Tax Newsletter Issue 53 May 2014 This newsletter outlines some of the interesting developments in Greek tax legislation, including highlights of Law 4254/2014, amending the Income Tax Code, gazetted on 7 April 2014
Contents 2 Taxation of capital gains on real estate 3 - Disposal of real estate assets; guidelines for application of 15% tax 4 - Sale & lease back transactions; treatment aligned with IFRS standards 4 - Non taxed reserves from sale & lease back excluded from mandatory distribution/capitalization Taxation of capital gains on securities 5 - Changes in scope of application of 15% capital gains tax on transfer of listed shares 5 - Explicit tax exemption for foreign investors gains from Greek state bonds Payments subject to withholding taxes 6 - Guidelines on application of 20% withholding tax on service fees 6 - Exclusion of domestic royalty payments from 20% withholding tax 6 - Re-introduction of 20% withholding tax on extraordinary fees to employees Taxation of dividends 7 - Participation exemption; restriction of scope of application Indirect Taxes 8 - Remittance of VAT in installments 8 - Introduction of VAT cash accounting system 8 - Donated goods 9 - Set up of new companies exempt from Capital Accumulation Tax
Taxation of capital gains on real estate 3 Disposal of real estate assets; guidelines for application of 15% tax Taxable basis Law 4254/2014 provides guidelines on how to determine the cost and year of acquisition of real estate property in order to define the taxable capital gain arising from the disposal of such property. The acquisition cost is determined based on the legal ground of acquisition (e.g. purchase, gift, inheritance, development etc.). In the absence of other information, the acquisition cost is determined by reference to statistical data issued by the Bank of Greece annually. The acquisition year is the year within which 75% of the property rights have been acquired. In the event that there is no available proof of the acquisition year (e.g. with respect to buildings developed by the taxpayer or buildings regularised for city planning purposes, or properties acquired through extraordinary adverse possession, etc.) such year is determined either in the law or by means of ministerial decisions that will be issued based on authorisation granted in the law. Also, changes are introduced in de-inflation rates applicable on the acquisition cost, for capital gain calculation purposes. Losses Under the new law, any losses arising from the disposal of real estate property are disregarded for tax purposes, whereas under the previously applicable provision, losses in question were carried forwarded to be set-off against future capital gains. Exemptions A full tax exemption is granted on capital gains generated from the disposal of real estate assets acquired before 01.01.1995. Also, a preferential tax regime applies on capital gain generated from the disposal of real estate assets acquired from 01.01.1995 until 31.12.2002.
Taxation of capital gains on real estate 4 Sale & lease back transactions; treatment aligned with IFRS standards The new Law 4254/2014 provides that capital gains from sale & lease back transactions are recognised in line with IFRS standard 17. Under this standard, the treatment of a sale and lease back transaction depends on the type of lease involved. In the case of a financial lease, capital gains generated from the sale are recognised as taxable income gradually, over the term of the lease. However, in the case of an operating lease established at fair value, any profit or loss is recognised immediately. The relevant provision applies for a transitional period starting on 01.01.2014 and ending on 31.12.2015. Non taxed reserves from sale & lease back excluded from mandatory distribution/capitalization According to Law 4172/2013, non taxed profits reserves appearing on the latest balance sheet having closed before 01.01.2014 were subject to income tax (i) at 15% if distributed or capitalised up to 31.12.2013 and (ii) at 19% if distributed or capitalised after such date. Pursuant to the same provision, as of 01.01.2015 it is not allowed to maintain reserve accounts in respect of non taxed profits. The new Law 4254/2014 provides for an exemption from the above rule, for certain types of non taxed profit reserves (formed under the provisions of article 28 par. 3ζ of Law 2238/1994). In specific, pursuant to the new law, legal entities that have formed non taxed profits reserves from gains realised in the context of real estate sale and lease back transactions are allowed to retain such reserve accounts, even after 01.01.2015. The same applies in relation to non taxed profits reserves from gains realised in the context of disposal of real estate property due to expropriation.
Taxation of capital gains on securities 5 Changes in scope of application of 15% capital gains tax on the transfer of listed shares Under Law 4254/2014, individuals earning capital gains from the transfer of listed shares are subject to 15% tax on the gains, if (a) they hold at least 0.5% in the share capital of the company whose shares are being transferred; and (b) the shares have been acquired on or after 01.01.2009. The right to carry forward capital losses arising from transactions in certain securities is limited to five years instead of indefinitely, as was provided under the previously applicable provision. However, the current drafting of the law adds more uncertainty as to how transactions are grouped for offsetting purposes. Under certain circumstances, capital gains earned by individuals from the transfer of listed shares may be treated as business income and thus be subject to income tax at 26% for the part of the income up to Euro 50,000 and 33% instead of 15% for the part of the income exceeding Euro 50,000. In specific, the Greek Ministry of Finance has published a Decision (POL 1105/2014) providing that capital gains earned by individuals from the disposal of securities traded in organised markets, bonds issued by listed companies and sovereign bonds will be treated as business income under the following conditions: a) During the past four calendar quarters, the individual has performed an average of at least ten transactions of a total value of at least Euro 250,000 per calendar quarter; and b) The value of the individual s portfolio, consisting of the securities in question and cash deposits, has exceeded Euro 500,000 at any time during the past four calendar quarters. The exemptions from the 15% capital gains tax, based on the minimum shareholding stake and the time of acquisition of securities, do not apply for taxpayers for whom the gains qualify as business income. Explicit tax exemption for foreign investors gains from Greek state bonds Law 4254/2014 explicitly exempts from Greek income tax the capital gains earned by foreign legal entities from the transfer of Greek state bonds when such entities are not Greek tax residents and do not hold a permanent establishment in Greece. The above provision has raised questions with respect to the applicable tax treatment of capital gains earned by foreign legal entities with no permanent establishment in Greece, from the disposal of other types of securities (e.g. shares etc.).
Payments subject to withholding taxes 6 Guidelines on application of 20% withholding tax on service fees According to article 62 par. 1 of the New Income Tax Code, fees paid for the provision of technical services, management services, advisory services and other similar services are subject to 20% withholding tax in Greece. The Greek Ministry of Finance has recently issued a Decision (POL 1120/2014) providing guidelines on the conditions for application of the 20% withholding tax (type of service fee paid, nature and state of tax residence of payee etc.). Taxpayers conducting business activities in Greece and paying the above types of service fees to Greek or foreign tax resident individuals should withhold 20% tax (3% in the case of technical projects), even if such individuals are not entrepreneurs, provided payments exceed Euro 300. The same withholding tax obligation applies, if fees are paid to the Greek permanent establishment of a foreign tax resident legal entity despite the fact that there is no withholding tax obligation in respect of payments to legal entities resident in Greece. However, according to POL 1120/2014, no withholding tax obligation applies for fees paid to foreign legal entities that do not hold a permanent establishment in Greece. This is irrespective of the place where the services are performed. In this case, the Greek legal entity making the payment is not required to file a nil withholding tax return. Greek enterprises should re-assess their withholding tax obligations in relation to cross-border service fees in the light of the new rules and interpretative guidelines. One should focus particularly on the classification of service fees which may eliminate the obligation to file nil withholding tax returns for management fees paid to foreign legal entities with no permanent establishment in Greece, including certain types of software-related payments. Exclusion of domestic royalty payments from 20% withholding tax According to Law 4172/2014, royalty payments, including royalties paid domestically, are subject to 20% withholding tax in Greece. Under the new Law 4254/2014, royalties paid to Greek tax resident legal entities or foreign legal entities with a permanent establishment in Greece are not subject to such withholding tax. Re-introduction of 20% withholding tax on extraordinary fees to employees The new law reintroduces a 20% withholding on fees paid to employees on an extraordinary basis, in addition to their regular salary, including retroactive salary payments.
Taxation of dividends 7 Participation exemption; restriction of scope of application The new law restricts the scope of application of the dividend participation exemption, explicitly covering only dividends that Greek legal entities earn from their subsidiaries that are established in EU member states, under the conditions of the EU Parent-Subsidiary Directive. The previous provision seemed to apply also in the case of dividends distributed by subsidiaries established in states outside the EU, provided that such state was not treated as a non-cooperative jurisdiction for tax purposes. The wording of the new law is not clear on whether the participation exemption applies also in the case of dividends distributed by Greek tax resident entities.
Indirect Taxes 8 Remittance of VAT in installments Until 31.12.2013, taxable persons were allowed to remit VAT due as follows: At the time of filing their periodic VAT return (until the 20th of the month following each tax period), they had to remit a minimum amount of Euro 10. They could pay the remaining amount, up to 50% of the VAT due, at the end of the month in which they had filed the VAT return. The remaining 50%, increased by a surcharge of 2%, was payable at the end of the following month. Under Law 4251/2014, the deferral arrangement is limited to VAT liabilities in excess of Euro 100 and the 2% surcharge on the second installment has been eliminated. At the same time, according to circular 1108/2014 the deadline for filing the periodic VAT returns has been extended to the end of the month following the respective tax period, at which time 50% of the VAT due should be paid. Introduction of VAT cash accounting system Law 4261/2014 has introduced the VAT cash accounting system which allows for the following: The VAT invoiced by a taxable person for a supply of goods or services is only paid to the State, at the time that the client pays such VAT to that taxable person; The VAT charged upon purchase of goods and services by the taxable person subject to the cash accounting system is deducted at the time of payment of such VAT to the supplier; The client of a taxable person that is subject to the cash accounting system will deduct the VAT charged by such taxable person, at the time of payment thereof. Taxable persons are eligible to qualify under the regime provided that their turnover during the previous fiscal year did not exceed Euro 500,000. The regime does not apply, among others, to (i) exempt or zero-rated transactions ; (ii) retail sales; and (iii) taxable persons who are not fully compliant with their tax obligations. The system will come into effect for transactions effected after 01.10.2014. Donated goods Under Law 4238/2014, taxable persons are no longer liable for payment of VAT on the purchase or cost price of goods that they donate, if the following conditions are fulfilled: The goods are donated to legal persons governed by public law or non-profit private charities or welfare organisations; The goods are foodstuffs, medicines, clothing or other goods that are not subject to excise duties, not hazardous to public health and will subsequently be distributed for the needs of vulnerable groups of people; and The donated goods are not suitable for sale, in particular because their packaging is damaged, their labeling is deficient, their expiry date approaches or they have been withdrawn from the commercial market for similar reasons.
Indirect Taxes 9 Set-up of new companies exempt from Capital Accumulation Tax According to Law 4254/2014 and Ministerial Decision POL 1133/2014, capital accumulation tax is no longer applicable on the share capital contributed into newly established legal entities. The Ministerial Decision confirms that abolishment of capital accumulation tax does not trigger stamp tax liabilities on the share capital contributed into the new company. The exemption applies from 7 April 2014.
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