Capital Gain

For shares of companies listed into the stock market acquired from January 1, 2011 onwards.

• 20% WHTax on capital gain for the short-term (until 3 months) trade of shares.
• 10% WHTax for the medium term (within 12 months) trade of shares.

The above are also applicable for foreign tax residents (individual or entities).

For the countries that Greece has a signed DoubleTaxTreaty(D.T.T), the DTT is applicable.

CORPORATE TAXATION

S.A. and LTD

• 40% for the distributable dividends. For the individual shareholders the 40% tax rate does not exhaust their tax liability. These dividends are taxed at the progressive rate of the new tax scale with other personal income; based on a certificate by the company the tax amount of 40% is deductible.
•  24% for the non-distributed profits for 2010 is gradually reduced by 1% every year until it reaches 20% for the profits of accounting year 2014.
• When an S.A. or Ltd company distributes profits, which include dividends from its participation in another company (SA – LTD), then the tax liability is reduced by the tax that has already been paid and arisen from this participation.

• 35% tax rate is imposed on salaries or compensation to their shareholder and/or partners.

General partnerships (OE) and Limited partnerships (EE)

• 25% tax rate on profit, unless the partners are individuals (20%).
• The 3 unlimited partners with the highest participation (not legal entities) get a business fee according to their share.
• This fee is calculated on 50% of the company’s profits and is deductible from the taxable income of the company.
• The business fee is taxed at the progressive rate of the new tax scale with other personal income.

OTHER TAXATION

• 25% on remunerations or royalties paid to foreign companies with no permanent establishment in Greece as well as to foreign companies which undertakes studies and designs etc. in Greece. The DTT is applicable.
• A new tax is imposed at a rate of 20% for the TV advertisements.
• Compensation for the interruption of the employment relationship are subject to income taxation as follows:

• From January 1, 2010, various expenses are not deductible if they are paid to an individual or a legal entity in a “non-cooperative country”.
• The same applies in regards to an entity in a country subject to a beneficial tax regime (even if it is a EU member – state). A country with a beneficial tax regime is when it is tax exempt or when it is subject to income tax less than 50% of the tax according to the Greek legislation.

REAL ESTATE TAXATION

• A new real estate transfer tax is imposed; 8% for a value up to 20,000€ and 10% there on.
• A new annual real estate property tax is introduced on any property right in Greece.
• Capital gain tax, transfer duty and annual property duty are abolished.
• On real estate belonging to “off-shore” entities, from January 1, 2010 a tax 15% of the taxable value is imposed. There are exemptions and certain requirements, e.g. the shareholders need to have a Greek Tax Identification number (ΑΦΜ).

CAPITAL REPATRIATION

Individuals or legal entities, that transfer and deposit capital in Greece until October 15, 2010, will be taxed at a rate of 5% with exhaustion of any further tax liability.

• The deposit in Greece shall have duration of at least one year.
• 50% of the tax paid will be refunded if the capital is invested.
• If capital remains abroad, a tax of 8% is imposed.

 All the above is valid only for capital that was deposited abroad before April 15, 2010.

SPECIAL CONTRIBUTION (S.C.)

A special contribution is imposed on profits for the fiscal year 2010 (accounting year 2009) for the legal entities societies anonym (AE), limited liability company (EPE), general partnerships (OE), limited partnerships (EE), branches of foreign companies.

There is an exception for individual businesses.

The amount of the special contribution is calculated on the total profits of the companies, according the progressive rate as follows.

e.g. profit 3.800.000 special contribution 12.000+42.000+224.000=278.000 euros

Note: There is no special contribution tax on companies whose total profits were less or equal to 100,000€.

The S.C. paid by companies is not deductible from their income.

The portion of the S.C. is calculated based on an amount of profits of another company is refunded.

The S.C. is paid in 12 monthly installments. The first installment is paid on January 31, 2011.

Corporate Taxation

The non-distributed profits of S.A. (Society anonyms) and EPE (Limited liabilities companies) are taxed at a rate of 24% for the accounting year 2010. Every following year the tax rate is reduced by 1% until accounting year 2014 will be 20%.

For the individual shareholders the 40% tax rate does not exhaust their tax liability. The dividends are taxed at the progressive rate with other income. Based on a certificate by the company the tax amount of 40% is deductible.

• From 9% to 10%
• From 19% to 21%
• From 4,5% to 5%

For the Aegean islands the reduced rates are increased:

• From 6% to 7%
• From 13% to 15%
• From 3% to 4%

Recent release in legislation adds in the Transfer Pricing rules, cases cover:

• Also Greek groups (domestic parent with subsidiaries abroad)
• Stipulates specific transactions

• Supply of goods
• Services
• Royalties
• Administration fees, organize or reorganize secures

• For any Transfer Pricing violation, the special committee according the article 66 of the Greek income tax code is responsible.

The new law is valid for all entities with obligation to file an Income tax return from 1/1/2011 onwards.

According to the new law, these rules apply to:

• Accrued interest of laws paid or credit.
• Between affiliate companies.
• Is recognized as tax deductible when the debt to equity of the company is not higher to an average ratio of 3:1 for each accounting year.
• Exceeding amount to above, is not recognize as tax deductible from revenues.
• This new article of the law is applicable for loans from 17^th July 2009 onwards.

The tax contribution will be based on the total income of 2007 (fiscal year 2008), calculated as follows:

General

Commercial transactions between related parties of a group may not often be marketed with the same manner, as between two independent firms. Payment for goods or services from one party provided by another party may diverge from market prices for reasons of marketing or financing policy or to minimize tax cost (Transfer Price). To ensure that the tax cost of a group (or multinational enterprises) is divided fairly, it is important that transactions between related parties are the same or similar to transactions between independent companies.  In article 9 of the OECD model Tax Convention, this is defined as the “Arm’s Length Principle”. Article 9 deals with the adjustments to the profits that may be made for tax purposes where transactions have been made between associated enterprises (parent and subsidiary companies and companies under common control) on other than the “Arm’s Length” terms.

According to Article 9 of the OECD Model, “associated enterprises” are:

1. an enterprise of a contracting state participating directly or indirectly in management,  control or the capital of an enterprise of the contracting state or

2. the same person participates directly or indirectly in the management, control or capital of an enterprise of a contracting state and an enterprise of the other contracting state.

Related Legislation in Greece

Law 3728/2008

Ministerial Decision (Protocol Number A2 - 8092/31.12.2008)

Article 39 of Income Tax Law 2238/1994

Article 42e of Corporate Law 2190/1920

Pursuant to the above recently released legislation, rules are being introduced in intercompany transactions “Transfer pricing ruling” for the first time in Greece.

RULES REGARDING INTERCOMPANY TRANSACTIONS

I. Ministry of Development – Market Control Authorities

According to Article 26 (L. 3278/2008), all types of companies operating in Greece (Greek S.A. entities, Limited Liability Companies, personal companies “OE” & “EE” and branches of foreign companies or any other permanent establishments in Greece) are obliged to apply the same or similar terms for their intercompany transactions, with the terms applied between independent  companies. Such rules must be in accordance with the OECD’s “arm’s length” principles. Intercompany transactions are the transactions between affiliated companies as these are defined under article 42e of the Greek Corporate Law (L. 2190/1920): direct or indirect control of the majority in capital participation / votes or management.

DOCUMENTATION FILES 

For compliance controlling of the above rules, the companies have to substantiate and document their intercompany transactions with the preparation of a transfer pricing study including the following files:

Regarding “group companies” which have a Greek parent company, the  “Basic file” should be prepared, which contains:

1. Group information:

Organization chart to include all the associated companies, branches, etc

Description of the business and business strategy

Group invoicing policy (invoice flow, agreements, transactions volume)

Ownership description on royalties and “know how” rights with in the group

List with any “Transfer Pricing Agreements” that the group entities may have received approval from foreign tax authorities

2. Company information

Analysis of the transactions with the affiliated entities (charges description, invoice flow, amounts)

Comparative analysis

Description and documentation of the Transfer Pricing method followed, as these are provided by OECD guidelines

Regarding the Greek subsidiaries of a foreign group, the “Greek documentation file” should be in place, which contains the same details as above.

The “Basic” and the “Greek documentation” files must be sent to the relevant authorities within 30 days from the day the authorities make such a request.

Files must be updated with any changes to the company or the group.

ALL THE DOCUMENTATION FILES ARE IN GREEK

Except the above files, companies must submit a list of their intercompany transactions every year within four months and fifteen days following the end of the fiscal year. This list contains per business item and signed agreement, the number and the value of these transactions, per intra-group entity. The list is submitted to the relevant office of the commerce control authority of the Ministry of Development.

TRANSFER PRICING METHODS

According to the Ministerial decision published, the transfer pricing methods that are recognized as applicable are the following:

Comparable Uncontrolled Price method (CUP)

Resale Price Method (RPM)

Cost Plus Method (C+)

Other “non traditional” methods, such as “Transactional Net Margin Method (TNMM)”, and the “Transactional Profit Split Method (TPSM)” may also be used, but only in cases the above three traditional methods cannot be implemented.

TRANSFER PRICING WIDE RANGE

Released directives provide guidelines not only on the transfer price methods and files, but also the used internal and externally comparative information, the control of comparability of used information, the source of information from databases and the determination of prices of intercompany transactions from a selection of acceptable prices.

In reference to the group of acceptable prices, it is clarified that in the cases where from the application of the followed method of transfer pricing and the use of the comparative elements, an assortment of prices or profit results; what is rejected is the lowest 25% of prices and the highest 25% of prices, with the use of quadrants.

In this case, that is to say, becomes determination of quadrants of the total prices or profit of sample that was used, as follows:

Q1 = first quadrant = 25^ο

Q2 = median = 50^ο

Q3 = third quadrant = 75^ο

Therefore, what is considered compatible with the “arm’s length” principle is any price between the first and the third quadrant, with the condition that this choice is justified sufficiently.

EXCEPTIONS

1. Companies which have an annual turnover of up to 1.000.000 € (If the company exceeds 1.000.000 € for two (2) consecutive years then the third year is no longer exempted)

2. Contracts or transactions between associated companies with a total value of less than 200.000 € annually

3. When transactions are made concerning shares or partnership units

4. Transactions related to real estate property

5. Companies under L. 89/1967 and L. 3427/2005 (article 27), so called “Law 89” offices

SANCTIONS, PENALTIES FOR NON-COMPLIANCE

In case the companies do not comply with the above obligations there are fines as follows:

10% of the value of the transactions, for failure of the company to submit the transactions list, or failure to submit it on time

Penalties, according to the Market Regulation Code, are applied when the “arm’s length” principle is not followed, i.e. penalty of 5.000,00€ and criminal sanctions

All the non-compliant companies have to be notified about the above administrative decisions for sanctions within thirty (30) days

The company can make an appeal against the above decisions of the authorities within five (5) days of the above notification of sanctions

The Minister of Development has to accept or reject the appeal within ten (10) days

In the case of rejection of the appeal, the company can make an appeal against the above decision to the competent Administrative Court within sixty (60) days

The last appeal is legally acceptable when the company has paid 20% of the relevant penalty

In case there is breach of obligations (paragraph 1, article 26, L. 3728/2008), after examination of the “documentation file” and “transaction statement”, the competent commerce authorities promptly inform the relevant Tax Authorities to apply the provisions of the tax legislation and impose the anticipated tax sanctions. 

II. Ministry of Finance – Corporate Taxation

According to the current Income Tax Law (L.2238/94 article 39):

“When contracts for selling goods or rendering services are signed between local entities or a foreign and a local entity and in these contracts the price is set at an unjustifiably higher or lower rate, per case, then the one that is actually realized if the contract was signed with a different party in accordance with the prevailing market conditions at the time of the drafting of the contract, the resulting difference is considered a profit of the entity, who received less or paid more, in terms of price or remuneration, per case. This difference increases the net profits of the entity that appear in its books, without affecting the books and records’ validity.”

Therefore, the difference will be subject to Corporate Income Tax (current rate is 25%).

“The difference resulting from the provisions of this article increases the gross revenue resulting from the books of the entity, in order for this revenue to be taken into consideration for calculating taxes, duties and contributions to other taxations.”

As a result there will be additional taxation in further tax assessments (VAT, WHT, etc).

“A one-off penalty is levied upon the entity, subject to the provisions of this article, set at 10% of the amount of the difference resulting from the provisions of this article. This penalty is levied regardless of the imposition of additional taxes, surcharges and miscellaneous penalties as they are described by the effective rulings. The percentage of the imposed penalty cannot be the subject of an administrative settlement of the difference”.

What results is a 10% independent penalty over the Transfer Pricing difference.

1. It is up to the company's management whether or not to enter the settlement.
2. This provision applies to pending income and other tax cases (capital taxes being excluded) for the financial years up to and including 2006 (provided annual turnover was less than EUR 9.000.000).
3. The deadline for opting into the settlement expires on 31st December 2008.

10% WITHHOLDING TAX FOR DIVIDENDS distributed by Greek companies to:

• Greek and Foreign individuals
• Legal entities (except the companies of E.U countries with more than 15%

Participation)

10% withholding tax on foreign dividends which are received by Greek individuals

This tax exhausts the tax liability of recipients.

• 10% tax on “Capital Gain” from the sales of shares for individuals and legal entities.

• Stock options are taxed as employment income.

• Free launcher, professionals and sole trades will be subject to income tax 10% from 2009 for the first income bracket (€0-€10.500).