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Alternative taxation of income of natural persons who are beneficiaries of pension income from abroad

Iason Skouzos & Partners > Practice Areas  > Tax Law  > Alternative taxation of income of natural persons who are beneficiaries of pension income from abroad

Alternative taxation of income of natural persons who are beneficiaries of pension income from abroad

Alternative taxation of income of individuals who are beneficiaries of pension income from abroad and who transfer their tax residence to Greece – Procedure and conditions for inclusion [Article 5B of Law 4172/2013].

An individual recipient of pension income who transfers his or her tax residence to Greece can be taxed in an alternative manner for income that is generated abroad. Under the alternative method of taxation, each tax year the individual pays a tax at a rate of 7% for all income acquired abroad, unless that income is exempt from tax in the country of residence under the provisions of the Conventions on the Avoidance of Double Taxation of Income and Capital.

The conditions for inclusion in the alternative taxation method are that the person concerned:
a) was not tax resident in Greece in the 5 years prior to transfer of his or her tax residence to Greece and
b) transfers his or her tax residence from a state with which an administrative cooperation agreement in the field of taxation with Greece is in force; the existence of this condition is examined ex officio by the competent department.

The application to transfer tax residence in order to benefit from the alternative method of taxing income generated abroad must be submitted to the tax administration by the individual who retired by 31 March of each tax year. Persons who meet the above conditions and who have already transferred their tax residence to Greece within the previous tax year may apply for inclusion in the same scheme within that same deadline. The applicant must state in his or her application the state in which he or she was last resident for tax purposes up to the time the application was submitted.

Applications submitted after 31 March of each tax year will 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.

The application will be accepted even if not accompanied by the relevant supporting documents at the time it is submitted. The applicant must submit the relevant supporting documents to supplement his or her dossier within the 60-day deadline specified by law for issuing the decision.

The relevant department responsible for submission, examination and approval is the Residents Abroad / Alternative Taxation of Residents of Greece Tax Office of the Independent Authority for Public Revenue.

Within 60 days from submission of the application, the tax administration will examine the application and issue a decision approving or rejecting it, depending on whether the lawful conditions are met or not. If any shortcomings are identified during examination of the application, the relevant department will notify the applicant to fill out or submit the correct supporting documents.

Once the application is approved, the applicant becomes tax resident in Greece for the tax year for which the application is submitted, and for a total of 15 tax years, and must specify a home address in Greece. This inclusion of a taxpayer in this scheme does not automatically entail a change in the tax residence of other persons related to him or her.
Documentation required:
– In order to prove that the applicant is a beneficiary of pension income generated abroad, it is necessary to submit any document (such as documents from an insurance provider or other public authority or professional fund or insurance company) showing payment of a pension abroad by a main and supplementary social security provider, from professional funds established by law, or payment of a lump-sum or periodic benefit in the context of group pension insurance policies.
– Compliance with the condition that the taxpayer was a tax resident in Greece in 5 out of the 6 years prior to the transfer of his or her tax residence to Greece shall be ascertained based on the records held by the tax administration.

If the applicant requests a Tax Registration Number (AFM) for the first time, or if he or she appears in the records of the tax administration as being tax resident abroad in 5 out of the 6 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’s tax residence abroad, he or she must submit the following information for each year for which there is no data available:
(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 the Convention), instead of the certificate he or she may submit the requisite application to apply the Convention, 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 (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.

Income Tax Return:
Taxpayers subject to the provisions of Article 5B are obliged to declare all income arising in Greece and income arising abroad which is subject to the alternative taxation arrangements.

Payment of tax:
A decision is issued administratively setting the taxpayer’s total tax liability corresponding to income arising in Greece and income arising abroad which is subject to the alternative taxation arrangements. Tax under Article 5B of Law 4172/2013 is paid for each tax year in one (1) installment by the last working day of July each year and cannot be offset against other tax liabilities or any credit balances of the person who has been subject to the alternative taxation arrangements. Upon payment of this tax, all tax liabilities of the natural person for income arising abroad are exhausted. No Special Solidarity Tax is imposed on this income from abroad.

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 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.

A taxpayer who has been subject to the provisions of Article 5B of Law 4172/2013 is not exempt from inheritance or gift tax for assets located abroad.

Withdrawal from the arrangement:
In any tax year during the scheme, the individual may apply to withdraw from his or her inclusion within the scope of those provisions. The request to withdraw from this arrangement must be submitted by 31 March of the tax year for which for withdrawal from the alternative method of taxing income from abroad is being requested. In the case of withdrawal, the individual shall be subject to taxation in accordance with the general provisions for the tax year in which the application for withdrawal is submitted and thereinafter shall not be obliged to pay the 7% tax specified. It is not possible re-enter the scheme again.

*  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.

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