Tax-i 185: Favorable taxation of employees and freelancers subject to the regime of Article 5C

The new Circular No. 2224/2021 of the Independent Authority for Public Revenue provides important clarifications and instructions for the application of article 5C of the Income Tax Code.

The special regime of article 5C provides for an exemption from income tax and the special solidarity contribution for 50% of the income from employment / business activity for a period of 7 years, in favor of the individuals choosing to transfer their tax residence in Greece.

The most important clarifications provided by the above Circular concern the following issues:

"New job position"

A “new job position” is in place when the number of employees is increased (in absolute numbers) on the day the individual assumes duties in the company in Greece, provided that the increased number of employees is maintained for at least one year.

There is also a new job position in cases of secondment or hiring-out of an employee from a foreign to a Greek company, the latter exercising the managerial right on the said employee and paying his salary.

The regime of Article 5C may also apply to the BoD members, the partners and administrators of LTDs (EPE in Greek) and PCs (IKE in Greek) as well as to the legal representatives and partners of General Partnerships (OE in Greek) and Limited Partnerships (EE in Greek), for fees received against the services provided in view of the corporate capacities held.

Withholding tax

Employees: Persons who have been subject to the regime of article 5C must present the relevant approval decision to their employers, in order to benefit from the withholding of income tax and the special solidarity contribution on only 50% of their salary. The reduced tax withholding may be effected only by the specific employer explicitly mentioned in the approval decision and concerns the monthly withholdings of tax on salaries taking place as of 1/12/2021.

Freelancers: The withholding of (income) tax of freelancers subject to Article 5c shall continue to be effected at a rate of 20% on their total (100%) income. The same applies in the case where the income generated from business activity, is taxed as income from employment under Article 12 par. 2 (f) of the Income Tax Code.

The exemption from income tax and the special solidarity contribution for 50% of the income from business activity, will be applied upon clearance of the income tax return, determining the final total tax liability.

Minimum amount of expenses paid electronically

The actual income of an individual subject to Article 5C, on which the minimum amount of expenses paid electronically will be calculated, is the total (100%) income from his employment or business activity, i.e. it includes the 50% of the income exempted from income tax and the special solidarity contribution.

Finally, the approval/ rejection decision of the applications for subjection to Article 5C filed after July the 31st of each tax year (after September the 30th for the current tax year 2021) may be issued until February the 20th of the subjection year.

Download the Tax-i in pdf file here.