On 17.02.2021 the Hellenic Parliament adopted a set of amendments to the Income Tax Code and the VAT Code aimed at creating a favourable tax framework for family offices tax resident in Greece.  The hope is that this, taken together with the favourable tax regime adopted in December 2019, will be a further incentive for high net worth individuals to transfer their tax residence to Greece.  Also, that the Greek State will be able to capture at least some tax income from the management of family wealth, compared to a situation without clear tax rules where family wealth management would be routed through family offices establish in jurisdictions with very favourable or zero tax rates.  Finally, that the Greek economy will benefit by money spent by the family offices in Greece and by the creation of employment positions.  It is worth noting in this context that the new regime coupled with the favourable tax regime adopted in November 2020 concerning salaried persons who move their tax residence to Greece, makes attractive not only the creation of new family offices in Greece but also the transfer of existing family offices to Greece.

The favourable tax regime applies to family offices managing the family wealth of Greek tax residents and of members of their families, including assets and investments held through legal persons or entities.  The family offices may have any legal form (other than nonprofits), but they must have as their exclusive purpose to support the families in the administration and management of their wealth.  The law provides that family members themselves may directly or indirectly (through legal persons and entities) hold the shares or be partners (depending on the legal form) of the family offices, but it is not entirely clear from the wording of the law whether this is exhaustive, or whether unrelated parties may also hold stakes in the family offices.

Family offices may provide services themselves or through third parties situated in Greece or abroad, although family members who hold a stake in their family office may not be employed by it.

The law sets two conditions for the family offices to benefit from the favourable tax regime:

1. That they must employ at least 5 persons in Greece (there is a 12-month period as of establishment during which this number must be reached);
2. That they must spend at least €1,000,000 per annum in operating expenses in Greece.

Under the favourable tax regime, income tax will be assessed over profits deriving from a notional gross income of 107% of all expenses and depreciation costs (other than income tax) minus those expenses and depreciation costs, or over the actual income as per the accounting books of the family office, if higher.  Given that families can match the actual income of family offices to the actual expenses, and that the current income tax rate for legal persons and entities is 24%, family offices can achieve an effective tax rate over expenses and depreciation costs of 1.68% (tax rate of 24% over net income  of 107%-100%.  However, the following should be considered:

1. Payments to the family office must be made through bank transfers.
2. It seems that in principle expenses of the family office will be deductible on the sole condition that they are booked and accounted for in accordance with Greek GAAP, i.e. that general deductibility criteria, such as that the expenses must be for the benefit of the family office or in the ordinary course of its commercial transactions, will not apply. However, if expenses consist in payments to persons or entities tax resident in a non-cooperative jurisdiction or a jurisdiction with a preferential tax regime (as defined under Greek tax law), these expenses will be subject to strict deductibility criteria provided for under the Greek Income Tax Code for such payments.

For the purposes of VAT, internal transactions between the shareholders or partners of the family office (i.e. the family members) and the family office shall be treated as internal flows within a single taxable person and shall fall outside of the scope of VAT.

Under the law the Minister of Finance and the Governor of the Independent Authority for Public Revenue are jointly authorised to issue a decision specifying all necessary details for the implementation of this tax regime.  The favourable tax regime shares many common elements with the favourable tax regime applicable to shared service centers in Greece.  It remains to be seen to what extent these common elements will also be carried over to the joint decision implementing the new favourable tax regime.

Authors

Sissy Stergiopoulou, Associate
Maria Chronaki, Senior Associate
Georgios Minoudis, Partner