Through the past decade, Greece has undergone a deep economic crisis, resulting in significant budget cuts, a sharp decrease in its gross domestic product (GDP), high unemployment rates and limited foreign investment. Through structural reform programs instigated by the International Monetary Fund (IMF) and the EU, the country has profoundly reviewed the fundamental parameters of its economic policy, labor regulation and tax legislation.
After receiving significant financial aid from the EU and the IMF, since 2014 Greece has returned to primary budget surplus. The reforms have led to the relative stabilization of the economy and, from 2017, to moderate economic growth and declining unemployment rates. The country finally exited the bailout programs on August 20, 2018, but still remains under close supervision by its creditors. The capital controls imposed in June 2015, due to the then popular confrontation strategy against the creditors, were finally abolished on September 1, 2019.
The legislative election of July, 7, 2019 marked the end of four and a half years of the left-wing Syriza government. The newly elected government of the liberal, center-right New Democracy party has outlined strong, investment-based growth as a primary goal of its program.
Moving decisively in this direction, the government has already introduced important legislation in order to reduce the real estate ownership tax as well as to promote important privatizations and facilitate foreign direct investment—creating positive prospects for the Greek economy.
Real Estate Ownership Tax Reduction
What is the ENFIA?
Unified real estate ownership tax (Eniaios Foros Idioktissias Akiniton—ENFIA) is an annual tax, payable by both individuals as well as legal entities and businesses, introduced into Greek legislation by Law 4223/2013, with effect from 2014 onwards. It was the first permanent tax of that kind to be introduced in the Greek legal order, and it aimed mainly at increasing public revenue in order to facilitate the compliance of Greek public finances with the extensive requirements of the then ongoing bailout programs.
The ENFIA is imposed on the following: full and bare ownership, usufruct, habitation and surface rights with respect to immovable property, as well as the appurtenances to such rights, for example, the exclusive use of parking places, auxiliary spaces and swimming pools, that are situated in communal spaces on the property concerned.
The total tax payable equals the sum of the principal ENFIA amount on each property plus the supplementary ENFIA amount on the total value of the taxable person’s whole property. The principal ENFIA amount is calculated using a complex mathematical formula that relies on various criteria based on the property’s features, such as geographic position, surface, use, age, flooring and number of frontages.
Criticism and Reduction
Since its imposition, the ENFIA has been subject to heavy criticism as a tax opposed to growth and harmful to the real estate market of the country, due to its effect of discouraging potential investment. Its gradual reduction had therefore been agreed with the EU after the completion of the bailout program in 2018, starting from 2020 onwards.
After the legislative election, the newly elected government decided to legislate an immediate reduction of the ENFIA for individuals, in order to boost growth and promote social justice. Starting from the current tax year, the ENFIA for individuals was reduced, according to the relevant provision of Article 1 of Law 4621/2019, depending on the total value of the immovable taxable property:
- for property up to 60,000 euros ($65,500), at a rate of 30%;
- for property up to 70,000 euros, at a rate of 27%;
- for property up to 80,000 euros, at a rate of 25%;
- for property up to one million euros, at a rate of 20%; and
- for property of more than one million euros, at a rate of 10%.
The total value of the immovable property referred above shall not include the value of the rights to land outside a city or settlement.
The above ENFIA reduction will lighten the tax obligations of individuals, with an indirect but positive impact on the Greek economy. Unfortunately, an equivalent reduction for businesses was not introduced, due to the settled fiscal commitments of the country to the EU institutions (a budget surplus of 3.5% of GDP for 2019). This may be included in the government program for upcoming years.
ENFIA must be paid up to the last working day of the month following the issuance of the tax assessment by the tax authorities, or in equal monthly installments, each of which must be at least 10 euros; the first installment must be paid by the last working day of the month following the issuance of the tax assessment, with subsequent payments being made on the last working day of each subsequent month and the last installment being paid by the last working day of January of the subsequent year.
For the current tax year, the first ENFIA installment must have been paid by September 30, 2019.
It should be noted that any real property transaction, including a mortgage, is null and void unless the notary handling the transaction attaches to the relevant deed a certificate from the tax authorities attesting to the full payment of (or lawful exemption from) ENFIA with respect to the property to which the transaction relates. The certificate must also attest to the payment by the taxable person for the previous five years of any ENFIA installments due, or the legal exemption from ENFIA, with respect to any other properties in Greece (including those not transacted on) for which the taxable person was liable during the same period.
New Investment Law: Less Bureaucracy Leading to Stronger Growth?
Today, many investments of strategic importance for Greece remain uncertain, as their licensing has been significantly delayed. Rather than acting as a growth tool, previous investment laws have frequently “trapped” investors in administrative processes, depriving the country and its economy of valuable resources as well as new jobs.
The newly presented draft investment law introduces greater flexibility to allow strategic investments to be licensed promptly. The provisions included in the bill aim at creating a friendlier climate to attract new investment, removing the obstacles of the past.
The draft investment law makes a number of changes which are considered below.
More Flexible Certification Process
A more flexible process of certifying the completion and starting of an investment operation is introduced by involving private certified auditors, accountants or audit firms as well as civil engineers, mechanical engineers or other professionals who meet the criteria set out in the relevant provisions.
Single Digital Map
The unified capture of all geospatial data will be accessible free online through a new database. Geospatial information related to investment or construction activity, as well as the characteristics of the relevant buildings and areas, will be included.
National Infrastructure Registry
Due to the lack of a relevant registry, in the past it has not been clear to businesses which public institution was responsible for the maintenance and control of any public infrastructure buildings. The new digital National Infrastructure Registry will provide free information on public infrastructure and buildings.
The process of starting a business in a business park is modernized and simplified. Thus, a business will no longer need—apart from an installation license—an operating license, and a mere notification of starting will be sufficient. New environmental ratings will also be introduced in order to allow a less complex environmental licensing system.
Simplified Process for Industrial Installations
The bill clarifies the cases where an installation approval is no longer required. An industrial operation authorization shall cease to apply for “middle-size” industries, classified as A2 level in the relevant environmental classification. Industries shall still notify their operation and be subject to inspection, but they will not have to delay the start of their operation while awaiting control and authorization by the competent authorities.
In addition, a system of simplified environmental classification, compatible with EU law, is introduced.
Fewer Controls on Businesses?
According to the draft bill, business certification and verification shall be carried out not only by public but also by private entities approved by the National Quality Infrastructure System. There will be additional arrangements to ensure impartiality, as well as penalties, if necessary. Lack of human resources has so far led to fewer or non-effective controls (only smaller businesses were controlled, instead of large or high-risk entities). It is envisaged that each complaint will be filed electronically.
Modernizing Telecommunication Networks
The bill will also modernize the licensing and operating framework for mobile antennas in Greece, thus promoting further digital transformation of the country. More specifically, it develops a new licensing system in line with international good practice, based on specifications set out in EU directives and by the World Health Organization.
New Procedure Planning and Simplification Program
The proposed National Procedure Simplification Program aims at combating bureaucracy, which currently involves time and costs for citizens, businesses, and the public administration itself. The program, which will be co-sponsored by all government agencies, will include all actions to simplify administrative procedures, such as the removal of supporting documents for applications and the simplification and codification of the legislation.
Employment Regulations for Declining Businesses
Taking into account the report of an international committee of experts, and following the best practices within the EU, certain exceptional provisions are introduced for businesses facing serious financial problems, namely insolvency, bankruptcy or out-of-court settlement or resolution, as well as for social economy companies and non-profit legal entities. These emergency provisions allow exceptions to the application of existing collective labor agreements, and are aimed at facilitating the business’s operation and recovery and, above all, at preserving jobs.
Changes in the Business Registry
The transactions which the National Business Registry (GEMI) controls will be reduced and automatically be registered and published by the companies themselves. For capital companies, corporate transactions involving dissolution, delisting, revival and corporate transformations shall be excluded from automatic publication. For partnerships, only corporate transformations shall be excluded.
Digitalization of the Justice System
Justice processes will be accelerated through digitization. As of January 2021, lawyers and members of the State Legal Council will be required to file applications and all relevant documents electronically with the Supreme Administrative Court (Symvoulio tis Epikratias) and the rest of the administrative courts. All notifications will also be performed electronically. Online filing and notification will reduce inconvenience for citizens and businesses, while enabling more rapid organization, and reducing costs for all parties.
The new draft investment bill obviously aims at reducing bureaucracy and procedures for business in order to boost new and existing investment projects and create new jobs in the private sector of the economy.
Some of the proposed measures may be considered “revolutionary” by Greek standards. Nevertheless, their effective implementation will surely bring about a significant improvement in the operation of public institutions, combining the enhanced economic climate with genuine reforms in the administration, as well as further tax cuts for businesses.
The draft bill has already been submitted to the Hellenic Parliament and will enter into force in the coming days. It will hopefully be accompanied by the necessary relevant executive decisions, in order to allow rapid and effective implementation of the legal provisions.
Nikolaos Theodorou is an Athens-based Attorney-at-Law, and co-author of Bloomberg BNA Portfolio for Greece.
The author may be contacted at: firstname.lastname@example.org
This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.
Bloomberg link: INSIGHT: Greece—On the Road to Recovery? (bloombergtax.com)