Direct taxation of businesses
As of 1 January 2016, the corporate income tax rate is 29 per cent, while as of 1 January 2019 for any corporate income profits for legal entities keeping 'double-entry' or 'single-entry' accounting books deriving during the tax year 2019, corporate income tax rate is 28 per cent, which is gradually decreasing to 27 per cent as regards corporate income profits deriving during the tax year 2020, to 26 per cent as regards corporate income profits deriving during the tax year 2021, and finally to 25 per cent as regards corporate income profits deriving during the tax year 2022. According to the ITC provisions, any source of income of taxable legal entities shall be deemed business income subject to corporate taxation.i Tax on profits
Business income is defined as the sum of the global total income from business activity after the deduction of business expenses, depreciation and bad debt provisions. Moreover, capitalisation or non-distributable profits that have not been taxed shall be deemed, under conditions, as business income.
The ITC adopts a dual system for the deductibility of business expenses. All business expenses are deductible, subject to some general conditions, with the exception of some explicitly enumerated expenses. Specifically, an exhaustive list of non-deductible expenses, irrespective of their purpose, is provided by law (Article 23 of Law 4172/2013). Expenses that do not fall within the ambit of the aforementioned provision are, in principle, deductible as long as the following requirements are cumulatively met:
- the expenses are incurred in the interest of the business or in the ordinary course of the business;
- the expenses correspond to an actual transaction, and the value of the transaction is not deemed lower or higher than the market value, based on elements available to the tax administration; and
- the expenses have been recorded in an enterprise's books along with the supporting documentation.
Special reference is provided in the ITC as to the deductibility of expenses made for scientific and technological research. Specifically, the ITC provides that expenses of scientific and technological research are deductible from gross income of enterprises at the time of their realisation increased by 30 per cent.
The total expenses paid to a legal person or a legal entity who is a tax resident in a 'non-cooperative state' or is subject to a 'preferential tax regime' are not deductible for tax purposes unless the taxpayer proves that these expenses relate to real and ordinary transactions, and do not result in transfer of profits, income or capital for tax avoidance or tax evasion. Exceptionally, deduction of expenses paid to an EU or EEA Member State tax resident is not precluded if a legal basis for the exchange of information between Greece and the Member State in question exists.
Adjustments for tax purposes may occur in cases such as where thin capitalisation rules apply, in the event that audit verifications are impossible due to infringements of the tax legislation, when the accounting books are not duly kept or when differences are incurred owing to the implementation of certain transfer pricing methods.Depreciations
Depreciations have been introduced in the ITC. Depreciation rates vary from 4 to 40 per cent depending on the asset in question. The income tax legislation provides for depreciation either in favour of the owner of the assets or of the lessee on the occasion of a financial leasing agreement. Some basic categories that can be mentioned are the depreciation of intangibles at a rate of 10 per cent, while buildings are depreciated at a rate of 4 per cent.
For fixed assets valued up to €1,500, a one-off depreciation may be opted for in the year when the assets are acquired.
Newly established companies are eligible to postpone their depreciation claim for all their fixed assets for the first three years.Income acquisition time
In principle, any taxable income, including business income, is taxed on an accrual basis. In that respect, the income acquisition time is considered to be the time when the right to collect the income is acquired; thus, the exact time that the right to collect the income is born is critical. By derogation from the main rule, only individuals' income from their employment and pensions shall be taxed upon receipt.Capital and income
Capital income is a distinct category of income and includes income, in cash or in kind, from dividends, interest, royalties and immovable property.
As mentioned above, any source of income of taxpayers, in the form of legal entities, and the capital income as well, is considered business income and taxed with the applicable corporate tax rate.
On the other hand, individuals (taxpayers) are subject to income tax at various tax rates, depending on the classification of their taxable income in question.
In general, the applicable withholding tax rates per category of capital income are as follows:
- dividends distributions are subject to withholding tax at a rate of 10 per cent, with effect for payments performed up to tax year 2016, and 15 per cent for tax year 2017 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 withholding tax at a rate of 20 per cent, exhausting any further tax liability for individuals (final tax).
However, the imposition of withholding tax on the payment of capital income exhausts the tax liability only for individuals and foreign legal persons or entities without a permanent establishment in Greece, while capital income is added to Greek legal persons', entities' or foreign legal persons' (with permanent establishment in Greece) total income, and will be taxed as business income, as analysed below.Losses
According to the ITC, businesses can carry forward tax losses, offsetting them against business profits for five consecutive tax years. A new rule on the abuse of provisions for the transfer and set-off of losses is introduced if, during a tax year, the direct or indirect holding or voting rights of an enterprise are changed to a percentage exceeding 33 per cent while in the same or the following tax year, or both, the activity of the company in which the holding or voting rights are acquired is changed to a percentage exceeding 50 per cent of its turnover in relation to the immediately preceding tax year by the change of holding or voting rights.
Offsetting of losses incurred abroad is allowed only if they are carried over from another EU or EEA Member State, provided that they are not exempt on the basis of the double tax treaty (DTT) concluded and applied by Greece.Rates
As of 1 January 2016, the corporate income tax rate is 29 per cent for any business income for legal entities keeping 'double-entry' or 'single-entry' accounting books, while as of 1 January 2019 for any corporate income profits for legal entities keeping 'double-entry' or 'single-entry' accounting books deriving during the tax year 2019, the corporate income tax rate is 28 per cent, which is gradually decreasing to 27 per cent as regards corporate income profits deriving during the tax year 2020, to 26 per cent as regards corporate income profits deriving during the tax year 2021, and finally to 25 per cent as regards corporate income profits deriving during the tax year 2022.Administration
Income tax returns are filed during the period starting from 1 February to 30 June of the year following the tax year to which they relate. For legal entities, the tax prepayment (which is actually an advance payment for the following tax year) is 100 per cent of the tax corresponding to the profits of the tax year for which the return is filed. The corporate income tax prepayment is also increased to 100 per cent for partnerships, non-profit legal persons of public or private law, civil law societies, civil law profit or non-profit companies, joint-stock or undisclosed companies to the extent they exercise trade or business, as well as joint ventures or partnerships.
Audits and the collection of taxes are conducted by the competent tax authorities determined by the seat of the legal entity in question. By derogation of the main rule, SAs, irrespective of their seat, fall within the ambit of FAE, the central tax authority for SAs, registered in Athens, Piraeus and Thessaloniki.
A tax clearance may be granted by the tax administration to a taxpayer to proceed with acts and transactions only if it is established that the taxpayer does not have any due tax liabilities and has submitted all tax returns in the past.
The following types of tax audit are provided for in the TPC:
- a remote tax audit performed from the offices of the tax administration based on tax returns, financial statements, accounting books, documentation and other information; and
- an on-site tax audit, either a full on-site audit with prior written notice, unless there is evidence of tax evasion, and a partial on-site audit without prior notice.
The selection of the cases to be audited will be based on risk analysis criteria or other criteria that are specified by the Directorate of Independent Authority of Public Revenue.
Any enforceable tax assessment act issued by the tax administration is subject to an out-of-court procedure as provided under TPC. Taxpayers have the right, within a 30-day period from the notification of the act, to file an out-of-court petition requesting the review of the tax assessment act by the Dispute Resolution Directorate (Internal Review Unit) of the IAPR. It is provided that the direct filing of a petition before the competent administrative courts against acts of tax assessment is inadmissible, and therefore is rejected.
The relevant decision of the Dispute Resolution Directorate shall be issued within 120 days of the filing of the out-of-court petition. A summons to a hearing of the taxpayer before the Dispute Resolution Directorate (Internal Review Unit) is not mandatory unless it is considered necessary by the administration. If a decision is not issued within this time frame, it is considered that the petition has been implicitly rejected.
Taxpayers can submit interpretation queries to the Greek Ministry of Finance, which may revert with advance rulings applicable on an ad hoc basis.Tax grouping
Company law only provides for a consolidated balance sheet for accounting purposes.
In principle, Greek tax law does not provide a special tax regime for tax grouping. Each member of the group has a separate tax liability. Profits and losses cannot be shifted between affiliated companies. Furthermore, pursuant to the transfer pricing provisions, intra-group transactions must be in compliance with the arm's-length principle.Foreign tax credit
Foreign-source income is usually taxable with a credit for foreign income taxes paid up to the amount of Greek tax corresponding to the foreign-source income. The credit cannot exceed the amount of Greek tax payable on the same amount.ii Other relevant taxes
Business activity in Greece (consisting of taxable supplies of goods or services for VAT purposes) is subject to VAT. The standard VAT rate amounts to 24 per cent. Special provisions for VAT grouping are not applicable according to the Greek VAT legislation. Legal entities belonging to a group should register for VAT numbers individually.
Capital duty is payable on the nominal capital increase of legal entities, plus an additional 0.1 per cent surcharge for the benefit of the Competition Committee.
Save for the provisions of Greek VAT law, stamp duty at a rate of 1.2, 2.4 or 3.6 per cent may apply, depending on the transaction. Stamp duty is imposed on the relevant contractual agreement or transaction since it qualifies as transaction duty. In this respect, each transaction may be burdened either with VAT or stamp duty, but not both at the same time. Thus, the characterisation of the transaction is crucial for the imposition of indirect taxation, and each case should be examined on a case-by-case basis so as to determine whether it falls within the scope of VAT or stamp duty.
Foreign legal entities or companies are burdened with an annual special real estate tax rate of 15 per cent of the objective value of their real estate property unless they disclose their shareholders up to the level of the individual, ultimate beneficial owner, who is obliged to acquire a tax registration number in Greece.
Many additional exemptions are also available.