The innovative tax benefits introduced by Law 4935/2022, as well as the provisions of older tax laws that remain in force, the most important of which being Law 1297/1972, Law 2166/1993 and Law 4172/2013 (Income Tax Code), are to date the driving force for the growth of Greek SMEs, which are the core of the Greek economy. The incentives provided by these laws have given boost to cooperation between businesses with the long-term aim of improving their productivity, extroversion and sustainability.
The New bill
Stronger tax incentives for corporate transformations are expected to be provided by the new draft law submitted to the Greek Parliament on 25.11.2024, entitled “Measures for income support, tax incentives for innovation and business transformations and other provisions”, in order to give even more impetus to mergers, divisions and other business transformations.
One of the main objectives of the bill is to establish a single framework for both domestic and cross-border transformations, replacing and amending the relevant laws currently in force and preserving the relevant tax advantages. With the enactment of the new bill, the following laws are expected to be abolished: a) Law 1297/1972, b) Articles 1 to 4 of Law 2166/1993, c) Chapter A of Law 2578/1998, d) Articles 52 to 56 of the Income Tax Code and e) Article 61 of Law 4438/2016, on incentives for business transformations under the Income Tax Code.
Framework of interventions
In this framework, the new bill promotes specific interventions, which, among others, include the following:
1) Special incentives/tax benefits are provided for business transformations (mergers, demergers, sectoral contributions, exchange of securities, business conversions), domestic or cross-border (within/outside the EU under certain conditions).
2) A special residence permit (Start Up Visa) is introduced for an investment of 250,000 € in a startup company registered in the National Register of Start-ups from 1 January 2025, provided that it leads to the creation of at least 2 jobs within the first year and maintains the same total number of jobs for at least 5 years after the investment is made.
3) Incentives for scientific and technological research expenditure and for the commercial exploitation of patents are extended, as in addition to the current 3-year exemption of the company’s profits from the commercial exploitation of the patent, a 10% reduction in income tax is provided for an additional 7 years after the expiry of the three-year period.
4) Tax incentives for angel investors investing in start-ups are strengthened. The maximum limit for the deduction from the taxable income of a taxpayer-investor is extended to 900,000 euros from the 300,000 euros previously applicable, up to 50% of the capital contributed to startups registered in the National Register of Start-ups or in a Mutual Fund of Entrepreneurial Holdings.
5) Provision is made for income tax exemption for intra-group dividends received by a legal person that is a tax resident of Greece from a legal person established outside the EU, as opposed to the regime prior to this addition that was only addressed to tax residents of an EU member state, as well as for income arising from the capital gains from the transfer of securities of participation in a legal person established outside the EU.
In addition, the new bill provides, among others, for:
1) Extension of the VAT suspension for new buildings until 31.12.2025.
2) Extension until 31 December 2026 of the suspension of capital gains tax on the transfer of real estate.
3) Establishment for the first time of a tax-free allowance of up to 300 euros per month for tips received by employees. At the same time, for the entire amount from tips, employees and employers are exempt from social security contributions (unless otherwise provided for by individual or collective contracts).
Specifically with regard to corporate transformations, the main points of the draft law are as follows:
Exemption from capital gains tax: Capital gains arising from transformations will not be subject to income tax, neither for the receiving company nor for the shareholders of the transferor company, except in cases where cash is paid. In the case of an exchange of company shares, the goodwill remains tax-free, except in the case of a cash payment. The new element introduced by the bill is that this exemption is now extended to all types of transformations.
Income tax reduction for personal business contribution: a 30% reduction in income tax for personal business contribution is foreseen. An important innovation in this regard is that the minimum corporate capital of the new legal entity is reduced from €125,000 to €100,000, thus broadening the scope of application to more small and medium-sized enterprises.
Transfer of losses and depreciation: the receiving companies will be able to transfer losses and depreciation from the transferring companies, while maintaining the existing tax exemptions.
Real estate transfer tax exemption: In cases involving the contribution of sole proprietorships (personal business) or joint ventures, a full exemption from real estate transfer tax is foreseen, provided that the real estate remains in use by the receiving company for at least two years.
Exemption from capital concentration tax: All transformations falling under the new framework are fully exempt from capital concentration tax.
Overall, the new legislative framework seems to offer more favorable tax arrangements, extending their application to a wider range of transformations, with a particular focus on small and medium-sized enterprises, and also unifying the fragmented tax landscape that has existed so far. It remains to be seen in practice whether these reforms will succeed in further boosting mergers and other corporate transformations, which are considered vital for the concentration and strengthening of entrepreneurship in the country.