Foreign Company Income: How Greece Taxes Dividends and Profits from Abroad

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Table of Contents

1. Introduction
2. Overview of Greek Taxation System
3. Taxation of Foreign-Sourced Dividends
4. Taxation of Foreign Business Profits
5. Double Taxation Treaties and Relief Methods
6. Special Regimes and Incentives
7. Compliance and Reporting Requirements
8. Recent Developments and Future Outlook
9. Conclusion
10. FAQs

1. Introduction

As global economic interconnectedness continues to grow, understanding how different countries tax foreign-sourced income becomes increasingly important for businesses and investors. Greece, with its strategic location and improving business climate, has been attracting more foreign investment in recent years. This comprehensive analysis examines how the Greek tax system treats income derived from foreign companies, including dividends and business profits.

For those considering investing in Greece, it’s worth noting that there are many opportunities in the greek property for sale market as well. However, this article will focus specifically on the taxation of foreign company income for Greek residents and companies.

2. Overview of Greek Taxation System

Before delving into the specifics of how Greece taxes foreign company income, it’s essential to understand the broader context of the Greek tax system.

2.1 General Principles

Greece operates on a worldwide taxation system for its tax residents, meaning that Greek tax residents (both individuals and companies) are taxed on their global income, regardless of where it is earned. Non-residents, on the other hand, are generally only taxed on income sourced within Greece.

2.2 Corporate Income Tax Rate

As of 2023, the standard corporate income tax rate in Greece is 22%. This rate applies to both domestic and foreign-sourced income for Greek resident companies. It’s worth noting that this rate has been gradually reduced in recent years as part of Greece’s efforts to improve its competitiveness and attract foreign investment.

2.3 Individual Income Tax Rates

For individuals, Greece employs a progressive tax system with rates ranging from 9% to 44% as of 2023. The specific rate applied to foreign-sourced dividends and other income will depend on the individual’s total taxable income for the year.

3. Taxation of Foreign-Sourced Dividends

Dividends received from foreign companies are a common form of foreign-sourced income. Here’s how Greece typically handles the taxation of these dividends:

3.1 For Greek Resident Companies

When a Greek resident company receives dividends from a foreign company, the treatment depends on several factors:

• EU/EEA Source: Dividends received from EU or EEA countries may be exempt from corporate income tax in Greece if certain conditions are met. These conditions typically include a minimum holding period and a minimum participation percentage in the distributing company.
• Non-EU/EEA Source: Dividends from countries outside the EU/EEA are generally subject to the standard corporate income tax rate of 22%. However, a foreign tax credit may be available to avoid double taxation.

3.2 For Greek Resident Individuals

For individual taxpayers, the treatment of foreign-sourced dividends is typically as follows:

• Dividends are generally subject to a flat tax rate of 5% (as of 2023).
• This rate applies regardless of the source country of the dividends.
• The dividend income is not added to other types of income for progressive taxation purposes.

4. Taxation of Foreign Business Profits

When Greek residents (both individuals and companies) earn profits from foreign business activities, the taxation treatment can be more complex:

4.1 Permanent Establishment Concept

The concept of “permanent establishment” (PE) is crucial in determining how foreign business profits are taxed. If a Greek resident has a PE in another country, the profits attributable to that PE may be taxed differently:

• If there’s a double tax treaty between Greece and the country where the PE is located, the treaty provisions will generally determine the taxation rights.
• In the absence of a treaty, Greece typically taxes the worldwide income but may provide relief for foreign taxes paid.

4.2 Controlled Foreign Company (CFC) Rules

Greece, like many countries, has implemented Controlled Foreign Company (CFC) rules to prevent tax avoidance through the use of low-tax jurisdictions. Under these rules:

• If a Greek resident controls a foreign company in a low-tax jurisdiction, certain types of passive income of that foreign company may be attributed to the Greek resident and taxed in Greece.
• The specific conditions for CFC rules to apply include ownership thresholds and effective tax rate comparisons.

5. Double Taxation Treaties and Relief Methods

Greece has an extensive network of double taxation treaties (DTTs) with numerous countries. These treaties play a crucial role in determining how foreign-sourced income is taxed and in preventing double taxation.

5.1 Treaty Network

As of 2023, Greece has DTTs in force with over 55 countries, including major economic partners such as the United States, China, and most EU member states. These treaties typically follow the OECD Model Tax Convention but may contain specific provisions unique to each agreement.

5.2 Relief Methods

Greece generally uses two methods to provide relief from double taxation:

• Credit Method: This is the most common method. Greece allows a credit for foreign taxes paid, up to the amount of Greek tax attributable to the foreign-sourced income.
• Exemption Method: In some cases, particularly for certain types of income from EU/EEA countries, Greece may exempt the foreign-sourced income from taxation altogether.

6. Special Regimes and Incentives

Greece has introduced several special regimes and incentives that can affect the taxation of foreign-sourced income:

6.1 Participation Exemption Regime

This regime allows for the tax-free receipt of dividends and capital gains from qualifying subsidiaries. To qualify:

• The parent company must hold at least 10% of the subsidiary for at least 24 months.
• The subsidiary must not be located in a “non-cooperative” tax jurisdiction.

6.2 Special Tax Regime for High-Net-Worth Individuals

Greece has introduced a special tax regime to attract high-net-worth individuals. Under this regime:

• Qualifying individuals can opt to pay a flat tax of €100,000 per year on their global income.
• This can be particularly beneficial for those with significant foreign-sourced income.

7. Compliance and Reporting Requirements

Proper reporting of foreign-sourced income is crucial to avoid penalties and ensure compliance with Greek tax laws.

7.1 Annual Income Tax Return

Both individuals and companies must report their worldwide income, including foreign-sourced dividends and business profits, on their annual Greek income tax return. This typically includes:

• Detailed breakdown of income by source and type
• Information on foreign taxes paid
• Documentation to support claims for foreign tax credits or exemptions

7.2 Transfer Pricing Documentation

For companies engaged in cross-border transactions with related parties, Greece requires comprehensive transfer pricing documentation. This includes:

• Master File and Local File for larger entities
• Summary Information Table for all entities with related-party transactions

7.3 Country-by-Country Reporting

In line with OECD BEPS recommendations, Greece requires Country-by-Country Reporting for large multinational enterprise groups. This provides tax authorities with a global picture of the group’s economic activities and tax payments.

8. Recent Developments and Future Outlook

The Greek tax landscape for foreign-sourced income continues to evolve. Some recent and anticipated developments include:

8.1 Digital Services Tax

Greece is considering the implementation of a Digital Services Tax, which could affect how certain types of foreign-sourced digital income are taxed.

8.2 Enhanced Exchange of Information

Greece is actively participating in global initiatives for automatic exchange of financial information, such as the Common Reporting Standard (CRS) and FATCA. This is likely to lead to increased scrutiny of foreign-sourced income.

8.3 Potential Corporate Tax Rate Reductions

There are ongoing discussions about potentially further reducing the corporate tax rate to enhance Greece’s competitiveness. This could make Greece an even more attractive destination for foreign investment.

9. Conclusion

The taxation of foreign company income in Greece involves a complex interplay of domestic laws, international treaties, and special regimes. While Greece generally taxes worldwide income for its residents, it also provides mechanisms to avoid double taxation and offers incentives to attract foreign investment.

For businesses and individuals dealing with foreign-sourced income in Greece, it’s crucial to stay informed about the latest developments and to seek professional advice to ensure compliance and optimize tax efficiency. As Greece continues to position itself as an attractive destination for international business, understanding these tax implications becomes increasingly important.

The Greek tax system’s treatment of foreign company income reflects a balance between raising revenue, preventing tax avoidance, and maintaining competitiveness in the global economy. As economic conditions and international tax norms continue to evolve, we can expect further refinements to Greece’s approach to taxing foreign-sourced dividends and profits.

10. FAQs

1. Q: Are dividends from foreign companies taxed differently than domestic dividends in Greece?

   A: For individual taxpayers, both foreign and domestic dividends are generally subject to the same flat tax rate of 5%. For companies, the treatment can differ depending on whether the source is within the EU/EEA and whether certain participation exemption conditions are met.

2. Q: How does Greece prevent double taxation on foreign-sourced income?

   A: Greece primarily uses the credit method, allowing a credit for foreign taxes paid up to the amount of Greek tax due on the foreign-sourced income. In some cases, particularly within the EU/EEA, an exemption method may be used.

3. Q: What are the main compliance requirements for reporting foreign income in Greece?

   A: Foreign income must be reported on the annual income tax return. Additional requirements may include transfer pricing documentation for related-party transactions and Country-by-Country Reporting for large multinational groups.

4. Q: Does Greece have any special tax regimes that can benefit those with significant foreign income?

   A: Yes, Greece offers a special tax regime for high-net-worth individuals, allowing them to pay a flat tax of €100,000 per year on their global income. There’s also a participation exemption regime for qualifying corporate structures.

5. Q: How might Greece’s taxation of foreign company income change in the near future?

   A: Potential changes include the implementation of a Digital Services Tax, further corporate tax rate reductions, and enhanced information exchange with other countries. It’s important to stay updated on these developments as they may significantly impact tax planning strategies.

Article reviewed by Aino Koskinen, Business Growth Consultant | Scaling Companies with Data-Driven Strategies, on March 30, 2025