SETTING UP A BUSINESS IN GREECE
Greek law provides for a variety of legal forms for carrying out a business. In addition for establishing a Greek company or entity (partnership), foreign enterprises may establish and operate a business in Greece by forming a Greek Branch or entering into a Joint Venture with another enterprise. Foreign enterprises can also establish an office or a company in Greece under Law 89, whose sole scope of activity is to provide certain services to its head office or any other affiliate company not established in Greece. Individuals can operate as sole traders or freelance professionals.
Legal types of business entities
ANONYMOS ETERIA (AE) / SOCIETE ANONYME (SA)
An SA is a legal entity where the liability of a shareholder is limited to the amount contributed to the share capital. This type of entity is the equivalent of the French “Societe Anonyme” or the German “AG” and enjoys the highest status in Greece.
The procedures involved in the establishment of SAs have been simplified and all actions are carried out by a notary public, who is considered as the “one-stop authority”. The notary public interfaces with the other authorities (tax office, social security) as applicable, making most payments and submitting all documents and applications to the authorities involved in the establishment of the SA.
In general, the following are required for the establishment:
- Temporary registration of the corporate name with the Chamber of Commerce, Preparation and signature of Articles of Association by the founders, before the notary public, to include provisions relating to the corporate name (must necessarily include the words “Anonymos Eteria”), duration of the corporation, corporate purpose (objects of activity), share capital, number and nature of shares to be issued, composition-operation and authorities of the Board of Directors and of the General Meeting of the shareholders
- Payment of various registration duties to the one-stop authority to be further remitted by it to the authorities involved
- Receiving establishment approval from the Ministry of Economy and Development (applicable only for specific corporations such as banks, insurance companies etc.)
The SA’s establishment is subject to the registration of the SA with the General Trade Registry and this registration is published to the Government Gazette.
The tax registration of the SA is also carried out by the one – stop authority.
An SA may be established by one or more shareholders, either individuals or legal entities. The minimum share capital required for the establishment of an SA is currently EURO 24,000, which must be paid up in full upon incorporation and the payment thereof must be certified by the Directors within two months from the date of incorporation. Special laws prescribe higher minimum capital in specific cases.
The administration of an SA is carried out by the Board of Directors and by the shareholders at General Assemblies. The management of the SA is vested in the Board of Directors, which must consist of at least three members who can be individuals or even legal entities if so provided for in the Articles of Association.
ETERIA PERIORISMENIS EFTHYNIS (EPE) / LIMITED LIABILITY COMPANY (LTD)
An EPE is a partnership and is similar to the French Sarl or German GmbhH. An EPE resembles an SA in that it is regarded as a legal entity separate from its partners having limited liability. In particular, the majority of both the number of partners and of the capital is required for decisions making.
An EPE is formed by executing the Articles of Association before a notary public (who will act as an one-stop authority), payment of various duties and then filing of the Articles with the
General Trade Registry, which registers EPE with the establishment being published in the Government Gazette. The EPE’s tax registration is also carried out by the One – Stop Authority.
The owners of the company are known as participants or partners and are liable only to the level of their contributed capital.
An EPE may be established by one or more partners. However, if upon establishment, or at any time thereafter, the entire capital of the EPE is concentrated in the hands of one partner, the company’s name must include the words “Sole Partner EPE”. The partners of an EPE may be either individuals or legal entities.
No minimum capital required for the formation of an EPE.
An EPE is administered and represented by one or more persons (Administrators), who need not necessarily be partners of the EPE, and are appointed by the Articles of Association or by virtue of the Partners Meeting.
IDIOTIKI KEFALEOUCHIKI ETERIA (IKE) / PRIVATE LIMITED COMPANY
An IKE is a company with many common characteristics with the Greek EPE, as regards the limited liability, the capital, the administration and the registration process.
The Articles of Association of an IKE is not obligatory to be signed before a notary public and may take the form of a private agreement.
A branch of a foreign company may be established in Greece through registration with the
General Trade Registry. For this purpose, certain documents must be filed with the General Trade Registry, including Articles of Association of the foreign company, a certificate of good standing of the foreign company issued by the competent supervising authority, a resolution of the competent corporate body of the company approving the establishment of a branch in Greece and a Power of Attorney appointing the branch’s legal representative.
Following the registration with the General Trade Registry and publication in the Government Gazette, where required, the Branch must be registered with the competent tax authorities.
The Branch is administered by one or more individual(s) (representative(s) appointed by the foreign company by virtue of a Power of Attorney.
OMORYTHMOS ETERIA (OE) / GENERAL PARTNERSHIP
A general partnership (OE) is an entity in which all the partners are jointly and severally liable for the debts of the partnership without limitation in liability.
The Articles of Association of a partnership need not be signed before a Notary Public and may take the form of a private agreement. General partnerships are established through one-stop authorities (Chamber of Commerce etc.) and their Articles of Association are filed with the General Trade Registry.
There is no minimum capital required. The capital may be contributed in cash or in kind, or in the form of personal services to the firm.
The affairs of OE are managed by one or more administrators.
ETERORYTHMOS ETERIA (EE) / LIMITED PARTNERSHIP
In all respects, a Limited Partnership (EE) is a similar type to a General Partnership, except that the liability of the limited partner (eterororythmos eteros) is limited to his contributed capital. At least one partner must have unlimited liability (omorythmos eteros). If a limited liability partner is engaged in the management of the partnership he loses his limited liability status.
KINOPRAXIA / JOINT VENTURE
The term joint venture (kinopraxia) is used in commercial practice to indicate the cooperation of individuals or legal entities for the purpose of pursuing and carrying out a specific project. A joint venture is not recognized by the law as a separate legal entity; however it can be recognized as a fiscal entity for tax purposes, provided that certain conditions are met, including the filing of the joint venture agreement with the tax authorities prior to the commencement of its activities.
LAW 89 OFFICE/COMPANY
Foreign entities may establish an office or a company in Greece under the provisions of Law 89/1967, for the sole purpose of providing to their head offices or to their foreign affiliates (companies not established in Greece) advisory services, centralized accounting support, quality control services, project planning services, advertising-marketing services and data processing services. The personnel of Law 89 entities must consist of at least four persons and the company’s annual operating expenses must amount to at least EURO 100,000, to be covered via bank remittances.
SOLE TRADERS/FREELANCE PROFESSIONALS
Individuals may carry out operations in Greece as sole traders or freelance professionals. They are fully liable for their operation’s debts and obligations. Registration mainly to the tax authorities are required prior to commencing any activity.
Foreign exchange control: Capital controls are in force with restrictions on the amount of funds that can be transferred outside the country.
Accounting principles-financial statements: IFRS or Greek GAAP apply. The application of IFRS is compulsory for corporations of “public interest” (listed entities, insurance entities, banks etc.) and it is optional for other corporations and limited lability companies. New Greek GAAP, which has many similarities to IFRS, applies as from 1 January 2015. Financial statements must be prepared annually.
Statutory audit: When a company exceeds certain thresholds (on turnover, assets and employees), is liable to statutory audit from certified auditors.
Tax treaties: Greece has concluded more than 50 tax treaties.
Residence: A company incorporated or established or effectively managed in Greece, at any time during a tax year, is considered as Greek resident for tax purposes for that tax year.
Taxation basis: Resident entities are taxed on their worldwide income, while non-residents are taxed only on Greek-source profits.
Determination of taxable income: Corporate tax is imposed on company’s total annual profits before the distribution of dividends.
- Normal business expenses are deductible. In order the business expenses to be tax deductible, they must be performed for business benefit, must be real and within the market value, must be booked in the corresponding year and has to be documented.
- Fixed asset depreciation is computed annually at fixed rates, the most important of which are the following:
|Plant and other buildings||4%|
|Leased-hold improvements||According to the rental contract|
|Furniture and other equipment||10%|
|Hardware and software||20%|
- For outstanding receivables where the proper actions for collectability have been taken, the provision for bad debts that can be deducted for income tax purposes is as follows:
|Outstanding receivable (€)||Overdue period||Provision for bad debts|
|up to1.000||> 12months||100%|
|Exceeding 1.000||> 12months||50%|
The bad debts provision does not apply to:
- outstanding receivables from shareholders, partners and related entities, holding interest at least 10%, unless the respective issue is pending in Courts,
- insured or guaranteed receivables,
- receivables from the Public Sector or guaranteed by the Public.
Below bad debts provision rates apply for specific enterprises of the financial sector:
- Banks – 1% on yearly average loans balance,
- Leasing Companies – 2% on leasing contracts commenced during the tax year, where the cumulative provision can not exceed 25% on the Share Capital, ü Factoring Companies – 1,5% or 1%.
- Especially for Law 89 entities, the taxable income is determined as a percentage on their total expenses (cost plus). The cost-plus percentage can not be lower than 5% and it is pre-approved by the authorities following a bench-marking study which is re-examined every 3 years.
Corporate tax rate: 29% calculated on taxable profits, applicable to all types of legal entities including the Branches of foreign entities in Greece.
Capital gains: Capital gains derived by corporations are taxed as normal business income at the 29% corporate income tax rate.
Losses: Losses may be carried forward for five years. Tax losses carried forward may be forfeited, where there is a change in ownership of more than 33%, unless it can be proved that there are valid commercial reasons for the change. The carry back of losses is not applicable. Foreign-source losses may be offset only against EU-source taxable profits.
Foreign tax credit: An ordinary foreign tax credit is available for income tax paid abroad. Such a credit is capped at the amount of the local tax.
Incentives: Certain investments qualify for subsidies and/or tax exemptions. New legislation on tax investments and incentives is in force. Moreover the legal frame provides for tax incentives also on companies transformations (mergers etc.) Withholding Taxation
Payroll tax: Employers are obliged to withhold income tax and solidarity contribution on their employees payroll.
Dividends: Dividends paid to individuals (either Greek or non Greek residents) are subject to a 15% tax, unless the rate is reduced (to non Greek residents) under an applicable tax treaty. No withholding tax applies on distribution of dividends to non Greek companies when the conditions of the EU parent- subsidiary directive are met (i.e. a 10% minimum shareholding for an uninterrupted period of at least 24 months). The same conditions for exemption apply to dividend distributions between domestic companies.
Interest: The withholding tax rate on interest paid to a nonresident is 15%, unless the rate is reduced under an applicable tax treaty or the interest is exempt under the EU interest and royalties directive.
Royalties: Royalties paid to a nonresident entity are subject to a 20% withholding tax, unless the rate is reduced under an applicable tax treaty or royalties are exempt under the EU interest and royalties directive.
Technical service fees: Technical service fees paid to a nonresident entity are not subject to withholding tax.
Other taxes on Corporations
Capital duty: A 1% capital duty is payable on share capital increases. The issue of share capital on the formation of a company is exempt from capital duty. A 0.1% surcharge for the benefit of the competition committee applies on the contribution of capital to an SA (whether upon formation or an increase).
Real estate property tax: Real estate property tax is imposed annually on property located in Greece, consisted by the main tax and an additional tax. The main tax is calculated according to the size, location, zone price, surface, age, use and other characteristics of the property. The additional tax is calculated at a rate of 0.55% on total property’s tax value or 0.1% for property used by the company.
Stamp duty: Stamp duty of 1.2%, 2.4% or 3.6% applies, depending on the transaction. For transactions between enterprises usually 2.4% rate applies.
Anti-avoidance rules and tax compliance
Transfer pricing: Transactions between related parties (both domestic and foreign) must be within arm’s length terms and transfer pricing documentation must be prepared per each tax year, according to OECD guidelines.
Thin capitalization: The thin capitalization rules disallow a deduction for interest paid on all categories of debt.
Controlled foreign companies (CFC): The CFC rules provide that undistributed passive income (e.g. dividends) from affiliates of a foreign subsidiary satisfying certain conditions, will be attributed to and taxed in the hands of the Greek resident controlling. The application of the CFC rules results in the taxation of “deemed” income as business profits.
Offshore and tax heavens: Transactions with black-listed offshore and favorable tax regimes are subject to anti-avoidance provisions that could result in the disallowance of expenses for tax purposes.
Disclosure requirements: Filing and publication of annual financial statements are required.
Tax year: The accounting year generally ends on 31 December or 30 June. Subsidiaries of foreign groups may use other year-end dates in order to align with the parent entity.
Filing requirements: Corporate entities must file a tax return within six months from the tax year end. An advance payment of corporate income tax equal to 100% of the tax due for the preceding year also is required.
Penalties: Penalties apply for late filing or inaccurate returns or no filling.
Statue of limitations in taxation: The usual period is five (5) years, starting from the year that follows the filling of the tax return. The statue of limitations is extended in case of tax evasion.
Residence: An individual is tax resident in Greece if he has in Greece his permanent or basic or usual residence or Greece is the center of his vital or personal or economic or social interests. Furthermore an individual is considered as Greek tax resident from the first date, if he is continuously present in Greece for more than 183 days (including short-time absences abroad). Exceptions apply to individuals who visit Greece exclusively for tourism, medical, therapeutic or similar personal purposes.
Tax basis: A resident individual is taxed on his worldwide income. A non-resident is taxed only on Greek-source income.
Taxable income: Taxable income includes employment-pension income, business income (sole trader or freelancer), income from capital (dividends, interest, royalties and rental income) and capital gains from the alienation of real estate property and shareholdings.
Deductions and allowances: Very limited deductions are permitted for expenses, but certain allowances are available.
Rates: Each category of income is taxed separately.
- Employment-pension income is taxed progressively up to 45% (for income exceeding EUR 40,000). Employment income also includes “deemed income” coming from benefits in kind (such as deemed income from business cars)
- Business income (sole trader or freelancer) is taxed through the same tax scale as the employment-income above
- Income from capital is taxed either at 15% (for interest and dividends income) or at 20% (for royalties’ income), while rental income is taxed progressively up to 45% (for rental income exceeding EUR 35,000)
- Capital gains income is taxed at 15%
Solidarity contribution: A special solidarity contribution is imposed since 2011, on the total income earned by individuals either taxable or tax-exempted. This contribution is calculated on yearly basis, based on progressive rates ranging from 2.2% to 10% (the highest rate applies when total income exceeds EUR 220,000).
Real estate property tax: Real estate property tax is imposed annually on property located in Greece, consisted by the main tax and an additional tax. The main tax is calculated according to the size, location, zone price, surface, age, use and other characteristics of the property. The additional tax is calculated when the tax value of total property exceeds EUR 200,000.
Value Added Tax (VAT)
Taxable transactions: VAT is imposed on the sale of goods, the provision of services and the supply of new biddings, when Greece is the place of taxation, in accordance with the place of supply rules. VAT also is due on intra-EU purchases or imports of goods from non-EU countries and on the receipt of services from EU or non- EU-based suppliers. Intra-EU transactions follows the “reverse charge” mechanism. Rates: The standard VAT rate is 24%, the reduced rate is 13% and the extra-reduced rate is 6%. Specific supplies are exempt with or without the right to deduct input VAT.
Filing and payment: Periodic VAT returns are submitted on a quarterly or monthly basis, depending on the type of books kept by the VAT payer. A statistical declaration (Intrastat) and EU Sales/Purchase Lists must also be submitted on a monthly basis with regard to intra- EU transactions.
VAT refund: Non domestic entities subject to VAT, may apply for refund for input VAT charged in Greece when certain conditions are met.
Payroll and Social Security for employees
Annual payrolls: The annual payrolls in private sector are 14 (12 months + 0.5 month for Easter allowance + 0.5 month for Vacation allowance +1 month for Christmas allowance).
Social security (SS): The most usual rates of SS contributions for employees are calculated at 41.06% on gross salary plus any other allowance (f.e. bonuses). The employee contributes by 16% and the employer by 25.06%. The SS contributions are capped at a gross monthly salary of EUR 5,860.80.
Besides the employees a lot of entrepreneurs are also liable to SS contributions (shareholders of LTDs, BoD members to SAs when they are shareholders above 3%, Administrators of IKEs etc.).
Payroll cost: The payroll cost for the company is the sum of the gross salary plus the employer’s contribution for SS.
Net payable: The net payable for an employee is calculated if we deduct from the gross salary the employee’s SS contribution, the payroll tax and the solidarity contribution.
Annual leave: The employee is entitled to annual leave (for vacation), based on the years of service as well as the working system (5 or 6 days per week). The annual leave in a 5days working system, is 20 days for the first year of employment.
Dismissal indemnity: The employee is entitled to indemnity in case of dismissal, which is based on the years of service as well as the salary level.
The information included in the present document, is intended to provide a general guidance and must not be used in resolving specific taxation issues.