rate of 20%. Unless a double tax treaty provides otherwise, a foreign enterprise is considered to have a permanent establishment in Greece if it engages in any of the following activities:

• Maintaining in Greece an office, warehouse, factory or other place of business;
• Manufacture or processing of raw materials or agricultural products, either in its own plant or by using the installations and facilities of other parties acting on the instructions and for the account of the foreign enterprise;
• Carrying on business in Greece through a representative who has the right to conclude agreements on behalf of the foreign entity. A foreign enterprise is also considered to have a permanent establishment in Greece when its business or services, although performed without a representative, relate to the performance of research work or other studies or are of a technical or scientific nature;
• Maintaining a stock of goods in Greece from which it fulfils orders for its own account;
• Participating in a Greek partnership or limited liability company.
• Branches of foreign companies may reduce their taxable profits by deducting an allocated portion of the operating cost of their head office. The portion may not exceed 5% of the branch’s general administrative expenses.

 

Capital gains derived from the sale of shares listed on the Athens Stock Exchange

 

• Taxation at source at a tax rate of 10%-20% of the capital gains that legal entities receive from the sale of shares listed on the Athens Stock Exchange in case of the sale of shares within three months-twelve months from their acquisition respectively (short-term transactions) (application for shares acquired from 1/1/2012). Thereafter, the capital gains derived from the sale of the relevant shares is booked in a special reserve account after the deduction of losses derived from similar transactions. In case of distribution or capitalization, capital gains are taxed at the tax rate of distributed profits by deducting the tax withheld.

• In case of a foreign legal entity investor without a permanent establishment in Greece, withholding tax of 10%-20% exhausts the tax liability.

It must be considered each time whether a basis for exemption of the foreign company from capital gains tax applies, based on an applicable a Double Tax Treaty.

 

• In case of application of taxation of capital gain, according to the aforementioned, the transaction duty of 0.2%, currently in force, shall not apply.

 

• The same applies to sales of shares listed on a foreign stock exchange or other internationally recognized exchange.

 

Taxation of Partnerships (O.E. and E.E.) etc.

 

• Amendment of the taxation of Partnerships (OE,EE) civil law societies, exercising an enterprise of profession of civil profit and non-profit making companies, silent partnerships, as well as of joint ventures of par. 2 of article 2 of the Books and Records Code, of which the accounting period commences on the 1st January 2010 onwards. Specifically, the changes have as follows:

• The tax rate is increased to 25%.

• Profits corresponding to individuals, partners of O.E. and E.E. are continued to be taxed at 20%, following the deduction of their entrepreneurial fee, where this applies (50% on the participation percentage of the partner in question).

• Profit that is tax exempt or taxed at source with exhaustion, as well as dividends or profits from Greek companies are deducted from the taxable income. The exemption is not extended to profits derived from participations in companies of EU Member States, which may be considered as a prohibited discrimination.

• The aforementioned apply also for branches of foreign partnerships.

• In contrast to Societe Anonymes and Limited Liability Companies, the taxation of partnerships (O.E.,E.E. etc.) exhaust the tax liability of partners, namely the relevant profits are not included in the progressive tax scale applicable to individuals.

 

B.DETERMINATION OF TAXABLE INCOME

 

Deductible Expenses

• Important limitations are introduced to the deduction of expenses from the gross income of enterprises (article 31 of the Income Tax Code “ITC”) paid to companies established in countries included in the catalogue of non cooperating states with preferential tax treatment (application for balance sheets drafted as of 31/12/2010 onwards).

• The value of raw and ancillary materials and other goods (plus processing thereon ) which is paid to an individual or legal entity, the role whereof consists exclusively of the invoicing of the transactions, while the delivery of goods or provision of services is conducted by a third party. Are not deducted from the gross profits of companies.
• Payroll expenses are not deducted in case they are not paid through professional bank accounts or checks paid through the same accounts.
• Limitation of the deduction of lease expenses paid to car rental companies and effective equalization to deduction in case of car leasing payments to leasing companies. The car expenses are now deducted by a percentage of 70% for motor vehicles up to 1600 cc and 35% for motor vehicles exceeding 1600 cc (application for balance sheets drafted as of 31/12/2010 onwards).
• Establishment of an obligation of the competent auditing authorities to inform the competent social security organization when establishing the non-payment of social security contributions.
• Limitation and even abolition of the deductibility of certain donations and sponsorships.
• Amendment of the thin capitalization rules, providing :

• Extension of the exemption from the application of thin capitalization rules to banks, factoring companies, as well as special purpose vehicles of L. 3156/2003, and of L.3601/2007 (an exemption was already in force for leasing companies).
• Loan from third parties are still included in the debt-equity calculation if they have been guaranteed in any way by a related party.
• The meaning of loans includes bond loans held by affiliated companies.
• Abolition of the clause of non application of thin capitalization rules for loans that had been concluded up to the publication of L. 3775/2009 (‘grandfathering’ clause) (i.e. until 21/07/2009) (application for profits of balance sheets drafted as of 31 December 2010 onwards).

 

• Prohibition of deducting interest of loans used for the purchase of shares in a legal entity or entity established in states of article 51(non-cooperating or states with preferential tax regime), as well as of interest paid to these companies (application for balance sheet drafted as of 31/12/2010).
• Prohibition of deducting interest of loans for the purchase of shares in any type of company, to the degree that this participation is transferred within a two years period (application for balance sheet profits drafted as of 31/12/2010).
• Further increase of taxable profits of banks and insurance companies, by the extending the non deductibility of expenses corresponding to tax free profits or profits taxed in a special way, applicable for other companies (article 31 par. 8 of the ITC), even though a special way of determining the relevant profits applies for banks and insurance companies. Specifically for the banks 5% on the profits derived from dividends and profits from participation in other Greek companies is added to their taxable income as non-deductible item (for example dividends of companies is added to their taxable income as non-deductible item ( for example dividends of Greek Societe Anonymes). (Application for balance sheets drafted as of 31/12/2010 onwards).

Transfer Pricing

• The existing transfer pricing framework becomes stricter. More specifically:

• The condition that a (direct or indirect) tax avoidance should arise in order for a transfer pricing assessment to be made is abolished
• Increase of the fine from 10% to 20% on transfer pricing adjustments, while such penalties are no longer subject to a reduction to 1/3 in case of an administrative settlement of the dispute.
• Explicit reference that the transfer pricing documentation rules extend to leases of movable or immovable property.
• Reduction of the minimum threshold requiring documentation from 200,000 Euros to 100,000 Euros annually.
• Introduction of penalties under tax law regarding the non timely submission, non-maintenance or incomplete/improper maintenance of TP documentation. Penalty amounts to 20% of the transaction value. Deadline for submissions of files is 30 days from request.

 

 

C. OTHER ISSUES ON LEGAL ENTITIES

Auditors’-Auditing Firms’ Certificates

• Obligation of auditors and audit firms (registered in the Auditors’ Registrar of L.3693/2008) to issue annual certificates on the infringement of tax legislation of the obligatorily audited Societe Anonymes / Limited Liability Companies. The certificates shall be notified, with the responsibility of the auditors or auditing firms, within one month to the Directorate of Audits of the Ministry of Finance, while any infringement of their obligations shall be prosecuted, in accordance with L.3693/2008.

Tax Incentives

• Reduction by three percentage units of the tax rate of profits of legal entities, of which the turnover is reduced for two consecutive accounting periods, on the condition that the number of employees is not reduced in any of the three accounting periods. Revocation of the granted benefit and imposition of further tax in case of reduction of personnel or increase of the turnover within the same period (in force for accounting period 2009).
• Exemption from income tax for three years of profits derived from the exercise of a personal commercial company or free lancers or partnership, in case the beneficiary is not more than 35 years old.
• Exception from the duty of mobile telephone subscribers of wireless internet connections concerning solely and exclusively data connections (entry into force from the publication of the bill in the Government Gazette).
• Exemption from income tax for three consecutive years for profits derived from the sale of products or the provision of services, employing internationally recognized patents, application for sales or services provided after the 1st January 2010.

 

Foreign Tax Credit

• Foreign-source income is usually taxable. A credit is allowed for foreign income taxes paid up to the amount of Greek tax payable on the foreign-source income.
• With Law 2578/1998, Greece has implemented the EU ‘Parent-subsidiary” Directive 90/435, and with Law 3943/2011 Greece has adopted the participation exception rule under which Greek parent companies are not taxed for dividends derived from their subsidiaries located in another EU country and corresponding to the profits distributed to them. To this end, such kind of profits from EU subsidiaries should be presented in a special reserve account. Any further distribution or capitalization of the aforementioned reserves is taxable with the standard withholding tax rate of 25%.

Other Significant Taxes

• The following summarizes other significant taxes applied at the corporate level:
• Nature of Tax (%)
• Value Added Tax –standard rate 23
• (Certain supplies of goods and services are exempt, including banks, financial intermediaries, insurance companies, as well as health and educational services. Certain types of transactions are zero-rated, e.g. exported goods and services.)
• Excise duty (applied on alcohol tobacco and oil products; taxes are imposed at percentage rates or at a specified amount per unit)
• Real estate transfer tax 8-10
• Annual property tax 0.6
• Capital duty 1
• Stamp duty 3.6/2.4/1.2

 

International Accounting Standards (IAS-IFRS)

• As of 1 January 2005, all companies with shares listed on the Athens Stock Exchange should prepare both interim and final individual and consolidated financial statements according to International Accounting Standards. Greek corporation audited by members of the Institute of Certified Public Accountants of Greece may also apply the IAS.
• The law provides that income tax declarations will show net income according to IAS adjusted to conform to the tax legislation. Additional note to the financial statements should reconcile the taxable result to the accounting (IAS) result.