Greek tax issues related to the granting of a loan by a foreign company to its Greek tax-resident (individual) shareholder
- Stamp duty issues
On the basis of the territoriality principle, a loan concluded and executed abroad is exempt from Greek stamp duty, provided the following conditions are met:
- a) the loan agreement is concluded and signed by both parties abroad (not before a Greek Consulate Authority) e.g. before a notary public or attorney at law;
- b) the loan agreement must not create any executable obligations in Greece e.g. it should not be secured through mortgage or property located in Greece;
- c) any obligation to grant the loan and repay capital and interest must be executed abroad; this practically means that the loan amount should be deposited by the lender to a foreign bank account of the borrower and the borrower should make loan repayments and interest payments from said foreign bank account to a foreign bank account of the lender.
- Documentation of the loan
Proper documentation of the loan is important also for serving as supporting evidence for the classification of the transaction as a loan and in order to mitigate any risk of the amount received by the Greek tax resident individual being considered by the Greek tax authorities as a gift, subject to gift taxation, or as income of an unknow source, subject to income tax as income from business activity. For the same purpose, payment of legal/base interest should be documented by bank transfer slips, indicating the amount of the interest separately to any capital repayment.
- Income tax issues
Based on the Greek Income Tax Code (ITC), in case of a loan granted by a company to shareholder/partner (or employee) of the company and regardless of whether the loan has been documented or not, the difference between:
- a) the interest amount that would have been payable by the shareholder/partner during the calendar month in which the shareholder received the benefit if the applicable interest rate was the average market interest rate during that month and
- b) the interest amount actually paid by the shareholder/partner during that month, is treated/taxed as a benefit in kind.
Taking into account that the law does not explicitly refer to either Greek or foreign companies, we consider this would also apply to foreign-sourced income of a Greek tax resident. The amount of the benefit in kind (if any) would be taxed based on the applicable tax scale for employment income plus special solidarity contribution.
Regarding the calculation of the average market interest rate, Ministerial Circular POL 1034/2014 provides that the average market interest rate is the interest rate of bank loans in euros, to individuals, according to the methodology defined by the Bank of Greece per month, per category and per sub-category of loan.
More specifically, in case of consumer, mortgage, open loan and current account overdrafts, the interest rate of the respective loan category and sub-category, as defined by the Bank of Greece, for the month in which the benefit was received, is taken into account. For other loan agreements, the interest rate applicable to consumer loans is by analogy taken into account.
If for one of the loan sub-categories no interest rate is set for the month in which the benefit was received, the average of the interest rates of the respective loan category for the same month is taken into account.
In case the loan agreement does not state a specific purpose, the interest rate applicable is the interest rate set by the Bank of Greece for the overdrafts from current accounts for the month in which the benefit was received.
Assuming there is such an amount (interest difference) that qualifies as benefit in kind for Greek tax purposes, the relevant provisions of the Double Tax Treaty between Greece and the country of tax residence of the foreign company should be examined in order to determine the extent of the taxing rights of each jurisdiction as well as any foreign tax credit.
- Greek company law issues
Taking into account that the loan is granted by a foreign company, then any specific provisions or limitations that may be stipulated by the Greek company legislative framework would not apply.
* 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.