Recently the dividend in kind has been introduced in the legislative framework of Greek law of Société Anonyme (SA), namely the option that the profits of a company may be distributed in the form of either shares of domestic or foreign listed companies or listed shares owned by the company or any other company asset, apart from cash.However, the Greek Income Tax Code (ITC) does not explicitly refer to the case of distribution of dividends in kind or its taxation.
Greek tax perspective of dividend in kind
The definition of “dividends”, as per article 36 of the Greek ITC includes any income deriving from shares, securities or other types of rights in the participation of profits that do not constitute claims from debts, as well as any income from other corporate rights such as parts, including pre-dividends and numerical reserves, participations in profits of personal companies, distributions of profits from any type of legal entity as well as any similar distributed amount.
The distribution of dividends in kind is explicitly provided by article 161 par. 4 of L. 4548/18 (which is the updated/recent legislative framework for Greek SAs).
Taking into account the existence of the notion of the dividend in kind within the regulatory legal framework, and the absence of any explicit provisions in the taxation framework (e.g. any provision stipulating a special tax treatment), it could be supported that the regular tax treatment of dividends would similarly apply also to dividends in kind (provided they indeed qualify as dividends and this can be substantiated) i.e. in the case of dividends received by individuals, the application of a 5% income tax that exhausts the Greek tax liability.
Further to the above, for the determination of the tax base, there may be a need to determine/evidence, with a valuation, the fair market value of the dividend in kind. In the case of shares being the in-kind dividend, then there would need to be a valuation of such underlying shares, whereas in the case of listed shares their value could potentially be more easily determined on the basis of their market price at disposal.
A similar approach is followed for the in-kind distribution of assets to the shareholders upon the liquidation of a company (e.g. of shares and securities, real estate property etc.), which is also treated as a dividend, to the extent it exceeds the capital that has been contributed by the shareholder, and in which case a valuation is required to determine the fair market value for purposes of determining the taxable value.
Tax credit is applicable to the foreign tax
Moreover, according to article 9 of the Greek Income Tax Code and the relevant provision of the Double Tax Treaty in place (where applicable), the foreign tax is credited against the Greek tax liability on the same income and up to the amount of the Greek tax on that income.
Regarding the possibility of a tax credit being given in Greece not only for the foreign tax imposed on the distributed dividend but also for the foreign corporate income tax imposed on the profits that correspond to the distributed dividend, where the applicable Double Tax Treaty explicitly provides for such a clause, the following are noted:
Documentation required by the Greek tax authorities for the tax credit
According to Circular E. 2018/2019 regarding the tax treatment of dividend income earned by an individual Greek tax resident from a foreign company and the relevant tax credit, it is stipulated that in order to ensure the correct application of the provisions of the DTTs that include such a clause, and in order to indicate in the personal income tax return (E1) the amount of the foreign corporate tax due corresponding to the shareholder and in order for said tax to be credited against the corresponding Greek tax, it is mandatorily required to obtain a certificate from the foreign tax authority which will include the following information:
- The full details of the legal entity that made the distribution of profits;
- Certification that the legal entity is a resident of the Contracting State for the purposes of implementing the relevant DTT;
- The amount of income tax paid in total by the legal entity;
- The percentage of participation of said shareholder/partner – individual in the share/corporate capital of the legal entity that made the distribution;
- The amount of the dividend received by the individual and the corresponding corporate tax.
Alternatively, certificates of other public authorities, if they prove the above, even in combination, would be required. Certificates issued by the legal entity itself or by other individuals (certified auditors, accountants or lawyers) are not accepted. https://www.taxlaw.gr/en
Natalia Skoulidou specializes in Tax Law and has signification professional experience of 15 years in a broad range of tax areas, with a particular expertise on Greek and EU VAT issues, indirect tax issues, international tax issues and corporate tax and restructuring. She and her team at Iason Skouzos Tax Law are happy to help you with assist you with any legal matters regarding tax or otherwise.