The Greek Ministry of Finance highlights the option of distribution of tax free reserves, but also of current year’s accounting profits by payment of the corresponding corporate income tax, despite the existence of tax losses. Recently issued guidelines (that can be found in Ministerial Circular 1014/29.1.2018) are clarifying the provisions of the Income Tax Code introduced in 2014. The guidelines interrelate with the recently introduced regime regarding capitalisation of tax free reserves of non-listed companies, by virtue of another recently introduced law (L. 4512/2018). Zepos & Yannopoulos, Taxand Greece, provides an overview.
Under the clarifications pertaining to the Greek Income Tax Code, tax free reserves can be distributed or capitalised under a “gross-up” and taxation of relevant amounts at the standard corporate income tax rate (currently 29%). Tax free reserves cannot be offset against the company’s carried-forward tax losses, to eliminate taxation. In addition, such grossed-up amounts cannot be utilised to increase future carried-forward tax losses. At the same time, it is possible to opt for the special new regime for tax free reserves, under which tax free reserves can be capitalised (but not distributed) under a special tax rate of 10% until 31.12.2019, and at 20% if capitalisation occurs between 01.01 – 31.12.2020. The special treatment is provided under conditions, such as an equal amount of capital increase in cash to be retained for a period of ten years, otherwise the reserves will be subject to the increased corporate income tax rate (allowing the credit of already paid tax).
Current year accounting profits however are treated differently; these can be again capitalised or distributed subject to corporate income tax at the level of 29%, despite the existence of tax losses, following the grossing-up of the amount to be capitalised or distributed. In contrast to the tax free reserves, the grossed-up amount can be utilised to equally increase the amount of the future carried-forward tax losses.
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Greek companies are therefore entitled to distribute current year’s accounting profits by paying tax and without losing the right to carry forward their tax losses. At the same time they are offered the possibility of distributing tax free reserves under the current corporate income tax rate despite the existence of tax losses carried forward; in this case however the tax losses carried forward are not increased by the amounts of the distributed reserves. Finally, they may capitalise (but not distribute) such tax free reserves under a special tax rate, provided that they also proceed with an equal amount of capital increase in cash, while they are not allowed to refund such capital to their shareholders for a period of ten years.
