A. Beneficial tax regime
Law 89/1967 "On the Establishment in Greece of Foreign Commercial and Industrial Companies" was meant to attract foreign investments in Greece, by providing a wide range of benefits regarding exemption from taxes, custom duties, etc. to certain foreign companies, including the personnel thereof, that would choose to become established in the country and conduct their business abroad.
For compliance purposes with EU state aid rules, the Greek State decided to amend Law 89/1967 and introduced the Coordination Centre model as defined by the OECD1 in combination with the cost plus transfer pricing method2 as a beneficial corporate scheme appropriate for large business organizations.3
In particular, Chapter F entitled "Amendment, Replacement and Supplement to the Provisions of Law 89/1967" has been included in Law 3427/2005 to establish a special favorable tax regime in Greece, mainly applicable to multinational groups of companies that wish to use Greece as a hub to offer their services in a centralized manner and benefit from its status as an EU and Schengen Member State and its strategic location between Europe and the Middle East.
The said Law refers to entities providing qualified services, as defined therein, exclusively to foreign associated enterprises with a foreign head office.
It further introduces the cost-plus method for the determination of the gross revenue of the local entity (branch office or subsidiary) by applying a mark-up on the expenses incurred thereby.
B. Activities covered
The local entity must be exclusively engaged in the provision of any of the following services offered either to the head offices of the company or to other associated entities of the Group (not established in Greece):
- consulting services;
- centralized accounting support services;
- quality control services related to production, goods, procedures and services;
- services related to the drafting of studies, designs and contracts;
- advertising and marketing services;
- data processing services;
- collection and transmission of information services; and/or
- research and development services.
C. Requirements & supporting documentation
The entity needs to be granted with a special license by the Ministry of Economy, Development and Tourism, determining also the mark up margin for the first five years of its operation.
To that end, the entity must file an application, which will indicate the full trade name, the head office's address and the nationality of the foreign company, the structure under which it operates, the composition of the Board of Directors and the persons that hold the authority to legally bind the foreign company. In addition, it shall indicate the main business activity of the entity to be established in Greece, the contact details of its legal representative, the persons that it will initially employ and finally the associated companies of the foreign company, to which services will be provided.
The said application must be accompanied by the following documents:
- Certified copy of the Articles of Incorporation of the foreign company.
- Recent Certificate (2 months old) from the pertinent Companies Registry, certifying that the company is duly incorporated and legally operational, the composition of its Board of Directors and the persons that have the authority to legally bind the company.
- Balance Sheet and Results of the Financial Years of the last (1) year of the parent company or the consolidated balance sheet of the Group of Companies, accompanied by an Auditor Report. For newly established companies an interim Balance Sheet is required.
- Feasibility study in accordance with the specimen provided by the Ministry of Economy and Finance for the estimation of the proposed margin of profit of the branch office in Greece from the services it will provide to the foreign (parent) company and its Group of Companies.
- Detailed description of the services to be provided and details of the company(ies) to which the services shall be provided.
- Resolution of the Board of Directors of the foreign company where it is decided for the establishment of the Law 89 branch office in Greece and for the appointment of the legal representative.
The above documents - excluding those referred to in paragraphs 4 and 5 must be certified by a Public Body or legalized in accordance with the Hague Convention of October 5, 1961 (The Apostille Treaty).
In addition, the entity should meet the following requirements:
- It has to employ at least four persons (one of them may be part-time).
- The local entity's annual operating expenses must be at least €100,000, which have to be covered directly by the parent company outside of Greece.
D. Benefits for the 3427/2005 companies
- Licensed entities enjoy certainty re tax deductibility of expenses incurred by them, provided that such expenses are compliant with the provisions of the Greek Code of Books and Records. As a result, the annual tax burden is very limited (generally between 1,5 to 3,0% of the total annual expenses
- No readjustment of service fee on transfer pricing is required.
- Licensed entities are entitled to a VAT refund.
- Non EU nationals to be employed by the licensed entity are provided with a residence/work permit offering free access to all EU and Schengen countries.
- The personnel of such entities is subject to taxation in Greece exclusively for the local and not their worldwide income.
Law 3427/2005 introduces the coordination centre model in Greece, which -combined with the application of the cost plus method for taxation purposes- constitutes a rather attractive corporate scheme for multinational companies, taking also into consideration Greece's strategic geographical location and status as an EU and Schengen Member State.
Currently, more than 150 multinational companies have been licensed to operate in Greece as "companies of Law 3427/2005".
Dentons, working together with Avramopoulos and Partners, and benefiting from the latter's extensive experience with regard to the licensing and other procedures involved with the application of the said Law as well as from senior contacts with the competent Authority, i.e. the General Directorate of Private Investments of the Ministry of Economy, Development and Tourism is able to assist any interested parties that wish to consider the corporate structure described above.
1 Enterprise whose only purpose is to coordinate the activities of affiliated companies, to conduct research or to carry out support activities for the benefit of such corporations (OECD Glossary of Tax Terms, http://www.oecd.org/ctp/glossaryoftaxterms.htm).
2 A transfer pricing method is defined as using the costs incurred by the supplier of property (or services) in a controlled transaction. An appropriate cost plus mark up is added to this cost, to make an appropriate profit in light of the functions performed (taking into account assets used and risks assumed) and the market conditions. What is produced after adding the cost plus mark up to the above costs may be regarded as an arm's length price of the original controlled transaction (OECD Glossary of Tax Terms, http://www.oecd.org/ctp/glossaryoftaxterms.htm)
3 For more details on the cost plus and other OECD transfer pricing methods, please visit: http://www.oecd.org/ctp/transfer-pricing/45765701.pdf.
The applicable mark-up is determined by a Ministerial Decision to be revised on a 5-year basis, following submission of a relevant transfer pricing study by the local entity. Criteria for the determination of such mark-up, which in any case may not be lower than 5%, include the type of services offered, the relevant business sector as well as the OECD Transfer Pricing Guidelines. To obtain a copy of the said Guidelines, please visit: http://www.oecd.org/ctp/transfer-pricing/transfer-pricing-guidelines.htm.
All expenses incurred by the local corporation are deductible for tax purposes provided that they are recharged to the foreign affiliate (the head offices of the company or to other associated entities of the Group), whereas taxable profits are subject to the standard corporate tax rate.
Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.