NEW CODE OF INCOME TAXES IN GREECE JANUARY 2014
During 2013 the fundamental tax legislation has changed to an extended degree. In general the most representative characteristics of this reform were the large number of laws and provisions, the repealing of laws and the lack of interpreting circulars. Within the limits of the Code of Income Tax, the following are the main changes for 2014:
New Code of Income Tax (Law Nr. 4172/2013) that replaced Law Nr. 2238/1994
The new law on income tax (Nr. 4172/2013), that replaced Law Nr. 2238/1994, applies from 01.01.2014. The main changes and regulations are the following:
1. The term of ‘tax residence‘ is introduced and clarified (article 4, tax residence). Especially as far as legal persons or legal entities are concerned, they are now considered as tax residents in Greece, if at any period of time within the fiscal year, the ’place, where the actual administration takes place’ is in Greece. In Article 4, par. 4 it is mentioned that the ’place, where the actual administration takes place’ is considered to be in Greece according to the facts of each case. For this purpose the following are taken into account a) the place where the daily administration is exerted, b) the place where important decisions are taken, c) the place of the annual general assembly of the shareholders or the members , d) the place where the tax accrual workpapers are kept, e) the place of the management board meetings or of any other executive body of the administration and f) the residence of the members of the management board or of any other executive body of the administration.
2. The term of ‘permanent establishment’ is assigned (article 6, permanent establishment) according to the directive guidelines published by the Organisation for Economic Co-operation and Development. A non-exclusive list of examples, which can set up permanent establishment under circumstances is following below.
3. The income sources are reduced from six (6) to four (4) [art. 7, taxable income]. The income sources are the following: a) Income from paid employment and pensions, b) income from entrepreneurial activity, c) income from capitals and d) income from capital appreciation due to its transfer.
4. The over-twelve month period is not applying any more (art. 8, fiscal year). The fiscal year coincides with the calendar year. The time when the income is acquired is considered to be the time, when the beneficiary had the right to collect it. Exception is introduced in the case when the not collected accrued income, is received in a later time from the beneficiary of paid employment and pension income. Then the actual time of the receipt is considered to be the time when the income is acquired. The latter is valid only when the actual receipt of this income is clearly stated on the yearly remuneration statement provided to the beneficiary.
Income tax for natural persons
5. On the income of natural persons there is a new applicable tax table (art 15, tax rate).
6. There is a tax reduction only in the case of medical expenses or donations (art. 18, Tax reduction due to medical expenses and art. 19 tax reduction due to donations, see Ministerial Order 1010/2014).
7. The income deriving from paid employment and pension income, other benefits in kind that exceed the amount of three hundred (300) euro per year are included in the taxable income of natural persons (art. 13, Benefits in kind). The allotment of a business car, the benefits in kind in the form of credits, the rights to equity option and the house allotment all form part of benefits in kind. The salary payment in advance and regarding over three (3) months salaries is considered to be a credit. The final withholding tax regarding this income will start from 01.01.2015 (Law Nr. 4172, art. 72, par. 21 and art. 60, par. 1).
8. The profits from business transactions are taxed as profit deriving from entrepreneurial activity (art. 21, Profits from entrepreneurial activity). The same applies for systematic real estate sale. Every increase in property that derives from illegal or unjustified or unknown source or cause is considered as profit deriving from entrepreneurial activity and the imposed tax rate is 33% (art. 29, tax rate).
9. The provisions about the deductive and non-deductive operational expenditure undergo a fundamental change (art.22, deductive operational expenditure and art. 23 non-deductive operational expenditure). The deductive operational expenditure includes the expenditure for the business interest, that corresponds to actual transaction. These transactions must not be underpriced / overpriced, they must have already been declared in the transaction record book for this period and they can be proven with relevant documents. The interests from debenture and interbank loans were excluded in the end from the provisions regarding deductive operational expenditure. The expenditure concerning scientific and technological research deduct from business gross receipt after its rallonge by 30%. The previous law 2238/1994 had specific provisions about expenses percentage that did not deduct (for example private cars, mobile phones) and it was enriched with many explanatory circulars and court decisions. The new provisions should be as well be explained through detailed circulars, especially in terms concerning the meaning of underpricing/overpricing, how should be the division of expenses that cover personal and business needs (mobile phones, private car etc).
10. New tax rates concerning fiscal depreciation of capital assets are introduced (art. 24, fiscal depreciation). The depreciation starts the next month from its use. In case of financial leasing the lessee and the owner can equally proceed with fiscal depreciations.
11. The taxpayer is not allowed to use a different valuation method for the next four (4) years after the first tax year from the use of this valuation method (art. 25, valuation of reserve stocks and semi-finished products).
12. Doubtful debts are differently forecasted (art. 26, doubtful debts). For debts to the amount of 1.000 Euro that have not been recovered, the possibility of a relevant forecast can be built up to the percentage of 100% in case all necessary action towards the assurance of the recovery right has been taken. For debts over the amount of 1.000 Euro and for which all necessary action towards the assurance of the recovery right has already been taken, then the forecast percentage is up to 50% for over 12 months of delayed payment, 75% for over 18 months and 100% for over 24 months respectively. In this particular issue it should be clarified what consists ‘necessary action‘, due to the fact that no reference is done in the explanatory report of the law. New restrictions about the forecast of doubtful debts are introduced in cases when the counterparty has a 10% participation at least or it is under insurance or security. At this point it should be noted that there exists no limitation for the insecurity of debts until 30% in the total debit balance of the account ‘Clients’. Lastly the provisions of the Law 2238/1994, art. 31, par.1, 9th case still apply for the yet not formed forecasts until 31.12.2013 (non-verificated forecast within five years).
13. Damage transfer is possible to be put in offset procedure with business profits in the next five (5) years (art. 27, damage transfer). There exists a limitation in damage transfer in case the business ownership has changed more than 33%, unless it can be proven that this change was due to trade or business reasons and not for tax evasion. Moreover there exists no offset for damage caused abroad with profits within national territory. Damage caused abroad can only be in offset procedure with income in other state members of the European Union or the European Economic Area. This income should not be also been already exempted in the provisions of the Double Taxation Agreement that is signed and applied from Greece.
14. The income can be determined through indirect control methods (art. 28, Income determination method) according to the Income Law (Nr. 4174/2013). In case when the applicable accounting standards are not kept, then the taxation documents are not edited according to the Code of Income Tax. The same applies when the tax accrual workpapers are not submitted, after relevant invitation from the tax administration.
15. Business profits have a taxation of 26% for taxable income until 50.000 Euro and 33% for taxable income over 50.000 Euro (art. 29, tax rate). For natural persons that made their inscription in the tax authorities from the 1st of January 2013 and later, there exists a 50% discount for the next three years, presupposed that the business profits do not exceed the amount of 10.000 Euro.
16. The capital income obtained by natural persons includes participations, interests, royalties and real estate income (art. 35-40). There exists participation withholding tax 10% and hereafter there is no other tax obligation of the natural persons. At the same time the concept of participation becomes broader according to the Organisation for Economic Co-operation and Development (OECD) guidelines. An interest withholding tax 15% is imposed and hereafter there is no other tax obligation of the natural persons. There is royalties withholding tax 20% and hereafter there is no other tax obligation of the natural persons. The real estate rental income until 12.000 Euro has a tax rate of 11% and thereafter 33%. There exists no provision referring to supplementary income tax for real estate rental. The imputed income from owned or allotted property is calculated on 3% of its rateable value.
17. The income deriving from capital gain transfer has a 15% tax rate and includes the income from real estate transfer and the income from securities (art. 41-43, see Ministerial Orders 1004/2014, 1008/2014). In detail, this taxation concerns the increase in value that derives from the onerous contract for real estate or undivided shares on property rights or participations. The latter two cases should raise their value in 50% or more, from real estate or real estate contribution for coverage or capital increase. The tax is withheld from the notary. If a real estate is kept for five years and in this time no other real estate transfers occurred, then a 25.000 Euro non-taxable limit is applicable. Additionally there is a depreciation rate on the appreciation, relevant to the time a real estate is kept. The income from capital gain transfer includes the increase in value from securities transfer, if these transfers do not constitute business activity. The contribution of these securities for the coverage or capital increase is considered as transfer as well. Damage from capital transfer and offset with relevant capital gain are always possible to be transfered.
Income Tax for legal persons and legal entities
18. The law determines the tax subjects and the tax exempted legal persons (art. 45, 46). All income obtained by legal persons and legal entities are considered as business profits (art. 47, Business profits). The capitalization and the distribution of profits with no income tax for legal persons and legal entities imposed thereon are considered as business profit. The actual applicable tax rates are as follows (art. 58, Tax rate):
| Article |
Tax liable legal persons |
Simple Entry Bookkeeping |
Double Entry bookkeeping |
| 45α |
Capital Companies |
– |
26% |
| 45β |
Partnerships |
26% until 50.000 €
33%>50.000 € |
26% |
| 45γ |
Non-profit public or private law bodies and institutions |
26% |
26% |
| 45δ |
Co-operative societies and their associations |
26% until 50.000 €
33%>50.000 € |
26% |
| 45ε |
Civil societies, civil law partnerships with gainful or non-profit activities, participating enterprises or dormant companies in case they exercise business or profession |
26% until 50.000 €
33%>50.000 € |
26% |
| 45στ |
Joint enterprises |
26% until 50.000 €
33%>50.000 € |
26% |
| 45ζ |
Other legal entities |
26% until 50.000 €
33%>50.000 € |
26% |
| 58 par.2 |
Agricultural associations and producer groups |
13% |
13% |
19. New restrictions are set regarding the taxation of the received intra-group dividends by a legal person that is tax resident in Greece (art. 48, tax exempted intra-group dividends). The tax exemption prerequisites should exist together. The participation exemption according to the Directive on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States applies for the participations received by a legal person from every subsidiary, regardless of being resident in Greece, in a Member State of the European Union or a third country, with the exemption of non-cooperative States.
20. The provisions about the undercapitalization change completely (art. 49, Undercapitalization). For the interest discount, the amount of the loans and the net position are not calculated anymore, but instead the amount of the debit interest after abstraction of the credit interest is calculated. Interest expenses up to the amount of 5.000.000 Euro per year are fully deductible (this applies for 2014 and 2015 and from 2016 the amount is reduced to 3.000.000 Euro, art. 72, par. 9 β). The excessive interest expenses are not recognized as deductible business expenses and they are transferred for discount without time limitation, in case they exceed 60% of the EBIDTA (for 2015 the percentage is 50%, for 2016 40% and from 2017 30%, art. 72, par. 9 α).
21. The significance of the connected person is broader (art. 2, par. 7) and the principle of the ‘same distance‘ principle is introduced, as well as the relevant provisions from OECD for intra-group transactions (art. 50, 51) and for business restructuring.
22. New favourable regulations are introduced. These regulations are in regard to the contribution of assets (activity branch) instead of titles, the exchange of titles, the merger and dissolution of businesses and the statutory seat transfer of a European Company (Societas Europaea – SC) or a European Cooperative Society (ECS) from Greece to another Member State of the European Union, since they have a permanent establishment in Greece (art. 52-55). The benefits described in art. 52-55 do not apply in case the mentioned actions aim at tax abuse or tax evasion (art. 56, non-applicable benefits).
23. The withholding tax is as follows (art. 64, Withholding tax) and the 300 Euro limit does not exist anymore (see Ministerial Orders 1011/2014 and 1012/2014):
| Income (Payments) |
Withholding Tax Rate |
Tax obligation completion |
| Participations* |
10% |
YES |
| Interest* |
15% |
YES |
| Royalties* |
20% |
YES |
| Remunerations for technical services, administrative remunerations, remunerations for consulting services and other relevant services, independently if they were provided in Greece and the beneficiary is a natural person |
20% |
NO |
| Remunerations received by contractors that undertake any kind of structure and tenants of public, municipal and communal or harbour facilities** |
3% |
NO |
| Annuities paid as a periodical benefit |
15% |
YES |
| Annuities paid in one-off payment until 40.000 Euro |
10% |
YES |
| Annuities paid in one-off payment over 40.000 Euro |
20% |
YES |
| The increase in value from real estate transfer |
15% |
YES |
*Notice: According to art. 63 there are exemptions for intra-group payments.
**Notice: From the provisions‘ interpretation it comes as a conclusion that there is no withholding tax in case of a legal person.
| Withholding tax from institutions of the General Government |
| Kind |
Withholding tax rate |
| Liquid fuel and tobacco manufactures |
1% |
| Other goods |
4% |
| Services |
8% |
24. The provisions about non-cooperative and cooperative states in tax matters and about states with privileged tax regime, that consisted art. 51A of the previous Law 2238/1994 are reformulated (art. 65, non-cooperative states in tax matters and states with privileged tax regime).
25. For the first time there are new provisions about not distributed income from subsidiary legal person or subsidiary legal entity, that is tax resident in a non-cooperative state or in a state with privileged tax regime, in order to avoid tax abuse or tax evasion of the parental Greek company (art. 66, Controlled foreign companies).
26. The tax return concerning legal persons and legal entities is submitted until the last day of the sixth month from the end of the tax year. The tax payment is done maximum in eight (8) equal monthly rates. The first rate is paid along with the submission of the tax return and the other seven (7) rates until the last day of the seventh month from this submission. Nevertheless the last payment cannot be done beyond the same tax year. The payment in advance in 80% still applies for legal persons and legal entities (art. 68-71).
27. The not distributed or capitalized legal persons‘ assets in the way they are formed until the 31st of December 2013 and while not being taxed at their creation due to tax exemption according to the Law 2238/1994 – after the Code of Income Tax publication or its relevant circulars and court decisions – and in case of their distribution or capitalization until the 31st of January 2013, have an independent tax rate of 15%. By the payment of this tax there is no other fiscal obligation on the part of the legal person and its shareholders or partners. Examples for the above mentioned assets are: not taxed assets from mutual funds‘ profits or the added value due to their takeover in a higher price from the price when obtained (Law Nr. 2238/1994, art. 103, par. 1, 10th case and art. 6, par. 3, 10th case), tax free assets from sold shares that were registered in the stock market and are worth higher price from the price when obtained and Derivative Transactions at the Athens Derivative Exchange (Law Nr. 2238/1994, art. 105, par. 11 in combination to art. 38, par. 1 and 6) and lastly tax free assets that derive from the one-off income tax payment, according to the administration’s opinion (Ε.5343/29/28.05.1974 und 1072615/1079πε/Β0012/15.04.2004). Referring to it the detailed Ministerial Order 100/2014 was published. From the 1st of January 2014 and on the not distributed or capitalized assets are obligatory in offset procedure with tax recognizable damages that derived from any cause within the last five (5) years and until they are finished. In case of their distribution or capitalization they undergo an independent tax rate of 19%.
After the payment of the latter tax there exists no other fiscal obligation on the part of the legal person and its shareholders or partners. It is not allowed to update a special account for tax free assets regarding balance sheets that close from 31.12.2014 and thereafter, unless there are investment or development laws or special provisions in other laws, that determine differently.
DISCLAIMER: The goal of this publication is to give general and brief information. Under no circumstances should the present information form the base of entrepreneurial decisions without prior consultation of an expert.
