Taxation of Trusts, Foundations & Related Parties

II. Generally, how are settlors, founders, trustees and beneficiaries treated for tax purposes?

Distributions made to beneficiaries, in their capacity as settlors/founders, are treated as income from dividends, currently taxed at 15% flat rate.

Capital returned to settlor is, subject to qualifications, not subject to tax.

Non-distributed income may, subject to CFC rules, be taxed upon beneficiaries (see below analysis on application of CFC rules).

The dissolution and liquidation proceeds of such entities may be treated as dividends, depending on whether the entity was dissolved and liquidated pre or post 1.1.2014 and also depending on whether the liquidated assets correlate to the contributed capital.

Distributions made to beneficiaries are generally taxed as gifts [if settlor is alive] or inheritance [if settlor is deceased].

B. Taxation issues related to Trustees

I. Are there any obligation on non-Greek trustees of a foreign law trust to make filings or returns in Greece if Settlor is tax resident of Greece?

• There is no tax obligation of non-Greek trustees on foreign assets contributed by Settlor to Trust.
• Non-Greek trustees, solely on the basis that the Settlor is a Greek tax resident, are not obliged to file tax returns on behalf of a foreign law trust in Greece.
• Non-Greek trustees are subject to tax in Greece only upon their potential professional remuneration which they may receive as a result of the trustee services provided and on the basis that they are Greek law tax residents, without prejudice to any applicable double taxation avoidance provisions.

II. Are there any obligation on non-Greek trustees of a foreign law trust to make filings or returns in Greece if one or more members of the discretionary class of beneficiaries are resident in Greece?

There is no tax liability, solely on the basis that one or more members of the discretionary class of beneficiaries are tax resident in Greece without receiving any distributions, upon the non-Greek trustees.

III. If the trust directly holds Greek situs assets what -if any- tax and reporting obligations might arise if no income is generated [or capital gains realized] during the year?

• A uniform tax on real estate property (“EN.F.I.A.”) is applied on real estate rights [ownership, usufruct etc] and imposed yearly; its calculation takes into account coefficiencies such as surface, age and location. In general, the final tax ranges from approximately 0,1% to approximately 1,15% for individuals (the trustee will most probably be the owner/holder of the asset on behalf of the trust in Greece) and 0,55% for legal entities, computed automatically on the property’s tax value. Furthermore, a municipal real estate duty, ranging from 0,025% to 0,035%, is applicable on a yearly basis.
• The provisions of Law 3091/2002 provide for a special annual tax of 15% on the tax value of real estate rights (usufruct, ownership etc) held by trusts and foundations, which do not fall within predefined exemptions (such as non co-operative –for tax purposesjurisdictions or preferential tax regime jurisdictions).

However, if the trustee –usually in their capacity as a natural person- is the holder of the real estate right, the above-mentioned special tax may, subject to conditions, not be applicable.

IV. If the trust directly holds Greek situs assets what -if any- tax and reporting obligations might arise if income is generated [or capital gains realized] during the year?

• EN.F.I.A., municipal real estate duty and special annual tax, as analysed above are due.
• Pursuant to Circulars 1114/2017 and 1138/2015, if a non-Greek trust or foundation receives real estate income in Greece, a tax rate of 29% [profits from business activity] will be applicable, unless a special structure-agreement is in place in order for the natural person- trustee to receive the income in which case any real estate income may be taxed progressively as follows: 15% [for any real estate income up to € 12,000.00], 35% [for any real estate income from € 12,001.00 up to € 35,000.00] and 45% [for any real estate income exceeding € 35,001.00].
• Dividends and interests are subject to 15% final withholding tax, while no withholding tax is levied on interest arising from Greek state bonds, T-bills and bonds issued by EFSF earned by non-residents. Royalties are subject to 20% final withholding tax.
• Capital gains tax is generally not imposed upon foreign law trusts that do not have a permanent establishment in Greece.

C. Taxation issues related to Beneficiaries

I. Are there any obligations on a Greek resident who is a member of a class of discretionary beneficiaries to declare to the tax authorities this fact if no distributions have been received?

Subject to any applicable provisions on non-distributed profits (analyzed below), solely the fact of “membership” in a class of discretionary beneficiaries does not trigger tax or filing obligations.

This is also supported by the fact that a discretionary beneficiary might not even be aware of their status.

It should be noted, however, that Greek law makes no clear distinction between discretionary and non-discretionary beneficiaries.

Nevertheless, controlled foreign company (“CFC”) rules apply in Greece, according to which non-distributed profits earned by a CFC may be subject to taxation upon the beneficiary if certain criteria are met, by virtue of the following relevant legislative provisions:

• paragraph 2.1.2 (d) of Circular 1114/2017
• Art. 66 of Law 4172/2013 and
• Circular 1076/2014 of the Directorate-General for Taxation of the Ministry of Finance.

More specifically, the said criteria are potentially ambiguous within the trusts and foundations context and have yet to be adequately interpreted by the Greek Tax administration or the courts given that when originally drafted, the legislator had a different context and scope; these, nevertheless, would be (on a cumulative basis):

• Beneficiary to control >50% of entity (directly/indirectly) or be eligible to >50% of entity’s profits,
• Entity is based in a non-cooperative or preferential tax regimes,
• At least 30% of entity’s profits are derived from transactions [the term “transactions” which is crucial has not been interpreted by the competent authorities, given that not very often would the trust’s/foundation’s beneficiaries transact with the entity in this specific context] with potential beneficiary of the following types: interests, intellectual property, dividends, selected real estate property income and other financial activities,
• Entity is not listed on an regulated stock market.

II. What are the applicable tax rates to a Greek resident beneficiary in receipt of a distribution (income and/or capital) from a discretionary Trust or non-discretionary Trust or Foundation?

By virtue of Circular 1114/2017 and L. 2961/2001 [Tax Code on Donations and Inheritance], the Greek tax resident beneficiary will be taxed on the amounts of the distributions received in accordance to the relationship with the Trust’s/Foundation’s Settlor as follows:

• 10% will be applied on distributions to spouses, children and grandchildren etc;
• 20% will be applied on distributions to siblings, uncles, aunts, nieces, nephews etc and
• 40% will be applied in all other instances.

D. Taxation issues related to settlors

I. Are there any obligations on a Greek resident Settlor to declare the existence of a nonrevocable fully discretionary trust in their tax returns?

There is no such obligation under Greek law.

II. Does a wealth tax exist in Greece? If so, what is the tax rate and would the assets of such a trust be considered as part of the settlor’s worldwide assets?

There is no wealth tax in Greece.

III. If the trust fund generates income and gains during a reportable period, are there any reporting obligations or tax liability on the Settlor?

Notwithstanding a potential application of non-distributed profits tax [as presented above] which could, under circumstances, subject Settlor to relevant tax obligations, the Settlor of a foreign law trust is not subject to income or gains taxation [or reporting] unless the following cumulative conditions are met:

• the Settlor is a tax resident of Greece;
• the Settlor is simultaneously a recipient of distributions and
• the distributions are not capital return.

E. Concluding issue

To what extent can trusts, private foundations etc be used to shelter assets from the creditors of a settlor or beneficiary of the structure?

The Greek legal framework is currently going through its early stages in acknowledging, recognizing and analyzing foreign trusts and private foundations, with relatively little legislative material and case law available when compared to other jurisdictions.

Nevertheless, participating parties [settlors, beneficiaries etc] in relevant proceedings, are given a unique opportunity to substantially influence the competent Greek authorities and participate in shaping the relevant Greek case law.