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Introduction
For persons resident in Northern Europe or North America, the image of Greece often is embodied in the image of the Greek coastline. It is a paradise of rugged hills, deep blue seas, and white painted houses, a place where a person may wish to invest in real estate.
For those contemplating an acquisition of Greek real estate, there is more to the picture than the views. Investments in Greek real estate, whether made directly or through a special purpose vehicle, are subject to many direct, indirect, and transactional costs and taxes, as detailed in this article.
Costs related to the acquisition of real estate
The cost of preparing and signing the acquisition document includes the notary's fee (which is usually paid by the purchaser) as well as the fees for the lawyer and estate agent (if any) for each party.
The notary's fee is usually estimated at 1.2% of the contractual value of the property. As the presence of a lawyer before the notary is optional, the legal fees are not fixed, but rather are negotiated between the attorney and the client. The estate agent's fee is subject to negotiation and a written agreement. Usually a fee of 2% of the purchase price is agreed, but this may vary depending on property value and other factors.
There is also a cost to register the contract with the land registry office and/or the cadastre office and to register the pre-notice of a mortgage. These are paid by the purchaser.
Bank financing for the acquisition of real property
Often in Greek real estate transfers (as is common elsewhere), the price paid to the seller is partially financed by way of a loan granted to the purchaser by a bank. Where this occurs, and for the discharge of the loan to the bank, a pre-notice of a mortgage is granted in favour of the bank. In terms of process, the registration of a pre-notice follows the signing of the contract of transfer and the contract of loan agreement, and it takes place by filing an application before the court of first instance of the district where the property is located.
An attorney for the bank usually is present and submits an application before the competent court, as well as the buyer or an authorized attorney, who consents to the registration of the pre-notice. The decision is issued on the same day and is recorded in the land registry office or the cadastre office of the region of the property.
The pre-notice of a mortgage is removed by the same procedure, i.e., by a decision of the court of first instance following a request from the buyer and with consent from the bank that the mortgage has been paid.
Valuation of real property
The value of land in Greece is assessed according to a “system of objective value” (or tax value). This system provides a minimum value for real property according to objective criteria such as location, size, access to public facilities, and age of a building. This system has been imposed so that the tax authorities have a minimum value reference according to which tax can be imposed.
Not all areas in Greece have been valued. It is not unusual for the tax authorities in rural areas to estimate the value based on comparable sales or other available data.
Under Circular no. 1113/2018 of the Ministry of Finance, the objective values of the properties used as minimum values have been readjusted from 1 January 2019.
Transfers of real property
In cases of land transfers, a transfer tax is imposed on the objective value of the land or the value agreed in the contract, whichever is highest. Similarly, most other fees and charges imposed in a land transfer contract are dependent on the objective value or the contractual value of the land, whichever is highest. The objective value is usually significantly lower than the market value of the property.
A V.A.T. charge of 24% is imposed on the initial sale of new buildings constructed by a developer or another person who deals professionally with the construction and the sale of buildings. For all other properties, the transfer is subject to a 3% real estate transfer tax.
The introduction of a betterment tax on real estate transfers, which was suspended until the 31 December 2018 by Article 57 of Law 4509/2017, has been further suspended until 31 December 2019.
The acquisition of a primary residence is exempt from transfer tax if the purchaser or the purchaser’s spouse or minor child is domiciled in Greece and are first-time purchasers of a place of residence (Article 1 of Law 1078/1980, as amended). The limitation of the law to persons domiciled in Greece was found to violate European law in Case C-155/09 (OJ C 167, 18.7.2009) and has been revised. As a result, the exemption applies to contracts for the purchase of property where the purchaser resides in Greece or intends to do so and falls into any of the following categories of beneficiaries:
- Greek citizens
- Repatriates from Albania, Turkey, and the former Soviet Union
- Citizens of E.U. and E.E.A. Member States
- Recognised refugees, in accordance with the provisions of Presidential Decree 96/200
- Third-country nationals who enjoy long-term resident status in Greece, in accordance with the provisions of Presidential Decree 150/2006
The above-mentioned tax exemption is granted to an unmarried individual for the purchase of a residence with a total value of up to €200,000, including the value of a parking space and a storage space of up to 20m2 each, provided that those spaces are part of the same property and are acquired simultaneously within the same purchase contract. It also applies to a land purchase of total value up to €50,000. These exemption thresholds can be increased, depending on the marital status of the purchaser, the number of dependent children, and other factors.
The exemption is granted provided that the buyer retains the property for a period of at least five years. If the purchaser further transfers the property or grants a right to the property (other than a mortgage) within the five-year period, the purchaser must first submit a property transfer tax return and pay the tax for which an exemption was granted previously.
Due to frequent changes in the Greek taxation of real property, it is strongly recommended that all property-related taxes and charges are considered and re-estimated before any purchase.
Principal annual taxes and charges related to property ownership
Single real estate property tax
All Greek properties belonging to individuals or legal entities on 1 January of every year are subject to the single real estate property tax (E.N.F.I.A.), adopted by Law 4223/2013.
In this context, “property” includes:
- the right to full and bare ownership, usufruct, and habitation on a property; and
- the right to the exclusive use of parking spaces, auxiliary spaces, and swimming pools that lie at the jointly-owned part of a basement, terrace, or non-covered building space of these properties.
The taxable value of buildings (main and auxiliary spaces) is determined by several factors, such as the living space (area of usable space), the prices in the area, the floor, the age of the building, the facade, the percentage of ownership, and other special circumstances.
E.N.F.I.A. includes not only the principal tax but also an additional amount, which is imposed at rates that appear in the following chart when the value of property held by an individual exceeds €300,000.
|
Portion of value |
Tax rate |
| €0.01-250,000.00 | 0.00% |
| €250,000.01-300,000.00 | 0.15% |
| €300,000.01-400,000.00 | 0.30% |
| €400,000.01-500,000.00 | 0.50% |
| €500,000.01-600,000.00 | 0.60% |
| €600,000.01-700,000.00 | 0.80% |
| €700,000.01-800,000.00 | 0.90% |
| €800,000.01-900,000.00 | 1.00% |
| €900,000.01-1,000,000.00 | 1.05% |
| €1,000,000.01-2,000,000.00 | 1.10% |
| Over €2,000,000.00 | 1.15% |
If the property is held by a legal entity rate of the additional E.N.F.I.A. is 5.5%. This rate is reduced to 1% on properties that are occupied by the entity for its business activity subject to E.N.F.I.A.
Special real estate tax
It is a common phenomenon that offshore companies acquiring property in Greece are special purposes vehicles that carry on no activity other than the ownership, maintenance, and leasing of the property. In order to address this phenomenon (and possibly because the owners do not vote in Greek elections), the Greek legislator introduced Law 3091/2002, which provides for a general annual liability on legal entities that have full property rights or bare ownership or usufruct in Greek property (initially at 3% of the value of property, increased to 15% by Law 3842/2010).
The law provides for many exemptions, based mainly on the nature of the activity of the legal entity. Also, companies that have their headquarters in Greece or another E.U. Member State are usually exempt provided they fall within one of the following categories:
- S.A. companies (limited by shares) with registered shares held by individuals or S.A. companies that indicate the individuals who own their shares, provided those individuals have been awarded a tax registration number in Greece
- Companies (other than S.A. companies) having limited liability, if the shares are owned by individuals or if the companies disclose their ultimate beneficial owners, provided that those individuals have been awarded a tax registration number in Greece
Municipal tax
Real estate ownership is subject to a municipal real estate tax (T.A.P.), which is imposed at rate of 0.025%-0.035% of the objective value of the real estate. T.A.P. is payable by the owner of the real estate, and it is charged through electricity bills.
Income from property rentals
Income derived from property rentals is taxed as capital income at the following rates.
| Income from property | Tax rate |
| €0-12,000 | 15% |
| €12.001-35,000 | 35% |
| >€35,001 | 45% |
Gross income from rental property is automatically subject to a 3.6% stamp duty (not applicable to housing rentals).
Real estate investment companies
Real estate investment companies (R.E.I.C.’s) are companies limited by shares (i.e., S.A. companies) that are established with the sole aim of acquiring and managing real property. Their minimum share capital must be €25,000,000, fully payable upon the establishment of the company. Prior to the issuance of permission for establishing a R.E.I.C., permission by the Stock Market Commission is required. A similar permission is required for an existing company that is converted into a R.E.I.C. For granting its permission, the Stock Market Committee evaluates the investment plan, the organisation, the company's technical and financial assets, the reliability and experience of the individuals that will manage the company, and the suitability of the owners in order to ensure the good management of the company. The company has the obligation to invest its funds only in certain types of assets:
- Real estate, which should comprise at least 80% of its assets
- Deposits and stock market instruments, according to Article 2, paragraph 14 of Law 3606/2007
- Other movable assets required for the company's operational needs that, in addition to the real estate acquired by the company to service such needs, must not exceed 10% of the asset value at the time of acquisition
The company must apply to the Athens Stock Market or another organised market for the listing of its shares within two years of its establishment. Where there is a conversion of an existing company into a R.E.I.C. the application for listing the stock on an organised market must be effectuated within two years of the end of the conversion process. The listing of the company's shares is effectuated according to the provisions in force that regulate the listing of stock in Athens Stock Market S.A. or another organized market.
The company must pay annual dividends to its shareholders of at least 50% of its annual net profits. A lower percentage may be distributed or distributions can be deferred following a decision within a general meeting, provided the company statutes include such a provision, either for the creation of an extraordinary non-taxable reserve made up of other earnings besides capital profit or for distributing free shares to the shareholders by increasing the share capital.
Real property of the company cannot be distributed to company founders, shareholders, members of the board of directors, general managers, or managers or their wives or blood and affinity relations up to the third degree of kinship. A R.E.I.C. may be converted into a real estate mutual fund, under certain conditions.
The shares of stock issued by a R.E.I.C., as well as transfers of real estate to a R.E.I.C., are exempt from any kind of tax, duty, stamp duty, contribution, right, or any other charge in favour of the State, public legal entities, or third parties in general. The exemption does not apply to the capital gains realised by the seller at the time of the sale of real estate to a R.E.I.C. Transfers of real estate by a R.E.I.C. are subject to ordinary tax rules.
R.E.I.C.’s are exempt from income tax on the income derived from securities, whether in Greece or abroad, except for dividends from Greek companies. Interest received in connection with publicly-traded bonds is exempt provided the bond is held at least 30 days prior to the payment date set under the bond indenture.
A R.E.I.C. generally does not pay income tax. However, a R.E.I.C. must pay tax on the value of its holdings at a rate set at one-tenth of the European Central Bank intervention rate (Interest Reference Rate) plus one percentage point. It is calculated on the average value of the investments, plus the available funds, in current prices. Where there is a change in the Interest Reference Rate, a new calculation applies from the first day of the month following the change. The tax is payable to the competent tax authority within the first 15 days of the month following the period recorded in the bi-annual investment tables. No other tax is due.
In general, favourable tax treatment is provided to reorganizations of R.E.I.C.’s under Law 2166/1993. Thus, no tax is imposed when a R.E.I.C. is established either by the merger of two or more companies that own real estate or by the splitting-off or dilution of a company sector owning real estate. In addition, no tax is imposed when a R.E.I.C. acquires real estate, whether through a merger absorbing another company owning real estate or a split-off or dilution of a company sector owning real estate.
Conclusion
Real estate professionals working on a global basis understand that, ultimately, all real estate is local. In Greece, a potential first-time investor will find their own local flair, including a panoply of Greek taxes that may apply to the acquisition of real property either for personal use or for investment through the collective investment vehicle known as a R.E.I.C.