Alternative taxation method for recipients of pension income who transfer their tax residency in Greece – procedure and documentation
Article 5B of Law 4172/2013 states that an individual who receives foreign pension (“foreign pensioner”) and who transfers their tax residence to Greece is subject to an alternative taxation method for income generated abroad. More specifically, they pay a flat rate tax for each tax year at a rate of 7% for all income (including capital gains) generated abroad.
In order to join this scheme, the following conditions must be cumulatively met:
- the applicant must not have been tax resident in Greece in 5 out of the 6 years prior to the transfer of their tax residence to Greece and
- the applicant must transfer their tax residence from a state with which an administrative cooperation agreement in the field of taxation with Greece is in effect.
Tax must be paid for each tax year in one instalment by the last working day of July and cannot be offset against other tax liabilities.
As far as the documents required are concerned, in order to prove the capacity of a foreign pensioner, it is necessary to submit to the tax authority any document from the social security provider or other public authority or professional fund or insurance company showing payment of a pension abroad, in other words from a main and supplementary mandatory social security provider, from professional funds established by law, or payment of a lump-sum or periodic benefit in the context of group insurance pension policies.
In order to ascertain that the requirement that the applicant was resident abroad for the last 5 years from 6 years has been met, an audit is carried out by the tax authority on their records. More specifically:
- If the individual n requests a Greek Tax ID No. for the first time, or they appear in the records of the Tax Administration as being tax resident abroad in 5 out of the 6 years prior to the application to transfer their tax residence, the supporting documents need not be submitted.
- Where the records of the Greek Tax Administration do not show the taxpayer as being tax resident abroad in 5 of the 6 previous years prior to the application for transfer of tax residence to Greece, they must submit the following information for each year for which there is no available data:
(a) A tax residence certificate from the competent tax authority of the State in which they declare tax residency showing that they are tax resident in that State. If the taxpayer was a resident of a State with which there is a Convention on the avoidance of double taxation (hereinafter the Convention), instead of the tax residence certificate they may submit the requisite application to apply the Convention, which incorporates the tax residence certificate duly filled in, signed and stamped by the competent foreign tax authority or
(b) Where it is not specified that the competent tax authority will issue the above, a copy of the statement of income tax payable or, in the absence of such statement, a copy of the income tax return submitted to the other State by that person as a tax resident in that State.
(c) Where it is not possible to submit some of the abovementioned supporting documents (points (a) or (b)) because the foreign tax authority is proven not to issue them, a certificate from any other public or municipal or other recognized authority is required demonstrating that the applicant has a fixed and permanent establishment in the other State.
Those foreign public documents, as defined in the provisions of Article 1 of Law 1497/1984 (Government Gazette 188/A) must be submitted in accordance with international law (Regulation (EU) 2016/1191, an Apostille stamp, consular stamp, attestation by the Greek consulate in accordance with the provisions of international conventions ratified by law by Greece, as appropriate).
As far as the procedure is concerned, the application to transfer tax residence under the foreign pensioner regime must be submitted to the competent Tax Office of Residents Abroad and of Alternative Taxation for Greek Tax Residents by the individual by 31 March of each tax year.
The applicant shall declare in their application the country in which they had their last tax residence prior to the submission of the application. The Tax Administration shall inform, subject to the condition of reciprocity, the tax authorities of that country regarding the transfer of the tax residence of the said taxpayer, in accordance with the provisions on international administrative cooperation.
Within 60 days from submission of the application, the Tax Administration shall examine the application and if any shortcomings are identified, shall inform the applicant that it must be supplemented or the correct supporting documents submitted. Supporting documents must be submitted within that deadline. Moreover, within the same deadline the tax authority shall issue a decision approving or rejecting the application.
The individual who has been subjected to the special regime for foreign pensioners (regime of Article 5B) cannot be subjected at the same time to the special regime for non-doms (regime of Article 5A) and vice versa. Moreover, a taxpayer who has been subjected to the foreign pensioners’ regime is obliged to declare all income generated abroad. Any foreign tax paid abroad on foreign-source income can be offset as a foreign tax credit against the Greek tax liability if there is an applicable Double Tax Treaty (DTT) in place that stipulates the right of taxation of both countries or if no such DTT exists. The 7% flat tax rate is not imposed on exempt income pursuant to the provisions of an applicable DTT.
Moreover, any income generated in Greece must also be declared in Greece and be taxed under the standard Greek tax rules. Therefore, the total foreign-source and Greek-source income for each tax year must be declared in the taxpayer’s annual income tax return.
The regime starts to apply from the tax year for which the individual ’s application for inclusion under the regime is submitted and expires after the end of 15 tax years.
However, in any tax year during the 15-year period, the individual may submit a request to withdraw from the regime. In the case of withdrawal, the individual shall be taxed in accordance with the general Greek tax provisions applicable in the tax year in which the request for withdrawal is submitted.
It should also be noted that these provisions apply from the 2020 tax year onwards. Note that these provisions do not affect the application of the conventions on the avoidance of double taxation which have been entered into with Greece.
* The information is accurate to the best of our knowledge as at the time of writing. We have no obligation to update it. We accept no responsibility against any third party who is not a client of the firm and has not signed the terms of our engagement.