New Tax on Pension Income of Non-Habitual Residents
By virtue of Law No 4714/2020 a new alternative tax regime for foreign pensioners is introduced, by the addition of a new article 5B in the Greek Income tax code (Law 4172/2013- ITC) with effect as of tax year 2020 onwards. It applies to individuals, earning pension income arising from abroad, as defined in Article 12 of the Income Tax Code, who transfer their tax residence in Greece. The following circumstances must be met:
- they have not been Greek tax resident for the previous five (5) of the six (6) years before the transfer of their tax residence in Greece, and
- they transfer their tax residence from a state with which Greece has concluded an agreement related to administrative cooperation in the field of taxation, which is still in force.
In that case, the total foreign-sourced income is subject to a flat 7% tax rate per year, exhausting any further tax liability in Greece for total foreign source income, including solidarity tax. The aforementioned tax must be paid annually until the end of July. Then, the individual is considered as Greek tax resident and the relevant Double tax treaty applies.
However, the individual is subject to Greek individual income tax for all their Greek source income according to the general rules of the Greek ITC; whilst they are not exempt from Greek inheritance tax or gift tax, where applicable, for moveable assets located abroad.
The application for the transfer of the tax residence is submitted to the Greek Tax Administration until March 31st of the respective year. The above deadline also applies for individuals, who have already transferred their tax residence to Greece during the previous tax year – provided that they meet the above criteria- and wish to be taxed based on the alternative taxation regime. Exceptionally for tax year 2020 the filing deadline is 30.9.2020. The application is examined within 60 days by the competent tax authority.
A maximum term of 15 years applies for the alternative taxation regime; however, the individual could revoke the above status filing an application at any time.
It should be noted that a Common Decision of the Minister of Finance and of the Governor of Independent Revenue Public Authority which include details of the above process is pending at the time of writing of the present.
As per the pension requirement, the Ministerial Decision regulated the aforementioned regime has not issued yet.
Article 12 of the ICT restricts the definition of pensions to the following categories:
- pensions paid by a principal or secondary social security fund of mandatory nature or by professional bodies that have been established by legislative act.
- insurance payments whether one off or in installments in the context of “pension type” group insurance contracts
The Commentary OECD 2017 could also be used for the interpretation of the pension requirement, for countries with which Greece has DTT in force.
The relevant Model Treaty article is article 18 which uses the words “pensions and other similar remuneration paid … in consideration of past employment”.
So, it is important to see how this provision will be implemented. One of the most important areas to be clarified is what will be considered as a qualifying pension in the context of this regime.
* 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.