How Bad Is The Greek Tax System?

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Kilkis
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How Bad Is The Greek Tax System?

Postby Kilkis » Sun Feb 09, 2020 3:08 pm

This thread aims to provide information on how much tax someone would be liable to pay if their tax status has to change to Tax Resident in Greece after 31 December 2020. It follows on from three previous threads: Greek-UK Tax Status, How Does Tax Residency Affect Tax Returns and How Does Tax Residency Affect How Tax is Assessed? It doesn’t cover all possible scenarios, since it is based on my own experience, so some people might need to do a bit more digging. It is also worth noting that tax codes tend to change more rapidly than other aspects of the legal system so its relevance may decline sooner rather than later.

There are undoubtedly some people who come to work in Greece on a self-employed basis. I have little knowledge of this, other than they are treated abysmally both by the tax rules and by the tax inspectorate, so I am not going to try to cover their tax situation. Carol does know this area well and she might decide to add some comments to the thread.

People who come to work for a company on a salaried basis (1) and people living here on pensions are treated the same with respect to tax so my comments apply to both. Basically the way taxation works in Greece is very similar to how it works in the UK and the differences are in the detail.

Anyone working here on a salaried basis has EFKA stopped from their salary, at a rate of around 16 %, before tax is assessed, in the same way that NI is stopped before income tax is assessed in the UK. People living on a pension will not need to pay EFKA(2).

As discussed in the earlier threads, some types of income remain liable for tax in the UK so they will not be assessed for tax in Greece. You can ignore them when calculating Greek tax. This is the main reason that becoming Tax Resident in Greece is often not as bad as people think it will be because the income left liable for tax in the UK benefits from the UK tax free Personal Allowance.

The Greek income tax system operates in bands in exactly the same way that the UK income tax system operates. While it is true that technically there is no tax free Personal Allowance in Greece, there is a tax rebate that acts in the same way as a Personal Allowance, i.e. it reduces your tax liability. In the UK you currently ignore the first £12,500 before starting to calculate income tax. In Greece you calculate income tax from the first Euro and then reduce the amount due by the rebate. For tax year 2019 the rebate is €1,900 (3), which is equivalent to a Tax Free Allowance of €8,636. The first tax band has a rate of 22 % so if your income was €8,636 your tax would be assessed as €8,636 x .22 = €1,900 - €1,900 Rebate = €0. Unfortunately the rebate is not fixed. If you have income over €20,000 then the rebate reduces by €10 for every €1,000 over €20,000. In the UK the Personal Allowance doesn’t start to reduce until you earn over £100,000, i.e. a much bigger threshold, but it then reduces at a rate of £1 for every £2 earned over £100,000, i.e. a much steeper rate of decline. In order to qualify for the full rebate in Greece you also have to spend a percentage of your income electronically (4), i.e. with Direct Debits, Standing Orders, Bank Transfers and Debit/Credit Cards. This is also calculated in bands. All the above are calculated as a percentage of salary or pension income and don’t take into account other income sources.
For 2019 the tax bands and tax rate in each band in Greece are as follows:

€0 to €20,000 22 %
€20,001 to €30,000 29 %
€30,001 to €40,000 37 %
Over €40,000 45 %

In order to qualify for the tax rebate the bands and the percentage required to be spent electronically in each band are as follows:

€0 to €10,000 15 %
€10,001 to €30,000 20 %
Over €30,000 25 %

Tax on bank interest is levied at 15 %. I think the same rate is applied to dividends but I am not certain. In the UK I think both bank interest and dividends are taxed at your marginal tax rate, i.e. they are taxed at the basic rate but if you are in a higher tax band you have to pay the extra. To offset that I think that there is now a savings allowance of £1,000 per year income from savings which is tax free and that does not exist in Greece nor do ISAs.

One area of Greek taxation is completely different from the UK and that is the solidarity tax that was introduced in response to the financial crisis. It is applied to all taxable income from whatever source, on top of whatever other tax is already deducted from that income but is not currently applied to income that is non-taxable in Greece. It was supposed to be a temporary tax but has proved quite persistent. It operates in bands, like income tax with the following bands and tax rates for 2019:

€0 to €12,000 0 %
€12,001 to €20,000 2.2 %
€20,001 to €30,000 5 %
€30,001 to €40,000 6.5 %
€40,001 to €65,000 7.5 %
€654,001 to €220,000 9.5 %
Over €220,000 10 %.

Hopefully that will allow most people to calculate what their tax liability would be if they were tax resident in Greece. From 1 January 2020 there are major changes to the tax code. They are all outlined in the link to a KPMG information page posted elsewhere so I will not repeat them here. The general principles are the same as outlined above so people should be able to calculate their possible Greek tax liability after 1 January 2020 by simply changing the figures to those in the KPMG link.

Notes:
1 I don’t think every job has now adopted EFKA but the vast majority have. It is possible that somebody might take up a job in Greece covered by different insurance rules.
2 A certain amount of EFKA is deducted from Greek pensions but people declaring UK pensions would not be subject to EFKA.
3 There may be other higher levels of rebate applicable to families with dependent children but I don’t currently have the details. For a couple who both have income they both qualify for the rebate independently.
4 People over 70 can opt out of the need to spend a percentage of their income electronically but they would then need to keep paper receipts.

Warwick

Keltz
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Re: How Bad Is The Greek Tax System?

Postby Keltz » Mon Feb 10, 2020 7:01 am

So, on 2019 tax rates, someone earning £12,500 in the U.K., that becomes taxable in Greece, payed no tax in the U.K., will pay the following tax in Greece assuming today's exchange rate of 0.85 £/€ :-

( ( £12,500 - (€ 8,636 * 0.85 ) * 22/100 ) + ( £12,500 - ( €8,636 * 0.85 ) * 2.2/100 ) )

Which works out as:

£5,160 * 22/100 = £1,135 .......income tax
£5,160 * 2.2/100 = £113...........wealth tax

Total tax increase of £1,248 per year / £104 per month.

YoMo2
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Re: How Bad Is The Greek Tax System?

Postby YoMo2 » Mon Feb 10, 2020 9:01 am

.........And what about imputed income? Anyone know how that is taxed? What assets do you need to have to get caught up by the imputed income taxation?

Andrew

paul g
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Re: How Bad Is The Greek Tax System?

Postby paul g » Mon Feb 10, 2020 2:10 pm

checked out the KPMG page, wow what a difference a year and a change of government makes!

Kilkis
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Re: How Bad Is The Greek Tax System?

Postby Kilkis » Mon Feb 10, 2020 2:38 pm

Sorry Keltz but I am afraid your calculation is not quite right. Firstly there is no wealth tax it is a solidarity tax. Secondly you have applied the €8,636 personal tax allowance to both the income tax and the solidarity tax. It only applies to the income tax. The first €12,000 of income is rated at 0 % when calculating the solidarity tax. This is how it would be calculated if you were submitting a return in Greece

First your accountant would convert your Sterling income into Euro using the Bank of Greece official figure for 31 December 2019. That figure was 0.85040 so I will continue to use your indicative value of 0.85. Thus £12,500 is equivalent to 12,500/0.85 Euro = €14,706 approx.

That income in Euro is less than €20,000 so it would be liable to income tax at 22 %, so the income tax would be €14,706 x 0.22 = €3,235 rounded to the nearest Euro. Assuming you had met the requirements on electronic spending you would be eligible for the full €1,900 so the income tax liability would be reduced to €3,235 - €1,900 = €1,335.

The solidarity tax on the first €12,000 is at 0 % so the solidarity tax would be levied on (€14,706 - €12,000) = €2,706 at a rate of 2.2 %, i.e. €2,706 x 0.022 = €60. Thus the total tax liability would be €1,335 + €60 = €1,395. Using the same exchange rate to convert back to Sterling that would be a total tax liability of £1,186.

The difference is small and it is true that, if all the income becomes taxable in Greece, then Greek tax would be more but consider a slightly different calculation. Let's assume the income is made up of a UK State Pension and a private/occupational pension, non-Government, a situation that I would imagine is quite common here. The new UK State Pension equates to £8,767 per year. This would remain taxable in the UK but is less than the UK Personal Allowance so no tax would be paid on it. The occupational pension of £12,500 - £8,767 = £3,733 would be liable for tax in Greece. That would convert to 3,733/0.85 = €4,392. The income tax liability in Greece on €4,392 would be €4,392 x 0.22 = €966. That is less than the maximum €1,900 rebate so the rebate would be €966 and the income tax would be €0. €4,392 is less than €12,000 so the solidarity tax would also be €0. Thus no tax to pay in the UK and no tax to pay in Greece.

Anybody with a total income of less than £16,100 made up of a UK State Pension of £8,767 and a private/occupational pension of £7,333 would pay no tax in the UK or Greece if they were tax resident in Greece. If they remained tax resident in the UK they would pay (£16,100 - £12,500) x 0.20 = £720, i.e. if part of the income is a UK State Pension you pay less being Greek tax resident than remaining UK tax resident.

The UK State Pension is fixed but if you increase the private/occupational pension the tax due in Greece will rise faster than the tax that would be due if they were to remain UK tax resident so eventually the Greek tax will be more. I estimate that the break even point where total tax paid as Greek resident would be the same as total tax paid if UK resident is around £28,300 if £8,767 of it is UK State Pension. I think it will stay almost unchanged under the new system for 2020 at £28,400.

Obviously there are many possible sources of income with different taxes being applied in the two tax regimes so everybody should do their own calculation.

Warwick

bobscott
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Re: How Bad Is The Greek Tax System?

Postby bobscott » Mon Feb 10, 2020 3:19 pm

Whilst I appreciate all of this, I read somewhere in a Government (UK) publication, that the plan for blue permanent residency permit holders in Greece was simply to exchange them for the new biometric documents, without further question. Quite ready to agree that later delving may show up the anomalous situation of permanent residents being 'de facto' tax residents in the UK, but prepared to keep a reasonably low profile for now! Bob
Yesterday today was tomorrow. Don't dilly dally!

Kilkis
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Re: How Bad Is The Greek Tax System?

Postby Kilkis » Mon Feb 10, 2020 5:35 pm

I make no judgement at all, Bob, about what any individual does nor do I pretend to know what will happen in the future. The possibility of changes in tax status was raised by others and I added my own comments to theirs. I am aware of a sort of Animal Farm mentality to Greek tax including among Greek accountants, "Greek taxation bad, UK taxation good". I simply tried, in the series of threads, to add some more fact based ideas.

Apart from the Solidarity Tax and detailed differences in bands and rates, which change everywhere quite regularly anyway, there is nothing conceptually different about being tax resident in the UK or in Greece. Because of those differences, together with the possibility of benefiting from effectively nil tax rates in both regimes through Double Taxation Agreements, in reality some people would be better off being tax resident in Greece and some would be worse off. It depends both on the level of income and the nature of that income. I simply try to provide sufficient information so that people can assess their own situation.

It is worth noting that any/all the information I provide could change tomorrow. For example the UK government held a consultation on withdrawing the Personal Allowance from anybody who was not tax resident in the UK. I have no idea if that is still in the back of the cupboard waiting to be dusted off or if it has gone into "deep storage"*. If it does raise its ugly head then I think anybody who is tax resident in Greece will suffer.

Warwick

* At one of the companies I worked for when something had been put in "deep storage" it meant it had gone in a skip.

Rick
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Re: How Bad Is The Greek Tax System?

Postby Rick » Mon Feb 10, 2020 5:50 pm

Thanks Warwick, for the extremely comprehensive information and analysis you’ve provided.
As you’ve illustrated, where a gross income is less than circa £28k it will be advantageous to be tax resident in Greece, rather than the UK.

However, this is dependent on the continuation of the €1.9k rebate in Greece, and more importantly, the tax free allowance in the UK. See info in link https://www.accountingweb.co.uk/tax/per ... cliff-edge

Keltz
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Re: How Bad Is The Greek Tax System?

Postby Keltz » Mon Feb 10, 2020 9:38 pm

No problem Warwick, it was an early morning start for me and thought I would have a go at the calculation. Your clarification and correction is appreciated.

paul g
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Re: How Bad Is The Greek Tax System?

Postby paul g » Mon Feb 10, 2020 10:41 pm

how do the numbers work using the 2020 tax allowance figures on the KPMG site.

Kilkis
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Re: How Bad Is The Greek Tax System?

Postby Kilkis » Mon Feb 10, 2020 11:48 pm

Rick wrote:...As you’ve illustrated, where a gross income is less than circa £28k it will be advantageous to be tax resident in Greece, rather than the UK...


That's only the break even point if part of the total income is made up of the UK State Pension of £8,767 per annum, Rick. I used that example because I think it applies to a lot of people. Some people will have retired early, however, on an occupational pension that becomes wholly taxed in Greece with no component remaining taxed in the UK. They will be worse off being tax resident in Greece. Some may have both a UK State Pension and some occupational pension that also remains taxable in the UK and other pension income that becomes taxable in Greece. They may find that they are better off being tax resident in Greece even if they have a total income of more than around £28,000. Everyone needs to do their own calculation.

The article that you link refers explicitly to the case where there is NO Withdrawal Agreement. We now know that the Withdrawal Agreement has been ratified by all parties so the article is no longer relevant.

I must admit, however, that I am not sure if the Withdrawal Agreement protects us from losing the UK Personal Allowance. There was another example today of a government minister,Rishi Sunak, simply directly lying in an interview. Tomorrow around 50 UK citizens of West Indian origin are due to be deported because they have been found guilty of criminal activity. He, and the PM during PMQs, claimed that they were all guilty of serious crimes like murder, manslaughter and rape. In fact many are guilty of much less serious offences. As an example one came to the UK when he was 5 years old. When he was 15 he was convicted of a drug possession charge for which he served a sentence of 15 months. He is now in his 20s and has never offended since. He has no links to the West Indies other than his birth and has children in the UK. If he had been white rather than black he would have served less than 12 months for the same offence, as black offenders are typically given much longer sentences than white offenders for the same crime, and would not have been subject to a deportation order. Yet again reality bears little resemblance to what Johnson's government claims. I am sure if someone like Dominic Cummings decides he wants to stop the Personal Allowance for people who are not UK tax resident he will dream up a reason that appears perfectly valid to a large number of people and Johnson will simply repeat it endlessly.

Warwick

ros21m
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Re: How Bad Is The Greek Tax System?

Postby ros21m » Tue Feb 11, 2020 9:46 am

Ok, now I'm a little bit confused! I was under the impression, that if you were taxed, as I am on my UK Government pension in the UK, ANY other money recived, ie from work or a a UK State pension, had to be taxed there too. Not that it applies to me. I thought you only paid tax in either the UK or Greece on your worldwide income under the DTA.

Kilkis
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Re: How Bad Is The Greek Tax System?

Postby Kilkis » Tue Feb 11, 2020 10:51 am

Each source of income is assessed separately for where it is liable for tax under the appropriate Articles of the DTA. The fact that you have one source of income that remains taxable in the UK, e.g. a government pension, doesn't mean that all sources of income then remain taxable there. I have incomes that remain taxable in the UK and incomes that are assessed for tax in Greece.

You declare your worldwide income only in the country where you are tax resident. For many on this forum, however, all their income arises in the UK and HMRC know about it from the payer whether the individual declares it or not. Even if you are registered as tax resident in Greece, HMRC will still tax it unless you can convince them not to. The method used to convince HMRC not to tax a particular income is to get a DTA Form from the Greek tax authority proving that the particular income is being declared and assessed for tax in Greece. Provided it is an income that should be taxed in the country of tax residency under the UK-Greek DTA then HMRC will mark that income as NT and will not tax it. Typically they only ask this once although after many years they might ask you to submit a new DTA Form to confirm that it is still liable for tax here.

Under most DTAs pension incomes are classed as either government or non-government. Those classed as government remain taxable in the country where they arise and non-government ones are liable for tax in the country where the person is tax resident. The problem with Greece is that a lot of pensions, which logically would be classed as government and would be classed as government under DTAs with other EU countries, are classed as non-government under the DTA with Greece, i.e. all those with Note 3 next to them on the web page I linked earlier. If the particular type of government pension you have, Ros21, has government next to it on the list AND does NOT have Note 3 next to it then it really is a government pension under the UK-Greek DTA and it remains taxable in the UK. If it has non-government next to it on the list OR it has Note 3 next to it then it is not a government pension under the terms of the UK-Greek DTA and is liable for tax in Greece.

The UK State Pension is a grey area. My accountant declares it as non-taxable in Greece while other accountants declare it as taxable in Greece. Logically from the way Article VIII of the DTA is worded I would expect it to be non-government and hence taxable in Greece. On the other hand, when I had a tax audit the tax office asked me to provide proof that it was a UK State Pension and when I did so they accepted it as remaining taxable in the UK. I think the message is get the right accountant. Perhaps it also depends on the tax office as well?

Warwick

paul g
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Re: How Bad Is The Greek Tax System?

Postby paul g » Tue Feb 11, 2020 11:17 am

2020 tax rates in Greece.

Warwick included a link in his original post to the KPMG site which shows the 2020 tax rates and (I think) the rebate, these new figures are quite different to the 2019 figures.

The question is :- why is everyone still using the 2019 figures for their calculations?

ros21m
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Re: How Bad Is The Greek Tax System?

Postby ros21m » Tue Feb 11, 2020 11:21 am

Thanks Warwick, now I undesrtand it! My Government pension is a Civil Service pension & I know it must be taxed in the UK. I was unclear what my position would be, IF, I decided to work here in Greece.


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