Tax Law Newsletter January 2013 New Tax Law 4110/2013
New Tax Law 4110/2013 Introduction Law 4110/2013 in respect to Provisions on income taxation, other issues relating to the Ministry of Finance and other provisions was enacted by the Greek Parliament on January 11 th and was published in the Government Gazette on January 23 rd, 2013. The main points of the above law, as now finalized in the Parliament, may be summarized as follows: A. INCOME TAXATION I. Individual taxation Income tax return The requirement to file an income tax return is now expanded to all individuals over 18 years of age, irrespectively of the amount of taxable income. Income from employment Income acquired by private businesses or entrepreneurs providing services by virtue of a written agreement to up to three (3) employers or to more than three (3) if, in the latter case, 75% of their total turnover derives from one (1) employer, is now considered and taxed as employment income. The new employment income tax scale consists of three brackets with tax rates 22%, 32% and 42%. The highest tax rate shall apply for annual income exceeding 42,000 Euros. A gradually decreasing tax credit (maximum 2,100 Euros) is provided up to annual income of 42,000 Euros. Tax payers are required to submit receipts from living expenses issued in Greece or in other EU Member States corresponding to 25% of annual income up to 42,000 Euros. Failure to do so results into missing of the tax credit and/or extra tax at a rate of 22% on the amount of non-submitted receipts. 2
Tax on rentals and securities Individual income incurred from lease of real estate and securities (except securities taxed at special rates) is subject to taxation at 10% up to 12,000 Euros and at 33% for the rest. Tax allowances Tax allowances from individual income (e.g. house rentals, insurance premiums, tuition fees, loan interest for first house) have now been dramatically limited, with the exception of a few remaining, such as 10% on medical expenses and donations to the Greek or EU Member States and various non-profit organizations. II. Corporate taxation Sale and lease back Capital gain from sale and lease back with individuals/legal entities established in countries with a preferential tax regime may be tax-free if it is proven that the respective agreements represent real transactions and were not made with the intent of tax evasion or avoidance. Tax deductibility of expenses Only 17 depreciation rates of broad categories of assets are now provided mainly based on Eurostat NACE rev.2 statistical classification of economic activities. A 10% rate of depreciation for intangibles and proprietary rights is introduced for the first time. The right of lump sum depreciation is now provided in respect to fixed assets with acquisition value up to 1,500 Euros (previously 1,200 Euros). Provisions for remuneration of employees due to future retirement are now not tax deductible. The amount of social security contributions paid to social security funds provided by law are now tax deductible in full. Allowances/gifts granted by the company to its employees either in cash or in kind as a reward for their performance are deductible for tax purposes as long as relevant social contributions have been paid in time and they have been taxed as employment income. 3
Expenses related to internet access are deductible by 50%. Expenses related to organization of workshops and meetings for employees and customers outside the prefecture of the company s/branch s seat are now t a x deductible up to the amount of 300 Euros per participant. Ministerial decisions already issued specifying allowed and disallowed expenses remain in force as long as the new law does not provide otherwise. Arbitrary income assessment The rejection of books (arbitrary calculation of gross income and/or taxable income) has now been limited only to cases where proper accounting books and records are not kept or not furnished at all. In this case the tax authority has the power to determine the gross and the taxable income based on certain parameters in regard to the activity and the operation conditions of the company (e.g. sales and purchases, gross profit margin, invested capitals, loan amounts etc.). Arbitrary income assessment is now disconnected from any violations of the tax legislation. Partnerships and entrepreneurs Income from business activity acquired by entrepreneurs, private businesses and partnerships (OE) or limited partnerships (EE) with single entry accounting books is subject to taxation at 26% for income up to 50,000 Euros and at 33% for the part of income exceeding 50,000 Euros. New private businesses and entrepreneurs (business start-up as from 1/1/2013 and onwards) with income up to 10,000 Euros shall be taxed at 13% for the first 3 years of their operation. Income acquired from private agricultural businesses is taxed at 13%. Such provision shall apply in respect to income acquired as from 1.1.2014 and onwards. Corporations Corporate tax rate for corporations (AE), limited liability companies (EPE) and permanent establishments is increased to 26% (previously 20%). Dividends and profit distributions by corporations, limited liability companies and permanent establishments are subject to 10% withholding tax which may be used as a tax credit against further tax liability upon upstream distribution. Withholding tax will fall into the provisions of Double Taxation Treaties and the EU Parent Subsidiary Directive. 4
Partnerships (OE), limited partnerships (EE), civil associations and joint ventures keeping double entry accounting books (above 1.5 M annual turnover) are now treated like corporations (AE) and limited liability companies (EPE) in respect to corporate and dividend taxation (26% CIT & 10% w/h on dividends). Taxation of BoD members fees and salaries is increased to 40% (previously 35%). Inbound foreign dividends received by resident individuals are subject to a 10% final withholding tax. Foreign tax credit In case of inbound foreign dividends from EU, not qualifying under the Parent- Subsidiary Directive, foreign tax credit is now limited only in respect to tax paid in first tier subsidiary (previously in any lower tier subsidiary). EU Participation exemption The wording is improved to imply that income qualifying under the EU Participation Exemption, kept in a tax-free reserve, is not offset with losses carried forward. Distribution of such tax-free reserve falls within the provisions of the EU Parent Subsidiary Directive. Taxation of income from of capital Investment income (interest) from bank deposits is now taxed at 15% (previously 10%). A tax credit is provided in respect to tax withheld on interest from bank deposits in countries with a Double Taxation Treaty. Interest paid by individuals to foreign individuals and legal entities is subject to 20% and 33% withholding tax (not applicable to countries with a Double Tax Treaty) respectively (previously 40%). Interest paid to a foreign company with no permanent establishment in Greece is now subject to a 33% (previously 40%) withholding tax (not applicable to countries with a Double Tax Treaty). Capital gains tax from transfer of real estate (20%) is now introduced in respect to individuals. The provision is effective in respect to further transfers of real estate acquired as from Jan. 1 st, 2013 and onwards. 5
Capital gains from non-listed shares In regard to sales of non-listed shares, tax on the value of transaction (5%) is replaced by a 20% capital gains tax. This provision is effective in respect to transfers of shares to be acquired as from July 1 st, 2013 and onwards. Capital gains from listed shares Capital gains realised from sales of listed shares to be acquired as from July 1 st, 2013 and onwards will be subject to a 20% tax (final as regards individuals). Transfer (transaction) tax applicable in case of sale of shares listed on a stock exchange (2 ) continues to apply. Transactions with tax heavens and preferential tax regimes Sales of goods performed by Greek companies to individuals/legal entities established in countries with a preferential tax regime at a price lower than the price charged to another Greek or foreign company, will result into a profit adjustment in Greece unless proven that they represent real transactions and that they were not made with the intent of tax evasion or avoidance. Such provision is effective in respect to income acquired as from Jan. 1 st, 2012 and onwards. Group life insurance benefits Group life insurance benefits offered by employers to employees are subject, upon maturity, to a final withholding tax at 10% for lump-sum payments of up to 40,000 Euros and at 20% for amounts exceeding 40,000 Euros, whereas if paid periodically such amounts are subject to a 15% final withholding tax. Such rates are increased by 50% in case of early redemption (not applicable in respect to employees eligible to retirement or above 60 years of age). Purchase of company s own shares Payments to shareholders from a company for purchase of own redeemable shares is now subject to withholding tax on dividends (previously tax-free). Bad debts by banks 1% of annual average loans granted by bank institutions are now deductible for tax purposes as a bad debt. Transfer Pricing and APAs The concept associated enterprises is now broadened. The audit shall be performed by the Tax Office for Large Enterprises. OECD TP Guidelines must be taken into account. The obligation of Transfer Pricing documentation file is 6
extended to cover intercompany transactions between resident companies. Intercompany transactions with a total annual value up to 100,000 Euros do not fall within the obligation of transfer pricing documentation if the total turnover of the associated companies participating in such transactions does not exceed 5,000,000 Euros. If the total turnover of the associated contracting parties is higher than 5,000,000 Euros, transactions with a total annual value up to 200,000 Euros are exempted. The Transfer Pricing documentation file must be compiled within fifty (50) days as from the end of the previous tax year, while especially for tax year 2012 the file and the summary information table (mentioned below) must be drafted by May 10 th, 2013. The documentation file is followed by a summary information table filed electronically within the same above deadline to the General Secretariat of Information Systems of the Ministry of Finance containing minimum information such as the group structure, the functions performed and risks assumed by the contracting parties and the Transfer Pricing method followed. The contents of the TP documentation file for tax year 2012 and onwards will be stipulated by means of a decision of the Minister of Finance, which will be issued within one month. The Transfer Pricing documentation file is now subject to an update obligation in case of change of market conditions. All intercompany transactions including loans, share transfers and transfers of real estate property now fall within the Transfer Pricing provisions. Royalty and management fees payments between associated enterprises are now expressly treated within the Transfer Pricing provisions. Payments made to associated companies established in a non-cooperative country or a country with a preferential tax regime shall fall within the Transfer Pricing provisions. In case of late filing of the summary information table or the TP documentation file, a fine equal to 1 of the company s turnover (which cannot be less than 1,000 and higher than 10,000 Euros) applies, whereas non-filing of such incurs a fine equal to1% of the company s turnover (which cannot be less than 10,000 and higher than 100,000 Euros). In case of a TP adjustment, regular tax provisions (main tax plus interest) apply. 7
The regime of article 26 of l. 3728/2008 (Transfer Pricing provisions by Ministry of Development) is now abolished. By way of exception, TP files in respect to tax years 2008 and 2009 are still subject to audit performed by the Ministry of Development. The procedure for entering into an advance pricing arrangement (APA) with the tax authorities is now introduced. Further details will be provided in a Ministerial Decision to be issued. Tax certificate The requirement of tax certificate issued by certified auditors is now extended also to branches of foreign companies. Unless otherwise stated above, the new amendments are applicable in respect to tax year 2013 and onwards. B. OTHER PROVISIONS VAT on commercial leases Leases of real estate property for exercise of business activities, either on an independent basis or under mixed agreements may optionally be subject to VAT (instead of stamp duty), following a relevant application filed by the lessor. Taxation of foreign-flagged vessels Vessels sailing under foreign flags that are managed by local or foreign companies established in Greece pursuant to art. 25 of l. 27/1975 are subject to tonnage tax as from Jan 1 st, 2013. Entrepreneurship duty The amount of entrepreneurship duty in respect to legal entities with registered seat in large cities (population exceeding 200,000 citizens) is increased for income tax returns filed as of 2013 and onwards (tax year 2012) to 1,000 Euros annually. The amount of duty imposed on branches is also doubled to reach 600 Euros annually, while entrepreneurship duty in respect to private businesses and freelancers is increased to 650 Euros annually. 8
The present newsletter contains general information only and is not intended to provide specific professional advice or services. If you need further assistance or information with regard to the above please contact: I.Stavropoulos@stplaw.com V.Michalopoulou@stplaw.com 9