Alternative taxation of income generated abroad for individuals who transfer their tax residence to Greece [Article 5A of Law 4172/2013]
A taxpayer (who is a natural person) who transfers his or her tax residence to Greece can be taxed in an alternative manner for income generated abroad, in other words all income not generated in Greece, provided all the following conditions are met:
a) he or she was not tax resident in Greece during 7 of the previous 8 years prior to transfer of his or her tax residency to Greece, which is examined based on the records held by the tax administration and
b) he or she proves that he/she or his/her relative (spouse and persons in the ascending or descending line) or via a legal person or legal entity in which he or she has the majority of shares, invests in real estate properties or undertakings or transferable securities or shares in legal persons or legal entities whose registered offices are in Greece. This investment may not be less than € 500,000. The investment must be completed within 3 years from the date on which the application is submitted.
The condition set out in subparagraph (b) need not be met in the case of an individual who has acquired and holds a residence permit for investment activity in Greece under Article 16 of Law 4251/2014.
A necessary condition is that the investments referred to in subparagraph (b) are made from 12 December 2019 onwards. Applications for inclusion under these arrangements may be submitted either when investments start to be made or at the latest 3 years after completion.
Application form for inclusion under these arrangements
The application to transfer tax residence to benefit from the alternative method of taxing income generated abroad must be submitted to the tax administration by the taxpayer by 31 March of each tax year.
Within that same deadline, individuals who meet conditions (a) and (b) and who have already transferred their tax residence to Greece within the previous tax year may apply for inclusion in the arrangements for the alternative method of taxing income generated abroad.
The relevant authority responsible for submitting, examining, approving or rejecting an application for inclusion in the alternative taxation arrangements is the Residents Abroad and Alternative Taxation for Greek Tax Residents Tax Office. Within 60 days from submission of the application, the tax administration will examine the application and issue a decision approving or rejecting it.
The applicant must submit the relevant supporting documents along with the application and indicate the state in which he or she was last resident for tax purposes prior to submission of the application. Moreover, in his or her application, he/she can request that the application of the alternative method of taxation be extended to his/her relative within the same deadline. In this case, the conditions in point (b) for each of the relatives are not examined. Where minors (unmarried children of the taxpayer) live with him/her, it is not necessary to request an extension in the application of the arrangements since it is presumed that they have the same tax residence as him/her. The extension of the application of the arrangements to such children may be done by simply requesting it at the time they turn 18. Where the marriage ends or the civil partnership agreement is terminated, the persons concerned shall cease to be subject to the relevant provisions.
The application will be accepted even if not accompanied by the relevant supporting documents at the time it is submitted. The taxpayer shall be able to submit the relevant supporting documents required to supplement the dossier within the 60-day deadline specified for issuing the decision. In all events, the supporting documents may be received by the last working day of May each year. Applications submitted after 31 March and supporting documents submitted after 31 May shall be accepted and examined in order for the taxpayer to be included in the alternative method of taxing income generated abroad for the next tax year.
Having received the application and supporting documents, the tax administration is obliged to update the relevant web application and to inform the tax authorities of the country concerned about the transfer of tax residence for the said taxpayer in accordance with the provisions on international administrative cooperation in force.
Implementation of the alternative method of taxation shall commence from the first tax year for which the natural person’s application is submitted and shall end after the completion of 15 tax years. Inclusion in these arrangements may not be extended beyond 15 tax years.
Within a deadline of 6 months from the end of the 3-year deadline from the date on which the application for inclusion in these arrangements is submitted, the taxpayer shall be obliged to appear before the Residents Abroad and Alternative Taxation for Greek Tax Residents Tax Office, along with the relevant supporting documents demonstrating completion of the investment and that he/she continues to be subject to the alternative taxation arrangements. Where completion of the investment is based on the data available to the tax authority, the taxpayer shall not be obliged to submit the relevant supporting documents for those investments.
If the taxpayer requests a Tax Reg. No. for the first time, or if he or she appears in the records of the tax administration as being tax resident abroad in 7 out of the 8 years prior to the application to transfer his or her tax residence, the supporting documents need not be submitted.
Where the records of the tax administration do not show the taxpayer as being tax resident abroad in 7 of the previous 8 years prior to the application for transfer of tax residence to Greece, he or she must submit the following information for each year for which there is no available data:
(a) A tax residence certificate from the competent tax authority of the state in which he or she declares tax residency showing that he or she is tax resident in that state. If the taxpayer was a resident of a state with which there is a convention on the avoidance of double taxation (hereinafter DTT), instead of the certificate he or she may submit the requisite application to apply the DTT, which incorporates the tax residence certificate (dual forms) duly filled out, signed and stamped by the competent foreign tax authority or
(b) Where it is not specified that the competent tax authority will issue the above, a copy of the statement of income tax payable or, in the absence of such statement, a copy of the income tax return submitted to the other state by that person as a tax resident in that state.
(c) Where it is not possible to submit some of the said supporting documents (referred to in points (a) or (b)) because the foreign tax authority is proven not to issue them, a certificate from any other public or municipal or other recognized authority is required demonstrating that that person has a fixed and permanent establishment in the other state for that time period.
In order to prove the capacity of ‘relative’, where not clear from the records held by the tax administration, a certificate or attestation or any document from a Greek or foreign public authority must be submitted.
In the case of an individual who has acquired and holds a residence permit for investment activities in Greece, it is sufficient to submit that permit.
Lastly, given that major investments made by taxpayers show their intention to make Greece a center of their vital interests and consequently to make Greece a place of residence for taxation purposes, the postal address for the main residence of the said taxpayers in Greece should be stated and no tax agent need be appointed.
If the application for inclusion of the taxable person is accepted, he/she shall pay a flat-rate tax each tax year, irrespective of the level of income acquired abroad, of € 100,000. The taxpayer can request that the application be extended to his/her relatives and in this case a tax of € 20,000 shall be paid for each relative and the provisions on the taxation of donations, inheritances and parental grants shall not apply. For income arising in Greece taxation is in accordance with the general provisions of the Hellenic Income Tax Code (Law 4172/2013).
Filing of the income tax return
Taxpayers subject to alternative taxation arrangements under Article 5A of Law 4172/2013 are obliged to declare all income generated in Greece, in other words income from a source in Greece, while there is no obligation to declare income generated abroad which is subject to the alternative taxation arrangements.
When calculating the difference between the presumed income and the taxpayer’s overall income, the tax administration is obliged to take into account the cash amounts shown in the tax return which are backed up by lawfully issued receipts. The taxpayer bears the burden of proof for those amounts which, among other things, are the import of foreign exchange which is not necessarily assigned to the Bank of Greece where acquisition of those amounts abroad can be justified. However, justification relating to acquisition of that foreign exchange is not required for persons who have been brought within the scope of Article 5A of Law 4172/2013.
Payment of tax
Once the taxpayer’s application is approved, no later than the last working day of June of the relevant tax year, the Residents Abroad and Alternative Taxation for Greek Tax Residents Tax Office shall, for the first year of inclusion in these arrangements, issue a decision calculating the tax for the total tax liability in the taxpayer’s name, indicating any relatives, and the amount of the flat-rate tax corresponding to them, namely € 100,000 for the taxpayer and € 20,000 for each relative.
For each of the subsequent years of application, provided that the taxable person and his relatives continue to be subject to them, a tax calculation decision shall be issued no later than the last working day of June each tax year.
Tax shall be paid each tax year in one installment by the last working day of July and shall not be offset against other tax liabilities or any credit balances of persons who have been included in the alternative taxation arrangements. Any tax paid abroad by the same persons for income covered by the alternative taxation method shall not be offset against any tax liability in Greece.
In the first year of inclusion under the arrangements, the individual shall be obliged to pay the lump-sum amount of tax within 30 days from approval of the application.
The general provisions of the Hellenic Income Tax Code (Law 4172/2013) apply to late payment of that tax.
If in any tax year, and no later than 31 December of that year, the taxpayer does not pay the entire amount of tax, he or she ceases to be subject to the provisions on alternative taxation arrangements and from the relevant tax year onwards will be taxed on his or her global income under the general provisions of the Hellenic Income Tax Code (Law 4172/2013).
Upon payment of the flat-rate tax, all tax liabilities of the individual for income arising abroad are exhausted and he/she is exempt from inheritance or gift tax for assets located abroad.
During any tax year the taxpayer may apply to withdraw from the alternative taxation arrangements.
The application to withdraw from the arrangements shall be submitted by the taxpayer by 31 March of the tax year in respect of which an application to withdraw from the arrangements is made and the tax administration shall update the relevant web application.
In the case of withdrawal, the individual shall be subject to taxation in accordance with the general provisions of the Hellenic Income Tax Code for the tax year in which the application for withdrawal is submitted and thereinafter shall not be obliged to pay the flat-rate tax specified for that year.
After an application for withdrawal is submitted, a new application for inclusion in the alternative taxation arrangements for foreign income can be accepted subject to the following conditions and terms:
a) if the investment has been completed, a new application for inclusion may be submitted at any time within a period of 15 tax years, without requiring a new investment, and if accepted, it shall be valid for such years as are left until 15 years from the initial inclusion are reached.
b) if the withdrawal takes place within the 3-year deadline specified for completion of the investment, and this has not yet been completed, provided thatthe taxpayer remains tax resident in Greece, he or she may resubmit the application, and if accepted, the taxpayer will be brought again within the alternative taxation arrangements for all years left until the 15 years are reached, and provided the investment is completed within the time remaining of the initial 3 years.
c) if the withdrawal takes place within the 3-year deadline specified for completion of the investment without it having been completed, and the taxpayer has become a resident abroad for tax purposes in the meantime, he or she may submit a new application only after the initial investment is completed and if such application is accepted, the taxpayer will be brought back under the alternative taxation arrangements for as many years as there are left until the 15 years are reached, provided that he or she makes a new investment.
An application for withdrawal submitted by an individual shall automatically entail withdrawal of his or her relatives from the arrangements. His or her relatives may apply for withdrawal in their own name without that affecting the other persons who are subject to these arrangements.
* 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.