Tax incentives for Holding Companies in Greece

Introduction

Generally, holding companies are companies that own shares (either majority or minority) in other companies primarily for investment purposes. In addition to shares of other companies, holding companies can also own real estate, royalties, and patents. Their revenues may come from dividends on shares they hold, rents, interest, royalties, etc.

In line with other European counties, the Greek governments have introduced Articles 48 and 48A in Income Tax Code in order to enhance the country’s competitiveness in attracting and retaining investments through Greek investment vehicles.

Tax exemption for capital gains

According to Art. 48A of 4172/2013, the Greek holding company regime provides for a tax exemption on capital gains realized form the transfer of shares. The following conditions need to be met:

• The Greek holding company owns at least 10% of the share capital or voting rights of the subsidiary
• For a time period of at least 24 months;
• The subsidiary is subject to corporate income tax;
• The subsidiary is resident of an EU state and is not treated as a resident or another state by virtue of an applicable DTT;
• The subsidiary is an entity listed in Annex I, Part 1 of the Parent – Subsidiary EU Directive (2011/96/EU).

Since capital gains from disposal of shareholdings are exempt from taxation, related business expenses are accordingly not deductible, e.g. notarial fees, taxes, third-party fees, loan interest for the acquisition of shareholdings, etc. (Circular 2057/2021).

Exemption from dividend tax

According to Art. 48 of 4172/2013, the Greek holding company regime provides for a tax exemption on dividend distribution arising from shares in qualifying subsidiaries or capitalization of distributed profits. The conditions that need to be met are the same as above.

If a Greek holding company does not meet the requirement for retaining the participation percentage of 10% for at least a 24-month period, it may temporarily apply for a relief of income tax on dividends received. In this case, a letter of guarantee in favor of the Greek State is delivered to the Tax Administration. The amount of guarantee shall be equal to the tax that would be payable if the exemption were not granted.

Example

HoldCo “A” S.A. acquired company “B” S.A. for €100,000. After 36 months, HoldCo “A” decided to divest from company “B”. The sale price is €350,000. HoldCo “A” will not pay a capital gain tax on €250,000 and this amount will be reported in a special reserve account.

When the profit from the HoldCo “A” is distributed to its shareholders, the initial €100,000 will be considered as a capital return to the shareholders and is not taxed. The amount of €250,000 will be subject to a 5% dividend tax.

If we assume that the shareholders of HoldCo “A” are two: an individual and a legal entity, in this case a 5% withholding tax will be applied to the dividend allocated to the individual. However, if the legal entity satisfies EU Tax Exemption Rule (holding percentage >10% for more than 24 months), no 5% withholding tax will be applied to the dividend.

All other passive or trading income generated by a holding company is subject to corporate tax at a rate of 22%.

Conclusion

Undoubtedly, Greece offers a favorable tax regime for the formation of holding companies. These companies can accumulate tax-exempt dividends and profits from the sale of their holdings and proceed to new investments mainly in Greece and EU. This framework places Greece’s on par with other jurisdictions such as Cyprus, Malta and Luxembourg. It creates an additional attractive incentive for the foreign capital inflows and allows individuals relocating to Greece to establish a company and transfer their assets there.