Greek tax treatment of interest payments made by a Greek company to a foreign lender company
According to the Greek tax legislation, any interest amount paid by a Greek company to an entity established abroad is subject to a withholding tax at a rate of 15%. The paid withholding tax exhausts the Greek tax liability in the event that the recipient of the above payment, which is subject to withholding tax, is a legal entity that does not have its tax residence and does not maintain a permanent establishment in Greece (par. 4 of article 37 and par. 3 of article 64 of Law 4172/2013, Circular POL.1042/2015).
The above applies based on the domestic legislation and is therefore subject to any specific provisions of the applicable DTT between Greece and the country where the beneficiary of the income is established.
Further, pursuant to the general Greek tax legislation the following apply in relation to the deductibility of interests on loans:
As a general rule, any business expenses, including interest, must meet the following conditions in order to be deductible:
- They are carried out in the interest/benefit of the company or in the course of its normal commercial transactions, including corporate social responsibility actions.
- They correspond to a real transaction and the value of the transaction is not considered lower or higher than the “market” value, on the basis of the data available to the Tax Administration.
- They are recorded in the accounting books of the business of the period in which they are carried out and they are evidenced with appropriate supporting documents.
In addition to the above, the following apply in relation to interest on loans:
Third party loans
The amount of interest which relates to loans from third parties, except for loans from financial institutions and bond loans issued by SA companies, is deductible, to the extent it does not exceed the amount of interest that would accrue to the business when the borrowing rate would be equal to the interest rate on mutual account loans to non-financial corporations; the interest amount would not be deductible to the extent the abovementioned interest rate is exceeded (article 23 of the Greek Income Tax Code (ITC) – Law 4172/2013).
Intra-group loans
Special rules apply in the case of intra-group loans i.e. loans between “affiliated persons”, which have the following meaning according to the provisions of the Greek ITC:
“Affiliated person”: any person, who directly or indirectly participates in the management, control or capital of another person, who is a related person or with whom he is connected. In particular, the following persons are considered as related:
- any person who directly or indirectly owns shares or participation in the capital of at least thirty-three percent (33%), by value or number, or rights to profits or voting rights,
- two or more persons, if any person directly or indirectly owns shares, voting rights or participation in the capital of at least thirty-three percent (33%), by value or number, or rights to profits or voting rights,
- any person with whom there is a relationship of direct or indirect material administrative dependence or control or exercises decisive influence or has the possibility of exercising decisive influence over another person, or in the event that both persons have a relationship of direct or indirect material administrative dependence or control or the possibility exercise of decisive influence by a third party.
The interest is deductible subject to:
- the “arm’s length principle” and the guidelines of the OECD for intra-group transactions (article 50 ITC, regarding transfer pricing rules)
- the thin-capitalization rule, according to which, the excess borrowing costs (i.e. the amount of deductible interest expenses that exceed interest income) are deductible in the tax year in which they occur, only up to thirty percent (30%) of the taxpayer’s earnings before interest, taxes and depreciation (EBITDA) (article 49 ITC):
* 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.