Executive summary

The Greek Government published the provisions of L.4512/2018 (the Law) in the Government Gazette (Vol. Α? 5/17.1.2018), which revises the tax incentives related to the patent box regime and capitalization of reserves formed under development laws.

This Alert summarizes the key provisions.

Detailed discussion

Patent box regime

• The Law adds Article 71A to the Income Tax Code (ITC). Article 71A grants a tax incentive regarding patents. Specifically, it provides that:
  • Profits from the sale of goods produced by a company on its own or third party premises via the use of an internationally recognized patent developed by the enterprise itself, are exempt from income tax for three consecutive fiscal years, starting from the year in which revenues from the sale of the aforementioned products were first realized. The incentive also covers the profits from the provision of a service comprising the exploitation of such patent.
  • The tax-exempt profits are recorded in a special reserve account, which is subject to income tax according to the general provisions of the ITC in the case of distribution or capitalization.

Capitalization of tax free reserves formed under development laws

• According to the provisions of articles 71Β and 71Γ which are being added to the ITC – L.4172/2013, tax incentives are provided for the capitalization of tax-free reserves formed under the various development laws.
• The aforementioned incentives will be in force for a transitional period up to 31 December 2020.
• Based on whether the company is listed on the Athens Stock Exchange, as well as on the year of capitalization, the tax liability for the capitalization will be as follows:

• The tax will be paid in four equal installments every six months.
• The tax payment will exhaust the tax liability both for the company and its shareholders/partners. It is not clear whether this will also include the solidarity tax due at the level of the shareholder/partner.
• In the case of a Societe Anonyme with non-listed shares or a Limited Liability Company, the incentive is provided under the condition that a share capital increase of equal amount in cash will take place.

Capitalization of re-valuation surplus reserves

• Societe Anonymes with listed or non-listed shares, which have formed reserves either: (i) for the surplus arising from a branch spin-off or from the merger of a subsidiary; or (ii) for the increase in the value of shareholding participations or for shares granted for free as per the provisions of article 1 of L.148/1967, L.542/1977, L.1249/1982 and L.1839/1989 following capitalization of the surplus resulting from the re-valuation of fixed assets pertaining to a subsidiary or other shareholding participation, may proceed to the capitalization of the aforementioned reserves for the purpose of distributing new shares to their shareholders. The aforementioned capitalization is not subject to income tax. It is not clear whether this will also include the solidarity tax due at the level of the shareholder.
• The share capital resulting from the capitalization must be maintained for 10 years. Otherwise, if the company is liquidated or the share capital is distributed to the shareholders, it will not be considered as a return of paid-in capital and it will be taxed based on the general provisions of the ITC, after deducting the tax paid upon capitalization.

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CONTACTS

For additional information with respect to this Alert, please contact the following:

Ernst & Young Business Advisory Solutions S.A., Athens

• Stefanos Mitsios
  stefanos.mitsios@gr.ey.com
• Konstantinos Mavraganis
  konstantinos.mavraganis@gr.ey.com

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ATTACHMENT

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