Income taxation for Individuals in Greece

In the summer of 2014, the new Income Tax Law No. 4172/2014 was enacted in Greece. The new law significantly changed the system of income taxation, particularly for natural persons resident in Greece. The provisions of the law apply retroactively from its entry into force for the taxation of income earned from January 1, 2014, onwards.

The essential difference compared to the previous Income Tax Law is that the method of taxation now varies according to the source of the income. The sources of income have been reduced from an original six (6) to now four (4), specifically:

Income from employment and pensions,
Income from business activity or liberal professions,
Income from capital gains, and
Income from value appreciation as a result of capital transfer

The new taxation systems based on the individual income sources are presented in a compressed manner below:

1. Income from Employment and Pensions Tax Scale

The tax rate table according to the new Income Tax Law for income from employment (dependent employment) and pensions can be presented as follows:

Annual Income (€):	Tax Rate:
0 – 25,000	22%
25,001 – 42,000	32%
over 42,000	42%

As is clear from the tax scale above, there is fundamentally no tax-free amount provided for income from employment or pensions.

Tax Exemption

To support low-income households, however, it is provided that under certain conditions, the income tax for employees and pensioners can be reduced by the amount of €2,100, provided the taxable income does not exceed the amount of €21,000. If, however, the annual income is higher than €21,000, the aforementioned tax reduction would be reduced by €100 for every €1,000 exceeding the limit of €21,000, until the full amount of €2,100 is exhausted. If the annual income from employment and pensions exceeds €42,000, a reduction in income tax is not granted.

Practically, this regulation means that annual income from employment and pensions up to €9,500 can remain tax-free, provided the corresponding expenditure receipts can be presented to claim the tax reduction. Annual income exceeding €42,000 and stemming from the above-mentioned income source, however, will be taxed in full.

Example:

Income of a natural person from dependent employment amounts to €15,000. The resulting tax amount is €3,300. If the prerequisites for the tax reduction are met, a tax reduction of €2,100 would be deducted from the resulting income tax, so that the ultimately payable tax would amount to €1,200.
For an annual income of €29,000 (same income source), the income tax is €6,780, but the legally claimable tax reduction amount here is €1,200. The income tax payable after deducting the tax reduction would amount to €5,480.

Collection of Invoices/Receipts

The legislator has retained the regulation of the previous law regarding the obligation to collect invoices and receipts in order to benefit from the aforementioned tax reduction at all when having income from employment.

The taxpayer must collect and present receipts from the retail sector (purchases of goods) or from services with a total value of at least 10% (for 2013 it was 25%) of their annual income and a maximum amount of €10,500. This includes all goods and services, with the exception of:

Purchases of goods of great value that constitute a presumption (so-called “tekmirio”) for a minimum income
Current bills from telecommunication, energy, and water providers
All other expenses recognized for tax purposes in other ways that serve to reduce income or are otherwise deducted from tax, including doctor’s bills, rent payments, insurance contributions, etc.

Should the value of the collected receipts not reach the required 10% of the income and thus the tax reduction amount cannot be claimed, the taxpayer will be taxed additionally to the regular income tax with a tax rate of 22% on the missing receipt value.

2. Income from Business Activity or Liberal Professions

Income from a business operation is taxed under tax law as profit from commercial activity. This regulation particularly concerns sole traders/businesses and freelancers (lawyers, engineers, tax consultants, etc.) who are not in a dependent employment relationship (see above).

The regulations regarding the deductibility of business expenses have been significantly changed in the new Income Tax Law.

Expenses in favor of the business are now considered deductible expenses if they are reasonable and realistic, do not correspond to an under- or overvalued transaction, and have been properly recorded in the business books of the respective period with the corresponding receipts.

As for non-deductible expenses, these are already excluded by the provisions on loan interest, bond issues, and interbank loans.

In particular, expenses for scientific and technological research are deductible from the gross income of businesses with an surcharge of 30%. The former Law No. 2238/1994 had provided special percentages for non-deductible expenses (e.g., cars, mobile phones), which, however, led to a multitude of court decisions that had to be used for the interpretation of the legal text.

The new regulations are now intended to more closely define the terms through more detailed definitions. Especially regarding questions of under-pricing/over-invoicing as well as the tax classification of expenses incurred to cover both commercial and personal needs (mobile phones, cars, etc.).

Income from the source described here is also determined by indirect examination methods. As soon as the valid accounting standards are not complied with, the accounting documents are not recognized under the Income Tax Law. The same applies if the accounting records are not presented upon the corresponding request of the tax office.

Income from a business operation or a liberal profession up to €50,000 is taxed at a tax rate of 26% under the new law, whereby all income exceeding the amount of €50,000 is taxed at a tax rate of 33%.

A 50% tax rebate on the tax rate for natural persons is granted for “new starters”, provided they have commenced their tax-relevant business operation for the first time from January 1, 2014, onwards, upon the entry into force of the law. This tax benefit is valid for the first three years of commercial activity, provided the taxpayer’s annual gross income does not exceed €10,000.

3. Income from Capital Gains

Another source of income under the new tax law is capital income. This refers to the income of natural persons derived from dividends, interest, royalties, and real estate. The taxation of dividends is subject to an income tax withholding of 10%, which thereby already fulfills the tax liability. Accordingly, the concept of a dividend has been expanded under the new law in line with the guidelines of the Organization for Economic Co-operation and Development (OECD).

The taxation of interest (e.g., from bank deposits) is subject to the provided tax withholding of 15%, which also fulfills the tax obligation of natural persons.

The taxation of royalties is also subject to the related income tax withholding of 20%, thereby also fulfilling the related tax obligation of natural persons.

Income from the rental of real estate up to €12,000 is taxed at a rate of 11%, and any surplus (income above this) at 33%.

However, the new law contains no regulation for imposing additional taxation on income from property rental. The estimated income from the owner-occupation of real estate or from a gratuitous transfer of use is taxed at a rate of 3% calculated on the objective value of the property.

4. Income from Value Appreciation as a Result of Capital Transfer

Another source of income is income from value appreciation as a result of a capital transfer. This income is now taxed at a rate of 15%. This income source also includes income from the transfer of property and the transfer of securities (e.g., shares, company stakes). Specifically, this refers to a value appreciation due to a transfer for consideration, e.g., a real estate sale, transfer of property rights shares, or participations. In the latter two cases, the value shall indirectly or directly constitute more than 50% of the immovable property or of the absorption of immovable property for coverage or capital increase. The resulting tax is withheld by the notary. Subject to the conditions of five years of property ownership and the non-transfer of other properties within these five years, a tax-free amount of up to €25,000 can be granted. In addition, a reduction allowance is calculated in relation to the value appreciation, corresponding to the years the property was owned by the proprietor.

Furthermore, the aforementioned tax-free amount can also extend to the value appreciation from a securities transfer, provided this transfer is not carried out within the scope of the business operation. The absorption of these securities (titles) for the coverage or increase of a company’s capital is also considered a transfer in this sense.

Moreover, the immediate damage transfer due to a capital transfer and the possibility of offsetting against value appreciation gains are provided for.

Finally, it should be mentioned that upon the transfer of real estate, a so-called speculation tax under Law 4223/2013 is also now incurred at the expense of the seller. This, however, is a different tax from the one described here, which is incurred additionally in individual cases and when the legal prerequisites are met.