Special tax on real estate the treatment of the existence of a trust in the structure
Greek Special Real Estate Tax (SRET): the implications of a trust in the structure
Conceptual elements of the institution of foreign trust – Imposition of Special Real Estate Tax
A trust – an institution originating in Anglo-Saxon law – is a special regime for the administration and liquidation of property, which lacks legal personality and is created either by declaration of the owner of the property or by transfer of the property, either during life or by will. The settlor (settlor or trustor) enters into a settlement agreement with the trustee and transfers assets to the trustee, which the trustee manages for the benefit of other trustors or beneficiaries or for the benefit of himself (the trustee) or the settlor for a specific purpose which he designates. In particular, the settlor acquires the settlor’s property separately from his own property and must maintain and assign it in accordance with the terms of the trust, and the beneficiaries are natural or legal persons or entities who receive the benefits of the trust from the settlor, either through regular payments or upon the termination of the trust, also on the basis of the terms set by the settlor (during his lifetime after the entry into force of Law No. 4172/2013.
Although the trust is not an institution provided for in Greek law, it is nevertheless recognized and standardized in article 2 of the Income Tax Code by being defined “as a legal entity of any form of trust or trust or any entity of a similar nature” and as such an entity falls under the provisions of article 15 of Law no. 3091/2002 as replaced by Article 57 of Law No. 3842/2010 and if it has in rem rights of full or partial ownership or usufruct in real estate located in Greece, it shall pay a special annual tax of fifteen percent (15%) on the value of such real estate. It should be noted that the special real estate tax (SRΕΤ) was introduced by the above law with provisions of an exceptional nature aimed, according to the explanatory memorandum, at limiting tax evasion through undeclared funds channelled from tax havens.
However, the same Law 3091/2002, in Article 15 as amended and reformed by Law 3842/2010, provided for the exemption of the liable entities from the obligation to pay the SRET by invoking and proving the existence of the legal conditions as defined in the provisions of Articles 2, 3 and 4 thereof, with the submission of the required exemption documents to the Tax Authority.
In accordance with the above provisions, in order to assess whether an exemption applies, it must be shown that the beneficiaries are natural or legal persons or entities whose registered office is in a European Union country or in a third country, provided that the registered office is not in a non-cooperative country (“tax heaven”).
Furthermore, the natural persons of the final beneficiaries (holders of shares or company shares in the case of companies), who must have a Tax Registration Number in Greece, must be identified from the records of the competent authority of the foreign country, as specified in each case.
In the case where, between the final shareholder natural person (UBO who is declared) and the company owning the property, other legal entities are involved, they must in turn meet all the above-mentioned requirements (e.g. registered shares/shares, not being established in a non-cooperating country, etc.).
Therefore, the existence or interference of an Anglo-Saxon trust in the “chain” of owners of a property does not deprive the possibility of exemption from the Special Real Estate Tax, provided that the other conditions for exemption are met, including a) none of the jurisdictions involved belonging to the non-cooperative states referred to in paragraph 4 of Article 65 of Law No. 4172/2013 (A’ 167) in conjunction with par. 1, 2, 3, and 5 of the same article b) the ultimate beneficiary / natural person must be named and c) the beneficiary entity must have acquired a VAT number in Greece before the deadline for submitting the tax return for the relevant year (1 January of the tax year for individuals holding shares or corporate shares).
Applicable provisions on the tax treatment of foreign trusts – Special Real Estate Tax
According to Article 2 (d) of the Tax Code, a legal entity is defined as :
(d) “legal entity”: any form of corporate or non-corporate organisation, whether or not having legal personality and whether or not for profit, which is not a natural or legal person, such as in particular a partnership, an organisation, an offshore or offshore company, any form of private investment company, any form of trust or trust or any form of trust of a similar nature, any form of foundation or any form of trust of a similar nature, any form of partnership or any entity of a personal nature, any form of joint venture, any form of capital management company or limited liability company, any form of partnership, trust or trust or any entity of a similar nature, any form of foundation or any form of trust of a similar nature, any form of partnership or any entity of a personal nature, any form of joint venture, any form of capital management company or limited liability company.
Ministerial Circular POL No 1114/2017 issued by the Independent Authority For Public Revenue (AADE) clarified the distinction and tax treatment of foreign trusts, i.e. the regime of property management for the purpose of serving a certain purpose.
In particular, it is defined :
- According to the provisions of paragraph d’ of Article 2 of Law no. 4172/2013, a legal entity is understood to be any form of corporate or non-corporate organization and profit-making or not-for-profit character that is not a natural or legal person, such as any form of trust or trust or any form of trust or any form of trust of a similar nature, as well as any form of foundation or association or any form of trust of a similar nature.
- Further, the provisions of paragraph (g) of section 45 of the same law above stipulate that legal entities and persons are subject to income tax on the income of legal persons and entities defined in section 2 of the Income Tax Code and not included in one of the preceding cases (of section 45).
- The provisions of par. 2 of article 3 of Law 4172/2013, in conjunction with the provisions of article 5 of the same law, it is stipulated that a taxpayer who does not have his tax residence in Greece is subject to tax on his taxable income arising in Greece and acquired within a certain tax year, as defined in par. 1 of Article 5 of the aforementioned law. For the purpose of determining whether the foreign trust or institution is tax resident in Greece, the provisions of paragraphs 3 and 4 of Article 4 of the Income Tax Code apply.
Article 15 of Law no. 3091/2002 as in force, legal persons and legal entities of par. 3 of Article 65 of Law No. 4172/2013., which have in rem rights of full or partial ownership or usufruct in real estate located in Greece, pay a special annual tax of fifteen percent (15%) on the value of such real estate, as determined in Article 17 of this law.
The explanatory memorandum of Law 3091/2002 states, with regard to the legislator’s purpose for the need to enact the provisions of Article 15 , the following:
“The provisions introduced are intended to create disincentives and to combat tax evasion in respect of real estate owned by foreign companies. It has become internationally accepted that offshore companies are companies that do not operate in the country in which they claim to have their registered office and whose shares or documents of title are generally anonymous. For these countries the term ‘tax haven’ has become internationally accepted because it allows the offshore company not to be taxed or to be taxed in a favorable way. Tax havens are the concern of international organizations such as the OECD, which, on the basis of criteria such as transparency and taxation, classifies a country as a tax haven and publishes tables of these countries. Because the secrecy that surrounds the ownership of offshore companies is apparently what enables the actual owners of the property to remain anonymous and avoid taxes in relation to the property. This gap is covered by the introduced regulation imposing a special tax on the objective value of real estate, and the introduced exemptions from this tax eliminate inequalities in tax treatment between Greek and foreign companies observed under the current regime.”
With par. 3 of the aforementioned Article 15 as amended and in force defines exceptional provisions as follows:
- Exempt from the provisions of paragraph 1, if they have their registered office according to their articles of association in Greece or in another country of the European Union:
(a) Public limited companies that have registered shares up to natural persons or that declare the natural persons holding them and provided that the natural persons have a tax registration number in Greece.
(b) Limited liability companies, provided that the shares are owned by natural persons or provided that the natural persons who own the companies to which they belong declare that they hold shares and provided that the natural persons have a tax registration number in Greece.
c) Personal companies, provided that the partnership shares belong to natural persons or provided that they declare the natural persons to whom the companies to which they belong and provided that the natural persons have a tax registration number in Greece.
Paragraph 4 of the same Article states that :
4. Exempted from the obligation of paragraph 1 are companies that have their registered office, according to their articles of association, in a third country outside the European Union and the cases mentioned in the above paragraph exist, provided that their registered office is not located in non-cooperative states according to the relevant provisions for these states of the Income Tax Code.
Circular POL 1206/2020 of the Independent Authority of Public Revenue (AADE) regarding the “Application of the provisions of Article 15 of Law No. 3091/2002 (A’ 330) for the special tax on real estate – the required documents and procedure for granting exemptions’ were defined as follows:
Legal persons and legal entities that have, on 1 January of the tax year, rights in rem of full or partial ownership or usufruct in immovable property located in Greece are liable to pay the special tax on immovable property.
Article 1 – Supporting documents required for exemption
For exemption from the payment of the special tax on immovable property, in accordance with paragraphs 2, 3 and 4 of Article 15 of Law 3091/2002, as amended, the following documents must be kept each year by legal persons and legal entities falling under the above provisions, on a case-by-case basis, as at 1 January of the tax year, and must be presented or submitted to the tax administration whenever requested:
Cases (a), (b) and (c) of Article 15(3) and Article 15(4)
For the exemption from payment of the tax they shall be kept and shown or produced as appropriate:
(a) Original or certified copies of the memorandum or articles of association and the register of shareholders.
(b) (i) A certificate issued by any public authority in the State in which the company has its registered office, showing the details of the holders of the shares, units or portions of the companies on 1 January of the tax year. Where the law provides for the registration of shares in a depositary register, a certificate from the depositary shall be submitted
Any document (certificate, statement, extract, printout from the official website of the authority, etc.) issued by a public authority, the content of which shows the details of the holders of the shares, units or shares of the companies on 1 January of the tax year, is acceptable for granting the exemption.
If no such authority exists or if the authority that does exist does not issue the certificate referred to in point (i) above, a solemn declaration by the legal representative of the company or of each company which is a member of the owner company, of the natural persons holding the shares, units or portions thereof and that it is not possible to issue a certificate from a public authority.
(c) If all or part of the shares of the SAs are held by a foreign foundation, if it is incorporated under the law of a State not designated as a non-cooperative State or a State not assessed by the World Forum on Transparency and Exchange of Information for Tax Purposes, a certificate issued by any public authority of the State under the law of which the foundation is incorporated, showing the details of the ultimate (beneficial) owners of the foundation on 1 January of the tax year. If the law provides for the registration of the final beneficiaries in a register, a certificate of such a register or any document with similar content (certificate, printout from the official website of the authority/register, etc.) shall be submitted.
If there is no such authority or register or if it does not issue a certificate, original or certified copies of the foundation’s articles of association, the by-laws defining its final (beneficial) beneficiaries and a solemn declaration by the legal representative of the foundation stating that the final beneficiaries are identified on 1 January of the tax year and that it is not possible to obtain a certificate from a public authority.
(d) A photocopy of the certificate of tax return or any other tax document showing that the natural persons holding the shares, units or portions of the shares.
e) If all or part of the shares or units of the companies are owned by another company/companies, for the participating companies the conditions of cases a), b) and c) of par. 3 of Article 15 of Law No. 3091/2002, and the exempted companies are obliged to keep the above documents also for those companies participating in them.
Case law
Council of the State 1955/2016
Conditions for exemption of an EPE from VAT, in which a company based in a country outside the European Union participates, even if the natural persons participating in the latter are known and have a VAT number in Greece
3305/2019 Athens Administrative Appeal Court
Special real estate tax. Beneficiary is a natural person. Issue of a certificate as to the identity of the economic beneficiaries. Submission of certified copies of share register excerpts. Refusal by the tax authority to accept an exemption from the tax on the grounds of failure to produce a specific certificate.
Council of the State 1389/2019
Special tax on immovable property (Law 3091/2002) – Company established in another EU Member State – Invocation of trust as regards the details of its true shareholders – EU principles of mutual trust and recognition of entries in the register of companies of an EU Member State – Amount of tax where the shareholder is also a listed banking company Principles of equality and proportionality.
Council of the State chamber B´ 795/2022
Particular reference is made to the above mentioned decision of the Court of Cassation, in which it referred the case to the seven-member composition, due to the importance of the issues raised and contrary case law regarding the interpretation of Article 15 of Law No. 3091/2002 and the compatibility of its provisions with the Constitution and Additional Protocol 7 (decision expected).
According to the opinion, the legislator, with the provisions of Article 15 of Law No. 3091/2002, as replaced by Article 57 of Law No. 3842/2010, did not aim at the taxable capacity resulting from the possession of real estate as a taxable matter (a source of wealth other than income), but at combating tax evasion. Furthermore, the grammatical wording of the provisions in question, which refer to all legal persons holding immovable property in Greece as liable in principle, while at the same time establishing a wide range of exceptions, reverses the relationship between ‘rule and exception’ and, with the successive additions and amendments to the exceptions in question, makes the circle of persons liable unclear. While it is true that the submission of information relating to the shareholding composition of the liable companies may, under certain conditions, lead to the exemption of those companies from the tax in question, in cases where part of the shares in a public limited company with its registered office in Greece or in another country of the European Union belong to a legal entity which has its registered office in a country outside the European Union (‘offshore companies’), the possibility of exemption is ruled out if there is no agreement in force on administrative assistance for the
In those circumstances, however, in the cases in question, the contested provisions amount to an irrebuttable presumption of tax evasion or tax avoidance and, in view of the fact that the special property tax at issue, by virtue of its amount and its fixed nature (15% per annum), affects the core of the assets of the taxable legal persons, the provisions in question are contrary to Article 4(1)(b) of the EC Treaty. 5, 17 par. 1, 20 par. 1, 25 and 78 para. 1 of the Constitution, the principle of proportionality and Article 1 of the First Additional Protocol to the ECHR.
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