Recent amendments in tax & social security legislation
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- Broad reforms in the country’s social security and pension systems were enacted foby the Greek Parliament. The approved legislation also introduced amendments in the existing tax system, some of which seem incompatible with the concept of uniform taxation on income derived from the same source. Indicatively, the tax rate applicable to partnerships (with turnover up to €1,5m) is significantly lower (up to 16%) than the relevant rate applicable to self-employed individuals performing the same business activity. The basics of the new system are as follows:
New rates of taxation for tax year 2016
- Capital companies: S.A., Limited Liability, Private Company (in general, companies keeping double-entry books):
39,65% : effective tax rate applicable to the company and its members;
0-10% : “solidarity contribution” imposed on income earned by individuals;
100% : advance payment of the corporate income tax of the next fiscal year.
- Partnerships, (General Partnership, Limited Partnership), Law Firms, Notary Public Firms keeping revenues/expenses books:
29% : effective tax rate applicable to the company and its members
0-10% : “solidarity contribution” imposed on income earned by individuals
100% : advance payment of the corporate income tax of the next fiscal year
- Self-employed and freelance professionals:
27,5% (i.e. €11.000): cumulative tax for total income of €40.000
45% : tax rate for income in excess of €40.000
0-10% : “solidarity contribution” imposed on income earned by individuals
100% : advance payment of the income tax of the next fiscal year.
Self-employed professionals providing services up to 3 persons (or 75% of their gross
income derives from only one person) are deemed to be salaried employees and are treated
as such for income tax purposes. In addition, if self-employed professionals provide services
to no more than 2 persons, said persons become subject to payment of social security
contributions similar to salaried employees.
- Employment and pension income:
27,5% (i.e. €11.000): cumulative tax for total income of €40.000
45% : tax rate for income in excess of €40.000
0-10% : “solidarity contribution” imposed on income earned by individuals
1,2% : stamp duty imposed on remuneration payed to BoD members
- Income derived from real estate property
28,15% (i.e. €9.850): cumulative tax for total income of €35.000
45% : tax rate for income in excess of €35.000
0-10% : “solidarity contribution” imposed on income earned by individuals
The new social security system as of 1.1.2017
- A newly formed Unified Social Security Institution (E.F.K.A.) will encompass and consolidate all the existing social insurance institutions of Greece as of 1.1.2017. Under the new system, E.F.K.A. shall be exclusively responsible for the payment of pensions, benefits and allowances to the insured persons.
- Persons coming under one of the following categories must be insured with E.F.K.A.: salaried employees, self-employed and freelance professionals, members of (general or limited) partnerships, members of limited liability companies, administrators/single partner of a single-member private company, members of the Board of a Greek Corporation (S.A.) who own at least 3% of the share capital.
- The total percentage of social security contributions amounts to approximately 41% of the salary for the salaried employees (both amounts of employee’s and employer’s contributions), and approximately to 38% of their income for the other categories registered with E.F.K.A. The latter figure drops to 26,95% if the percentage of contribution for supplementary insurance and “lump-sum pension” (efapax) is excluded.
- It appears that the insurable income considered for the calculation of the maximum social security contributions is €5.860 per month. Explanatory ministerial decisions are expected on this and other relevant issues.
- The new legislation also provides for a minimum amount of insurable income (today at €586 per month). Indicatively, this means that in case of losses for a partnership or zero distribution to its members, their social security contributions will be calculated based on this minimum threshold.
- The new rules also provide that the social security contributions of self-employed and freelance professionals will be determined based on the net taxable income from the person’s business activities of the preceding tax year.
- Shareholders who are board members of an S.A. with a participation percentage lower than 3% shall be considered salaried employees for tax and social security purposes only to the extent that they receive remuneration.
- As aforementioned, self-employed and freelance professionals invoicing maximum 2 clients cause the said clients to pay “employer”- like social security contributions under the same conditions applying to salaried employees.
- Reduced rates of contributions for main insurance apply to newly insured personsfor the first five years from their registration with E.F.K.A. This benefit is only temporary and must be repaid by the insured persons in the forthcoming years.
Please contact Grant Thornton's Tax & Outsourcing Dpt. at tax@gr.gt.com for more information.
