Taxation Freelance activity sole-trader business in Greece – standard Greek tax rules

Taxation Freelance activity sole-trader business in Greece – standard Greek tax rules

If a tax resident abroad becomes a Greek tax resident, and starts providing services from Greece under a freelance activity/sole-trader business in Greece, the tax treatment of the relevant income derived in Greece will be determined as follows under the standard Greek tax rules.

According to the general rules, based on articles 3, 5 and 29 of the Income Tax Code:

– Individuals who have their tax residence in Greece are subject to tax on their income derived both within Greece and abroad, i.e., their global income earned in a taxable year.
– Income derived in Greece is any income from a source in Greece i.e. income from consulting services provided through a permanent establishment in Greece.
– The income earned by an individual from liberal professions i.e. professions where the consulting or similar element as well as the element of scientific, cultural, mental creation is dominant, would be in principle classified in Greece as income from business activity.

The income from business activity by individuals (freelancers or sole-trader businesses) is subject to income tax in Greece as per the following tax scale [article 15 of ITC]:

For individuals whose first declaration of commencement of business starts as of January 1, 2013, and for the first three (3) years of their business activity, the tax rate of the first bracket of the above scale (i.e. the 9%) is reduced by fifty percent (50%), provided their annual gross income from business activity does not exceed 10.000 euros.

It should be noted that business expenses are, in principle, deductible from the gross business income to determine the net business profit that is subject to income tax (i.e. the taxable profit).

As a general rule (article 22 of ITC), business expenses are deductible, provided that:

• they are incurred for the benefit of the business or under its ordinary commercial transactions;
• they relate to a real transaction, the value of which is not considered lower or higher than its “market value” on the basis of data available to the tax administration;
• they are properly recorded in the company’s books in the fiscal year they concern and are supported by appropriate documentation (e.g. tax records, etc.) and
• they are not included in the non-deductible expenses that are explicitly listed in the law (article 23 of ITC).

Indicatively, the following types of expenses could be deducted from the business income generated by the sole trader business:

• Rent for the provision of office space
• Utility bills for office space
• IT related expenses (software, hardware, internet connection)
• Purchases of equipment/furniture etc. used for the business activity
• Marketing related expenses
• Mobile phone costs
• Paper/books/stationary
• Business Trips
• Seminars / subscription to professional organizations/memberships
• Financial lease expenses (e.g. of car/equipment etc.)

In addition, based on the income tax return submitted by the individual, an advance tax payment of 55% of the income tax amount corresponding to business activity of the current tax year must be paid. If the income tax return includes income for which tax is withheld or paid, the tax that was withheld or paid for that income will be deducted from the tax that must be imposed according to the above. This advance tax payment will be offset against the tax arising in the next tax year. In case your income is reduced by more than 25% the next tax year, you are entitled to request a reduction of the advance tax payment by filing a relevant application before the Tax Authority. When income from business activity is earned for the first time, the advance tax payment is limited to 50% [article 69 of ITC].

It should be noted that the income generated by individuals from business activity is treated and taxed as employment income (and not as business income), if the following conditions are met [article 12 of ITC]:

• the income derives from the provision of services or the completion of projects based on written contracts with individuals or legal entities, which do not exceed three (3) or, if exceeding such number, where 75% of the gross income from the business activity derives from one (1) of those individuals or legal entities;
• the individual (service provider) does not have the commercial capacity (but instead falls within the liberal profession categories mentioned above).
• the registered seat for the business activity is the same as the registered residence address of the individual (service provider).
• the individual (service provider) does not earn any other income from employment relationship/contract  (i.e. the standard regulated cases of employment income).

In light of the above, and taking into account that the tax rates of the above tax scale are the same for both cases (standard business activity vs business activity which is treated and taxed as employment income), the differences between the two (2) tax regimes are the outlined in the following comparative table: