New tax legislation likely to shake up short-term property lease market

A new law passed by Parliament in late December requires that property owners who use digital platforms such as Airbnb, Tripping and FlipKey to lease accommodation to tourists for short periods pay up to 45 percent in tax on their income, with the purpose of boosting state funds. However, analysts warn that the measure might result in deterring potential visitors to Greece and increasing the appeal of rival destinations.

Parliament ratified the bill that imposed a 15-45 percent tax on annual income from renting property for tourism accommodation, after Airbnb, the leader in home-sharing platforms with a net worth of more than $30 billion and a global network of property owners who lease lodgings, refused to turn over personal data of customers and property owners registered with the online platform.

In the legislation the Finance Ministry stipulates categories of tax rates that will be borne by the property owners profiting from the tourism platforms' sharing economy. Specifically, owners receiving up to 12,000 euros in revenues will be taxed 15 percent, while others receiving 12,001-35,000 and amounts greater than 35,001 euros will be taxed 35 percent and 45 percent respectively. The law, which foresees fines of up to 5,000 euros for violators, was also signed by the head of Greece’s Independent Authority for Public Revenue, Giorgos Pitsilis.

However, this effort to tax and regulate might turn out to be advantageous in some ways, according to Lefteris Potamianos, president of the Athens-Attica Estate Agents Association: “Although this increase in taxation of property owners' incomes may lead to higher prices for short-term lodgings in the long run, we will soon start to see order and balance in a situation which until recently was totally anarchic” and in some cases exposed visitors to danger. “Even hosts had to deal with unhealthy competition coming from the sharing economy of tourism platforms,” Potamianos told Kathimerini English Edition.

Greece is not the only country to start regulating the sharing economy due to accusations of tax evasion being leveled at both online platforms and property owners. For the past two years, many online vacation platforms that serve as rental marketplaces have been accused by the European Union of exploiting the deregulated digitalized tourism economy and not paying adequate taxes in the countries they operate in. France and Germany spearheaded a proposal to heavily tax such platforms, accusing them of tax evasion at the Tallinn Digital Summit last September.

The allegations are based on data showing that Airbnb paid less than 100,000 euros in French taxes in 2016, a tiny fraction of the revenue it generates in a huge tourism market like France. Strong concerns were voiced during the summit on the issue of Airbnb paying taxes to destination countries to generate state revenues.

This new measure could serve as a tool to reduce Greece's budget deficit as the country's Finance Ministry projects that the tax scheme will bring 951 million euros into the state coffers in 2018. Potamianos said that “if the new tax scheme is implemented scrupulously, it will generate a positive injection of money into the economy, while short-term lettings will not generate the high returns [for owners] that they did in the past, and of course if neighboring countries such as Turkey have lower accommodation prices then people's vacation preferences will shift.” However, he remains optimistic because “Greece will always be a magnet for tourists due to its beautiful natural landscape.”

Although the generation of tax revenue could go some way toward helping Greece to exit its bailout program and recover from the recession, the country needs to be wary of the trickle-down effects of this policy, which might destabilize the Greek tourism sector. Taxing Airbnb property owners means that they will likely pass the tax on to visitors, which may lead to a drop in the number of younger tourists who, until now, were able to vacation in Greece thanks to the affordable rates offered on platforms such as Airbnb.

However, Airbnb seems willing to pay its fair share of taxes to the countries with which it cooperates. As Airbnb spokesperson Nick Papas points out, his company “has collected $240 million in hotel and occupancy taxes since it was founded in 2008, remitting them to 275 jurisdictions where the company has agreements with nations worldwide” and that short-term rental platforms where homeowners can rent out a room or their entire property helps grow and diversify the Greek economy.

This growth is witnessed, for instance, in allowing homeowners to earn an average of 2,800 euros per annum in the case of Airbnb. Moreover, the online rental property platform brought an inflow of 770,000 guests into Greece in 2016 and helped to accommodate 35,000 refugees in private homes.

Whether tourists will be put off by higher prices in 2018 remains to be seen and will depend on the elasticity of demand in response to the change in prices that guests visiting Greece will experience.