Summary: Law 4601/2019 unified, for the first time in Greece, the rules governing the corporate framework of transformations; however, the fragmentation of the provisions granting relevant tax incentives remained. Recently, Articles 47–59 of Law 5162/2024 attempt, for the first time, to consolidate the tax provisions—i.e., incentives—governing corporate transformations.
1. Introduction
Corporate transformations constitute an extremely important sector for any modern economy, as they lead to the creation of larger and more robust economic entities. At the same time, they represent a key intersection point of multiple branches of law, such as corporate, tax, accounting, labor law, etc.
A few years ago, Law 4601/2019 unified into one legislative act the, until then, scattered provisions of corporate law governing transformations (see here). However, Article 4 of Law 4601/2019 maintained the tax incentive regime previously in force—namely, the provisions of Legislative Decree 1297/1972, Laws 2166/1993, 4172/2013 and other laws, primarily of a tax or developmental nature (see here regarding the pre-existing tax incentive regime).
With the recent Law 5162/2024 (Articles 47–59), the aforementioned provisions are repealed, and the regime of tax incentives for transformations is unified, for the first time, into a single legislative act—while preserving the application of the provisions of Law 4935/2022. This article briefly examines the tax incentives for transformations, as consolidated under Law 5162/2024.
It is noted that the new law applies to mergers, demergers, and conversions, provided that the draft merger agreement, the draft demerger agreement, or the draft resolution of the general meeting or partners regarding the conversion, respectively, is published after the entry into force of Law 5162/2024, i.e., after 5 December 2024. Conversely, transformations carried out under the repealed provisions continue to be governed by those rules regarding the conditions, requirements, and tax benefits provided therein.
2. Scope of application of the provisions of Law 5162/2024
First, it should be noted that the tax incentives provided for in Law 5162/2024 apply to every form of corporate transformation provided for in Law 4601/2019, as well as to cases of share exchange, provided that:
- Only Greek entities that have tax residence in Greece and are subject to the same tax regime (i.e., the provisions of the Income Tax Code – ITC) participate in the transformation.
- At least one participating entity is a Greek entity with tax residence in Greece, while the other entities have tax residence in an EU Member State, have one of the legal forms referred to in Part A of Annex I of Directive 2009/133/EC (or the IKE form under Law 4072/2012), and are subject to one of the taxes referred to in Part B of the same Annex.
- Specifically, in cases of branch contribution or share exchange, at least one participating entity is a Greek entity with tax residence in Greece, while the others have tax residence in an EU Member State and meet the aforementioned requirements.
- It is expressly provided that the relevant provisions of Law 5162/2024 also apply in cases of contribution of a sole proprietorship or joint venture (under Article 293(2) of Law 4072/2012) into an existing or new company eligible to participate in a transformation under Law 4601/2019 (since current law does not provide for a direct transformation of a sole proprietorship into one of the said corporate forms).
It is further clarified that no limitation applies regarding whether the transformation leads to a higher or lower corporate form, unlike the previous regime. Consequently, the scope of the proposed provisions includes, for example, a merger by absorption of a société anonyme (S.A.) by a general partnership, as well as the conversion of an S.A. into a private company (P.C.).
3. Specific tax incentives for transformations
" Rules on asset valuation
Article 49 of Law 5162/2024 provides that a merger, demerger, or conversion does not increase the taxable value of the assets contributed to the receiving company. Therefore, even if, under corporate law, an asset valuation of the contributing entity is required, this does not affect the taxable value of those assets in the receiving entity. This practically means a deferral of taxation until the asset is transferred, since its acquisition value will be the taxable value recognized in the contributing entity.
" Rules on valuation of corporate shares
The same applies to the corporate shares of the receiving entity that are received by the contributing (demerged) entity in the context of a branch spin-off. A definitive tax exemption arises, subject to the condition that these shares are not transferred within two years of the completion of the spin-off.
However, this does not apply to the taxable value of corporate shares received by the shareholder or partner of the acquired entity in the context of a share exchange, where the value is deemed to be the value of the shares before the exchange.
" Rules on taxation of capital gains
According to Article 50 of Law 5162/2024, capital gains arising from the transformation do not trigger a tax liability for the receiving company. As stated in the explanatory memorandum, "this exemption presupposes and is achieved through the provision that the receiving company retains the same tax basis value (i.e., does not assign a higher value) to the transferred assets as they had in the hands of the contributing entity before the transformation." Therefore, since the tax basis remains the same in both sets of books, no capital gain arises for tax purposes.
As clearly stated: "The receiving company will be taxed in the future on such assets, upon a taxable event under the general provisions of the Income Tax Code, such as a subsequent sale of an asset received from the contributing company in a merger or demerger. In other words, the tax liability is deferred," and Article 47(1) of the ITC does not apply.
Likewise, the shareholder/partner of the contributing company is not subject to tax on capital gains arising from the transformation, except for any portion corresponding to a cash payment. This exemption is definitive but is linked to the continued holding of the shares, as outlined above.
These provisions also apply to the contributing entity in a branch spin-off, and to the shareholder/partner of the acquired company in a share exchange.
" Rules on depreciation
Pursuant to Article 51(1) of Law 5162/2024, the receiving entity performs depreciation on assets based on their corresponding taxable values in the books of the contributing entity, and under the rules that would apply to the latter had the transformation not occurred. This applies to tax depreciation, which is reasonable, since, as noted, the assets are recorded in the receiving entity's books at the values held by the contributing entity.
" Rules on the transfer of losses, provisions, and reserves
Paragraphs 2 and 3 of Article 51 allow the receiving company to carry forward the losses of the contributing entity under the same conditions that would apply to the latter, had the transformation not occurred, as well as any reserves and provisions formed by the contributing entity, retaining the corresponding tax exemptions and conditions.
The terms "receiving" and "contributing" are used here, as in the case of conversions, no specific provision is needed given that the legal entity remains the same. Moreover, the right of the receiving entity to carry forward its own losses is not affected, as it is not subject to transformation.
4. Other exemptions under Law 5162/2024
Article 56(1) provides that all contracts and acts related to the transformation, the agreement concerning the contribution or transfer of assets, the issuance of shares, decisions of competent bodies, capital participation relations, publications in GEMI, registrations (excluding fixed fees to land registrars or cadastral offices), as well as any other required act or agreement, are exempt from any tax or fee in favor of the State, contributions, or third-party charges.
5. Particularly, the contribution of sole proprietorships or joint ventures under Article 293(2) of Law 4072/2012
Article 52 clarifies that the tax provisions of Articles 49–51 also apply to contributions of sole proprietorships or joint ventures into an existing or new company, provided the following conditions are met:
- The assets must belong to the natural person conducting the business or to the partners of the joint venture and serve the purposes of the business or venture.
- The sole proprietorship or joint venture must have been operating for at least two years prior to the contribution.
- For exemption from real estate transfer tax (RETT), the contributed properties must: a) have been used by the contributing entity for at least two years before the contribution, and b) be used by the receiving entity for at least two years after the contribution. These requirements do not apply when the contributing entity's main activity involves construction or exploitation of real estate.
6. In lieu of a conclusion
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.
