Dividend and interest withholding tax in Greece: the Parent-Subsidiary and Interest-Royalties Directive exemptions

Dividend and interest withholding tax in Greece: the Parent-Subsidiary and Interest-Royalties Directive exemptions

Quick answer

Dividends paid by a Greek company to a non-resident company are subject to 5% withholding tax. Where the recipient is an EU-resident parent company holding at least 10% for at least 24 months and meeting the other Parent-Subsidiary Directive conditions, the withholding is 0%. Interest paid by a Greek company to an associated EU company may likewise be exempt under the Interest and Royalties Directive, which requires a direct 25% shareholding held for 24 months and beneficial ownership of the interest. Both exemptions are subject to a general anti-abuse rule denying relief to non-genuine arrangements.

 

Dividends: the default rate

A Greek company distributing profits to a non-resident corporate shareholder withholds tax at 5%. This is already a low rate by international standards, and in many cases a double tax treaty will not reduce it further.

 

Dividends: the Parent-Subsidiary exemption

Distributions to an EU parent company are fully exempt from Greek withholding tax when all of the following conditions are met:

1. Minimum participation. The recipient holds at least 10% of the share capital, profit rights or voting rights of the Greek company, by value or number.
2. Holding period. The participation has been held for at least 24 months. The exemption can be claimed before the 24 months elapse if a bank guarantee is provided.
3. Legal form. The recipient takes one of the legal forms listed in Annex I Part A of Directive 2011/96/EU.
4. EU tax residence. The recipient is tax resident in an EU Member State under that state’s law and is not treated as resident outside the EU under a double tax treaty.
5. Subject to tax. The recipient is subject, without option or exemption, to one of the corporate taxes listed in Annex I Part B of the Directive or a successor tax.

A Cyprus or other EU holding company that satisfies these conditions can therefore receive dividends from a Greek property company with no Greek withholding tax. Profits are taxed once, at 22% corporate income tax in Greece, and can then accumulate at the holding company level without a second layer of Greek tax, leaving the timing of onward distribution to the individual shareholder to be planned separately.

 

The anti-abuse rule

The exemption is denied where the arrangement is not genuine, that is, where it has not been put in place for valid commercial reasons reflecting economic reality. A holding company with no function beyond collecting dividends, no decision-making and no substance is exposed. Investors should ensure the holding company has a genuine role in the structure — holding several assets, centralising financing, facilitating succession or future exits — and that this role is documented.

 

Interest: the Interest and Royalties Directive

Interest paid by a Greek company to an associated EU company can be exempt from Greek withholding tax provided that:

• both companies are qualifying EU companies subject to corporate tax;
• the recipient is the beneficial owner of the interest; and
• a direct shareholding of at least 25% has been maintained for at least 24 months.

This matters where a holding company finances its Greek subsidiary with shareholder loans rather than equity. The interest is deductible in Greece, subject to the interest limitation and transfer pricing rules, and can be paid to the EU lender gross.

 

Practical sequencing for a new structure

The 24-month holding period starts when the participation is acquired. For a newly incorporated Greek subsidiary, the exemption therefore becomes available without a bank guarantee two years after incorporation. Where early distributions are needed, the bank guarantee route is available; otherwise profits can be retained in the Greek company during the first two years and distributed once the holding period is complete.

 

Frequently asked questions

What is the withholding tax on dividends from a Greek company to a Cyprus company? 5% by default, 0% if the Parent-Subsidiary Directive conditions are met.

Can the exemption apply before two years of holding? Yes, if the parent provides a bank guarantee for the tax that would otherwise be due.

Does a Greek property company qualify for the exemption? The conditions are tested at the level of the recipient parent, not the activity of the Greek subsidiary. A property company’s dividends qualify like any other.

Is interest from a Greek subsidiary to an EU parent taxed in Greece? Not if the Interest and Royalties Directive conditions are met, including a direct 25% holding for 24 months and beneficial ownership.

 

 

* 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.