Corporate Tax Rates in Greece

After the end of the economic crisis in Greece, the Greek Government has recently decreased the corporate tax rated in order to give more incentives to foreign persons and legal entities to invest in the country. More specifically, on 12th December 2019, the new tax bill, which introduces several amendments to the Income Tax Code (ITC) and other legislation, was published in the Government Gazette. Among its provisions, the most significant are the following:

• The reduction of the corporate income tax (CIT) rate from 28% to 24% from fiscal year 2019 onwards.
• The reduction of dividend withholding tax (WHT) from 10% to 5% as of 1 January 2020.
• The introduction of a participation exemption for capital gains from the sale of Greek and European Union (EU) subsidiaries as of 1 July 2020.

Also, on 31st July 2020, Law 4714/2020, introducing amendments to the ITC and other legislation, was published in the Government Gazette. Among its most significant provisions, one that stands out is the transposition of Directive (EU) 2018/1910 as regards the harmonisation and simplification of certain rules in the system of value-added tax (VAT) for the taxation of transactions between EU member states.

It is important to underline that resident corporations are taxed on their worldwide income. Non-resident corporations are taxed in Greece on any Greek-sourced income they derive but the country also applies Foreign Tax Credit System, meaning practically that tax paid abroad for income taxable in Greece is credited but is limited to the amount of Greek tax due. No municipal or local taxes on income are paid at a local level. Furthermore, a legal entity or other entity is considered as tax resident in Greece if one of the following conditions is met:

1. It has been incorporated or established according to the Greek legislation,
2. It has its registered seat in Greece,
3. The place of effective management is located in Greece.

The determination by the tax authorities that the effective management of a legal entity is exercised in Greece is made on the basis of the actual facts and circumstances of each case and by taking into account mainly:

• the place of exercising the day-to-day management,
• the place of making strategic decisions,
• the place where the annual general meeting of shareholders or partners is held,
• the place where the books and records are kept,
• the place where the meeting of the members of the BoD or other executive management board takes place, and
• the residence of the members of the BoD or other executive management board. The residence of the majority of the shareholders or partners may also be taken into consideration.

For determining a legal entity as being tax resident in Greece, the exercise of effective management in Greece for any period during the tax year is sufficient. Companies that are established and operate according to Law 27/1975 ‘on the taxation of vessels etc.’ and L.D. 2687/1954 ‘on the investment and protection of foreign capital’ are explicitly excluded from the application of these provisions on tax residence. The definition of a Permanent Establishment of foreign legal entities in Greece is similar to the one included in the Organisation for Economic Co-operation and Development (OECD) Model Convention on the Double Tax Treaties (DTTs) for the Avoidance of Double Taxation; however, where a DTT applies, its provision will override the domestic definition. The term ‘permanent establishment’ includes specifically:”A place of management, a branch, an office, a factory, a workshop, a mine, an oil or gas well, a quarry, or any other place of extraction of natural resources.” In order for a construction site in Greece to constitute a permanent establishment and therefore be subject to Greek taxation, a time period of at least three months is required, instead of the time period of 12 months provided in the OECD Model Convention. Also, a distinction applies between the cases of maintaining a permanent establishment through a dependent agent and not maintaining a permanent establishment when performing activities through an independent agent (e.g. broker, general commission agent).

Apart from the corporate tax rates in Greece, special mention needs to be made to withholding taxes for dividends that are subject to 5% withholding tax, Interest payments and royalties that are subject to 15% and 20% withholding tax respectively. However, legal entities tax resident in Greece are not subject to withholding tax in relation to royalties, fees received for the provision of consultancy and other related services, and management fees, unless provided to general government bodies. Also, legal entities that are not tax resident in Greece and do not maintain a permanent establishment in Greece are not subject to Greek withholding tax in relation to technical services, consultancy services, or other related services and management fees. By virtue of the provisions of the Ministerial Circular 1007/2017, it is clarified that the fees for technical services, management fees, fees for consulting services, and the remuneration for similar services received by an EU legal entity through its PE in Greece are not subject to WHT. Conversely, non-EU foreign legal entities that maintain a permanent establishment in Greece are subject to Greek WHT in relation to the provision of the aforementioned services. You may also be interested in reading about Greece Golden Visa program.