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Offices of Law 89/1967

Iason Skouzos - TaxLaw > Practice Areas  > Company Law  > Offices of Law 89/1967

Offices of Law 89/1967

This is a brief presentation of the legal framework of the operation of Law 89/1967, according to which foreign and Greek companies may be established in Greece, through an office or branch, for the sole purpose of providing to their head offices or to affiliated companies not established in Greece specific services set forth by law providing them with a favourable tax regime and further aid, as we will mention below.

Legislative framework of Law 89/1967

More specifically, the offices or branches of Law 89/1967 may provide to their head offices advisory services, central accounting support, quality control of production, products, processes and services, preparation of studies, plans and contracts, advertising and marketing, data processing, receiving and providing information, and research and development. The provisions of Article 38 of Law 4605/2019 added new services to the activity that can be developed by the companies that are subject to this regime, which concern the development of software, the programming of computers and the support of computer systems, the storage and management of files and information, management of suppliers, customers and supply chain excluding transport operations by own means, human resource management and training, and call centre and computer-based call centre information activities.

The established companies are obliged to obtain a special establishment permit in Greece, which is granted by decision of the Minister of Economy and Finance, published in the Government Gazette, within 50 days of submitting the relevant application to the Foreign Funds Directorate of the Ministry of Economy and Finance.

Regarding the conditions for inclusion, the established company must:

(a) employ at least 4 people in Greece, of which 1 may be on a part-time basis within 12 months of the entry into force of the decision onwards and (b) the established company must have operating expenses in Greece of at least EUR 100,000 per year.

Tax framework of established companies of Law 89/1967

The established company of Law 89/1967 is taxed in Greece in a special way. The gross income of the established companies resulting from the provision of the specific services for which they have received a special permit, which is required to be collected through bank transfers, is determined by the cost-plus method, i.e. by adding a percentage of profit to all types of their expenses and depreciation and amortisation, other than income tax. The profit percentage applied to each company is determined by decision of the Minister of Finance after an audit by the competent Committee. In order to determine the percentage of profit, which must amount to at least 5%, the type of services provided by them, the branch of activity and the OECD Transfer Pricing Guidelines are primarily taken into account. That profit percentage is reviewed every five years or earlier if market conditions change significantly. For the determination of the taxable income of the company, all expenses on which the percentage of profit is calculated are deducted from its gross income, as long as they are documented by corresponding tax documents of the respective tax law.

It is now provided by law that the provision of services of the office or branch of Law 89/1967 does not constitute exercise of actual management in Greece under Article 4(4) of the Greek Income Tax Code (Law 4172/2013) of the established foreign company or its affiliated companies.

Moreover, as regards income taxation of the foreign staff of those offices or branches, in derogation from the basic rule of taxation of world income for tax residents in Greece, it is provided that the foreign staff of the offices of Law 89/1967 which are included in the special tax regime are subject to tax in Greece only for the income obtained in Greece.

State aid

Foreign companies that are subject to the regime of Law 89/1967 are provided with further financial aid if:

(a) they develop a new activity either in relation to the object of the services provided or in respect of the undertakings to which the services are provided, which is not exercised in Greece for the last 2 years until the date of submission of the application for the aid, by the same or other companies of the group to which they belong and

b) the new activity creates a minimum number of new jobs, which are maintained for at least a certain period of time, as defined by category of services provided.

A condition for granting the aid is the development by the beneficiary company of a new activity in Greece regarding the object of the provided services, which is not exercised in Greece for the last 2 years until the date of submission of the application for the aid, by the same or other companies of the group to which it belongs.

The above aid is provided in the form of a grant, i.e. the provision of a sum of money to cover part of the subsidised costs and is determined as a percentage of them.

Indicatively, we refer to the following aids:

(a) Aid for the recruitment of disadvantaged workers and persons with disabilities;

(b) Aid for vocational training programs;

(c) Aid for research and development projects;

(d) Aid for wage and salary costs and costs of installation of information and communication systems.

Sanctions

Finally, it should be noted that any breach of the terms of the special permit granted to the established company or of the obligations arising from the law results in a fine or revocation of its licence on a case by case basis.

 

 

*             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.

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