Practical guide on the preferential tax regimes available for individuals moving their tax residency to Greece

Theodoros I Skouzos

Iason Skouzos TaxLaw, Athens

tskouzos@taxlaw.gr

Since the end of 2019, Greece has been on a list of countries that have enacted favourable tax regimes, designed to attract individuals to move their tax residence to the country. These regimes are the non-dom tax regime, the foreign pensioner’s tax regime and the employee and self-employed regime, known as 5A, 5B and 5C regimes, respectively, as per the corresponding articles in the Income Tax Code, which introduced them. This article provides an overview of the most important features of each of these tax regimes, considering the most recent amendments and administrative interpretations since their enactment.

The 5A non-dom tax regime

The non-dom tax regime provides an alternative taxation method for foreign-sourced income generated by individuals who transfer their tax residence to Greece.

Main features

The main features of the regime are as follows:

• a lump sum annual tax of €100,000, which exhausts the total tax liability for foreign-sourced income, including capital gains, regardless of the amount or source of such income;
• no obligation to declare foreign-sourced income in Greece;
• the lump sum tax must be paid in one instalment, typically on or before the last working day in July, with the exception of the payment for the first year, which is due within 30 days from the acceptance in regard to the regime;
• the non-dom tax regime covers a maximum of 15 tax years, including the year of application;
• the regime may be extended to family members of the applicant, with an additional sum of €20,000 per year for each person. Children are covered without the need to pay this extra amount;
• property located abroad is exempt from Greek inheritance and gift tax;
• no credit is allowed for any foreign tax paid on foreign-sourced income covered by the regime;
• any Greek-sourced income is taxed according to the general tax rules;
• the regime provides qualification of Greek tax residency for income tax treaty purposes; and
• if, in any year, an individual fails to qualify for the non-nom tax regime, they will be taxed on their worldwide income, according to the general rules. Disqualification could result from the failure to pay the lump sum tax or the lapse of the 15-year period of maximum coverage, at which point, it is expected that the individual will move their tax residence abroad.

Conditions

Two main conditions, as follows, must be met to be eligible for coverage by the non-dom tax regime:

• the applicant must not have been a Greek tax resident for seven out of the eight years prior to the transfer of their tax residence to Greece; and
• the applicant must invest, within three years from the application date, themself or through a family member as defined in the law, or through a company in which they have the majority shares, at least €500,000, in one or more of the following investment categories:
  • real estate, ie, the purchase of real estate in Greece and/or the construction of real estate in Greece;
  • participation in a legal entity incorporated in Greece, with securities not listed on a regulated market, ie, contribution in the initial share capital of a company upon its formation, or subscription in the share capital increase of an existing company, or the purchase of shares in an existing company;
  • Greek government bonds, with a remaining maturity at the time of purchase of at least three years, through a credit institution established in Greece, which is also the custodian of these bonds;
  • capital contribution for participation in an alternative investment fund, which is established in Greece and supervised by the Hellenic Capital Market Commission or whose manager is registered with the Hellenic Capital Market Commission; or
  • the purchase of financial instruments traded on regulated markets, ie, the purchase of shares and/or bonds of companies domiciled in Greece, units of mutual funds (ETFS) and/or bonds of the Greek government, which are admitted for trading or traded on regulated markets or multilateral trading facilities operating in Greece.

An investment is not required if the individual has acquired and holds a specific type of residence permit for investment activity in Greece.

There is no requirement in the law under which an individual must be present in Greece for a minimum period of time in order to qualify as a Greek tax resident under the non-dom tax regime. However, there is a presumed intention to render Greece as the centre of vital interests of the applicant, so a leased or privately owned main residence in Greece must be declared.

The application process

The procedure for obtaining tax residence under the 5A regime involves the following steps:

• an application with the competent tax authority by 31 March in the respective tax year, accompanied by a Greek bank certificate evidencing the transfer of the minimum investment amount to a Greek bank account. Applications filed after that date will be deferred for examination in the following tax year;
• requests for extension of the application to family members must be made at the same time;
• decisions by the competent tax authority are issued within 60 days; and
• supporting documentation must be provided on a timely basis, within the foregoing 60-day deadline.

The 5B foreign pensioner’s tax regime

The 5B foreign pensioner’s tax regime provides for an alternative taxation method for individuals who earn foreign-sourced pension income and transfer their tax residence to Greece.

Main features

The main features of the 5B foreign pensioner’s tax regime are as follows:

• the total foreign-source income of the individual is subject to an annual flat tax rate of seven per cent, unless the income is exempt from tax, based on the applicable domestic top-up tax (DTT). The reduced tax rate is not limited to pension income, but covers all income generated abroad;
• the total foreign-source income for the tax year, together with income from sources in Greece, must be declared in the taxpayer’s annual income tax return;
• payment of the tax must be made in one instalment, typically on or before the last working day in July of the following year. Should an applicant fail to pay the tax by the last day in the tax year, coverage by the 5B regime is revoked with immediate effect;
• the 5B regime covers a maximum of 15 tax years, beginning in the year of application;
• the 5B regime does not provide an exemption from Greek inheritance/gift tax for property located abroad;
• a foreign tax credit is recognised for any foreign income tax paid on foreign-source income covered by the regime;
• income sourced in Greece is taxed under the general tax rules;
• an individual covered by the 5B tax regime qualifies as a Greek tax resident for income tax purposes and is entitled to a Greek tax residency certificate upon request;
• there is no option to extend coverage provided by the 5B regime to family members of the qualifying individual; and
• following revocation of the regime, if the taxpayer remains a tax resident in Greece, they will be taxed on their worldwide income, according to the general tax rules.

Conditions

The conditions, as follows, must be met to be eligible for coverage by the 5B regime:

• the applicant must be a recipient of pension income paid by (1) a foreign social security institution, (2) a governmental authority, (3) an occupational pension fund, or (4) an insurance indemnity paid in a lump sum or in annual payments by a private insurance company in the context of a group pension plan;
• the applicant must not have been a Greek tax resident for five out of the six years prior to the application; and
• prior to applying for the 5B regime, the applicant must have been a tax resident in any country with which Greece has a treaty on administrative cooperation in the field of taxation.

There is no explicit legal requirement for a minimum presence in Greece, but it is advisable to spend a considerable amount of time in the country and to observe all other relevant factors in regard to the determination of tax residency by a DTT.

The application process

The process for obtaining tax residence under the 5B regime involves the following steps:

• applications put to the competent tax authority must be made by 31 March in the respective tax year. Applications filed after that date will be deferred for examination in the following tax year; and
• decisions by the applicable authority are made within 60 days.

The 5C employee and self-employed person’s tax regime

The employee and self-employed person’s tax regime provides for an alternative taxation method for taxing Greek-sourced income from salaried employment and business activity by individuals who transfer their tax residence to Greece.

Main features

The main features of the employee and self-employed person’s tax regime are the following:

• a tax exemption of 50 per cent of annual Greek-sourced income derived from salaried employment or business activities. The remaining 50 per cent of this income is taxed in accordance with the general tax rules, together with any other Greek or foreign-sourced income;
• the total foreign-source income for the tax year, together with other income from sources in Greece, must be reported on the person’s annual income tax return;
• the 5C regime does not provide an exemption from Greek inheritance tax or gift tax for any property located abroad;
• an individual covered by the 5C regime is exempt from deemed income calculated based on expenses for maintaining a place of residence, such as a house or an apartment, and a private car, which would apply to ordinary Greek tax residents;
• the 5C regime covers a maximum of seven tax years, from the year of application;
• an individual subjected to the 5C regime qualifies as a Greek tax resident for income tax purposes;
• an individual that has been included in the 5C regime may opt for their parallel inclusion in the 5A or 5B regimes, provided that the corresponding conditions are met;
• following revocation of the 5C regime, an individual who remains a tax resident in Greece is taxed on their worldwide income, according to the general tax rules. Revocation could arise from the cessation of the employment relationship or the business activity for more than 12 months, voluntary withdrawal from the regime or the lapse of the seven year maximum period of duration.

Conditions

Four main conditions, as follows, must be met in order to be accepted into the 5C regime:

• the applicant must not have been a Greek tax resident for five out of the six years prior to their application;
• the applicant is transferring their tax residence from an EU/EEA Member State or from a state with which Greece has a valid agreement on administrative cooperation in the field of taxation;
• the applicant provides services in Greece in the context of a new employment relationship, which includes a position as a member of the board of directors of a Greek legal entity or an executive with a Greek permanent establishment. Alternatively, the applicant shall initiate taxable activities as a self-employed person and carry on business activities based in Greece; and
• the applicant declares their intention to remain in Greece for at least two years.

The application process

The procedure for obtaining tax residence under the 5C employee and self-employed person’s regime involves the following steps:

• for an employment or business activity taking place up to and including 2 July of each year, the application will be filed by the end of that year. Applications filed after that date will be processed in the following tax year. For an employment or business activity taking place after 2 July each year, the application will be filed by the end of the following year and will be examined for that year;
• decisions by the tax authority for inclusion in the regime (or rejection) are made within 60 days; and
• supporting documentation is required to be filed within 60 days. If supporting documents are not filed on a timely basis and the application is rejected for this reason, there are some remedies available.

Conclusion

The Greek government has adopted well-thought-through provisions designed to attract wealthy families, retirees, executives and family offices to the country. The importance of these incentives is expected to be emphasised following recent changes in other jurisdictions that are expected to mobilise taxpayers to move to more tax-favourable locations.