The overlong undefined tax treatment of foreign trusts and foundations becomes clearer with a recent circular, with which the Ministry of Finance seeks to regulate issues arising from the taxation in Greece of assets assigned to a trust or transferred to a foreign foundation, as well as of the income earned for the benefit of its recipients.
A trust constitutes a particular property management and liquidation regime, in which its founder (trustor ) contracts with the trustee and transfers assets that the latter manages for the benefit of the founder himself or other persons (trustees or beneficiaries) for serving a certain purpose.
Beneficiaries are natural or legal persons who enjoy the benefits of the trust through regular payments or at the dissolution of the trust on terms set by its founder.
Α foundation is a similar institution with a legal personality under the foreign law of its headquarters and whose management is entrusted to its board of directors in order to fulfill the founder's wishes.
Taxing the trust and its founder
When a foreign trust or foundation acquires in Greece (without a permanent establishment) income from dividends, interest or royalties, it is taxed in accordance with the applicable Income Tax Code, i.e. a 15% or 20% tax is withheld, on a case-by-case basis.
Any income from real estate is taxed as income from business activity at a rate of 29%, while the goodwill from the transfer of shares, securities, etc. is not taxed.
If the trust or foundation is a tax resident of a country with which Greece has a Double Taxation Convention, the provisions of the relevant Convention will apply.
Income received from the foreign trust or foundation by the Founder (the person who contributed the property or the funds) as beneficiary of its benefits, is taxed as dividend at a rate of 15% (subject to a solidarity levy). The amount (product of liquidation) received by the beneficiary-founder at the dissolution of the trust or foundation is taxed similarly, to the extent that it exceeds the initial capital (wealth) contributed.
The transfer of funds to a foreign trust or foundation is not a presumption of acquiring assets for the natural person -founder, since there is no provision in the new income tax code neither in the previous law.
Taxing the other beneficiaries
Distributions made by the foreign trust or foundation to third-party beneficiaries are taxed on the basis of the provisions on inheritance or donation taxation, depending on whether they are incurred after the death of the founder or in life.
Exception is made in the case of the founder’s death, in which the beneficiary heir receives returns from the assets acquired. These returns are considered income and are taxed on the basis of the provisions of the income tax code in the name of the heir.
The Greek Code of Inheritance and Donations Tax contains includes specific provisions on the taxation of foreign assets entrusted to a foreign trust, movable or immovable, formed by provision of last will or act in life, etc., as appropriate.
Instead, the foreign foundation as an institution is not regulated by the Greek legal system, so for its tax treatment it refers to the provisions of the domestic law which are more similar to its settings and meet the true will of the founder, as well as the general context of enforcing inheritance taxes and donations.
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G. Samothrakis, Tz. Panou
Posted on Sunday newspaper Kathimerini, 13/08/2017