Taxation on Royalties – The Greek case
Introduction
Greece has always adopted a very broad interpretation of what it considers as royalties, compared to the more restrictive definitions outlined in the OECD Guidelines.
Greece’s expansive interpretation is clearly reflected in its application of double tax treaties and the reservations it has made concerning Article 12 of the OECD Model Tax Convention.
Definition
According to Article 38 of Law 4172/2013, the term royalties refers to income generated from various forms of intellectual property or rights associated with the use of such property. Specifically, royalties include payments received as compensation for the use or the right to use intellectual property, such as copyrights on literary, artistic, or scientific works, patents, trademarks, and designs, as well as payments for industrial, commercial, or scientific know-how.
Additionally, royalties encompass payments for the use of industrial, commercial, or scientific equipment, technical production methods, technical assistance, and consulting services provided electronically. It also includes payments for the electronic download of software, the leasing of industrial equipment, and related transactions.
The definition covers both domestic and foreign-sourced income, provided that the intangible asset in question is pre-existing and the agreement between the parties includes a confidentiality clause.
Taxation in Greece – Cases
- Individuals with tax residency in Greece
Royalties received by individuals tax residents in Greece are taxed at a flat rate of 20%. When royalties are paid to the self-employed, a withholding tax at the same rate of 20% applies. This withholding tax fulfills the tax obligation of the recipient. In case an individual is engaged in business activities related to their royalties (e.g., authors receiving copyright payments), the income is considered business income and is taxed accordingly (22%).
- Individuals with tax residency abroad
Non-resident individuals receiving royalties from Greece are subject to a 20% withholding tax on those royalties, which exhausts their tax liability for this income in Greece. If the non-resident individual resides in a country with which Greece has a Double Taxation Agreement (DTA), the provisions of the DTA may apply, potentially reducing the withholding tax rate or providing exemptions. Furthermore, if they do not maintain a permanent establishment in Greece, they are typically not subject to any additional taxes on their Greek-sourced income, apart from the withholding tax.
- Legal entities with tax residency in Greece
Legal entities that are tax residents in Greece and receive royalties are not subject to withholding tax on the royalties they receive. Instead, these incomes are taxed as part of their regular corporate income.
- Legal entities with tax residency abroad
Legal entities that are not tax residents in Greece but receive royalties from Greek sources are subject to a withholding tax of 20% on these royalties. This withholding tax satisfies their tax obligation in Greece. If the non-resident entity is in a country that has a Double Taxation Avoidance Agreement (DTA) with Greece, the provisions of that treaty may apply. This could potentially reduce the withholding tax rate or provide exemptions.
Conclusion
The rights for using servers, platforms, licensing fees, etc., raise issues related to withholding tax in Greece. Therefore, both IT companies and other commercial or service-providing businesses are required to analyze the nature of their transactions with foreign entities for potential withholding tax obligations. On a compliance level, Greek companies that pay royalties abroad must request a tax residency certificate from their supplier to ensure proper withholding tax procedures.
