Navigating tax residency in Greece for foreign nationals
Greece serves as a tax residence for both foreign individuals and legal entities. As the year draws to a close, it’s an opportune time to delve into the options and obligations surrounding the selection of tax residence for those foreign individuals and legal entities looking to relocate to or expand in Greece. The primary consideration revolves around the permanent or principal residence, habitual residence, or center of vital interests (i.e. personal, economic or social ties) for foreign natural persons, along with business and expansion plans for foreign legal entities.
Foreign individuals contemplate the idea of shifting their tax residence to Greece when they earn income, reside permanently in the country (over 183 days), or both. Conversely, foreign legal entities explore the possibility of settling in Greece through a permanent establishment, such as opening a branch, to expand their activities or by attempting to establish an independent Greek company. For foreign natural persons earning income in both Greece and abroad, with permanent residence in Greece, transferring their permanent tax residency to Greece is necessary. In this scenario, they are taxed for both their Greek and foreign income. The corresponding Greek tax is calculated and offset against the tax paid for the income earned abroad, up to the amount of the Greek tax. If the tax paid abroad exceeds the tax calculated in Greece for this income, the difference cannot be refunded.
Foreign natural persons earning income in Greece but not residing permanently in the country must register in Greece, obtain a tax identification number, and submit a yearly tax return, including only their Greek income.
On the other hand, foreign legal entities wishing to expand their activities in Greece may establish themselves in the country through a branch, office, workshop or factory. The income generated through the permanent establishment in Greece is subject to taxation according to the Greek income tax code. However, tax exemptions apply when the two establishments – the parent located abroad and the branch in Greece – engage in transactions with each other. For instance, if the permanent establishment in Greece wants to transfer profits to the foreign parent company, the dividend distribution tax (i.e. 5%) will not be charged because these two facilities are viewed as a single legal entity.
For both foreign natural and legal persons, the decision to choose their tax residence country is a significant concern and often a source of confusion
Alternatively, foreign legal entities may opt to establish an independent Greek company where the sole shareholder is the foreign legal entity. The Greek company is taxed under the Greek regime and does not receive the aforementioned tax exemptions, as it is considered an independent entity separate from the foreign sole partner. Therefore, careful consideration is essential when deciding to settle in Greece using this approach.
For both foreign natural and legal persons, the decision to choose their tax residence country is a significant concern and often a source of confusion. Each case is unique, requiring thorough research and analysis to determine the optimal way to transfer tax residence, especially when it involves Greece.
Elli Kominea is an economist and tax accountant.
