Greece: New Tax Laws Aim to Raise More Revenue
In Greece two new tax laws have come into force. Tax Law No. 4110 amends provisions of the country’s income tax code,1 while Law No. 4111 imposes new measures.2 Together these laws raise tax rates, lower thresholds, restrict tax reliefs, and generally raise the burden of taxation on individuals.
We summarize below the main points of these new laws regarding the taxation of individuals.
Law No. 4110
Individual Taxation: Rates, Thresholds, Credits, and Deductions
Employees and Pensioners (valid for income earned as of 1 January 2013)
A progressive tax scale is applicable to both Greek and non-Greek tax residents, with no tax-free bracket. Additionally, the new rules have reduced the existing eight tax brackets to three.
• For income up to EUR 25,000, the applicable tax rate is 22 percent.
• For income from EUR 25,001 up to EUR 42,000, the applicable tax rate is 32 percent.
• For income exceeding EUR 42,001, the applicable tax rate is 42 percent.
[EUR 1 = USD 1.30; EUR 1 = GBP 0.862; EUR 1 = AUD 1.278]
(The prior top rate was 45 percent for incomes over EUR 100,000.)
A tax credit of EUR 2,100 is introduced. This is given in full to employees and pensioners with annual incomes up to EUR 21,000. For annual income between EUR 21,000 and EUR 41,500, the tax credit of a maximum EUR 2,100 is reduced by EUR 100 for every additional EUR 1, 000 of income over EUR 21,000 up to EUR 41,500.
For annual income exceeding EUR 41,500, no tax credit is allowed.
The majority of deductions are abolished (i.e., house rental expenses, tuition fees, loan interest, life insurance premiums, etc.) and special conditions are imposed on the remaining deductions (medical and hospital expenses, alimony, donations).
Non-Greek tax residents are not eligible for any credits or deductions except for European Union (EU) citizens earning more than 90 percent of their worldwide income in Greece.
Taxpayers Have Obligation to Collect/Save Receipts
The obligation to collect living expense receipts and submit them with the tax return still remains. The law stipulates that taxpayers must have receipts that represent the equivalent of at least 25 percent of their taxable income (up to a limit), but the maximum amount of receipts that are required is reduced from EUR 15,000 to EUR 10,500. Taxpayers who e-file, are not required to submit receipts electronically. However, receipts should be kept by the taxpayer in the event of a tax audit. Where submission is obligatory and a taxpayer does do not submit the required amount of receipts, a penalty of 22 percent will apply on the outstanding value of receipts not collected. For the first time, receipts issued in any EU country will also be acceptable.
There are specific categories of individuals stipulated by law that are exempted from the collection of receipts (e.g., public servants working outside EU and individuals residing in (a) institutions for mentally disabled people, (b) in elderly-care homes/institutions, and (c) in prison).
Entrepreneurs/Freelancers (valid for income as of 1 January 2013)
The above tax scale is also applicable to entrepreneurs/ freelancers, provided that they have a written agreement with up to three employers. The above is also applicable if a written agreement exists with more than three employers and where 75 percent of their gross revenues is derived from one employer.
Otherwise, the new progressive tax scale with no tax-free bracket is as follows
• For income up to EUR 50,000, the applicable tax rate is 26 percent.
• For the part of the income exceeding EUR 50,001, the applicable tax rate is 33 percent.
For freelancers and entrepreneurs starting in 2013 (and going forward) and for the first three years of their operation, the tax rate of the first income scale is reduced by 50 percent for income up to EUR 10,000.
• Income earned from private agricultural business is subject to a tax of 13 percent. However, exceptionally for fiscal year 2014 (income earned in 2013), the tax scale for employees/pensioners applies.
• Rental income as well as investment income (excluding investment income taxed at source with no further tax liability) is taxed at source at the rate of 10 percent for income up to EUR 12,000, and 33 percent for income exceeding EUR 12,000.
• All individuals over 18 years of age are required to file income tax returns irrespective of whether they are subject to tax.
• Foreign residents are required to file income tax returns with respect to their income arising in Greece, as well as when subject to the deemed income and imputed income provisions.
• All types of income should be reported on the individual’s income tax return regardless of the way it has been taxed, including tax-exempt income. For any income taxed at source or by “special” means, the respective withholding or remitted tax should also be reported.
• The income tax return used to be submitted during the month of May. Now, it is submitted from 1 February up to 30 June of the fiscal year it relates to and up until the opening business hour for public services of the day following the deadline day expiry – this is regardless of the type of income or the last digit of the taxpayer identification number (“TIN”). So, for example, the final deadline for this year is 30 June 2013, therefore a taxpayer can have until 1 July 2013 at 7:00am (which is the opening hour for the public sector) to file his or her return.
• The provisions for taxation at source for bonuses paid by credit institutions operating in Greece are extended for fiscal year 2014.
• The special child support allowance, introduced with Law 4093/2012 (which was recently ratified), is defined based on the number of dependent children and set at EUR 40 per month per dependent child. Furthermore, a special allowance is introduced for families having three children or more; such families are now eligible for an allowance of EUR 500 per year per child, provided that the family annual income is no greater than EUR 45,000.
Group Life Insurance Contracts
Life insurance proceeds from insurance contracts paid for by employers on behalf of their employees are taxed at source at the following rates:
• 10 percent for the first EUR 40,000 and 20 percent for the part exceeding EUR 40,000.
• 15 percent for every periodically paid benefit.
The above rates are increased by 50 percent in case of early redemption. The tax is withheld by the life insurance company. This measure is valid as of 23 January 2013, the date the Law was published in the Government Gazette
Taxation of Dividends and Board of Directors’ (“BoD”) Fees
• There is a reduction in the withholding tax rate on dividends or profits that are capitalized or distributed by Greek companies to Greek or foreign individuals or legal entities or associations or “groups of assets” which are approved by general meetings after 1 January 2014 – the tax rate will fall from 25 percent to 10 percent (for income earned in 2014 onwards).
• There is a reduction in the withholding tax rate on dividends from foreign legal entities received by Greek residents from the current 25 percent to 10 percent starting in fiscal year 2014 onwards (for income earned in 2013 onwards).
There is an increase in the withholding tax rate for BoD fees considered as income from securities or from business activities from the current 35 percent to 40 percent – such fees are deductible from the gross profits of the company. Moreover, the same tax rate of 40 percent will be applicable to the BoD fees that are paid out of the profits of the company and also to the fees/bonuses paid to personnel (other than salary).
• The above new tax rates are now applicable to profits/fees that are distributed to members of limited liability companies (“EPEs”) and Private Capital Companies.
Income from Securities and Transfers of Shares
• There is an increase in the withholding tax rate on income from interest on deposits and REPOS, etc., from 10 percent to 15 percent, for interest paid from 1 January 2013 onwards.
• There is an increase to 15 percent in the tax on interest from bonds arising after 1 January 2013, regardless of the time of issuance of the bonds.
• Individuals who earn interest in a foreign country from deposits or bonds are required to submit to the tax authority a return by January of the following year and to pay a 15-percent tax on such interest. Tax withheld outside of Greece may be offset against this tax on the basis of the applicable provisions of the corresponding double taxation treaties.
• The taxation of the capital gains for legal entities or individuals (Greek or foreign) derived from the sale of non-listed shares of SA companies has been amended. The new provisions abolish the 5-percent tax that was imposed on the sale value and a 20-percent capital gains tax is now imposed. For the calculation of said capital gain on Greek shares, a specific formula is to be applied as defined in the statute.
• Profits from the sale of listed (in Greece or abroad) shares are taxed at a rate of 20 percent when such shares are acquired (by any means) from 1 July 2013 onwards. Such withholding tax meets the individual taxpayer’s tax liability, whereas in cases where the beneficiaries are legal entities, said income is further taxed according to the Greek tax code’s general provisions and a credit is thus provided for the tax already withheld. The 20-percent tax is withheld and paid by EXAE (the Athens Stock Exchange Market). The 0.2-percent stock exchange transaction duty for such shares is maintained.
• There is an increase from 15 percent to 20 percent in the withholding tax rate applicable to derivative income (relating to derivatives that are not listed on a stock exchange for derivatives) acquired by Greek residents, non-profit legal entities, and foreign individuals and legal entities.
Capital Gains Arising from Transfers of Real Estate
Capital gains arising from the transfer of real estate acquired after 1 January 2013, which is further transferred to another party for consideration, are taxed at a rate of 20 percent. The capital gain is adjusted/reduced with rates ranging from 10 percent to 40 percent depending on the years of ownership of the real estate. Certain exemptions apply. Specifically for individuals, capital gains up to EUR 25,000 are exempted on condition that the relevant property is owned for at least five years and the individual has not realized more than one transfer within a five-year period.
Declaration of Real Estate
All individuals who on 1 January 2013 own property rights in respect of certain plots, as defined by law, are required to review their real estate holdings as spelled out on the Internet site of the General Secretariat of Information Systems (http://www.gsis.gr/gsis_site/) by 30 June 2013, in order to make any appropriate amendments in the records.
Law No. 4111
Tax on Luxury Living
A tax on “luxury living” is imposed on the amount of annual imputed income arising from the ownership or use of certain private cars with large engine power, airplanes, helicopters, and swimming pools, as stipulated in the law.
• A tax rate of 5 percent applies on the amount of annual imputed income for cars of 1,929cc to 2,500cc, while the rate is increased to 10 percent for private cars exceeding 2,500cc.
• For the remaining items (e.g., airplanes, helicopters, and swimming pools), a tax rate of 10 percent applies.
• The only exemptions from the tax on luxury living are private cars of more than 10 years of age from the date of their first circulation in Greece and cars intended for use by disabled individuals, which are also exempt from road tax.
The tax on luxury living is applicable to income reported on the annual tax returns for fiscal year 2014 onwards.
1 The New Tax Law (No. 4110 / Government Gazette FEK No. 17 A’/23.01.2013) “Income Tax Provisions, Issues related to the authorities of the Ministry of Finance and Other Regulations” amends provisions of the Income Tax Code. See: http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-NomothetikouErgou?law_id=7a2a1c35-0d9b-4cc9-b41e-c093359366e6 .
2 The New Law (No. 4111 / Government Gazette FEK No. 18 A’/25.01.2013) “New Law relating to various legislative provisions of urgent nature” imposes new measures. See: http://www.hellenicparliament.gr/Nomothetiko-Ergo/Anazitisi-NomothetikouErgou?law_id=3cde3e1c-d018-4244-af66-c69249f657f6 .