The tax framework for charitable gifts-donations in Greece
Introduction
In the Greek tax law, as in other systems, there are special favorable provisions concerning the funding of charitable purposes systematically pursued by private or public institutions. In order to comprehend this favorable treatment, by way of introduction, it is necessary to mention the general provisions concerning gifts/ donations, when these are not destined to a charitable purpose -we need in other words to present the rule, in order to understand the exception.
The taxation of inheritance and gifts/donations in Greece exists since the institution of the Greek State. Following several consecutive amendments, the main codification of this legislation was effectuated with Law 2961/2001. This Law has been reformed and amended several times, most recently with the provisions of Law 3842/2010 and Law 3943/2011.
The general rule of article 1, Law 2961/2001 provides that:
“1. Tax is imposed on assets that have been acquired through inheritance, gift/donation, parental gift or donation and on lottery gains, according to the present law.
2. Every individual or corporation who acquires property in one of the above ways is subject to tax”
Taxation of assets acquired through gift/ donation
The special provisions that relate to the taxation of gifts/donations are contained in articles 34-45 of Law 2961/2001.
The definition of “asset” which is subject to taxation as gift/donation is provided by article 35 of the law as follows:
a) any movable or immovable property situated in Greece b) any movable property of a Greek national situated abroad c) any movable property of a foreign national situated abroad, which is being gifted/donated to a Greek or foreign national who resides in Greece […].
Liable to tax is always the recipient of the gift/ donation, i.e. the donee (article 38 Law 2961/2001). The tax liability is generated upon the constitution of the donation document. In case of transfer of movable items, if the delivery of the donation item was effectuated without drafting a contract or if the contract was drafted after the delivery, the tax liability is generated upon delivery. In case of a donation through inheritance, the tax liability is generated upon the donor’s death, if no other dilatory clause applies.
As a general rule, the taxation of gifts/donations depends on their value and the relationship between donor and donee. However, i) certain exemptions and allowances are provided in articles 41 and 43 ii) in some cases the relationship between donor and beneficiary is irrelevant iii) special rules apply to donations of money. The tax is calculated according to the provisions of article 29 (that primarily relates to the taxation of inheritance).
The relationship between donor and donee is categorized as follows:
-Category A: spouse, partner with a contract of cohabitation, 1st degree descendants, consanguine 2nd degree descendants and consanguine 1st degree ancestors.
-Category Β: consanguine 3rd degree descendants et seq., consanguine 2nd degree ancestors et seq., children recognized voluntarily or judiciary vis-à-vis the ancestors of the father who has recognized them, the descendants of the recognized child vis-à-vis the father who recognized it and his ancestors, the siblings (including half-brothers and half-sisters), collateral 3rd degree blood-relatives, stepfathers and stepmothers, children from previous marriages, sons and daughters in law and fathers and mothers in law.
-Category C: any other relative or non-relative.
Depending on the donor-donee relationship, the applicable tax is determined as follows:
CATEGORY Α
Scale (€) Tax Rate Tax Aggregate Value Total Tax (€)
150.000 – – 150.000 –
150.000 1 1.500 300.000 1.500
300.000 5 15.000 600.000 16.500
Over 10
CATEGORY Β
Scale Tax Rate Tax Aggregate Value Total Tax
30.000 – – 30.000 –
70.000 5 3.500 100.000 3.500
200.000 10 20.000 300.000 23.500
Over 20
CATEGORY C
Scale Tax Rate Tax Aggregate Value Total Tax
6.000 – – 6.000 –
66.000 20 13.200 72.000 13.200
195.000 30 58.500 267.000 71.700
Over 40
As an exemption, the acquisition of money through gift/donation is subject to one-off tax @ 10% for beneficiaries under category A, @ 20%, for beneficiaries under category B, and @ 40% for beneficiaries under category C.
Tax exemptions applicable to gifts/ donations by virtue of Law 2961/2001
According to article 43 of Law 2961/2001, the following gifts/donations are not subject to gift tax and are exempt from the obligation to declare such gifts/ donations before the tax authority:
a) gifts/ donations of money or other movable property whether made anonymously or not, that are organized at a national level and are proven to be charitable and
b) gifts/ donations of any property effectuated among the church institutions listed in paragraph 3 a of article 25 (Churches, Holy Monasteries, the Sacred Commons of the Most Holy Sepulchre, the Holy Monastery of Mount Sina, the Ecumenical Patriarchate of Constantinople, the Patriarchate of Jerusalem, the Patriarchate of Alexandria, the Church of Cyprus, the Orthodox Church of Albania).
Furthermore, by virtue of article 43 par. Γ’, Law 2961/2001 (other exemptions) exempted from tax but not from the obligation to submit a declaration are also acquisitions by anyone listed in paragraph 1 of article 25, as amended by Law 3842/2010:
a) The Greek State, accounts created in favor of the Greek State and
b) Foreigners subject to the rule of reciprocity, under the condition this tax exemption is provided for by international conventions. If the legislation of the foreign country does not provide for full exemption, but for lighter taxation subject to the rule of reciprocity, the inheritance or trust subject to taxation in Greece of a corporation or individual holding the nationality of the foreign country is subject to a lighter tax that corresponds to the tax imposed by the foreign country in question.
Moreover, free transfers of movable or immovable assets belonging to the State, municipalities or communities and public organizations are exempt from the donation tax.
Independent taxation of acquisitions through gift/ donation
By virtue of article 43 par. Β’ Law 2961/2001 (tax exemptions), the provisions of paragraph 3, article 25 (on inheritance) are correspondingly applicable to acquisitions through gift/donation.
Furthermore, by virtue of the aforementioned paragraph 3 of article 25, Law 2961/2001, an acquisition is subject to independent taxation , according to the provisions of paragraph 5 of article 29, when the beneficiaries (donees) are:
a) Public organizations, prefectural administrations, municipalities, communities, churches, Holy Monasteries, the Sacred Commons of the Most Holy Sepulchre, the Holy Monastery of Mount Sinai, the Ecumenical Patriarchate of Constantinople, the Patriarchate of Jerusalem, the Patriarchate of Alexandria, the Church of Cyprus, the Orthodox Church of Albania and
b) non-profit corporations that exist or are lawfully constituted or are being constituted in Greece, as well as all corresponding foreign corporations subject to the rule of reciprocity and fortunes of article 96, Compulsory Law 2039/1939 , under the condition they are proven to pursue purposes in favor of the nation or the religion, or in a wider sense philanthropic or educational or artistic or charitable purposes, within the meaning of article 1, Law 2039/1939.
Additionally, according to article 29 par. 5, referred to directly in the aforementioned provision, “the acquisition through inheritance of sums of money by corporations or individuals mentioned in paragraph 3 of article 25 is subject to tax, which is independently calculated with a tax rate of zero point five percent (0.5%). The acquisition through inheritance of other assets by such individuals or corporations is subject to a tax calculated independently with a tax rate of 0.5%».
The amount of the resulting tax also includes: a) 3% in favor of municipalities and communities, by virtue of the provisions of article 50, Royal Decree 24/9-20.10.1958
All gifts/ donations in money in favor of corporations listed under paragraph 3 of article 25 are subject to the taxation provided for under paragraph 5 of article 29 –i.e. they are subject to an independent tax @ 0.5%- after deducting a non-taxable amount of one thousand euros (€1,000) per year (article 43 par. Β’ case α’ subparagraph 2ο Law 2961/2001).
The meaning of reciprocity
Reciprocity, a frequently encountered term in Greek tax law, here means that a foreign charitable organization can benefit from individual tax exemption or reduction in Greece for a gift/ donation received, provided that in its country of origin, similar equivalent Greek corporations are eligible to enjoy and do in fact enjoy the same favorable treatment, both from a legislative point of view (hence, “legislative reciprocity”), and from the aspect of the effective application of such reciprocity (“effective reciprocity”). That is to say, it is accepted that reciprocity applies not only when specific rules have been laid down in the foreign country for the exemption of Greek corporations from the obligation to pay the donation tax, but also when this meaning is also satisfied with the concurrence of substantial (effective) reciprocity, when the foreign country practically applies such exemption and does not in fact oblige Greek charitable corporations to pay the tax. Explicit exemption is not a prerequisite, as far as reciprocity is considered to be met even when no burden whatsoever or other related obligation has been established.
The interpretation of the meaning of reciprocity by the Greek legal order is depicted in the opinion no. 420/2002 of Department B of the Legal Council of the State (ad hoc tax legal office), during the session held on 20.06.2002 to express its view on a similar issue which had been raised relating to exemption from inheritance tax for a donation to a foreign non-profit corporation legally seated in Israel, including the following:
“As generally accepted, the term “reciprocity”, which is unilaterally used in the national law of a country (legislative reciprocity), means that such country acknowledges to aliens rights or benefits only when the citizens of the said country have the same legislative treatment in the foreign country (see LCS 55/1981, 1020/1967, ολ. LCS 414/1962, Maridakis, Private International Law page 370). However, it may be considered that the term of reciprocity is consequently met for the exemption of aliens from obligations or burdens also in the case that the foreign country has not laid down any obligations or burdens which exist in the Greek legal order or has generally abolished them …The view which requires, for the concurrence of reciprocity, the establishment by the foreign country of specific rules of law which grant to Greek nationals exemptions or concessions of similar content to those granted by the Greek State to citizens of the foreign country, cannot be applied when the foreign country has laid down a general block exemption. This is true because, quite reasonably, in such case a special legislative provision for the exemption of aliens is not necessary or even conceivable”.
In practice, although it is primarily a transnational issue, the competent public finance service can ask the taxpayer who asks for exemption from the payment of donation tax, invoking the term of reciprocity, to submit in person an official document from the foreign authority which can indisputably evidence that the term of reciprocity is being met.
SUBMISSION OF DONATION TAX RETURN (DECLARATION)
By virtue of article 85 par. Α’ Law 2961/2001, in case of a donation accompanied by a notary document the parties involved are under the obligation to submit a relevant tax declaration. Exempt are all corporations listed in the first subparagraph of case Α’, par. 1 of article 25. For donations not accompanied by a notary document and in any other case, the obligation to submit a declaration falls on the donee.
The declaration, whether or not a tax is payable, and in case that a notary document is drafted, shall be submitted before the drafting of the relevant notary document. In case no notary document is drafted or it was drafted abroad but not before a Greek Consulate, the declaration shall be submitted within six (6) months from the delivery of the donation to the donee.
The declaration is received by the head of the Tax Authority in the region where the donor resides, and the former will also validate the resulting tax. By way of exception, for donations made in money to corporations contained in paragraph 3 of article 25, the declaration is received and the tax is validated by the head of the Tax Authority in the region where the donee resides (article 87 par. 1 subparagraph.β’, Law 2961/2001, as amended by par. 1 στ article 23 Law 3943/2011). If the donor resides abroad, competent for receiving the declaration and validating the tax is the Head of the tax authority for Residents Abroad, while if the notary document was drafted abroad before a Greek Consulate, the declaration is submitted to the Consul, who will also receive payment of the relevant tax.
GIFTS AND DONATIONS FROM AN INCOME TAX POINT OF VIEW
Individual Income Tax: Gifts/ donations as a proof of “deemed income”
The provisions of articles 15 to 19 of the Income Tax Code (Law 2238/1994) stipulate that when the total amount of certain living expenses is above the taxpayers’ declared income, then the surplus is considered as deemed income. Article 17, which details the expenses that constitute proof of deemed income, also includes gifts and donations in money, which exceed the amount of three hundred euros (300.00) per year.
Formerly, the only exemptions from the aforementioned provisions were gifts and donations to the State, public institutions and private corporations that were financially depended from the State. This constituted a serious counter-motive for anyone wishing to donate sums of money to purely private charitable organizations, since any donation exceeding the sum of three hundred euros could increase their taxable income and consequently the total payable tax.
With paragraph 3 of article 32 Law 3296/2004, however, further exemptions were added and gifts/donations, regardless of their size, to “charitable organizations, Greek private corporations that have been lawfully constituted or are being constituted and pursue charitable purposes, as well as Greek non-profit private corporations that pursue cultural purposes” no longer constitute proof of deemed income.
Individual Income Tax: Deductibility of gift and donation related expenses
According to article 9, par. 3 of L.2238/1994 (Income Tax Code), as amended recently with article 1 Law 4110/2013 , the resulting tax according to case α’, paragraph 1 and paragraph 2 of the same article, is reduced by 10% for certain expenses, including among others:
Amounts paid by the taxpayer as a gift/donation to:
a) Central Government Agencies, the National Social Cohesion Fund, churches, Holy Monasteries, the Sacred Commons of the Most Holy Sepulchre, the Holy Monastery of Mount Sinai, the Ecumenical Patriarchate of Constantinople, the Patriarchate of Jerusalem, the Patriarchate of Alexandria, the Church of Cyprus, the Orthodox Church of Albania, public hospitals and hospitals that constitute private corporations and are subsided from the National Budget.
b) charitable organizations, non-profit associations that provide education services and offer scholarships, Greek public organizations that have been lawfully constituted or are being constituted and pursue charitable purposes, research or technological entities concerned by Law 1514/1985 (Α’ 13) and research centers that constitute non-profit Greek private corporations and
c) non-profit Greek private corporations that exist lawfully or are being constituted and pursue cultural purposes. Cultural purposes are mainly the cultivation, promotion and dissemination of music, dance, theater, cinema, painting, sculpture and arts and letters in general, as well as the foundation, expansion and maintenance of acknowledged private museums, such as art, natural history, ethnological or folkloric art museums.
The abovementioned amounts paid as gifts or donations are taken into account only when deposited in a special bank account held by the corporation. This account must be held to serve the purpose in question, at a financial institution operating legally in Greece.
The payment slip issued by the bank must bear the donor’s and the donee’s details, the amount of the donation or gift both in figures and in letters, the date of the deposit and the donor’s signature.
The total amount of gifts and donations concerned by the aforementioned deduction may not be higher than 5 % of the total taxable income, according to the general provisions. The deduction is applicable, when the total amount of donations and gifts is above one hundred Euros (€100).
Evidently, the aforementioned gifts and donations may be deducted only once, even if more than one provisions of the Income Tax Code allow for such a deduction.
Lastly, the provisions relevant to the aforementioned cases are also applicable for gifts / donations in favor of similar state agencies and corporations, established in other EU member states or EEA/ EFTA countries.
Deductible gifts/donations from the gross income of companies and self-employed professionals
The net income of companies (regardless of their legal form) that keep second or third category books of the Code of Books and Records (Presidential Decree 186/1992) and of self-employed professionals is calculated by deducting the expenses specified in article 31 of the Income Tax Code from the gross income. The list of deductible expenses of article 31 is among those provisions of the Greek tax law that are amended almost every year, with the addition, deletion or limitation of certain expenses. Many tax-evaders deduct non-productive or even virtual expenses, thus succeeding to reduce their net, taxable income. On the other hand, it is at the tax auditor’s discretion to reject expenses he considers to be non-productive, with no obligation to justify his decision. In 2005, and in order to prevent such phenomena, an effort had been made to detail all deductible expenses, with a ministerial decision (Pol. 1005/14.1.2005) . The auditing authorities are under the obligation to accept the deductibility of the expenses included in this decision.
Both the general provisions of article 31 and the detailed list of Ministerial Decision 1005 contain rules and limitations relevant to the deductibility of gifts and donations to charitable purposes.
The general provisions of article 31 of the Income Tax Code
1. The gift/ donation categories admitted as deductible
The gifts/donations that are admitted as deductible from the gross income of a company are listed in sub-case γγ’ of article 31, as amended by article 3, Law 4110/2013 and are the following:
Α) Any amount paid as gift/ donation to the Greek State, the local self-administration organizations, Greek higher education establishments, state and municipal hospitals and hospitals that are private corporations subsidized from the State Budget, as well as to the Archeological Receipts Fund.
Β) The value of food donated by companies, producing or trading such goods, to the charitable organization under the name “FOOD BANK – ORGANIZATION FOR THE PREVENTION OF HUNGER” (Government Gazette 540 Β/1995). For the implementation of the aforementioned subparagraph, the value of the donated food is equal to the acquisition or production cost, as per case, and it is obligatory to issue the relevant tax document.
C) The value of movable monuments, as defined by the legislation in force, that are donated/ gifted to the State or museums acknowledged by the Ministers for Education and Religions, Culture and Sports, according to the same legislation .
D) The value of medical devices and ambulances donated/ gifted to state or municipal hospitals or hospitals that are private corporations subsidized from the State Budget.
Ε) Amounts of money up to 10% of the total net income or profit resulting from the balance sheets, paid as gift/donation to charitable organizations, non-profit associations that provide educational services and grand scholarships, churches, Holy Monasteries of Mount Athos, the Holy Monastery of Mount Sina, the Ecumenical Patriarchate of Constantinople, the Patriarchate of Jerusalem, the Patriarchate of Alexandria, the Orthodox Church of Albania, Greek public organizations, Greek private corporations that have been or are being constituted and pursue charitable purposes, research and technological entities subject to Law 1514/1985 and Law 3653/2008, as well as research centers that are Greek non-profit private corporations and are legally constituted.
F) Amounts of money up to 10% of the total net income or profit resulting from the balance sheets, paid as gift/donation to Greek non-profit private corporations that exist legally or are being constituted and pursue cultural purposes.
Cultural purposes are mainly the cultivation, promotion and dissemination of music, dance, theater, cinema, painting, sculpture and arts and letters in general, as well as the foundation, expansion and maintenance of acknowledged private museums, such as art, natural history, ethnological or folkloric art museums.
For the implementation of the aforementioned provisions, the private corporations that pursue cultural purposes are identified by joint decisions issued by the Minister for Finance and the Minister for Culture, following a control effectuated by the Ministry for Culture.
2. The conditions for deducting the aforementioned donations
The deduction of the aforementioned donations is subject to the following conditions and limitations:
Α) Deposit to the Deposits and Loans Fund or a bank
If the total annual amount of donations or gifts is over “two hundred and ninety (290) Euros”, they are recognized for deduction under the condition the amount was deposited to the Deposits and Loans Fund or a bank account held by the organization or corporation, with the exception of donations made to the State, the local self-administration organizations and the donees contained in paragraph 1 Α.
Β) Donations in money to sports clubs
Specifically, sums (even under 290 euros) donated to sports clubs, are tax deductible under the condition they are deposited to an account at the Deposits and Loans Fund or a Bank operating legally in Greece, and are deductible from the company’s gross income upon presentation of the following documents:
i) The original deposit slip bearing the amount of the donation.
ii) A copy of the minutes of the Board of Director’s meeting, mentioning the acceptance of the donation. The copy shall be validated by the Head of the Physical Education Department, in the Prefecture where the club is legally seated.
iii) A copy of the club’s cash-book, bearing the entry of the donation. The copy shall be validated by the aforementioned Head of the Physical Education Department.
C) The aforementioned donations or gifts may not be exempted on the basis of any other Income Tax Code provision.
D) Limit on the deductible sum in correlation with the company’s net profit.
The total amount of deductible gifts or donations may not exceed net profits before deducting the amount in question from the gross income in the relevant tax year. In other words, gifts or donations that lead to losses are not deductible.