I. Targeting of the new Law
On 26 May 2022, the Greek Parliament passed the Law 4935/2022 “Incentives for business development through partnerships and corporate transformations and other provisions” (Official Government Gazette No. A 103/26.5.2022), which aims to provide businesses with tax incentives in order to promote the cooperation among them, increase their productivity, address the “mortality” of very small, small and medium-sized enterprises and achieve economies of scale.
It is a fact that a large percentage of Greek small and medium-sized enterprises does not manage to survive due to lack of incentives, and thus many of them are forced to terminate their operation within a short period of time following their establishment. This problem is addressed by the Greek legislator through the new Law by providing tax incentives for the development of enterprises through corporate transformations under article 1 par. 1 of Law No. 4601/2019 (merger, split, conversion) as well as through forms of transformations provided for by legislative decree 1297/1972 (A’ 217), Law 2166/1993 (A’ 137), Law 4172/2013 (A’ 167) and other laws, which are most of a fiscal or development nature and which are not included in the forms of transformations provided for under Law 4601/2019.
The provisions of the new Law are closely related to small and medium-sized enterprises, while the incentives-benefits provided in case of transformation are exemption from corporate income tax, exemption of income from goodwill in the case of transfer of fixed assets to a third party, exemption from stamp duty and related tax exemptions. In particular:
1. In case of a corporate transformation, the new company (i.e. the company resulting from the transformation) is granted the incentive of exemption from income tax on pre-tax gains at a rate of thirty percent (30%), provided that the following conditions are met:
a) the total average turnover of the transformed companies, taking into account the previous three years, is at least equal to 150% of the turnover of the company with the highest average turnover among the transformed companies over the last three years; and
b) the transformed companies are very small, small or medium-sized enterprises (SMEs), as defined in article 2 of Annex I of the Commission Regulation (EU) No 651/2014 of 17 June 2014;
c) the turnover of the new company, namely, the total amount of the turnover of the last approved and published financial statements of the transformed companies less the transactions taken place between them, is equal to or greater than 375,000 Euros; and
d) the new company employs more than 9 full-time employees.
The income tax exemption applies for up to nine (9) tax years, commencing from the year following the date of completion of the companies’ transformation of any form, while the tax benefit cannot exceed the total amount of 500,000 Euros, over a period of up to nine (9) years from the date of application of the tax exemption.
It is worth noting that provisions for conditional income tax exemption apply also in cases of cooperation between persons, as well as in cases of contribution of a sole proprietorship to any form of an existing or new company.
The term “cooperation” implies the relationship that compiles the following characteristics:
a) it is established by virtue of any form of contract or agreement between unrelated persons, under the provisions of paragraph g’ of Article 2 of Law 4172/2013 (A’ 167), (i) for the purpose of establishing any form of legal person or other legal entity by two (2) or more persons, including joint ventures, co-partnerships, organizations or producer groups, irrespective of their legal form, or (ii) within the scope of contract farming, or (iii) the franchising agreement;
b) is aimed to jointly promote the business activities of the cooperating companies or persons;
c) lasts for at least five (5) years from the date of conclusion of the agreement or establishment of the legal person or entity; and
d) the aggregate average turnover of the participating companies, taking into account the preceding three years, is at least equal to 150% of the turnover of the company with the highest, among the cooperating companies, average turnover over the preceding three years.
2. In case of a corporate transformation, the income arising from goodwill which results from the transfer of a new company’s fixed assets to a third party, is exempt from income tax, provided that the following conditions are met:
a) the turnover of the new company, namely, the aggregate amount of the turnover of the last approved and published financial statements of the transformed companies less the transactions taken place between them, is equal to or greater than 375,000 Euros;
b) the transfer of the new company’s fixed assets to a third party relates to assets transferred from the transformed enterprises, and takes place within five years from the date of completion of the companies’ transformation or the contribution of the sole proprietorship; and
c) the total value of the new company’s fixed assets being transferred, as this is determined through a valuation based on the legislation in force, is equal to or less than 20% of the average turnover of the transformed enterprises over the last three years.
3. The contract, the contribution and the transfer of the assets of the enterprises being transformed, any relevant act or agreement concerning the contribution or transfer of assets or liabilities or other rights and obligations and any rights in rem or in personam, the decisions of the legally competent bodies of the transformed companies, the participation in the capital of the new company, as well as any other agreement or act required for the transformation or the establishment of the new company, the publication thereof in the General Commercial Registry (GEMI) and registration of the relevant acts are exempt from any tax, including income tax on the resulting goodwill, stamp duty or any other fee in favour of the State as well as any levy or right in favour of any third party.
For the registration of the relevant acts of transfer of the assets belonging to the enterprises being transformed, only the fixed fees of the land registries and cadastral offices, amounting to 300 Euros, are payable, without any other charge, remuneration or fee, irrespective of the time the transformation takes place and the relevant acts of transfer are executed. For the registration of the real estate properties and the rights in rem being transferred, the provisions of par. 8 of article 16 of Law 2515/1997 (concerning transformations of credit institutions) shall apply mutatis mutandis.
As expressly stipulated in the new Law, all of the above benefits shall be used, exclusively, in case of transformations which will take place under this law and cannot be used simultaneously in case of transformations under other development laws, including transformations under the Income Tax Code. Hence, the implementation of the aforementioned tax provisions and benefits precludes the application of the legislative decree 1297/1972, Law 2166/1993 and Law 4172/2013 provisions.
Furthermore, it is provided that in case of acquisition of participation rights in another company, the deduction of all expenses incurred by the acquiring company for the purpose of acquiring these rights, is allowed under conditions. The conditions for the recognition of expenses are not required if the acquiring company has not completed one (1) full year from its incorporation or has no other activity other than the participation.
Last, through the enactment of the new law, tax incentive provisions of previous development laws are improved. In particular, the transfer of losses from transformed companies to the balance sheet of the new company for transformations under Law 2166/1993 is provided, while the exemption from capital accumulation tax in transformations under the legislative decree 1297/1972, Law 2166/1993 and Law 4172/2013 is – under conditions – established.
The innovative tax benefits introduced by Law 4935/2022 constitute a mainspring for the growth of Greek SMEs, which are known to be the core of the Greek economy, so as for them to reach the level of SMEs existing in other EU Member States. Considering this, the new law gives a significant boost to the cooperation between enterprises with the long-term aim of improving their productivity, enhancing their extroversion and viability and promoting the sustainable development of the Greek economy.
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