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The differences to the tax treatment of the rental between tourism and residential property in the case of a local branch of a foreign company and the accounting treatment of the branch.

Iason Skouzos & Partners > Practice Areas  > Tax Law  > The differences to the tax treatment of the rental between tourism and residential property in the case of a local branch of a foreign company and the accounting treatment of the branch.

The differences to the tax treatment of the rental between tourism and residential property in the case of a local branch of a foreign company and the accounting treatment of the branch.

According to Article 50 et seq. of Law 2190/1920, the establishment of a branch in Greece by foreign public limited companies is applicable.
Further, according to article 6 par. 1 and 2 of the Income Tax Code:

“1. Permanent establishment means a specific place of business through which an undertaking carries out all or part of its operations. 2. The term “permanent establishment” includes, in particular: (a) a place of administration; (b) a branch; (c) an office…”

According to Article 44 of the Income Tax Code, the income tax on legal persons and legal entities is that levied annually on profits made by legal persons and legal entities as these defined in Articles 2 and 45 of the Income Tax Code and taxed as income from a business activity [Article 47 of the Income Tax Code].

Pursuant to Circular 1044/2015, it was clarified that the above are applicable both to legal persons and legal entities that have either their tax residence or their permanent establishment in Greece since the income from a business activity acquired through the permanent establishment is considered as income derived in Greece [Article 5 (1e) of the Income Tax Code].

As regards the income earned through the lease of property, the local branch is taxed as the legal entities which have their tax residence in Greece, i.e. they are taxed under Articles 47 and 58 of the Income Tax Code in the case of long-term lease and short-term tourism lease, but under Article 39 of the Income Tax Code in the case of the short-term lease in the context of the sharing economy.

Finally, it is noted that as regards the accounting treatment of the branch, the accrual accounting principle applies i.e. the transactions made during the tax year in the relevant accounts between the head office and the branch are only monitored while the incorporation of the financial data of the branch into its accounts taking place at the end of the tax year.